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Elite Student Edition 5 Steps To A 5 AP Macroeconomics 2020 1st Edition Eric R. Dodge - Solutions

An increase in the consumer price index is commonly referred to as(A) economic growth.(B) inflation.(C) unemployment.(D) discouraged workers.(E) deflation.
Corn is exchanged in a competitive market. Which of the following definitely increases the equilibrium price of corn?(A) Both supply and demand shift rightward.(B) Both supply and demand shift leftward.(C) Supply shifts to the right; demand shifts to the left.(D) Supply shifts to the left; demand
How would fiscal and monetary policymakers combine spending, tax, and monetary policy to fight a recessionary gap, while avoiding large budget deficits?
A nation is producing at a point inside of its production possibility curve. Which of the following is a possible explanation for this outcome?(A) This nation has experienced a permanent decrease in its production capacity.(B) This nation has experienced slower than usual technological progress.(C)
Which of the following statements is true of production possibility curves and trade between nations?(A) Nations specialize and trade based on absolute advantage in production.(B) Free trade allows each nation to consume beyond the production possibility curve.(C) The flow of goods and services is
If the Japanese economy suffers a deep, prolonged recession, in what ways would U.S. net exports and the values of the dollar and yen change?
Which of the following is a consequence of a protective tariff on imported steel?(A) Net exports fall.(B) Income is transferred from domestic steel consumers to domestic steel producers.(C) Allocative efficiency is improved.(D) Income is transferred from domestic steel to foreign steel
You hear that the United States has a negative balance in the current account. With this information we conclude that(A) there is a trade deficit.(B) there is a capital account deficit.(C) there is a capital account surplus.(D) more U.S. dollars are being sent abroad than foreign currencies are
If the U.S. dollar and Chinese yuan are traded in flexible currency markets, which of the following causes an appreciation of the dollar relative to the Chinese yuan?(A) Lower interest rates in the United States relative to China(B) Lower price levels in China relative to the United States(C)
The United States produces rice in a competitive market. With free trade, the world price is lower than the domestic price. What must be true?(A) The United States begins to import rice to make up for a domestic shortage.(B) The United States begins to export rice to make up for a domestic
Which of the following is a likely result of expansionary monetary policy in a recession?(A) Decreases aggregate demand so that the price level falls.(B) Increases aggregate demand, which increases real GDP and increases employment.(C) Increases unemployment, but low prices negate this effect.(D)
To move the economy closer to full employment, the central bank decides that the federal funds rate must be increased. The appropriate open market operation is to ______, which ______ the money supply, ______ aggregate demand, and fights ______.
If the money supply increases, what happens in the money market(assuming money demand is downward sloping)?(A) The nominal interest rates rises.(B) The nominal interest rates falls.(C) The nominal interest rate does not change.(D) Transaction demand for money falls.(E) Transaction demand for money
Which of the following is a way that the Fed can increase the money supply?(A) An increase in the discount rate(B) An open market operation that increases the fed funds rate.(C) An increase in the reserve ratio(D) A decrease in tax rates(E) Buying Treasury securities from commercial banks
If a bank has $500 in checking deposits and the bank is required to reserve $50, what is the reserve ratio? How much does the bank have in excess reserves?(A) 10 percent, $450 in excess reserves(B) 90 percent, $50 in excess reserves(C) 90 percent, $450 in excess reserves(D) 10 percent, $50 in
Which function of money best defines $1.25 as the price of a 20-ounce bottle of pop?(A) Medium of exchange(B) Unit of account(C) Store of value(D) Transfer of ownership(E) Fiat money
The U.S. economy currently suffers a recessionary gap, and a budget deficit exists. If the government wishes to fix the recession, which of the following choices best describes the appropriate fiscal policy, the impact on the market for loanable funds, the interest rate, and the market for the U.S.
Which of the following would likely slow a nation’s long-term economic growth?(A) Guaranteed low-interest loans for college students(B) Removal of a tax on income earned on saving(C) Removal of the investment tax credit(D) More research grants given to medical schools(E) Conservation policies to
Which of the following fiscal policies is likely to be most effective when the economy is experiencing an inflationary gap?(A) The government decreases taxes and keeps spending unchanged.(B) The government increases spending and keeps taxes unchanged.(C) The government increases spending matched
The crowding-out effect from government borrowing is best described as(A) the rightward shift in AD in response to the decreasing interest rates from contractionary fiscal policy.(B) the leftward shift in AD in response to the rising interest rates from expansionary fiscal policy.(C) the effect of
In a long period of economic expansion the tax revenue collected ____ and the amount spent on welfare programs ____ , creating a budget ____ .(A) increases, decreases, surplus(B) increases, decreases, deficit(C) decreases, decreases, surplus(D) decreases, increases, deficit(E) increases, increases,
Which of the following would not be an example of contractionary fiscal policy?(A) Decreasing money spent on social programs(B) Increasing income taxes(C) Canceling the annual cost of living adjustments to the salaries of government employees(D) Increasing money spent to pay for government
The effect of the spending multiplier is lessened if(A) the price level is constant with an increase in aggregate demand.(B) the price level falls with an increase in aggregate supply.(C) the price level is constant with an increase in long-run aggregate supply.(D) the price level falls with an
What is the difference between the short-run Phillips curve (SRPC)and the long-run Phillips curve (LRPC)?(A) The SRPC is downward sloping and the LRPC is horizontal.(B) The SRPC is upward sloping and the LRPC is downward sloping.(C) The SRPC is vertical and the LRPC is horizontal.(D) The SRPC is
Equilibrium real GDP is far below full employment, and the government lowers household taxes. Which is the likely result?(A) Unemployment falls with little inflation.(B) Unemployment rises with little inflation.(C) Unemployment falls with rampant inflation.(D) Unemployment rises with rampant
Stagflation most likely results from(A) increasing AD with constant SRAS.(B) decreasing SRAS with constant AD.(C) decreasing AD with constant SRAS.(D) a decrease in both AD and SRAS.(E) an increase in both AD and SRAS.
Which is the best way to describe the AS curve in the long run?(A) Always vertical in the long run.(B) Always upward sloping because it follows the Law of Supply.(C) Always horizontal.(D) Always downward sloping.(E) Without more information we cannot predict how it looks in the long run.
Using the model of AD and AS, what happens in the short run to real GDP, the price level, and unemployment with more consumption spending (C)?
Which of the following is the source of the supply of loanable funds?(A) The stock market(B) Investors(C) Net exports (D) Banks and mutual funds (E) Savers
The tax multiplier increases in magnitude when(A) the MPS increases.(B) the spending multiplier falls.(C) the MPC increases.(D) government spending increases.(E) taxes increase.
Which of the following choices is most likely to create the greatest decrease in real GDP?(A) The government decreases spending, matched with a decrease in taxes.(B) The government increases spending with no increase in taxes.(C) The government decreases spending with no change in taxes.(D) The
Which of the following events most likely increases real GDP?(A) An increase in the real rate of interest(B) An increase in taxes(C) A decrease in net exports(D) An increase in government spending(E) A lower value of consumer wealth
Which of the following is true about the consumption function?(A) The slope is equal to the MPC.(B) The slope is equal to the MPS.(C) The slope is equal to MPC + MPS.(D) It shifts upward when consumers are more pessimistic about the future.(E) It shifts downward when consumer wealth increases in
When disposable income increases by $X,(A) consumption increases by more than $X.(B) saving increases by less than $X.(C) saving increases by exactly $X.(D) saving remains constant.(E) saving decreases by more than $X.
You are working at a supermarket bagging groceries, but you are unhappy about your wage, so you quit and begin looking for a new job at a competing grocery store. What type of unemployment is this?(A) Cyclical(B) Structural(C) Seasonal(D) Frictional(E) Discouraged
What is the official unemployment rate?(A) 5 percent(B) 2.5 percent(C) 5.5 percent(D) 7 percent(E) Unknown, as we do not know the number of discouraged workers
What is the size of the labor force and what is the labor force participation rate?(A) 2,000; 100 percent(B) 950; 47.5 percent(C) 900; 45 percent(D) 1,000; 50 percent(E) 1,000; 5 percent
If Real GDP = $200 billion and the price index = 200, Nominal GDP is(A) $4 billion(B) $400 billion(C) $200 billion(D) $2 billion(E) Impossible to determine since the base year is not given
GDP is $10 million, consumer spending is $6 million, government spending is $3 million, exports are $2 million, and imports are $3 million. How much is spent for investments?(A) $0 million(B) $1 million(C) $2 million(D) $3 million(E) $4 million
Which of the following transactions would be counted in GDP if we were using the spending approach?(A) The cash you receive from babysitting your neighbor’s kids(B) The sale of illegal drugs(C) The sale of cucumbers to a pickle manufacturer(D) The sale of a pound of tomatoes at a supermarket(E)
The apple market is in equilibrium. Suppose we observe that apple growers are using more pesticides to increase apple production. At the same time, we hear that the price of pears, a substitute for apples, is rising. Which of the following is a reasonable prediction for the new price and quantity
The market for denim jeans is in equilibrium, and the price of polyester pants, a substitute good, rises. In the jean market(A) supply falls, increasing the price and decreasing the quantity.(B) supply falls, increasing the price and increasing the quantity.(C) demand falls, increasing the price
Suppose that aluminum is a key production input in the production of bicycles. If the price of aluminum falls, and all other variables are held constant, we expect(A) the demand for aluminum to rise.(B) the supply of bicycles to rise.(C) the supply of bicycles to fall.(D) the demand for bicycles to
If average household income rises and we observe that the demand for pork chops increases, pork chops must be(A) an inferior good.(B) a normal good.(C) a surplus good.(D) a public good.(E) a shortage good.
When the price of pears increases, we expect the following:(A) Quantity demanded of pears rises.(B) Quantity supplied of pears falls.(C) Quantity demanded of pears falls.(D) Demand for pears falls.(E) Supply of pears rises.
Ray and Dorothy can both cook and can both pull weeds in the garden on a Saturday afternoon. For every hour of cooking, Ray can pull 50 weeds and Dorothy can pull 100 weeds. Based on this information,(A) Ray pulls weeds, since he has absolute advantage in cooking.(B) Dorothy pulls weeds, since she
The shape of this PPF tells us that(A) economic resources are perfectly substitutable from production of tea to production of crumpets.(B) citizens prefer that an equal amount of tea and crumpets be produced.(C) the opportunity cost of producing crumpets rises as more crumpets are produced.(D) the
Economic growth is best represented by a movement from(A) A to B(B) B to C(C) C to D(D) D to E(E) E to A
A student decides that, having already spent three hours studying for an exam, she should spend one more hour studying for the same exam.Which of the following is most likely true?(A) The marginal benefit of the fourth hour is certainly less than the marginal cost of the fourth hour.(B) The
Economics is best described as(A) the study of how scarce material wants are allocated between unlimited resources.(B) the study of how scarce labor can be replaced by unlimited capital.(C) the study of how decision makers choose the best way to satisfy their unlimited material wants with a scarce
E—A tariff causes imports to fall, so net exports rise for the U.S. With fewer consumers demanding foreign-built cars, the demand for foreign currency falls, decreasing the value of foreign currency, appreciating the value of the U.S. dollar.
A—When relative incomes are falling in Japan, fewer U.S. goods are demanded, so U.S. exports fall. The decrease in the demand for U.S.dollars causes the dollar to depreciate.
A—Nations are net exporters of a good when the world price is greater than the domestic price. A higher world price creates a surplus in the domestic market and the surplus is exported. This situation improves the U.S. balance of trade and would not foster any U.S. protective trade policy. In
C—The money multiplier is 10 because the reserve ratio is 0.10. If money demand is horizontal, a $1 million increase in excess reserves shifts the money supply curve rightward by $10 million but will not lower the nominal interest rate. If the interest rate does not fall, aggregate demand does
C—The reserve ratio is required reserves divided by deposits, so rr =0.25. With $250 in required reserves, excess reserves are $750. The money multiplier is equal to 1/rr = 4.
B—When more deposits are made, the bank increases required reserves by the fraction of the reserve ratio, and increased excess reserves are lent to borrowers to create more money.
E—Nearest to cash, M1 is the most liquid of monetary measures. The U.S. dollar is not backed by gold. Our fiat money has value because the Fed ensures stable prices.
C—Selling securities would draw down excess reserves in the banks, decrease the money supply, and increase the interest rate. This would work counter to expansionary fiscal policy.
A—A lower discount rate increases excess reserves by making it less costly for commercial banks to borrow from the Fed. This is one of the Fed’s tools of monetary policy. Remember that the Fed does not impact taxes, as taxes are fiscal policy made by the executive and legislative branches.
D—A contractionary money supply increases nominal interest rates, decreases aggregate demand and real GDP, and decreases the price level.
B—Increasing the money supply lowers interest rates and increases investment spending (I), aggregate demand (AD), real GDP, and employment.
B—Expansionary fiscal policy, intended to boost aggregate demand, that requires borrowing increases interest rates and lessens private investment spending. The decrease in investment spending weakens the impact of expansionary fiscal policy.
E—As a recession deepens, a progressive tax system and transfer programs like welfare assistance kick in and shorten the downturn in the business cycle. These automatic stabilizers produce recessionary deficits and inflationary surpluses.
E—Supply-side economists advocate increased aggregate supply through incentives for investment and productivity. These would likely come in the form of lower taxes on interest income from savings or tax credits for investment.
C—In the aggregate demand (AD) and aggregate supply (AS) model, lower taxes and more government spending increases AD. This rightward shift increases real GDP and begins to increase the price level.
D—The Phillips curve shows the short-run inverse relationship between the inflation rate and the unemployment rate. In the long run, this curve is vertical at the natural rate of unemployment.
D—Higher resource prices shift the short-run aggregate supply (SRAS)curve to the left. All other choices either do not impact the SRAS curve or they would act as positive shocks to the SRAS curve.
E—The full multiplier is only felt if short-run aggregate supply is horizontal. Any increase in the price level decreases the impact of the spending multiplier.
D—If the economy is beyond full employment, the short-run AS curve is nearly vertical. At this point, increasing aggregate demand cannot increase output and will only increase prices.
B—The spending multiplier is larger than the tax multiplier, which is larger than the balanced budget multiplier (equals 1). Of the available choices, you want the largest increase in real GDP, you should increase government spending and leave taxes unchanged. An even larger impact would be seen
E—In the market for loanable funds, investment (I) represents demand and saving represents supply. More $I increases the demand for loanable funds and increases the interest rate.
D—A strong stock market increases consumer wealth and optimism, shifting the consumption function upward. Since aggregate demand includes consumption, aggregate demand increases.
A—Nominal values must be adjusted to take into account rising prices.To deflate nominal values to real values, divide the nominal value by the price index (in hundredths).
C—The percentage change in real income is approximately equal to the percentage change in nominal income minus the percentage change in the price level.
B—Structural unemployment is the result of changing demand for skills, not the business cycle. Automation decreases the demand for human grocery checkers, and this trend is unlikely to reverse itself.
D—The GDP of a nation includes the value of production done within the borders of that nation, regardless of the nationality of the owners. If a U.S. factory moves to Brazil, U.S. GDP falls and it rises in Brazil.
A—If smartphones are normal goods, an increase in household income increases demand for smartphones, which increases quantity and price.Even though this is a macroeconomics exam, be prepared for simple supply and demand questions to test your understanding of markets.
E—Economic growth occurs when the production possibility frontier shifts outward. A movement from W to X or to Y is an improved allocation of unemployed resources, but the potential production has not grown for this nation.
B—A quick calculation of opportunity costs shows that the opportunity cost of one more paper is three crepes in Nation X and one crepe in Nation Y. The opportunity cost of one more crepe is one-third paper in Nation X and one crepe in Nation Y. Nations benefit by specializing in the goods for
A—Economic capital includes machinery, like a cement mixer, used to produce goods and services. A barrel of oil is a natural resource, and a nurse is a unit of labor. A share of corporate stock is a financial instrument used to raise money so that a firm can purchase more economic resources.
Which of the following is a likely effect of a higher tariff imposed by the United States on imported automobiles?(A) Net exports will fall and the dollar will appreciate in value.(B) Net exports will fall and the dollar will depreciate in value.(C) The price of automobiles in the United States
Suppose the Japanese economy is suffering a prolonged recession.Lower Japanese household incomes will affect U.S. exports to Japan, demand for the dollar, and the value of the dollar relative to the yen in which of the following ways?
If the world price of copper exceeds the domestic (U.S.) price of copper, we would expect(A) the United States to be a net exporter of copper.(B) the United States to impose a tariff on imported copper to protect domestic producers.(C) the demand for U.S. copper to fall.(D) a growing trade deficit
Suppose the reserve ratio is 10 percent and the Fed buys $1 million in Treasury securities from commercial banks. If money demand is perfectly elastic, which of the following is likely to occur?(A) Money supply increases by $10 million, lowering the interest rate and increasing AD.(B) Money supply
If a bank has $1,000 in checking deposits and the bank is required to reserve $250, what is the reserve ratio? How much does the bank have in excess reserves? What is the size of the money multiplier?(A) 25%, $750, M = ¼(B) 75%, $250, M = 4(C) 25%, $750, M = 4(D) 75%, $750, M = ¼(E) 25%, $250, M
Excess reserves in the banking system will increase if(A) the reserve ratio is increased.(B) the checking deposits increase.(C) the discount rate is increased.(D) the Fed sells Treasury securities to commercial banks.(E) income tax rates increase.
Which of the following is an accurate statement of the money supply in the United States?(A) The money supply is backed by gold reserves.(B) The money supply is controlled by elected members of Congress.(C) M1 is larger than M2.(D) Paper money can be exchanged at commercial banks for an equal
Which of the following monetary policies would lessen the effectiveness of expansionary fiscal policy?(A) Decreasing the value of the domestic currency.(B) Lowering the income tax rate.(C) Selling Treasury securities to commercial banks.(D) Lowering the discount rate.(E) Lowering the reserve ratio.
Which of the following is a tool used by the Fed to increase the money supply?(A) A lower discount rate.(B) Selling Treasury securities to commercial banks.(C) A higher reserve ratio.(D) A lower personal income tax rate.(E) A lower investment income tax rate.
A contractionary monetary policy will cause the nominal interest rate, aggregate demand, output, and the price level to change in which of the following ways?
In a recession, expansionary monetary policy is designed to(A) decrease aggregate demand so that real prices will decrease, which is good for the economy.(B) increase aggregate demand, which will increase real output and increase employment.(C) increase unemployment, but low prices negate this
The “crowding-out” effect is the result of(A) decreasing interest rates from contractionary fiscal policy.(B) increasing interest rates from expansionary fiscal policy.(C) increasing interest rates from expansionary monetary policy.(D) increasing unemployment rates from expansionary monetary
Automatic stabilizers in the economy serve an important role in(A) increasing the length of the business cycle.(B) balancing the budget.(C) increasing a budget surplus in a recession.(D) decreasing net tax revenue during economic growth.(E) lessening the impact of a recession.
Of the following choices, the one most likely to be preferred by supply-side economists would be(A) increased government spending.(B) higher tariffs on imported goods.(C) lower taxes on household income.(D) higher welfare payments.(E) a tax credit on capital investment.
If the economy is experiencing a recession, how will a plan to decrease taxes for consumers and increase spending on government purchases affect real gross domestic product (GDP) and the price level?(A) real GDP rises and the price level falls.(B) real GDP falls and the price level rises.(C) real
The Phillips curve represents the relationship between(A) inflation and the money supply.(B) unemployment and the money supply.(C) the money supply and the real interest rate.(D) inflation and unemployment.(E) investment and the real interest rate.
The best example of a negative supply shock to the economy would be (A) a decrease in government spending.(B) a decrease in the real interest rate.(C) an increase in the money supply.(D) unexpectedly higher resource prices.(E) technological improvements.
When government uses expansionary fiscal policy, the spending multiplier is often smaller than predicted because of(A) lower taxes.(B) increasing net exports.(C) falling unemployment.(D) lower interest rates.(E) rising price levels.
Suppose the economy is operating beyond full employment. Which of the following is true at this point?(A) The short-run aggregate supply curve is horizontal.(B) Further increases in aggregate demand will result in a lower price level.(C) A decrease in aggregate demand will result in a lower price
If the economy is operating below full employment, which of the following will have the greatest positive impact on real gross domestic product?(A) The government decreases spending with no change in taxes.(B) The government increases spending with no change in taxes.(C) The government decreases

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