The money supply is the:
total value of financial assets that can be used to purchase goods and services.
total value of the nation's store of gold.
total value of stock market holdings.
annual sum of gains from trade.
Which of the following is NOT a role played by money?
It is a medium of exchange.
It is a store of value.
It is a unit of account.
It is a means to increase purchasing power.
Which of the following is NOT commodity money?
a gold coin
a silver coin
a $5 bill in U.S. currency
The value of fiat money arises from its:
usefulness as a commodity.
ability to be redeemed in precious metals.
historical reputation as a currency that maintains its value in international markets.
official status as a means of exchange.
M1 includes those assets that are:
directly usable as a medium of exchange.
good as a store of value, but not useful as a medium of exchange.
not liquid enough to be included in M2.
Federal deposit insurance serves to:
protect the dollar from inflation
prevent bank runs
preserve the value of the dollar in terms of gold
eliminate the need for banks to satisfy capital requirements
The size of the U.S. money supply is determined:
by the Internal Revenue Service.
by the amount of gold held within U.S. borders.
by the willingness of other countries to supply the United States with gold.
jointly by the federal government and the banking system.
the monetary base is:
the sum of currency in circulation and bank reserves.
equal to M1.
equal to M2.
the amount of currency held in the bank vaults.
Which of the following items is a component of the monetary base but is NOT part of the money supply?
deposits held in checking accounts
currency in circulation
The money multiplier is the ratio of:
the money supply to the monetary base.
bank deposits to currency in circulation.
bank reserves to bank deposits.
M2 to M1.
Long-run economic growth depends primarily on:
health care costs.
ethical business standards.
A sustained increase in per capita GDP arises from:
importing more goods.
Which of the following is NOT a determinant of productivity?
the level of technology
the level of wages
the amount of physical capital per worker
the amount of human capital per worker
When more physical capital is added to the production process but the number of workers remains constant:
the amount of output per worker declines.
the amount of output per worker increases, but at a decreasing rate.
the amount of output per worker increases at an increasing rate.
In order to increase its stock of physical capital, an economy must:
engage in investment spending.
have a high level of consumption spending.
have a high level of government spending.
have a generous endowment of natural resources.
A healthy banking system can contribute to the growth of an economy by:
providing a way for savings to be channelled into business investment.
redistributing income between rich and poor citizens.
increasing the amount of gold held by its citizens.
adding to the overall level of employment.
In a simplified economy with no government and no interaction with other countries, all investment spending must come from:
The presence of a government budget surplus means that:
the government has provided savings to the financial system.
the household sector has not provided any savings to the financial system.
this is a closed economy.
this is an open economy.
The two components of national savings in an economy without interactions with other countries are:
private savings and the budget balance.
consumption spending and investment spending.
taxes and the budget balance.
private savings and taxes.
Which of the following occurs in an economy that interacts with other countries?
Capital inflow equals private saving plus government saving.
Capital inflow equals desired investment spending.
Investment spending equals national saving plus capital inflow.
Investment spending equals consumption spending minus taxes.
Financial markets serve to match:
savers with borrowers.
exporters with importers.
producers with consumers.
workers with employers
From the point of view of savers, the interest rate represents the:
cost of researching different investment opportunities.
cost of monitoring investments to make sure they are secure.
reward for accepting a permanently lower standard of living.
reward for postponing consumption.
Crowding out is the:
negative effects of taxation on investment decisions.
positive effects of taxation on investment decisions.
negative effect of government budget deficits on private investment.
positive effect of government budget deficits on private investment.
According to the Fisher effect:
the expected real interest rate is unaffected by a change in expected future inflation.
the expected nominal interest rate is unaffected by a change in expected future inflation.
expected future inflation is unaffected by a change in the real interest rate.
expected future inflation is unaffected by a change in the nominal interest rate.
If you take out a bank loan to buy a car, the loan is a(n):
liability both for you and for the bank.
asset both for you and for the bank.
liability for the bank and an asset for you.
asset for the bank and a liability for you.
By allowing for diversification, financial markets:
reduce transaction costs
By investing in a mutual fund, you are:
owning a share of a stock portfolio
avoiding the risks of dealing with financial intermediaries
endorsing the efficient markets hypothesis
endorsing the random walk theory
When we look at movements up or down along the aggregate demand curve, we are considering a:
simultaneous change in the prices of all final goods and services.
change in the price of one good, with all other prices held constant.
change in the price of one good, with real consumer wealth held constant.
change in the price of one good, with interest rates held constant.
Which of the following is NOT a component of aggregate demand?
The aggregate supply curve shows the relationship between the:
level of real GDP and the level of unemployment.
level of nominal wages and the level of real GDP.
aggregate price level and the quantity of aggregate output supplied.
level of nominal wages and the quantity of aggregate output supplied.
The positive slope of short-run aggregate supply arises from the fact that...
increases in the aggregate price level will increase the rate of unemployment.
increases in the aggregate price level will increase profit per unit.
increases in unemployment cause an increase in aggregate demand.
decreases in real output arise from supply shocks.
The long-run aggregate supply curve is drawn as a vertical line to reflect the fact that, in the long run, changes in:
the aggregate price level do not affect the level of potential real GDP.
productivity do not affect the level of potential real GDP.
real GDP do not affect the level of employment.
the stock of physical capital do not affect the level of potential real GDP.
A shift in short-run aggregate supply occurs when there is a change in:
the aggregate price level
profit per unit.
a combination of inflation and rising unemployment.
a combination of high interest rates and high levels of investment spending.
a combination of a government budget deficit and a trade deficit.
the pattern of fluctuations in economic activity over the course of the business cycle.
If the economy experiences a negative demand shock, policy makers should:
not take any action.
try to shift the aggregate supply curve to the left.
try to shift the aggregate demand curve to the right.
try to shift the aggregate supply curve to the right.
Which of the following is the BEST course of action for policy makers if the economy experiences a negative supply shock?
Policy makers should try to shift the aggregate supply curve to the left.
Policy makers should try to shift the aggregate demand curve to the left.
Policy makers should try to shift the aggregate demand curve to the right.
There is no clear "best" policy.
Disposable income is the:
amount of household income collected as tax revenue.
total income households have available to spend.
portion of household income saved.
portion of household income invested.
A recessionary gap occurs when:
aggregate output falls below potential output.
potential output falls below aggregate output.
transfer payments undermine incentives to work.
taxes on corporate profits undermine incentives to invest.
To address a recessionary gap, the appropriate fiscal policy would be an increase in:
The effect of expansionary fiscal policy is to shift aggregate:
supply to the left.
supply to the right.
demand to the left.
demand to the right.
Which of the following would shift aggregate demand to the left?
an increase in government transfer payments that affects disposable income
a decrease in taxes that affects disposable income
an increase in taxes that affects disposable income
an increase in private investment spending, funded by tax cuts
The government budget deficit is MOST likely to rise when the:
interest rate falls.
interest rate rises.
unemployment rate rises.
economy recovers from a recession.
Economists using a Keynesian model will suggest that:
supply shocks do not affect real output
demand shocks do not affect real output
shifts in the aggregate demand curve will affect output and employment as well as aggregate prices
shifts in the aggregate demand curve will affect aggregate prices but will leave output and employment unchanged
New classical macroeconomics is built on the two concepts of:
an upward-sloping aggregate supply curve and a vertical aggregate demand curve.
the liquidity trap and the political business cycle.
discretionary monetary policy and an emphasis on the short run.
rational expectations and real business cycle theory.
Milton Friedman argued that:
a discretionary monetary policy should be used to offset the fluctuations of the business cycle.
the effectiveness of expansionary fiscal policy is often limited by the effects of crowding out.
a central bank following a monetary policy rule would destabilize the economy.
the velocity of money is unstable.
The Friedman-Phelps (natural rate) hypothesis predicted that:
the apparent tradeoff between inflation and unemployment would not survive once expectations of high inflation were built into public perceptions.
effective policy action by the Federal Reserve could keep unemployment below its natural rate.
effective policy action by Congress could keep unemployment below its natural rate.
the velocity of money would become volatile when the economy reached a situation of full employment.
The balance of payments on financial account:
reflects transfers of factor income.
is the difference between exports of goods and exports of services.
is the total value of exports.
is the difference between the country's sales of assets to foreigners and its purchases of assets from foreigners.
Which of the following economic conditions would be MOST likely to attract a capital inflow?
a relatively low interest rate
a relatively high rate of domestic savings
a relatively high rate of economic growth
a merchandise trade surplus
Which of the following would lead to an appreciation of the Japanese yen against the euro
an increase in demand for euros by Japanese investors and consumers
an increase in demand for European-made goods by Japanese consumers
an increase in the supply of Japanese yen on the foreign exchange market
an increase in demand for Japanese-made goods by European consumers
Which actor or institution called the growth in East Asia a miracle
The World Bank