Deck 9: Aan Introduction to Basic Macroeconomic Markets

Question 1

Other things constant,if the cost of labor goes down,the profits of firms will

A)increase,and short-run aggregate supply will shift to the right.
B)fall,and short-run aggregate supply will shift to the left.
C)increase,and long-run aggregate supply will shift to the right.
D)fall,and long-run aggregate supply will shift to the left.

Answer 1

A

Question 2

If the real interest rate in the domestic loanable funds market increases,

A)firms will have an added incentive to undertake investment projects.
B)households will save less.
C)the net inflow of foreign capital will tend to increase.
D)it will be cheaper to purchase goods and services now rather than in the future.

Answer 2

C

Question 3

The four key markets that coordinate the circular flow of income are

A)goods and services,resources,loanable funds,and foreign exchange.
B)consumption,investment,stock,and government.
C)government,household goods,bond,and business.
D)financial,corporate,stock,and loanable funds.

Answer 3

A

Question 4

The market for labor services is included in the

A)loanable funds market.
B)goods and services market.
C)resource market.
D)financial market.

Question 5

As the general price level in an economy rises,the aggregate quantity demanded of goods and services falls because

A)the prices of domestic goods have risen relative to foreign goods,causing exports to fall and imports to rise.
B)higher interest rates caused by an increase in the demand for money balances causes a reduction in current investment and consumption.
C)the value of money will fall,reducing the real wealth and,thus,the consumption of persons holding money balances.
D)all of the above are correct.

Question 6

Controlling the money supply to achieve desired macroeconomic goals is called

A)monetary policy.
B)cyclical policy.
C)fiscal policy.
D)industrial policy.

Question 7

The four key markets in the simple AD/AS model are

A)food,housing,clothing,and automobiles.
B)consumption,investment,bond,and foreign trade.
C)goods and services,resources,foreign exchange,and loanable funds.
D)labor,public goods,bond,and the stock market.

Question 8

A positive level of net exports contributes directly to

A)demand in the resources market.
B)supply in the loanable funds market.
C)demand in the loanable funds market.
D)demand in the goods and services market.

Question 9

The actions of borrowers and lenders are coordinated by

A)the interest rate in the loanable funds market.
B)the government in the resources market.
C)businesses in the resources market.
D)the interest rate in the goods and services market.

Question 10

The resource market is important from a macroeconomic perspective because

A)it coordinates the allocation of productive resources and determines the costs of production.
B)it determines the interest rates faced by borrowers and lenders.
C)inflation rates are set in the resource market by the government.
D)resource prices determine the position of the long-run aggregate supply curve.

Question 11

If the dollar price of the English pound goes from $1.50 to $1.75,the dollar has

A)appreciated,and Americans will find English goods cheaper.
B)appreciated,and Americans will find English goods more expensive.
C)depreciated,and Americans will find English goods cheaper.
D)depreciated,and Americans will find English goods more expensive.

Question 12

If the price level in the current period is higher than what buyers and sellers anticipated,

A)profit margins will be unattractive and firms will expand output.
B)profit margins will be unattractive and firms will reduce output.
C)profit margins will be attractive and firms will expand output.
D)profit margins will be attractive and firms will reduce output.

Question 13

Long-run equilibrium in the goods and services market requires that

A)aggregate supply equals aggregate demand and that decision makers correctly anticipate the level of prices.
B)the unemployment rate is zero.
C)prices are neither increasing nor decreasing.
D)aggregate supply be larger than aggregate demand.

Question 14

Which of the following provides the most accurate description of monetary policy?

A)the deliberate control of the money supply to achieve macroeconomic goals
B)the use of the government's regulatory powers to improve economic efficiency
C)the government provision of goods to improve economic efficiency
D)the use of government taxation and expenditures to achieve macroeconomic goals

Question 15

The use of government taxation and expenditures to achieve macroeconomic goals is called

A)cyclical policy.
B)monetary policy.
C)fiscal policy.
D)industrial policy.

Question 16

Saving is

A)the sum of the funds people hold in their checking accounts.
B)after-tax income that is not spent on consumption.
C)always equal to consumption.
D)equal to disposable income plus consumption.

Question 17

When equilibrium is present in the foreign exchange market,which of the following will tend to be in balance?

A)the value of goods exported and the value of goods imported
B)real and nominal interest rates
C)imports plus capital outflow and exports plus capital inflow
D)tax revenues and government expenditures

Question 18

The market that coordinates the exchange of productive inputs between the household and business sectors is the

A)stock market.
B)goods and services market.
C)resource market.
D)loanable funds market.

Question 19

Which of the following best characterizes the circular flow of income?

A)Households buy goods and services from businesses,and businesses sell goods and services to households.
B)The government purchases resources from businesses and households and then sells goods and services to businesses and households.
C)Businesses buy resources from the government,and households buy goods and services from businesses.
D)Businesses buy resources from households,and households use their income to buy goods and services from businesses.

Question 20

Which of the following is a correct statement?

A)Fiscal policy is the use of tax and spending policies by Congress and the president.
B)Fiscal policy involves the control of the money supply by the Federal Reserve Bank.
C)Monetary policy involves the control of the money supply by Congress and the president.
D)Monetary policy is the use of tax and spending policies by the Federal Reserve Bank.

Question 21

The aggregate demand curve slopes downward indicating that

A)an increase in the general price level will reduce the aggregate quantity of goods and services demanded.
B)an increase in the general price level will increase the aggregate quantity of goods and services demanded.
C)a change in the interest rate will alter the aggregate quantity of goods and services demanded.
D)consumers substitute between domestic-made and foreign-made goods as their relative prices change.

Question 22

In the foreign exchange market,the price of one nation's currency in terms of the currency of another nation is known as the

A)inflation rate.
B)wage rate.
C)interest rate.
D)exchange rate.

Question 23

Other things the same,a decrease in the price level induces people to hold

A)less money,so they lend less,and the interest rate rises.
B)less money,so they lend more,and the interest rate falls.
C)more money,so they lend more,and the interest rate rises.
D)more money,so they lend less,and the interest rate falls.

Question 24

Other things the same,an increase in the price level induces people to hold

A)less money,so they lend less,and the interest rate rises.
B)less money,so they lend more,and the interest rate falls.
C)more money,so they lend more,and the interest rate falls.
D)more money,so they lend less,and the interest rate rises.

Question 25

Other things the same,an increase in the price level makes the dollars people hold worth

A)more,so they are willing to spend more.
B)more,so they are willing to spend less.
C)less,so they are willing to spend more.
D)less,so they are willing to spend less.

Question 26

For an economy,aggregate demand equals

A)consumption plus investment plus government purchases plus exports.
B)consumption plus investment plus government purchases plus (exports minus imports).
C)consumption plus investment plus (taxes minus transfers)plus (exports minus imports).
D)consumption plus investment plus government purchases plus (imports minus exports).

Question 27

Which of the following helps explain why the aggregate demand curve slopes downward?

A)If the price level increases,the purchasing power of the fixed quantity of money decreases,causing people to buy less.
B)If the price level increases,the purchasing power of the fixed quantity of money increases,causing people to buy more.
C)If domestic prices increase,we substitute domestic goods for imported goods.
D)If domestic prices decrease,we substitute imported goods for domestic goods.

Question 28

Which of the following markets coordinates transactions with foreigners that involve the exchange of currency?

A)the resource market
B)the stock market
C)the foreign exchange market
D)the loanable funds market

Question 29

As the U.S.price level rises relative to price levels in other countries,what would happen in the U.S.?

A)consumption and net exports would decline
B)consumption and net exports would increase
C)consumption would increase and net exports would decrease
D)consumption would decrease and net exports would increase
E)consumption and net exports would remain constant

Question 30

Other things the same,a decrease in the price level makes the dollars people hold worth

A)more,so they are willing to spend more.
B)more,so they are willing to spend less.
C)less,so they are willing to spend more.
D)less,so they are willing to spend less.

Question 31

The change in the quantity of goods and services demanded in the U.S.is based on the logic that as the price level rises,

A)real wealth falls,interest rates rise,and net exports fall.
B)real wealth falls,interest rates rise,and net exports rise.
C)real wealth rises,interest rates fall,and net exports fall.
D)real wealth rises,interest rates fall,and net exports rise.

Question 32

The change in the aggregate quantity of goods and services demanded in the U.S.is based on the logic that as the price level falls,

A)real wealth falls,interest rates rise,and net exports fall.
B)real wealth falls,interest rates rise,and net exports rise.
C)real wealth rises,interest rates fall,and net exports fall.
D)real wealth rises,interest rates fall,and net exports rise.

Question 33

The aggregate demand curve indicates the relationship between

A)the real wage rate and the quality of resources demanded by producers of goods and services.
B)the interest rate and the amount of loanable funds demanded by borrowers.
C)the natural rate of unemployment and the demand for goods and services when the economy is in long-run equilibrium.
D)the general price level and the aggregate quantity of goods and services demanded.

Question 34

People will spend more if the price level

A)rises because rising prices increase the real value of the fixed quantity of money.
B)rises because rising prices decrease the real value of a dollar.
C)falls because falling prices increase the real value of a dollar.
D)falls because falling prices decrease the real value of a dollar.

Question 35

Which of the following is not included in aggregate demand?

A)purchases of stock and bonds
B)purchases of services such as visits to the doctor
C)purchases of capital goods such as equipment in a factory
D)purchases by foreigners of consumer goods produced in the United States

Question 36

The portion of after-tax income a consumer does not spend on consumption is called

A)investment.
B)saving.
C)supply.
D)temporary income.

Question 37

Within the aggregate demand/aggregate supply framework,the quantity produced and purchased in the goods and services market represents

A)nominal output or nominal GDP.
B)the interest rate.
C)real output or real GDP.
D)the consumer price index.

Question 38

The aggregate demand curve is downward sloping because

A)an increase in the price level will cause an increase in spending on goods and services.
B)at lower price levels,real wealth decreases,causing a decrease in the quantity demanded of goods and services.
C)at lower price levels,interest rates increase,causing a decrease in the quantity demanded of goods and services.
D)at lower price levels,net exports increase,causing an increase in quantity demanded of goods and services.

Question 39

Which of the following properly describes the interest-rate effect of aggregate demand?

A)A higher price level leads to higher money demand,higher money demand leads to higher interest rates,a higher interest rate increases the quantity of goods and services demanded.
B)A higher price level leads to higher money demand,higher money demand leads to lower interest rates,a higher interest rate reduces the quantity of goods and services demanded.
C)A lower price level leads to lower money demand,lower money demand leads to lower interest rates,a lower interest rate reduces the quantity of goods and services demanded.
D)A lower price level leads to lower money demand,lower money demand leads to lower interest rates,a lower interest rate increases the quantity of goods and services demanded.

Question 40

In the AD/AS model,the aggregate demand for goods and services is composed of the purchases made by

A)households and foreigners (net exports).
B)businesses,bondholders,and foreigners (net exports).
C)businesses and governments.
D)consumers,investors,governments,and foreigners (net exports).

Question 41

If prices in the United States rose,which of the following could be directly attributed to the international substitution effect?

A)Americans reduce their purchases of Japanese cars.
B)Australians buy more American surfboards.
C)Europeans purchase fewer American-made personal computers.
D)Americans sell more wheat to India.

Question 42

If the actual price level exceeds the expected price level reflected in long-term contracts,

A)many firms will find production more profitable than they had expected and will increase the quantity of output supplied.
B)many firms will find production less profitable than they had expected and will decrease the quantity of output supplied.
C)many firms will find production more profitable than they had expected and will decrease the quantity of output supplied.
D)many firms will find production less profitable than they had expected and will increase the quantity of output supplied.

Question 43

The aggregate supply curve indicates the

A)relationship between prices and the aggregate quantity of goods and services purchased by consumers,investors,governments,and foreigners (net exports).
B)relationship between prices and the natural rate of unemployment.
C)relationship between the real wage rate and the quantity of labor supplied by households.
D)quantity of goods and services producers will supply at different price levels.

Question 44

Resource prices that are fixed by long-term contracts help explain why,in the short run,firms will

A)increase output when product prices increase.
B)keep production levels constant when product prices decrease.
C)keep their product prices constant even if the demand for their good increases.
D)keep their product prices constant even if the demand for their good decreases.

Question 45

In the context of aggregate supply,the long run is defined as the period during which

A)some prices are set by contracts and cannot be adjusted.
B)prices can change,but neither aggregate supply nor aggregate demand can shift.
C)individuals have sufficient time to modify their behavior in response to price changes.
D)quantity changes cannot occur in response to changes in relative prices.

Question 46

Ceteris paribus,a decrease in the U.S.price level will cause

A)an increase in U.S.exports.
B)an increase in U.S.imports.
C)the aggregate demand curve to shift to the right.
D)the aggregate demand curve to shift to the left.

Question 47

If the actual price level exceeds the expected price level reflected in long-term contracts,

A)firms will find production more profitable than they had expected and will decrease the quantity of output supplied
B)firms will find production less profitable than they had expected and will decrease the quantity of output supplied
C)firms will find production less profitable than they had expected and will increase the quantity of output supplied
D)unemployment will decrease

Question 48

If resource prices are fixed and the product selling price rises,then

A)profits will decrease.
B)profits will increase.
C)profits will remain constant.
D)both profits and output will decrease.

Question 49

The short-run aggregate supply curve shows the relationship between

A)the general level of prices and the quantity of goods and services purchased by all consumers in the economy.
B)the general level of prices and the quantity of goods and services that domestic firms will supply.
C)the interest rate and the quantity of goods and services that domestic firms will supply.
D)the money supply and the quantity of goods and services that domestic firms will supply.

Question 50

Which of the following helps explain why the aggregate quantity demanded of goods and services is inversely related to prices within the framework of the AD/AS model?

A)As prices fall,domestic consumers have an incentive to buy more of the cheaper goods and services.
B)As prices fall,the monetary authorities will have to increase the money supply,which will lead to an increase in the quantity of goods and services purchased.
C)As prices fall,the government will have to reduce taxes,which will lead to an increase in the quantity of goods and services purchased.
D)As prices fall,the wealth of people holding the fixed quantity of money increases,causing them to expand their purchases of goods and services.

Question 51

As prices rise,people will buy fewer goods and services because

A)the interest rate has declined.
B)aggregate demand has increased.
C)the purchasing power of the fixed quantity of money has declined.
D)the income of households has increased.

Question 52

If the actual price level is lower than the expected price level reflected in long-term contracts,

A)many firms will find production more profitable than they had expected and will increase the quantity of output supplied
B)many firms will find production less profitable than they had expected and will decrease the quantity of output supplied
C)many firms will find production more profitable than they had expected and will decrease the quantity of output supplied
D)many firms will find production less profitable than they had expected and will increase the quantity of output supplied

Question 53

The international substitution effect exists because a

A)higher price level will reduce interest rates and stimulate foreign investment.
B)lower price level will make domestically produced goods less expensive relative to foreign goods.
C)higher price level will reduce the purchasing power of money.
D)lower price level will encourage Americans to import more foreign goods.

Question 54

Because many resource prices are set by long-term contracts,in the short run

A)costs will increase by more than product prices when demand increases.
B)costs will decrease when the demand for products increases.
C)costs will increase by less than product prices when demand increases.
D)costs will decrease by more than product prices when demand decreases.

Question 55

When prices rise,consumers and businesses hold larger money balances.This reduces the supply of loanable funds,increases the interest rate,and discourages both consumption and investment.This process is called the

A)interest rate effect.
B)real balance effect.
C)investment effect.
D)disinvestment effect.

Question 56

If scientific research produces a technological breakthrough in the production of computer memory,then

A)business costs will increase,profits will fall,and production will decrease.
B)business costs will fall,but profits will also fall,and production will decrease.
C)business costs will fall,profits will improve,and production will increase.
D)profits will increase because businesses will cut back production.

Question 57

For most firms in the economy,the largest part of resource costs is the cost of

A)labor.
B)capital.
C)property and machinery.
D)land and natural resources.

Question 58

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

A)The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run.
B)The higher prices will reduce the purchasing power of the fixed quantity of money and,thereby,stimulate additional output.
C)The higher prices will expand the economy's resource base and,thereby,stimulate additional output.
D)The higher prices will improve technology and,thereby,stimulate additional output.

Question 59

Other things equal,which of the following is true?

A)A reduction in prices will increase the real wealth of those holding a fixed quantity of money.
B)A reduction in prices will lead to a decline in net exports.
C)A reduction in prices will increase the scarcity of money,raise the real interest rate,and,thereby,encourage investment and consumption.
D)A reduction in prices will increase profit margins and,thereby,stimulate additional investment.

Question 60

In the context of aggregate supply,the short run is defined as the period during which

A)some prices are set by contracts and cannot be adjusted.
B)prices can change,but neither aggregate supply nor aggregate demand can shift.
C)individuals have sufficient time to modify their behavior in response to price changes.
D)quantity changes cannot occur in response to changes in relative prices.

Question 61

In the short run,an unexpected increase in prices will

A)reduce resource prices and increase the quantity of goods supplied.
B)decrease the productive capacity of firms and decrease the quantity of goods supplied.
C)increase the profits of firms,thereby leading them to expand output.
D)increase the profits of firms,thereby leading them to reduce output.

Question 62

If the actual price level is lower than the expected price level reflected in long-term contracts,

A)the actual rate of unemployment will be less than the natural rate of unemployment.
B)the actual rate of unemployment will exceed the natural rate of unemployment.
C)the natural rate of unemployment will rise.
D)the natural rate of unemployment will fall.

Question 63

In the aggregate demand and aggregate supply model,

A)the factors that cause the individual demand curve to slope downward are the same as the factors that cause the aggregate demand curve to slope downward.
B)the factors that cause the individual supply curve to slope upward are the same as the factors that cause the short-run aggregate supply curve to slope upward.
C)the upward-sloping aggregate demand curve intersects the downward-sloping short-run aggregate supply curve to determine the economy's price level and GDP.
D)the upward-sloping short-run aggregate supply curve intersects the downward-sloping aggregate demand curve to determine the economy's price level and GDP.

Question 64

The short-run aggregate supply curve (SRAS)slopes upward to the right because unexpected increases in prices will

A)increase aggregate demand as consumers buy more.
B)decrease aggregate demand as consumers buy less.
C)cause firms to expand output since the higher product prices will improve profitability.
D)cause firms to reduce output since the higher product prices will decrease profit margins.

Question 65

Which of the following is true?

A)The long-run aggregate supply curve slopes upward to the right.
B)The aggregate quantity demanded of goods and services slopes downward to the right because it is simply the sum of the demand curves for each individual product.
C)An unanticipated increase in demand will increase prices and improve profit margins in the goods and services market,leading firms to expand output.
D)An anticipated increase in demand will lead to higher resource prices,which will cause firms to expand their output.

Question 66

Within the framework of the AD/AS model,if a long-run equilibrium is present in the goods and services market,

A)decision makers will have accurately forecast the current price level when they arrived at resource price and loanable funds agreements.
B)the profit rates of the firms will generally exceed the competitive level.
C)the actual rate of unemployment will fall below the natural rate of unemployment.
D)the current rate of output will be sustainable in the future.
E)both a and d are correct.

Question 67

Within the framework of the AD/AS model,if a long-run equilibrium is present in the goods and services market,

A)decision makers will have accurately forecast the current price level when they arrived at resource price and loanable funds agreements.
B)the profit rates of the firms will generally exceed the competitive level.
C)the actual rate of unemployment will be less than the natural rate of unemployment.
D)output will exceed the economy's long-run sustainable output.

Question 68

Output in the goods and services market will be sustained into the future

A)if aggregate demand and short-run aggregate supply are in balance.
B)only when the prior choices of decision makers were based on a correct anticipation of prices.
C)only when prices are rising.
D)only when wage rates are declining.

Question 69

Which of the following would generally cause firms to expand output in the short run?

A)a proportional increase in the prices of goods and services and the costs of producing them
B)higher profit margins as the result of an unexpected increase in the prices of goods and services
C)an unexpected reduction in aggregate demand
D)an increase in wages and the prices of other resources

Question 70

In the short run,if prices were below equilibrium,

A)excess aggregate demand for goods and services would place downward pressure on prices.
B)excess aggregate supply of goods and services would place downward pressure on prices.
C)excess aggregate demand for goods and services would place upward pressure on prices.
D)excess aggregate supply of goods and services would place upward pressure on prices.

Question 71

The supply of resources,level of technology,and the quality of an economy's institutional arrangements provide the constraint that determines the shape of the

A)short-run aggregate supply curve.
B)long-run aggregate supply curve.
C)supply of loanable funds.
D)aggregate demand curve.

Question 72

A vertical long-run aggregate supply curve indicates that

A)an increase in the price level will not expand an economy's output capacity in the long run.
B)outputs greater than the long-run supply constraint cannot be achieved.
C)an increase in the price level will permit the economy to achieve a higher level of output.
D)an increase in the price level will promote technological change and more rapid economic growth.

Question 73

The potential output of an economy is the level of output produced when the

A)real wage equals the nominal wage.
B)price level is constant.
C)expected real wage equals the inflation rate.
D)expected price level equals the unemployment rate.
E)expected price level equals the actual price level.

Question 74

The vertical long-run aggregate supply curve reflects the fact that in the long run,an increase in the price level

A)will not alter the economy's maximum sustainable rate of output.
B)will increase the economy's maximum sustainable rate of output.
C)will reduce the quantity of goods and services purchasers will demand.
D)will improve the overall efficiency of resource use.

Question 75

When equilibrium is present,if market conditions do not change,

A)the current price will tend to rise in the future,and the current quantity will tend to fall.
B)the current price will tend to fall in the future,and the current quantity will tend to rise.
C)the current price and quantity will tend to persist in the future.
D)the current price will tend to persist in the future,but the current quantity will tend to rise.

Question 76

Which of the following basic economic concepts most clearly provides the foundation for the long-run aggregate supply curve?

A)the law of demand
B)the production possibilities curve
C)the law of comparative advantage
D)the law of diminishing marginal utility

Question 77

If the price level in the current period is lower than what buyers and sellers anticipated,

A)profit margins will be unattractive,and firms will expand output.
B)profit margins will be unattractive,and firms will reduce output.
C)profit margins will be attractive,and firms will expand output.
D)profit margins will be attractive,and firms will reduce output.

Question 78

Once decision makers fully adjust to an increase in prices,

A)the natural rate of unemployment will decline.
B)competitive forces will restore the usual relationship between product prices and costs.
C)producers' profits will exceed their normal level.
D)producers will expand output beyond the economy's potential.

Question 79

Long-run equilibrium in the goods and services market requires that decision makers who agreed to long-term contracts must have

A)incorrectly anticipated the level of prices when they made the agreements.
B)correctly anticipated the level of prices when they made the agreements.
C)correctly anticipated the natural rate of unemployment when they made the agreements.
D)correctly anticipated actual GDP when they made the agreements.

Question 80

In the short run,a price increase in the goods and services market will

A)increase the purchasing power of money.
B)improve producer profits and,thereby,induce suppliers to expand output.
C)increase resource prices,lower profits,and lead to a decline in output.
D)reduce the natural rate of unemployment.