Chapter 7: Finance, Saving, and Investment
Q1) When the real interest rate rises
A) there is a downward movement along the demand for loanable funds curve.
B) there is an upward movement along the demand for loanable funds curve.
C) the demand for loanable funds curve shifts rightward.
D) the demand for loanable funds curve shifts leftward.
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Q2) National saving equals
A) household saving + business saving.
B) household saving + business saving + government saving.
C) household saving + business saving + net taxes - government expenditure.
D) Both answers B and C are correct.
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Q3) National saving equals
A) household saving + business saving.
B) household saving + business saving + government saving.
C) household saving + business saving + net taxes - government expenditure.
D) Both answers B and C are correct.
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Chapter 12: The Business Cycle, Inflation, and Deflation
Q1) According to real business cycle theory proponents, an increase in productivity
________ the demand for loanable funds, ________ the demand for labor, and
________ the supply of labor. The real interest rate will ________.
A) increases; increases; there is no change in; fall
B) increases; increases; there is no change in; rise
C) decreases; decreases; decreases; fall
D) increases; increases; increases; rise
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Q2) An economy's natural unemployment rate is 4 percent. The table above gives some
points on the economy's short-run Phillips curve. When the unemployment rate is 4
percent ________.
A) actual inflation is greater than expected inflation
B) actual inflation is less than expected inflation
C) and the inflation rate is 6 percent a year, the short-run and long-run Phillips curves
intersect
D) and the expected inflation rate is 8 percent a year, the short-run Phillips curve shifts
downward
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Q3) What are criticisms of the real business cycle theory?
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Chapter 9: The Exchange Rate and the Balance of
Payments
Q1) The European Commission believes that in 2016 exports of goods and services from
Spain will be 22 times larger than in 2013. Irish exports are expected to have grown by 15
percent over the same period. If imports remain constant
A) the current account balance in both countries will become more positive.
B) the current account balance in both countries will become more negative.
C) there will be no change in the current account balance of both countries.
D) in both countries the capital and financial account balance will become more
positive.
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Q2) The European Commission believes that in 2016 exports of goods and services from
Spain will be 22 times larger than in 2013. Irish exports are expected to have grown by 15
percent over the same period. If imports remain constant
A) the current account balance in both countries will become more positive.
B) the current account balance in both countries will become more negative.
C) there will be no change in the current account balance of both countries.
D) in both countries the capital and financial account balance will become more
positive.
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Q3) The current account records foreign investment in the United States minus U.S.
investment abroad.
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Chapter 15: International Trade Policy
Q1) Which of the following statements concerning tariffs is NOT true?
A) A tariff results in a loss for domestic consumers of the good.
B) A tariff creates revenue for the government.
C) A tariff decreases international trade.
D) A tariff leaves the price of imports unchanged.
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Q2) Currently, the United States has a quota on the amount of sugar that is allowed to
be imported into the United States. What would happen to the price of sugar in the
United States if the quota was removed? What would happen to U.S. consumption and
U.S. production of sugar?
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Q3) Lowering the tariff on good X will
A) increase domestic employment in industry X.
B) increase the domestic imports of good X.
C) increase the domestic price of good X.
D) have no effect unless the nation's trading partner also lowers its tariff on good X.
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Chapter 1: What Is Economics?
Q1) The term human capital refers to
A) labor resources used to make capital equipment.
B) buildings and machinery.
C) people's knowledge and skill.
D) entrepreneurship and risk-taking.
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Q2) Suppose we are considering the relationship between two variables y and x. y is
measured on the y-axis and x is measured on the x-axis, and the relationship between
then is a straight line. Suppose that the slope of the line is positive and is less than 1. This
slope means that a change in x is associated with
A) a bigger change in y.
B) a smaller change in y.
C) no change in y.
D) an equal change in y.
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Q3) Joe likes to sleep late in the mornings and play tennis in the afternoons. The
opportunity cost of Joe attending his morning class for one hour is
A) an hour of tennis given up.
B) an hour of sleep given up.
C) both the tennis given up and the sleep given up.
D) nothing because he is paying for his class.
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Chapter 8: Money, the Price Level, and Inflation
Q1) Which of the following functions are performed by depository institutions?
[Link] make long-term loans using short-term deposits, thereby creating liquidity.
[Link] efficiently gather funds from a large base of depositors.
[Link] concentrate risk.
A) I only
B) II only
C) III only
D) I and II
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Q2) The quantity theory of money states that in the long run
A) the price level will not consistently rise, it will fluctuate.
B) an increase in the quantity of money results in an equal percentage increase in the
price level.
C) a rise in the price level rises causes the quantity of money to increase.
D) an increase in the quantity of money increases real GDP by a smaller percentage.
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Q3) The term "currency drain" refers to an increase in currency held outside banks.
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Chapter 4: Measuring GDP and Economic Growth
Q1) The following data show Uruguay's GDP using purchasing power parity in billions of
dollars.
Using the data, we can conclude that
A) the standard of living did not change in Uruguay between 2000 and 2008.
B) Uruguay entered a recession in 2001.
C) potential GDP decreased in 2001.
D) Uruguay's economy reached a peak in 2005.
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Q2) The above table gives data for a hypothetical nation. Gross domestic product is
A) $4,049 billion.
B) $4,079 billion.
C) $4,054 billion.
D) $4,339 billion.
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Q3) If Frito Lay, an American snack company, opens a new manufacturing facility in
Mexico and produces snacks which are distributed in South America, then Mexico's GDP
________ and U.S. GDP ________.
A) increases; does not change
B) does not change; increases
C) increases; decreases
D) increases; increases
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Chapter 14: Monetary Policy
Q1) In the short run, if the Fed wants to fight a recession, should it buy or sell government
securities? Why?
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Q2) In the short run, if the Fed wants to fight a recession, should it buy or sell government
securities? Why?
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Q3) What is the effect of lowering the interest rate on net exports? Explain your answer.
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