ECO 372 FINAL EXAMINATION (SOLUTION 30/30)

1. the market where
business sell goods and services to households and the government is called
a. goods market
b. factor market
c. capital market
d. money market
2. Real gross
domestic product is best defined as
a. the market value
of intermediate goods and services produced in an economy including exports
b. all goods and
services produced in an economy, stated in prices in a given year and
multiplied by quantity
c. the market value
of all final goods and services produced in an economy stated in the prices of
a given year
d. the market value
of goods and services produced in an economy stated in current year prices
3. Underemployment
includes
a. who work off the
books to avoid paying taxes
b. who are working part
time or not using all their skills at a fulltime job
c. who are tired of
looking for a job so they quit looking but still want one
d. whose skills are
not in demand anymore
4. The bureau of
economic analysis is responsible for which of the following
a. setting interest
rates
b. managing the money
supply
c. calculating the US
gross domestic product
d. paying
unemployment benefits
5. The federal
reserve provides which of the following data
a. federal funds rate
b. stock price of GE
c. bond yields of corporation
d. debt to GDP of
Ireland
6. Consider if the
government instituted a 10% income tax surcharge. In terms of the AS/AD model
this change should have
a. shifted the AD
curve to the left
b. shifted the AD
curve to the right
c. made the AD curve
flatter
7. The largest source
of household income is in the U.S. is obtained
a. stock dividends
b. wages and salaries
c. interest earnings
d. rental income
8. If the
depreciation of a country’s currency increases it aggregate expenditures by 20,
the AD curve will
a. shift right by
more than 20
b. shift right by
less than 20
c. shift right by
exactly 20
d. not shift at all
9. Aggregate demand
management policies are designed most directly to
a. minimize
unemployment
b. minimize inflation
c. control the
aggregate level of spending in the economy
d. prevent budget
deficits or surpluses
10. Suppose that
consumer spending is expected to decrease in the near future. If output is at
potential output, which of the following policies is most appropriate according
to the AS/AD model
a. an increase in
government spending
b. an increase in
taxes
c. a reduction in
government spending
d. no change in taxes
or government spending.
11. According to
Keynes, market economies
A. never experience
significant declines in aggregate demand
B. quickly recover
after they experience a significant decline in aggregate demand
C. may recover slowly
after they experience a significant decline in aggregate demand
D. are constantly
experiencing significant declines in aggregate demand
12. The laissez-faire
policy prescription to eliminate unemployment was to
A. eliminate labor
unions and government policies that hold real wages too high
B. strengthen unions
and government regulations protecting unions and workers
C. increase real
wages so that people are encouraged to work
D. have government
guarantee jobs for everyone
13. In the AS/AD
model, an expansionary monetary policy has the greatest effect on the price
level when it
A. increases both
nominal and real income
B. increases real
income but not nominal income
C. increases nominal
income but not real income
D. doesn’t increase
real or nominal income
14. The Federal funds
rate
A. is always slightly
higher than the discount rate
B. can never be close
to zero
C. may sometimes have
to be targeted at zero
D. is an intermediate
target
15. What tool of
monetary policy will the Federal Reserve use to increase the federal funds rate
from 1% to 1.25%?
A. Open-market
operations
B. The discount rate
C. A change in
reserve requirements
D. Margin
requirements
16. If the Federal
Reserve increases the required reserves, financial institutions will likely
lend out
A. more than before,
increasing the money supply
B. less than before,
decreasing the money supply
C. more than before,
decreasing the money supply
D. less than before,
increasing the money supply
17. Suppose the
money multiplier in the U.S. is 3. Suppose further that if the Federal Reserve
changes the discount rate by 1 percentage point, banks change their reserves by
300. To increase the money supply by 2700 the Federal Reserve should
A. reduce the
discount rate by 3 percentage points
B. reduce the
discount rate by 10 percentage points
C. raise the discount
rate by 3 percentage points
D. raise the discount
rate by 10 percentage points
18. If the Federal
Reserve reduced its reserve requirement from 6.5 percent to 5 percent. This
policy would most likely
A. increase both the
money multiplier and the money supply
B. increase the money
multiplier but decrease the money supply
C. decrease the money
multiplier but increase the money supply
D. decrease both the
money multiplier and the money supply
19. A country can
have a trade deficit as long as it can
A. purchase foreign
assets
B. make loans to
other countries
C. borrow from or
sell assets to foreigners
D. produce more than
it consumes.
20. A weaker dollar
A. raises inflation
and contracts the economy.
B. reduces inflation
and contracts the economy
C. raises inflation
and expands the economy
D. reduces inflation
and expands the economy
21. In the short run,
a trade deficit allows more consumption, but in the long run, a trade deficit
is a problem because
A. the country
eventually will consume more and produce less
B. the country
eventually will sell all its financial assets to foreigners
C. the domestic
currency will appreciate
D. the country
eventually has to produce more than it consumes in order to pay foreigners
their profits
22. Considering an
economy with a current trade deficit and considering only the direct effect on
income, an expansionary monetary policy tends to
A. decrease the
exchange rate and increase the trade deficit
B. increase the
exchange rate and increase the trade deficit
C. decrease the
exchange rate and decrease the trade deficit
D. increase the
exchange rate and decrease the trade deficit
23. The balance of
trade measures the
A. difference between
the value of imports and exports
B. share of U.S. imports
coming from various regions of the world
C. share of U.S.
exports going to various regions of the world
D. exchange rate
needed to make imports equal exports
24. When a country
runs a trade deficit, it does so by:
A. borrowing from
foreign countries or selling assets to them.
B. borrowing from
foreign countries or buying assets from them.
C. lending to foreign
countries or selling assets to them.
D. lending to foreign
countries or buying assets from them.
25. Expansionary
fiscal policy tends to
A. raise U.S. income,
increase U.S. imports, and increase the trade deficit
B. raise U.S. income,
increase U.S. imports, and lower the trade deficit
C. lower U.S. income,
reduce U.S. imports, and increase the trade deficit
D. lower U.S. income,
reduce U.S. imports, and lower the trade deficit
26. In considering
the net effect of expansionary fiscal policy on the trade deficit, the
A. income effect
offsets the price effect
B. price effect
offsets the income effect
C. income and price
effects work in the same direction, so the trade deficit is decreased
D. income and price
effects work in the same direction, so the trade deficit is increased
27. If U.S. interest
rates fall relative to Japanese interest rates and Japanese inflation falls
relative to U.S. inflation, then the
A. dollar will lose
value in terms of yen
B. dollar will gain
value in terms of yen
C. dollar’s value
will not change in terms of yen
D. change in the
dollar’s value cannot be determined
28. Expansionary
monetary policy tends to
A. lower the U.S.
interest rate and increase the U.S. exchange rate
B. lower the U.S.
interest rate and decrease the U.S. exchange rate
C. increase the U.S.
interest rate and decrease the U.S. exchange rate
D. increase the U.S.
interest rate and increase the U.S. exchange rate
29. The U.S. has
limits on Chinese textile imports. Such limits are an example of
A. a tariff
B. a quota
C. a regulatory trade
restriction
D. an embargo
30. Duties imposed by
the U.S. government on imported Chinese frozen and canned shrimp are an example
of
A. tariffs
B. quotas
C. voluntary
restrictions
D. regulatory trade
restrictions