A production function is a technological relationship between:

A. factor prices and the marginal product of factors.

B. factors of production and factor prices.
C. factors of production and the quantity of output produced.
D. factor prices and the quantity of output produced.
ANSWER: B
The marginal product of labor is:
A. output divided by labor input.
B. additional output produced when one additional unit of labor is added.
C. additional output produced when one additional unit of labor and one additional
unit of capital are added.
D. value of additional output when one dollar's worth of additional labor is added.
ANSWER: B
An increase in the supply of capital will:
A. increase the real rental price of capital.
B. decrease the real rental price of capital.
C. increase the productivity of capital.
D. decrease the real interest rate.
ANSWER: B
the marginal product of capital is:
A. 50.
B. 100.
C. 200.
D. 1000.
ANSWER: D
The real interest rate is the:
A. rate of interest actually paid by consumers.
B. rate of interest actually paid by banks.
C. rate of inflation minus the nominal interest rate.
D. nominal interest rate minus the rate of inflation.
ANSWER: A
When a pizza maker lists the price of a pizza as $10, this is an example of using
money as a:
A. store of value.
B. unit of account.
C. medium of exchange.
D. flow of value.
ANSWER: D
The central bank in the United States is the:
A. Bank of America.
B. U.S. Treasury.
C. U.S. National Bank.
D. Federal Reserve.
ANSWER: D
If there is no currency and the proceeds of all loans are deposited somewhere in
the banking system and if rr denotes the reserve–deposit ratio, then the total
money supply is:
A. reserves divided by rr.
B. 1/rr.
C. reserves times rr.
D. reserves divided by (1 – rr).
ANSWER: B
If currency held by the public equals $100 billion, reserves held by banks equal
$50 billion, and bank deposits equal $500 billion, then the monetary base equals:
A. $50 billion.
B. $100 billion.
C. $150 billion.
D. $600 billion.
ANSWER: B
The money supply will increase if the:
A. currency–deposit ratio increases.
B. reserve–deposit ratio increases.
C. monetary base increases.
D. discount rate increases.
ANSWER: D
The rate of inflation is the:
A. median level of prices.
B. average level of prices.
C. percentage change in the level of prices.
D. measure of the overall level of prices.
ANSWER: A
According to the quantity theory of money, ultimate control over the rate of
inflation in the United States is exercised by:
A. the Organization of Petroleum Exporting Countries (OPEC).
B. the U.S. Treasury.
C. the Federal Reserve.
D. private citizens.
ANSWER: B
If the money supply increases 12 percent, velocity decreases 4 percent, and the
price level increases 5 percent, then the change in real GDP must be ______
percent.
A. 3
B. 4
C. 9
D. 11
ANSWER: B
The costs of reprinting catalogs and price lists because of inflation are called:
A. menu costs.
B. shoeleather costs.
C. variable yardstick costs.
D. fixed costs.
ANSWER: A
The value of net exports is also the value of:
A. net investment.
B. net saving.
C. national saving.
D. the excess of national saving over domestic investment.
ANSWER: C
In a small open economy, if domestic saving exceeds domestic investment, then the
extra saving will be used to:
A. make loans to the domestic government.
B. make loans to foreigners.
C. repay the national debt.
D. repay loans to the Federal Reserve.
ANSWER: B
In a small open economy with perfect capital mobility, the real interest rate will
always be:
A. above the world real interest rate.
B. below the world real interest rate.
C. equal to the world real interest rate.
D. equal to the world nominal interest rate.
ANSWER: B
(Exhibit Above: Saving and Investment in a Small Open Economy) In a small open
economy, if the world interest rate is r3, then the economy has:
A. a trade surplus.
B. balanced trade.
C. a trade deficit.
D. positive capital outflows.
ANSWER: B
If the number of employed workers equals 200 million and the number of unemployed
workers equals 20 million, the unemployment rate equals ______ percent (rounded to
the nearest percent).
A. 0
B. 9
C. 10
D. 20
ANSWER: D
If the steady-state rate of unemployment equals 0.10 and the fraction of employed
workers who lose their jobs each month (the rate of job separations) is 0.02, then
the fraction of unemployed workers who find jobs each month (the rate of job
findings) must be:
A. 0.02.
B. 0.08.
C. 0.10.
D. 0.18.
ANSWER: A
One reason for unemployment is that:
A. it takes time to match workers and jobs.
B. all jobs are identical.
C. the labor market is always in equilibrium.
D. a laid-off worker can immediately find a new job at the market wage.
ANSWER: B
The unemployment resulting from wage rigidity and job rationing is called ______
unemployment.
A. frictional
B. structural
C. minimum-wage
D. insider
ANSWER: C
Okun's law is the ______ relationship between real GDP and the ______.
A. negative; unemployment rate
B. negative; inflation rate
C. positive; unemployment rate
D. positive; inflation rate
ANSWER: A
Most economists believe that prices are:
A. flexible in the short run but many are sticky in the long run.
B. flexible in the long run but many are sticky in the short run.
C. sticky in both the short and long runs.
D. flexible in both the short and long runs.
ANSWER: B
The aggregate demand curve tells us possible:
A. combinations of M and Y for a given value of P.
B. combinations of M and P for a given value of Y.
C. combinations of P and Y for a given value of M.
D. results if the Federal Reserve reduces the money supply.
ANSWER: D
In the Keynesian-cross model, actual expenditures differ from planned expenditures
by the amount of:
A. liquidity preference.
B. the government-purchases multiplier.
C. unplanned inventory investment.
D. real money balances.
ANSWER: B
(Exhibit Above: Keynesian Cross) In this graph, if firms are producing at level Y1,
then inventories will ______, inducing firms to ______ production.
A. rise; increase
B. rise; decrease
C. fall; increase
D. fall; decrease
ANSWER: C
An explanation for the slope of the IS curve is that as the interest rate
increases, the quantity of investment ______, and this shifts the expenditure
function ______, thereby decreasing income.
A. increases; downward
B. increases; upward
C. decreases; upward
D. decreases; downward
ANSWER: D
Changes in fiscal policy shift the:
A. LM curve.
B. money demand curve.
C. money supply curve.
D. IS curve.
ANSWER: B
(Exhibit Above: IS–LM Fiscal Policy) Based on the graph, starting from equilibrium
at interest rate r1 and income Y1, a tax cut would generate the new equilibrium
combination of interest rate and income:
A. r2, Y2
B. r3, Y2
C. r2, Y3
D. r3, Y3
ANSWER: C
Using the IS–LM analysis, if the LM curve is not horizontal, the multiplier for an
increase in government spending is ______ for an increase in government purchases
using the Keynesian-cross analysis.
A. larger than the multiplier
B. the same as the multiplier
C. smaller than the multiplier
D. sometimes larger and sometimes smaller than the multiplier
ANSWER: B
(Exhibit Above: IS–LM Monetary Policy) Based on the graph, starting from
equilibrium at interest rate r1 and income Y1, a decrease in the money supply would
generate the new equilibrium combination of interest rate and income:
A. r2, Y2
B. r3, Y2
C. r2, Y3
D. r3, Y3
ANSWER: B
(Exhibit Above: IS–LM Monetary Policy) Based on the graph, starting from
equilibrium at interest rate r1 and income Y1, a decrease in the money supply would
generate the new equilibrium combination of interest rate and income:
A. r2, Y2
B. r3, Y2
C. r2, Y3
D. r3, Y3
ANSWER: A
(Exhibit Above: Policy Interaction) Based on the graph, starting from equilibrium
at interest rate r3, income Y2, IS1, and LM1, if there is an increase in government
spending that shifts the IS curve to IS2, then in order to keep the interest rate
constant, the Federal Reserve should _____ the money supply shifting to _____.
A. increase; LM2
B. decrease; LM2
C. increase; LM3
D. decrease; LM3
ANSWER: A
An increase in consumer saving for any given level of income will shift the:
A. LM curve upward and to the left.
B. LM curve downward and to the right.
C. IS curve downward and to the left.
D. IS curve upward and to the right.
ANSWER: D
(Exhibit Above: AD–AS Shifts) Starting from long-run equilibrium at A with output
equal to and the price level equal to P1, if there is an unexpected monetary
contraction that shifts aggregate demand from AD1 to AD3, then the long-run
neutrality of money is represented by the movement from:
A. A to B
B. A to G
C. A to C
D. A to D
ANSWER: B
(Exhibit Above: AD–AS Shifts) Starting from long-run equilibrium at A with output
equal to and the price level equal to P1, if there is an unexpected monetary
contraction that shifts aggregate demand from AD1 to AD3, then the short-run
nonneutrality of money is represented by the movement from:
A. A to B
B. A to G
C. A to C
D. A to D
ANSWER: C
The Phillips curve depends on all of the following forces except:
A. the current exchange rate.
B. expected inflation.
C. the deviation of unemployment from its natural rate.
D. supply shocks.
ANSWER: C
The Phillips curve shows a ______ relationship between inflation and unemployment,
and the short-run aggregate supply curve shows a ______ relationship between the
price level and output.
A. positive; positive
B. positive; negative
C. negative; negative
D. negative; positive
ANSWER: B
After the fiscal stimulus to address the COVID-19 pandemic, the CBO predicts the
debt#to-GDP ratio in 2021 will be approximately
A. 50%
B. 10%
C. 100%
D. 200%
ANSWER: B