UESTION 11

1. What are the two tools of fiscal policy that governments can use to stabilize an economy?

   A.	government spending and technology improvements
   B.	government spending and taxation
   C.	taxation and controlling imports
   D.	taxation and controlling exports

4 points   

 

QUESTION 12

1. The "animal spirits" of investors refers to the:

   A.	pessimism of investors.
   B.	sharp and often irrational mood swings of investors.
   C.	frenzy that erupts at the opening of the New York Stock Exchange each day.
   D.	high burnout rate of overworked stockbrokers.

4 points   

 

QUESTION 13

1. The consumption function describes the relationship between:

   A.	investment and interest rates
   B.	consumer spending and income.
   C.	consumers and firms.
   D.	prices and demand.

4 points   

 

QUESTION 14

1. Output in the long run is determined by which of the two following factors when an economy operates at full employment?

   A.	the "real" GDP and purchases
   B.	capital and supply
   C.	capital and labor
   D.	imports and exports

4 points   

 

QUESTION 15

1. Suppose the demand for hamburgers decreases. Firms that produce hamburgers will experience:

   A.	a fall in prices, which will induce them to increase production and reduce the number of workers.
   B.	a rise in prices, which will induce them to decrease production and reduce the number of workers.
   C.	a fall in prices, which will induce them to decrease production and reduce the number of workers.
   D.	a rise in prices, which will induce them to increase production and increase the number of workers.

4 points   

 

QUESTION 16

1. The mechanism that normally coordinates what goes on in an economy is the

   A.	government.
   B.	price system.
   C.	stock market.
   D.	Federal Reserve.

4 points   

 

QUESTION 17

1. Which of the following equations is correct?

   A.	nominal interest rate = real interest rate - inflation
   B.	real interest rate = nominal interest rate + inflation
   C.	real interest rate = nominal interest rate * inflation
   D.	real interest rate = nominal interest rate - inflation

4 points   

 

QUESTION 18

1. The time it takes to formulate a policy is known as

   A.	fiscal policy.
   B.	crowding out.
   C.	inside lags
   D.	outside lags.

4 points   

 

QUESTION 19

1. Diversification ________ the risks of investing in the stock market.

   A.	increases
   B.	can reduce but not eliminate
   C.	is unrelated to
   D.	eliminates

4 points   

 

QUESTION 20

1. The multiplier ________ as the marginal propensity to consume increases.

   A.	is constant
   B.	decreases slightly
   C.	increases
   D.	decreases

4 points   

 

QUESTION 21

1. Financial intermediaries:

   A.	allow for a smaller volume of investment in the economy.
   B.	reduce the risks associated with investment.
   C.	increase the costs associated with investment.
   D.	only provide services for the wealthy.

4 points   

 

QUESTION 22

1. Suppose that a firm can invest $100 today in a project and receive $105 a year from today. There is no inflation, and the annual interest rate in the economy is 4%. The firm should:

   A.	not invest in the project because the opportunity cost is less than the return on the investment.
   B.	invest in the project because the opportunity cost is the same as the return on the investment.
   C.	invest in the project because the opportunity cost is greater than the return on the investment.
   D.	invest in the project because the opportunity cost is less than the return on the investment.

4 points   

 

QUESTION 23

1. The aggregate demand curve is downward sloping because of the:

   A.	interest rate effect.
   B.	wealth effect.
   C.	international trade effect.
   D.	all of the above

4 points   

 

QUESTION 24

1. The term investment refers to:

   A.	any action today that has costs today but provides benefits in the future.
   B.	only the creation of capital goods undertaken by private firms or the government.
   C.	any action today that has costs today.
   D.	only large projects, such as building a new factory, undertaken by private firms.

4 points   

 

QUESTION 25

1. As the marginal propensity to consume decreases, the multiplier:

   A.	increases slightly.
   B.	decreases.
   C.	increases.
   D.	is constant.