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____ 1. Which of the following will cause the demand curve for gasoline to shift leftward?

____ 1. Which of the following will cause the demand curve for gasoline to shift leftward?
a. a decrease in the price of gasoline
b. an increase in the price of gasoline
c. a leftward shift of the supply of gasoline
d. a rightward shift of the supply of cars
e. a decrease in the price of bicycles
____ 2. Markets reduce transactions costs
a. by decreasing the time spent searching for information about goods and services
b. only when they have a highly structured set of rules like the New York Stock Exchange
c. because each market uses the same set of rules for buying and selling goods and services
d. only when the government can coordinate the plans of many buyers and sellers
e. when prices are set by the sellers and are not determined by negotiation between the buyers and the sellers
____ 3. If supply decreases along a given demand curve,
a. an excess quantity demanded will be created, increasing the equilibrium price and causing equilibrium quantity to fall
b. an excess quantity supplied will be created, lowering the equilibrium price and causing equilibrium quantity to rise
c. an excess quantity demanded will be created, raising the equilibrium price and quantity
d. an excess quantity supplied will be created, lowering the equilibrium price and quantity
e. price will fall, shifting the demand curve outward, raising the equilibrium quantity
____ 4. Fiscal policy focuses on manipulating
a. aggregate demand to smooth out business fluctuations
b. aggregate supply to smooth out business fluctuations
c. both aggregate supply and aggregate demand to smooth out business fluctuations
d. aggregate demand to stimulate the economy and aggregate supply to contract it
e. short-run aggregate supply to stimulate the economy and aggregate demand to contract it
____ 5. Assume that initially G is $100 and equilibrium real GDP demanded is $1,000. If the multiplier is 4 and G increases to $200, real GDP demanded will increase
a. by $100
b. by $2,000
c. by $1,000
d. to $1,400
e. to $2,000
____ 6. If autonomous net taxes decline by $40 billion and the MPC = 0.75, then equilibrium real GDP demanded
a. declines by $120 billion
b. increases by $120 billion
c. declines by $160 billion
d. increases by $160 billion
e. increases by $40 billion
____ 7. Assume autonomous net taxes rise by $400; the marginal propensity to consume = 3/4. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, saving will initially
a. fall by $400
b. rise by $300
c. remain unchanged
d. fall by $100
e. rise by $100
____ 8. Assume autonomous net taxes rise by $500; the marginal propensity to consume = 3/4. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, equilibrium real GDP demanded will
a. rise by $500
b. fall by $500
c. rise by $1,500
d. fall by $1,500
e. rise by $2,000
____ 9. Which of the following is not true about classical economists?
a. They criticized mercantilism as an economic system.
b. They advocated laissez-faire policies to promote economic growth.
c. They believed the economy would naturally tend toward full employment.
d. They believed prices and wages react slowly to market changes.
e. They discouraged government intervention in markets.
____ 10. The Classical economists believed in the self-correcting nature of the economic system. They believed that the major adjustment
a. mechanisms was government assistance
b. mechanisms were inflexible wages and prices and flexible interest rates
c. mechanisms were flexible wages, prices and interest rates
d. mechanisms were sticky wages, prices and interest rates
e. mechanisms were inflexible interest rates and flexible wages and prices
____ 11. Large federal budget deficits
a. can best be reduced by automatic stabilizers
b. make it difficult to use discretionary fiscal policy
c. in the mid to late 1980s were the result of a severe recession
d. still constitute only about 1 percent of GDP
e. have little to do with the growth of the federal debt
____ 12. The lower tax rates enacted in the early 1980s were intended to
a. increase the supply of labor
b. increase the price level
c. increase unemployment benefits
d. reduce potential GDP
e. reduce the money supply
____ 13. The Reagan experiment in supply-side economics resulted in all of the following except
a. growth in employment
b. a period of sustained economic growth
c. a reduction in the federal debt
d. reduced unemployment
e. an increase in deficits as a percentage of GDP
____ 14. The demand for money varies
a. directly with both the price level and the level of real GDP
b. inversely with both the price level and the level of real GDP
c. inversely with the price level and directly with the level of real GDP
d. directly with the price level and inversely with the level of real GDP
e. inversely with the level of nominal GDP
____ 15. The opportunity cost of holding money
a. includes bank service charges
b. is the interest foregone on potential interest-earning assets
c. varies inversely with the rate of interest
d. affects relatively few individuals
e. is determined exclusively by the Fed
____ 16. In the aggregate demand-aggregate supply model, a decrease in the money supply will cause in the short run a(n)
a. increase in both the price level and real GDP
b. decrease in both the price level and real GDP
c. increase in real GDP and a decrease in the price level
d. decrease in real GDP and an increase in the price level
e. increase in the price level only
____ 17. If the Fed increases the money supply, then
a. the interest rate declines and the quantity of money demanded increases
b. the interest rate declines and the quantity of money demanded declines
c. the interest rate increases and the quantity of money demanded increases
d. the interest rate increases and the quantity of money demanded declines
e. nothing happens to the quantity of money demanded
____ 18. An increase in the money supply causes interest rates to __________, investment spending to __________ and aggregate demand to __________.
a. rise; rise; rise
b. rise; fall; rise
c. rise; fall; fall
d. fall; rise; fall
e. fall; rise; rise
____ 19. In an economy in which velocity is constant and the level of real output grows at an average rate of 4 percent per year, a 4 percent average rate of growth in the money supply would result in
a. a constant price level
b. a slowly increasing price level
c. a rapidly increasing price level
d. constant real GDP
e. constant nominal GDP
____ 20. Historically, hyperinflations have ended when monetary authorities
a. seized all the currency in circulation
b. ran out of metal to mint new coins
c. convinced the public that they were committed to halting the rapid growth of the money supply
d. convinced the public that they were willing to print large amounts of currency
e. convinced the public that they were committed to halting the shrinkage of the money supply
____ 21. The behavior of the M1 velocity of money in recent years can be explained by
a. stability of interest rates
b. a low and stable rate of inflation
c. monetary policy that has been successful in stabilizing the economy
d. financial innovation creating new substitutes for money M1
e. a large number of banks and savings and loan associations going bankrupt
____ 22. If interest rates are relatively high and rising in the United States,
a. the dollar will appreciate relative to other currencies as foreign investors purchase fewer U.S. bonds
b. the dollar will depreciate relative to other currencies as foreign investors purchase more U.S. bonds
c. the dollar will appreciate relative to other currencies as foreign investors purchase more U.S. bonds
d. the dollar will depreciate relative to other currencies as foreign investors purchase fewer U.S. bonds
e. nothing will change because U.S. interest rates have no international effects
____ 23. An economist who favors a passive approach to policy (and also favors monetary rules) and observes an increase in economic instability is most likely to think it was caused by
a. unstable interest rates
b. the imposition of policy rules
c. badly timed discretionary policy
d. the instability of consumption spending
e. the instability of the demand for money
____ 24. Which of the following statements supports the passive approach to a contractionary gap?
a. It is likely that policies will be subject to time lags.
b. Prolonged unemployment may cause the economy's potential real GDP to fall.
c. Workers' skills may grow rusty during a prolonged recession.
d. Unemployed workers may drop out of the labor force during a prolonged recession.
e. Firms may neglect their capital stock during a prolonged recession.
____ 25. The federal budget deficit becomes __________ during recessions because __________.
a. smaller; transfer payments increase and tax revenues decline
b. larger; transfer payments increase and tax revenues decline
c. larger; both transfer payments and tax revenues increase
d. smaller; both transfer payments and tax revenues increase
e. smaller; both transfer payments and tax revenues decrease

__ 1. Which of the following will cause the demand curve for gasoline to
shift leftward?
a. a decrease in the price of gasoline
b. an increase in the price of gasoline
c. a leftward shift of the supply of gasoline
d. a rightward shift of the supply of cars
e. a decrease in the price of bicycles
____ 2. Markets reduce transactions costs
a. by decreasing the time spent searching for information about goods
and services
b. only when they have a highly structured set of rules like the New
York Stock Exchange
c. because each market uses the same set of rules for buying and selling
goods and services
d. only when the government can coordinate the plans of many buyers and
sellers
e. when prices are set by the sellers and are not determined by
negotiation between the buyers and the sellers
____ 3. If supply decreases along a given demand curve,
a. an excess quantity demanded will be created, increasing the
equilibrium price and causing equilibrium quantity to fall
b. an excess quantity supplied will be created, lowering the equilibrium
price and causing equilibrium quantity to rise
c. an excess quantity demanded will be created, raising the equilibrium
price and quantity
d. an excess quantity supplied will be created, lowering the equilibrium
price and quantity
e. price will fall, shifting the demand curve outward, raising the
equilibrium quantity
____ 4. Fiscal policy focuses on manipulating
a. aggregate demand to smooth out business fluctuations
b. aggregate supply to smooth out business fluctuations
c. both aggregate supply and aggregate demand to smooth out business
fluctuations
d. aggregate demand to stimulate the economy and aggregate supply to
contract it
e. short-run aggregate supply to stimulate the economy and aggregate
demand to contract it
____ 5. Assume that initially G is $100 and equilibrium real GDP
demanded is $1,000. If the multiplier is 4 and G increases to $200, real
GDP demanded will increase
a. by $100
b. by $2,000
c. by $1,000
d. to $1,400
e. to $2,000
____ 6. If autonomous net taxes decline by $40 billion and the MPC =
0.75, then equilibrium real GDP demanded
a. declines by $120 billion
b. increases by $120 billion
c. declines by $160 billion
d. increases by $160 billion
e. increases by $40 billion
____ 7. Assume autonomous net taxes rise by $400; the marginal
propensity to consume = 3/4. Net exports, planned investment, taxes, and
government purchases are autonomous and remain fixed. As a result,
saving will initially
a. fall by $400
b. rise by $300
c. remain unchanged
d. fall by $100
e. rise by $100
____ 8. Assume autonomous net taxes rise by $500; the marginal
propensity to consume = 3/4. Net exports, planned investment, taxes, and
government purchases are autonomous and remain fixed. As a result,
equilibrium real GDP demanded will
a. rise by $500
b. fall by $500
c. rise by $1,500
d. fall by $1,500
e. rise by $2,000
____ 9. Which of the following is not true about classical economists?
a. They criticized mercantilism as an economic system.
b. They advocated laissez-faire policies to promote economic growth.
c. They believed the economy would naturally tend toward full
employment.
d. They believed prices and wages react slowly to market changes.
e. They discouraged government intervention in markets.
____ 10. The Classical economists believed in the self-correcting nature
of the economic system. They believed that the major adjustment
a. mechanisms was government assistance
b. mechanisms were inflexible wages and prices and flexible interest
rates
c. mechanisms were flexible wages, prices and interest rates
d. mechanisms were sticky wages, prices and interest rates
e. mechanisms were inflexible interest rates and flexible wages and
prices
____ 11. Large federal budget deficits
a. can best be reduced by automatic stabilizers
b. make it difficult to use discretionary fiscal policy
c. in the mid to late 1980s were the result of a severe recession
d. still constitute only about 1 percent of GDP
e. have little to do with the growth of the federal debt
____ 12. The lower tax rates enacted in the early 1980s were intended to
a. increase the supply of labor
b. increase the price level
c. increase unemployment benefits
d. reduce potential GDP
e. reduce the money supply
____ 13. The Reagan experiment in supply-side economics resulted in all
of the following except
a. growth in employment
b. a period of sustained economic growth
c. a reduction in the federal debt
d. reduced unemployment
e. an increase in deficits as a percentage of GDP
____ 14. The demand for money varies
a. directly with both the price level and the level of real GDP
b. inversely with both the price level and the level of real GDP
c. inversely with the price level and directly with the level of real
GDP
d. directly with the price level and inversely with the level of real
GDP
e. inversely with the level of nominal GDP
____ 15. The opportunity cost of holding money
a. includes bank service charges
b. is the interest foregone on potential interest-earning assets
c. varies inversely with the rate of interest
d. affects relatively few individuals
e. is determined exclusively by the Fed
____ 16. In the aggregate demand-aggregate supply model, a decrease in
the money supply will cause in the short run a(n)
a. increase in both the price level and real GDP
b. decrease in both the price level and real GDP
c. increase in real GDP and a decrease in the price level
d. decrease in real GDP and an increase in the price level
e. increase in the price level only
____ 17. If the Fed increases the money supply, then
a. the interest rate declines and the quantity of money demanded
increases
b. the interest rate declines and the quantity of money demanded
declines
c. the interest rate increases and the quantity of money demanded
increases
d. the interest rate increases and the quantity of money demanded
declines
e. nothing happens to the quantity of money demanded
____ 18. An increase in the money supply causes interest rates to
__________, investment spending to __________ and aggregate demand to
__________.
a. rise; rise; rise
b. rise; fall; rise
c. rise; fall; fall
d. fall; rise; fall
e. fall; rise; rise
____ 19. In an economy in which velocity is constant and the level of
real output grows at an average rate of 4 percent per year, a 4 percent
average rate of growth in the money supply would result in
a. a constant price level
b. a slowly increasing price level
c. a rapidly increasing price level
d. constant real GDP
e. constant nominal GDP
____ 20. Historically, hyperinflations have ended when monetary
authorities
a. seized all the currency in circulation
b. ran out of metal to mint new coins
c. convinced the public that they were committed to halting the rapid
growth of the money supply
d. convinced the public that they were willing to print large amounts of
currency
e. convinced the public that they were committed to halting the
shrinkage of the money supply
____ 21. The behavior of the M1 velocity of money in recent years can be
explained by
a. stability of interest rates
b. a low and stable rate of inflation
c. monetary policy that has been successful in stabilizing the economy
d. financial innovation creating new substitutes for money M1
e. a large number of banks and savings and loan associations going
bankrupt
____ 22. If interest rates are relatively high and rising in the United
States,
a. the dollar will appreciate relative to other currencies as foreign
investors purchase fewer U.S. bonds
b. the dollar will depreciate relative to other currencies as foreign
investors purchase more U.S. bonds
c. the dollar will appreciate relative to other currencies as foreign
investors purchase more U.S. bonds
d. the dollar will depreciate relative to other currencies as foreign
investors purchase fewer U.S. bonds
e. nothing will change because U.S. interest rates have no international
effects
____ 23. An economist who favors a passive approach to policy (and also
favors monetary rules) and observes an increase in economic instability
is most likely to think it was caused by
a. unstable interest rates
b. the imposition of policy rules
c. badly timed discretionary policy
d. the instability of consumption spending
e. the instability of the demand for money
____ 24. Which of the following statements supports the passive approach
to a contractionary gap?
a. It is likely that policies will be subject to time lags.
b. Prolonged unemployment may cause the economy's potential real GDP to
fall.
c. Workers' skills may grow rusty during a prolonged recession.
d. Unemployed workers may drop out of the labor force during a prolonged
recession.
e. Firms may neglect their capital stock during a prolonged recession.
____ 25. The federal budget deficit becomes __________ during recessions
because __________.
a. smaller; transfer payments increase and tax revenues decline
b. larger; transfer payments increase and tax revenues decline
c. larger; both transfer payments and tax revenues increase
d. smaller; both transfer payments and tax revenues increase
e. smaller; both transfer payments and tax revenues decrease

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