Multiple Choice Answers

1.  (TCO 5) An increase in expected future income will (Points : 4)
increase aggregate demand and aggregate supply.
decrease aggregate demand and aggregate supply.
increase aggregate supply.
increase aggregate demand.

2. (TCO 5) The upward slope of the short-run aggregate supply curve is based on the assumption that (Points : 4)
wages and other resource prices do not respond to price level changes.
wages and other resource prices do respond to price level changes.
prices of output do not respond to price level changes.
prices of inputs are flexible while prices of outputs are fixed.

3. (TCO 5) A fall in labor costs will cause aggregate (Points : 4)
supply to increase.
demand to increase.
supply to decrease.
demand to decrease.

4. (TCO 5) With cost-push inflation in the short run, there will be (Points : 4)
an increase in real GDP. (not 100% sure)
a leftward shift in the aggregate demand curve.
a decrease in real GDP.
a decrease in unemployment.

5. (TCO 6) Dissaving occurs when (Points : 4)
income is greater than saving.
income is less than consumption.
saving is greater than consumption.
saving is greater than the interest rate.

6. (TCO 7) The M1 money supply is composed of (Points : 4)
all coins and paper money held by the general public and the banks.
bank deposits of households and business firms.
bank deposits and mutual funds.
checkable deposits and currency in circulation.
7. (TCO 7) Which of the following “backs” the value of money in the United States? (Points : 4)

Gold stored in the Federal Reserve Bank of New York
Acceptability of it as a medium of exchange
Willingness of foreign government to hold U.S. dollars
Size of the budget surplus in the U.S. government

8. (TCO 7) The Federal Reserve System of the U.S. is the country’s (Points : 4)
financial adviser.
comptroller or accountant.
central bank.
deposit insurance provider.

9. (TCO 7) When the Fed acts as a “lender of last resort”, like it did in the financial crisis of 2007-2008, it is performing its role of (Points : 4)
controlling the money supply.
setting the reserve requirements.
being the bankers’ bank.
providing for check clearing and collection.

10. (TCO 7) Other things being equal, an expansion of commercial bank lending (Points : 4)
changes the composition, but not the size, of the money supply.
is desirable during a period of demand-pull inflation.
reduces the money supply.
increases the money supply.

11. (TCO 7) The establishment of a federal deposit insurance program resulted from the (Points : 4)
establishment of the Federal Reserve System in 1913.
speculation during World War I.
stock market crash of 1987.
bank panics of 1930-1933.

12. (TCO 7) Which monetary policy tool was created in response to the financial crisis of 2007-2008? (Points : 4)
Discount rate
Term auction facility
Target federal funds rate
Open market operations

13. (TCO 7) The Federal Reserve could reduce the money supply by (Points : 4)
selling government bonds in the open market.
buying government bonds in the open market.
operating the term auction facility.
reducing the discount rate.

14. (TCO 8) Which nation has greatly increased its role in international trade in recent years? (Points : 4)
Japan
Iran
Peru
China

15. (TCO 8) Nation X has a comparative advantage in the production of a product compared to Nation Y when (Points : 4)
it imposes a tariff on the importation of the product.
its production possibilities curve expands, allowing it to produce more of the product.
it is achieving full employment and is producing the maximum amount of the product.
it has the lower domestic opportunity cost of producing the product.

16. (TCO 8) If a nation imposes a tariff on an imported product, then the nation will experience a(n) (Points : 4)
decrease in total supply and an increase in the price of the product.
decrease in demand and a decrease in the price of the product.
decrease in supply of, and an increase in demand for, the product.
increase in supply of, and a decrease in demand for, the product.

17. (TCO 8) A key difference between import quotas and voluntary export restraints (VERs) is that the (Points : 4)
domestic government administers the former, whereas the foreign government administers the latter.
foreign government administers the former, whereas the domestic government administers the latter.
one is a tax, whereas the other is a quantity limit.
one raises the price of the imported product involved, whereas the other one does not.

18. (TCO 8) When tariffs on imported products are removed by a nation, it will result in (Points : 4)
higher prices and lower quantities consumed.
higher prices and quantities consumed.
lower prices and quantities consumed.
lower prices and higher quantities consumed.

19. (TCO 8) A major goal of the World Trade Organization is to (Points : 4)
increase the protection of producers against foreign trade competition.
encourage bilateral trade agreements between nations.
liberalize international trade among nations.
maximize tariff revenue for governments.

20. (TCO 9) U.S. businesses are demanders of foreign currencies because they need them to (Points : 4)
produce goods and services exported to foreign countries.
pay for goods and services imported from foreign countries.
receive interest payments from foreign governments.
receive interest payments from foreign businesses.