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Elite Student Edition 5 Steps To A 5 AP Macroeconomics 2020 1st Edition Eric R. Dodge - Solutions
Of the following choices, which combination of fiscal and monetary policy would most likely reduce a recessionary gap?
Monetary tools of the Federal Reserve do not include which of the following choices?(A) Buying Treasury securities from commercial banks(B) Changing tariffs and quotas on imported goods(C) Changing the reserve ratio(D) Changing the discount rate(E) Selling Treasury securities to commercial banks
If the economy were experiencing a recessionary gap, choose the option below that would be an appropriate fiscal policy to eliminate the gap, and the predicted impact of the policy on real GDP and unemployment.
The reserve ratio is 0.10 and Mommy Morebucks withdraws $1 million from her checking account and keeps it as cash in her refrigerator. How does this withdrawal potentially impact money in circulation?(A) Decreases it by $9 million(B) Decreases it by $1 million(C) Decreases it by $100,000(D)
Which of the following insures the value of the U.S. dollar?(A) The euro and other foreign currencies held by the Federal Reserve(B) Gold bars in secure locations like Fort Knox(C) The promise of the U.S. government to maintain its value(D) The value of the actual paper on which it is printed.(E)
What is the difference between how the short-run and long-run Phillips curves are drawn?(A) The short-run Phillips curve is downward sloping and the long-run Phillips curve is upward sloping.(B) The short-run Phillips curve is upward sloping and the long-run Phillips curve is vertical.(C) The
Daddy Morebucks withdraws $1 million from his savings account and puts the cash in his refrigerator. This affects M1 and M2 in which of the following ways?
The economy is in a deep recession. Given this economic situation, which of the following statements about monetary policy is accurate?(A) Expansionary policy would only worsen the recession.(B) Expansionary policy greatly increases aggregate demand if investment is sensitive to changes in the
Which of the following is an example of contractionary monetary policy?(A) The Fed lowers the reserve ratio.(B) The Fed lowers the discount rate.(C) The Fed increases taxes on household income.(D) The Fed decreases spending on welfare programs.(E) The Fed sells Treasury securities to commercial
Which of the following fiscal policy combinations would be most likely to slowly increase real GDP without putting tremendous upward pressure on the price level?(A) Increase government spending with a matching decrease in taxes.(B) Decrease government spending with a matching increase in taxes.(C)
Which of the following is an example of an expansionary supply shock?(A) Rapid increasing wages(B) A greatly depreciated currency(C) Declining labor productivity(D) Lower than expected agricultural harvests(E) Lower factor prices in major industries
If the economy is suffering from extremely high rates of inflation, which of the following fiscal policies would be an appropriate strategy for the economy?(A) Increase government spending and decrease taxes.(B) Decrease government spending and increase taxes.(C) Increase government spending with
Which of the following might worsen a nation’s trade deficit?(A) Lower wages relative to other nations.(B) Lower taxes on corporate profits relative to other nations.(C) A higher interest rate on financial assets relative to other nations.(D) A higher rate of inflation relative to other
Which of the following increases the size of the tax multiplier?(A) An increase in the marginal propensity to consume.(B) An increase in the reserve ratio.(C) An increase in the marginal propensity to save.(D) A decrease in the spending multiplier.(E) A decrease in the velocity of money.
Which of the following is true about the relationship between the M1 and M2 measures of money?(A) M1 minus M2 equals 0.(B) M1 includes checking deposits, while M2 includes checking and saving deposits.(C) M2 includes coin and paper money, but M1 does not.(D) M2 is more liquid than M1.(E) M1 is
If $100 of new autonomous private investment were added to an economy with a marginal propensity to consume of 0.90, by how much would aggregate demand shift to the right?(A) $190(B) $900(C) $1,000(D) $1,900(E) $90
Which of the following is most likely to produce stronger economic growth over time?(A) More rapid consumption of natural resources.(B) Higher adult illiteracy rates.(C) A falling stock of capital goods.(D) Investment tax credits.(E) Higher taxes on foreign capital investment.
Which of the following is true of a typical contraction of the business cycle?(A) Consumption is falling, but household wealth is rising.(B) Consumption is increasing.(C) Private investment is rising.(D) Employment and inflation are low.(E) Private saving rates are rising.
In a private closed economy, which of the following statements is true?(A) Household saving can never be negative.(B) Investment is always greater than savings.(C) The economy is in equilibrium when consumption equals saving.(D) Saving is equal to zero when consumption equals disposable income.(E)
If the short-run aggregate supply curve is horizontal, it is because(A) there exist many unemployed resources so that output can be increased without increasing wages and prices.(B) any increase in output requires a corresponding increase in wages and prices.(C) increases in output cause prices to
Stagflation is the result of(A) a leftward shift in the short-run aggregate supply curve.(B) a leftward shift in the aggregate demand curve.(C) a leftward shift in both the short-run aggregate supply and aggregate demand curves.(D) a rightward shift in the short-run aggregate supply curve.(E) a
When we observe an unplanned decrease in inventories, we can expect(A) prices to begin to fall.(B) output to begin to rise.(C) saving to begin to fall.(D) output to begin to fall.(E) planned investment to begin to rise.
Suppose that current disposable income is $10,000 and consumption spending is $8,000. For every $100 increase in disposable income, saving increases $10. Given this information,(A) the marginal propensity to consume is 0.80.(B) the marginal propensity to save is 0.20.(C) the marginal propensity to
Suppose that the federal government reclassified the purchase of a new home as consumption spending rather than investment spending. This decision would(A) increase aggregate demand and decrease real GDP.(B) decrease aggregate demand and decrease real GDP.(C) decrease aggregate demand and increase
Of the following choices, the most direct exchange in the circular flow model of a private closed economy is when(A) households provide goods to firms in exchange for wage payments.(B) households provide resources to firms in exchange for goods.(C) households provide revenues to firms in exchange
According to the quantity theory of money, increasing the money supply serves to(A) stimulate short-run production and employment with very little long-run inflation.(B) increase short-run output, but it is the source of long-run inflation.(C) lower the unemployment rate while also lowering the
A policy supported by supply-side economists would be(A) higher taxes on corporate profits.(B) lower tax rates on interest earned from savings.(C) removal of investment tax credits.(D) a longer duration of unemployment benefits.(E) higher marginal income tax rates to fund social welfare programs.
Which of the following is not included in the U.S. GDP?(A) The U.S. military opens a new base in a foreign country with 1,000 U.S. personnel.(B) Japanese consumers buy thousands of CDs produced in the United States.(C) An American pop singer performs a sold-out concert in Paris.(D) A French
The figure above shows aggregate demand (AD) and supply (AS) for the economy. Assuming that aggregate demand remains constant, which of the following best predicts the short-run price level, the longrun price level, and the long-run level of output?
Which of the following would increase the aggregate demand function?(A) Higher levels of imported goods(B) Lower levels of consumer wealth(C) A higher real interest rate(D) Lower taxes on personal income(E) Lower levels of exported goods
Which of the following is true of money and financial markets?(A) As the demand for bonds increases, the interest rate increases.(B) For a given money supply, if nominal GDP increases, the velocity of money decreases.(C) When demand for stocks and bonds increases, the asset demand for money
The table above summarizes the local labor market. Based on this information, which of the following is an accurate statement?(A) The number of discouraged workers has fallen from 2003 to 2004.(B) Although the population has grown, the labor force has remained constant from 2003 to 2004.(C) The
Which choice produces a faster rate of long-term economic growth for the United States?(A) Institution of higher tariffs on imported goods(B) More investment in capital infrastructure and less consumption of nondurable goods and services(C) Elimination of mandatory school attendance laws(D) Annual
Which of the following is not an addition to national income?(A) Wages(B) Salaries(C) Interest(D) Depreciation of physical capital(E) Profits
Suppose the price level in the United States has risen in the past year, but production of goods and services has remained constant. Based on this information, which of the following is true?
How does an increasing national debt impact the market for U.S.dollars and the value of the dollar with respect to other currencies?
Which of the following is not a scarce economic resource?(A) Labor(B) Capital(C) Human wants(D) Land(E) Natural resources
Theo loses his job at the public swimming pool when the pool closes for the winter. This is an example of(A) cyclical unemployment.(B) discouraged worker.(C) seasonal unemployment.(D) frictional unemployment.(E) structural unemployment.
Which of the following transactions would be included in the official computation of gross domestic product?(A) Josh buys a new pair of running shoes.(B) Nancy offers to babysit her granddaughter.(C) Max buys his dad’s used car.(D) Eli cannot go to a concert, so he resells his ticket to a
In the last 20 years, firms that produce cameras have begun to produce very few 35-mm cameras and more digital cameras. This trend is an example of(A) how central planners dictate which cameras are produced.(B) the market system answering the question of “how” cameras should be produced.(C) the
Which of the following is a consequence of removal of a protective tariff on imported steel?(A) Imports fall.(B) Income is transferred from steel consumers to domestic steel producers.(C) Income is transferred from foreign steel producers to domestic steel producers.(D) Allocative efficiency is
If Nation A can produce a good at lower opportunity cost than Nation B can produce the same good, it is said that(A) Nation A has comparative advantage in the production of that good.(B) Nation B has comparative advantage in the production of that good.(C) Nation A has absolute advantage in the
The price of gasoline has recently increased, while at the same time gasoline consumption has also increased. What is happening in the gasoline market?(A) This is evidence that contradicts the law of demand.(B) The price of crude oil has fallen, shifting the supply of gasoline to the right.(C) A
Now that the economy is operating on PPF2, what has happened to the opportunity cost of producing these goods?(A) The opportunity cost of producing tractors has decreased, while the opportunity cost of producing corn has increased.(B) The opportunity cost of producing tractors has increased, while
Suppose that the production possibility frontier (PPF) of this nation moves from PPF1 to PPF2. Which of the following could be the cause of this movement?(A) Technological improvements in the production of tractors(B) A long-lasting and destructive drought(C) A more efficient use of steel, an
Lower interest rates in the United States cause the value of the dollar and exports to change in which of the following ways?
Which of the following likely results in a permanent increase in a nation’s productive capacity?(A) A decline in the birth rate(B) Declining adult literacy rates(C) Widespread relocation of manufacturing firms to low-wage nations(D) National program of child immunization(E) A global increase in
When a nation is operating at the natural rate of unemployment,(A) there is no cyclical unemployment.(B) the inflation rate is zero.(C) there is no structural unemployment.(D) the nation is experiencing a recession.(E) the unemployment rate is zero.
A negative, or contractionary, supply shock will(A) shift the short-run Phillips curve to the left.(B) shift the investment demand curve to the right.(C) shift the money demand curve to the right.(D) shift the money supply curve to the left.(E) shift the short-run Phillips curve to the right.
The short-run Phillips curve depicts the ____ relationship between ____ and ____.(A) positive, price level, interest rate(B) negative, interest rate, private investment(C) negative, the inflation rate, the unemployment rate(D) positive, price level, real GDP(E) negative, interest rate, money demand
Labor productivity and long-term economic growth increase if(A) a nation subsidizes education for all citizens.(B) a nation imposes tariffs and quotas on imported goods.(C) a nation removes penalties for firms that pollute natural resources.(D) a nation ignores societal barriers like
Which of the following is an example of expansionary monetary policy for the Federal Reserve?(A) Increasing the discount rate(B) Increasing the reserve ratio(C) Buying Treasury securities from commercial banks(D) Lowering income taxes(E) Removal of import quotas
Which of the following is true of automatic fiscal policy stabilizers?(A) For a given level of government spending, they produce a deficit during a recession and a surplus during an expansion.(B) They serve to prolong recessionary and inflationary periods.(C) The regressive tax system is a
Economic growth is best described as(A) an increase in the production possibility curve and an increase in the natural rate of unemployment.(B) an increase in the production possibility curve and a leftward shift in long-run aggregate supply.(C) a decrease in the production possibility curve and a
A nation that must consistently borrow to cover annual budget deficits risks(A) a depreciation of the nation’s currency as foreigners increase investment in the nation.(B) a decline in net exports as the nation’s goods become more expensive to foreign consumers.(C) lower interest rates that
Which of the following would likely contribute to faster rates of economic growth?(A) A more restrictive immigration policy(B) Negative net investment(C) Higher taxes on households and firms(D) Higher government funding of research on clean energy supplies(E) Protective trade policies
If the Federal Reserve was concerned about the “crowding-out” effect, they could engage in(A) expansionary monetary policy by lowering the discount rate.(B) expansionary monetary policy by selling Treasury securities.(C) contractionary monetary policy by raising the discount rate.(D)
Which of the following is a predictable consequence of import quotas?(A) Increased competition and lower consumer prices(B) Increased government tax revenue from imported goods(C) Rising net exports and a rightward shift in aggregate supply(D) An improved allocation of resources away from
The “crowding-out” effect refers to which of the following?(A) Lower interest rates that result from borrowing to conduct expansionary monetary policy(B) Higher interest rates that result from borrowing to conduct contractionary fiscal policy(C) Higher interest rates that result from borrowing
Which of the following best describes a key difference between the short-run and long-run aggregate supply curve?(A) Short-run aggregate supply is upward sloping as nominal wages quickly respond to price level changes.(B) Long-run aggregate supply is upward sloping as nominal wages quickly respond
Suppose a nation is experiencing an annual budget surplus and uses some of this surplus to pay down part of the national debt. One potential side effect of this policy would be to(A) increase interest rates and throw the economy into a recession.(B) increase interest rates and depreciate the
If $1,000 is deposited into a checking account and excess reserves increase by $700, the reserve ratio must be(A) 70%.(B) 30%.(C) 40%.(D) 90%.(E) 75%.
Suppose today’s headline is that private investment has decreased as a result of an action by the Federal Reserve. Which of the following choices is the most likely cause?(A) Selling Treasury securities to commercial banks(B) Lowering of the discount rate(C) Decreasing the reserve ratio(D)
If the reserve ratio is 10 percent and a new customer deposits $500, what is the maximum amount of money created?(A) $500(B) $4,500(C) $5,000(D) $50(E) $5,500
All else equal, when the United States exports more goods and services,(A) the value of the dollar falls as the supply of dollars increases.(B) the value of the dollar rises as demand for dollars increases.(C) the value of the dollar falls as demand for dollars decreases.(D) the value of the dollar
The fractional reserve banking system’s ability to create money is lessened if(A) households that borrow redeposit the entire loan amounts back into the banks.(B) banks hold excess reserves.(C) banks lend all excess reserves to borrowing customers.(D) households increase checking deposits in
Assuming that households save a proportion of disposable income, which of the following relationships between multipliers is correct?(A) Tax multiplier > Spending multiplier > Balanced budget multiplier(B) Spending multiplier = Tax multiplier > Balanced budget multiplier(C) Spending multiplier >
Which of the following is a component of the M1 measure of money supply?(A) Savings deposits(B) Gold bullion(C) Cash and coins(D) 30-year Treasury certificates(E) 18-month certificates of deposits
If the economy is operating at full employment, which of the following policies will create the most inflation in the short run?(A) An increase in government spending matched by an equal increase in taxes(B) An increase in government spending with no change in taxes(C) A decrease in government
Expansionary monetary policy is designed to(A) decrease the interest rate, increase private investment, increase aggregate demand, and increase domestic output.(B) decrease the interest rate, increase private investment, increase aggregate demand, and increase the unemployment rate.(C) increase the
If a nation is operating at full employment, and the central bank engages in contractionary monetary policy, the nation can expect the interest rate, the purchases of new homes, and the unemployment rate to change in which of the following ways?
If current real GDP is $5,000 and full employment real GDP is at$4,000, which of the following combinations of policies is the most likely to have brought the economy to this point?(A) A decrease in taxes and a lower discount rate(B) An increase in government spending and an increase in taxes(C) A
U.S. real GDP most likely falls when(A) income taxes are lowered.(B) investment in human capital is high.(C) the money supply is increased.(D) there is a trade surplus in goods and services.(E) the value of the dollar, relative to foreign currencies, is high.
If households are more optimistic about the future, how would the consumption function be affected?(A) The marginal propensity to consume would increase, increasing the slope of the consumption function.(B) The entire consumption function would shift downward.(C) The entire consumption function
Suppose that households increase the demand for U.S. Treasury bonds as financial assets. Which of the following accurately describes changes in the money market, the interest rate, and the value of the dollar in foreign currency markets?
At the peak of a typical business cycle, which of the following is likely the greatest threat to the macroeconomy?(A) Unemployment(B) Bankruptcy(C) Declining labor productivity(D) Falling real household income(E) Inflation
Investment demand most likely increases when(A) real GDP decreases.(B) the cost of acquiring and maintaining capital equipment rises.(C) investor optimism improves.(D) the real rate of interest rises.(E) taxes on business investment rise.
Higher levels of government deficit spending would likely have which of the following changes in the market for loanable funds?
Which of the following represents a combination of contractionary fiscal and expansionary monetary policy?
Households demand more money as a financial asset when(A) nominal GDP falls.(B) the nominal interest rate falls.(C) bond prices fall.(D) the supply of money falls.(E) nominal GDP increases.
Which of the following tends to increase the spending multiplier?(A) An increase in the marginal propensity to consume(B) A decreased velocity of money(C) An increase in the marginal propensity to save(D) An increase in the real interest rate(E) An increase in the price level
When nominal GDP is rising, we would expect money demand to(A) increase as consumers demand more money as a financial asset, increasing the interest rate.(B) increase as consumers demand more money for transactions, increasing the interest rate.(C) decrease as the purchasing power of the dollar is
When both short-run aggregate supply and aggregate demand increase, which of the following can be said for certain?(A) The price level rises, but real GDP falls.(B) Both the price level and real GDP rise.(C) The price level rises, but the change in real GDP is uncertain.(D) The price level falls,
Which of the following most likely increases aggregate demand in the United States?(A) An American entrepreneur founds and locates a software company in London.(B) The U.S. military closes a military base in California.(C) The Chinese government makes it increasingly difficult for American firms to
Which of the following is true of the complete circular flow model of an open economy?(A) All goods and services flow through the government in exchange for resource payments.(B) There is no role for the foreign sector.(C) Households supply resources to producers in exchange for goods and
What does the presence of discouraged workers do to the measurement of the unemployment rate?(A) Discouraged workers are counted as “out of the labor force,” thus the unemployment rate is understated, making the economy look stronger than it is.(B) Discouraged workers are counted as “out of
In the long run, aggregate supply is(A) upward sloping at full employment.(B) horizontal below full employment.(C) vertical at full employment.(D) vertical below full employment.(E) vertical above full employment.
The economy is currently operating at full employment. Assuming flexible wages and prices, how would a decline in aggregate demand affect GDP and the price level in the short run, and GDP and the price level in the long run?
A likely cause of falling Treasury bond prices might be(A) expansionary monetary policy.(B) contractionary monetary policy.(C) a depreciating dollar.(D) fiscal policy designed to reduce the budget deficit.(E) a decrease in the money demand.
Which of the following policies best describes supply-side fiscal policy?(A) An increase in the money supply(B) Increased government spending(C) Lower taxes on research and development of new technology(D) Higher taxes on household income(E) More extensive government social welfare programs
Some economists believe that when aggregate demand declines, prices are inflexible or “sticky” in the downward direction. This implies that the short-run aggregate supply curve is(A) upward sloping at full employment.(B) horizontal below full employment.(C) vertical at full employment.(D)
A nation’s economic growth can be seen as a(n)(A) increase in the SRAS curve.(B) increase in the AD curve.(C) increase in the LRAS curve.(D) decrease in the production possibility curve.(E) increase in the short-run Phillips curve.
Suppose that the unemployment rate falls from 6 percent to 5 percent and the inflation rate falls from 3 percent to 2 percent. Which of the following best explains these trends?(A) An increase in aggregate demand.(B) A decrease in both aggregate demand and aggregate supply.(C) An increase in both
Which of the following lessens the impact of expansionary fiscal policy?(A) An increase in the marginal propensity to consume.(B) Lower interest rates that cause a decrease in net exports.(C) Higher interest rates that cause an increase in net exports.(D) Higher interest rates that decrease private
Which of the following best measures changes in the price level of national product?(A) The consumer price index(B) The real interest rate(C) The unemployment rate(D) The producer price index(E) The GDP deflator
If your nominal income rises 4 percent and your real income falls 1 percent, by how much did the price level change?(A) 5 percent decrease(B) ¼ percent increase(C) 3 percent increase(D) 3 percent decrease(E) 5 percent increase
Which of the following statements is true?(A) The velocity of money is equal to real GDP divided by the money supply.(B) Dollars earned today have more purchasing power than dollars earned a year from today.(C) The supply of loanable funds consists of investors.(D) The demand for loanable funds
Which of the following are harmed by unexpectedly high rates of inflation?(A) Borrowers repaying a long-term loan at a fixed interest rate.(B) Savers who have put their money in long-term assets that pay a fixed interest rate.(C) Workers who have negotiated cost-of-living raises into their
The government has just lowered personal income taxes. Which of the following best describes the effects that this policy has on the economy?(A) Higher disposable income, higher consumption, higher real GDP, lower unemployment(B) Higher disposable income, lower consumption, higher real GDP, lower
Which of the following is characteristic of a centrally planned economic system?(A) Resources are allocated based on relative prices.(B) The circular flow of goods and services minimizes the role of the federal government.(C) Private ownership of resources is fundamental to economic growth.(D)
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