Question 1

________ increases real GDP.&#10;A) A fall in the price level&#10;B) An increase in employment&#10;C) An increase in the natural rate of unemployment&#10;D) A decrease in government spending

Accepted Answer

An increase in employment would lead to an increase in labor productivity, which would result in an increase in real GDP.

Question 2

The opportunity cost of holding money is the&#10;A) price level.&#10;B) real interest rate.&#10;C) velocity of circulation.&#10;D) nominal interest rate.

Accepted Answer

The opportunity cost of holding money is the nominal interest rate because it represents the foregone interest that could have been earned if the money was invested instead of being held as cash.

Question 3

According to the quantity theory of money,&#10;A) the only way the Fed can change the quantity of money without affecting the velocity of circulation is by using open market operations.&#10;B) a change in the discount rate changes real GDP.&#10;C) a decrease in the quantity of money will decrease the velocity of circulation.&#10;D) a decrease in the quantity of money will decrease the price level.

Accepted Answer

According to the quantity theory of money, the price level is directly proportional to the quantity of money in circulation. Therefore, a decrease in the quantity of money will decrease the price level. Option A is incorrect because changes in monetary policy, such as changes in the reserve requirement or the discount rate, can also affect the quantity of money. Option B is incorrect because changes in the discount rate affect the cost of borrowing for banks and do not necessarily lead to changes in real GDP. Option C is incorrect because changes in the quantity of money can affect the velocity of circulation, but it is not a direct relationship according to the quantity theory of money.

Question 4

If the Fed hikes the U.S.interest rate relative to interest rates in other countries,in the foreign exchange market the demand for dollars will ________,the supply of dollars will ________,and the exchange rate will ________.

A) increase; increase; rise
B) decrease; decrease; fall
C) increase; decrease; rise
D) decrease; increase; fall

Accepted Answer

If the Fed hikes the U.S. interest rate relative to interest rates in other countries, it will increase the demand for dollars as investors seek higher returns. However, it will decrease the supply of dollars as the higher interest rates make it more expensive for U.S. corporations and government to borrow. Therefore, the exchange rate will rise as demand outstrips supply.

Question 5

When money is accepted as payment in a market transaction,it is functioning as&#10;A) a factor that shifts the aggregate production function&#10;B) the velocity of circulation.&#10;C) a medium of exchange.&#10;D) the real interest rate.

Accepted Answer

Money serves as a medium of exchange in market transactions. It is used to facilitate the exchange of goods and services between buyers and sellers. Factors that shift the aggregate production function, such as changes in technology or capital stock, are not related to the use of money in transactions. Velocity of circulation refers to the speed at which money changes hands, but it is not the same as the function of money as a medium of exchange. The real interest rate relates to the cost of borrowing money, but it is not directly related to the function of money in market transactions.

Question 6

If productivity constantly increases,then the real wage rate ________ and employment ________.&#10;A) constantly rises; constantly increases&#10;B) does not change; constantly decreases&#10;C) constantly decreases; does not change&#10;D) constantly rises; does not change

Accepted Answer

If productivity constantly increases, it means that workers are producing more output per hour worked. This allows firms to pay higher wages while also remaining cost-competitive. Therefore, the real wage rate (i.e. the wage adjusted for inflation) will constantly rise. Additionally, as firms become more productive, they are able to expand output and this creates more employment opportunities, leading to employment constantly increasing.

Question 7

The velocity of circulation is&#10;A) equal to the price level multiplied by real GDP.&#10;B) the same as the aggregate demand curve.&#10;C) the average number of times a dollar bill is used in a year to buy the goods and services in GDP.&#10;D) increased when the Fed lowers the required reserve ratio.

Accepted Answer

The velocity of circulation is the average number of times a dollar bill is used in a year to buy the goods and services in GDP.

Question 8

An increase in the amount of capital leads to ________ the aggregate production function and a technological advance leads to ________ the aggregate production function.&#10;A) a movement along; a movement along&#10;B) a movement along; an upward shift&#10;C) an upward shift; an upward shift&#10;D) a downward shift; an upward shift

Accepted Answer

An increase in the amount of capital leads to an upward shift of the aggregate production function since more capital means more output can be produced. 
A technological advance also leads to an upward shift of the aggregate production function, as it improves productivity and increases output.

Question 9

If two currencies allow for the equal value of money so that the same bundle of goods cost the same in two countries,there is&#10;A) trade equalization parity.&#10;B) interest rate parity.&#10;C) tariff application parity.&#10;D) purchasing power parity.

Accepted Answer

The concept described in the statement is Purchasing Power Parity (PPP), which states that the same bundle of goods should have the same cost in different countries, adjusted for the exchange rate. PPP determines the exchange rate between two currencies in the long run based on the relative inflation rates of the two countries. Therefore, the correct choice is D. The other options, trade equalization parity, interest rate parity, and tariff application parity, do not relate to the given concept.

Question 10

An increase in the population will ________ potential GDP,________ employment,and ________ the real wage.&#10;A) decrease; increase; raise&#10;B) increase; increase; raise&#10;C) increase; decrease; lower&#10;D) increase; increase; lower

Accepted Answer

An increase in population raises potential GDP due to a larger labor force, increases employment as more people are available to work, and lowers the real wage due to increased labor supply.

Question 11

If the U.S.interest rate differential ________,the demand for dollars ________ and the U.S.exchange rate ________.&#10;A) increases; increase; appreciates&#10;B) decreases; increase; appreciates&#10;C) increases; decrease; depreciates&#10;D) decreases; decreases; appreciates

Accepted Answer

The answer of If the U.S.interest rate differential ________,the demand...

Question 12

An increase in the productivity will ________ potential GDP,________ employment,and ________ the real wage.&#10;A) decrease; increase; raise&#10;B) increase; increase; raise&#10;C) increase; decrease; lower&#10;D) increase; increase; lower

Accepted Answer

The answer of An increase in the productivity will ________...

Question 13

The ________ growth theory assumes that population growth is not driven by real GDP per person and the ________ growth theory predicts that differences in the economic growth rate can last indefinitely.

A) new; classical
B) neoclassical; new
C) classical; neoclassical
D) neoclassical; neoclassical

Accepted Answer

The answer of The ________ growth theory assumes that population...

Question 14

Purchasing new capital ________.&#10;A) creates an upward movement along the aggregate production function&#10;B) creates a downward movement along the aggregate production function&#10;C) shifts the aggregate production function upward&#10;D) shifts the aggregate production function downward

Accepted Answer

The answer of Purchasing new capital ________.&#10;A) creates an upward...

Question 15

If the Fed makes an open market ________ of securities,in the quantity theory M ________ and V ________.&#10;A) purchase; increases; increases&#10;B) sale; increases; decreases&#10;C) purchase; does not change; does not change&#10;D) sale; decreases; does not change

Accepted Answer

The answer of If the Fed makes an open market...

Question 16

The major component of the capital and finance account is&#10;A) net exports.&#10;B) investment both abroad and domestically.&#10;C) imports and exports of services.&#10;D) the official settlements account.

Accepted Answer

The answer of The major component of the capital and...

Question 17

The demand for labor ________ and the accumulated skill and knowledge of human is called ________.&#10;A) increases when productivity rises; technology&#10;B) depends on the nominal wage rate; human capital&#10;C) depends on the real wage rate; human capital&#10;D) is independent of technology; the marginal product of labor

Accepted Answer

The answer of The demand for labor ________ and the...

Question 18

In the foreign exchange market,if the supply of dollars ________ and simultaneously the demand for dollars ________,then the exchange rate definitely ________.&#10;A) increases; increases; depreciates&#10;B) decreases; increases; depreciates&#10;C) increases; decreases; depreciates&#10;D) decreases; decreases; appreciates

Accepted Answer

The answer of In the foreign exchange market,if the supply...

Question 19

The main component of the current account is&#10;A) net exports.&#10;B) investment both abroad and domestically.&#10;C) net interest income.&#10;D) the official settlements account.

Accepted Answer

The answer of The main component of the current account...

Deck 18: Macroeconomic Trends