Economics

Which of the following is most liquid?
a. a dollar bill
b. a government bond
c. a corporate bond
d. a mutual fund share
5) Financial securities that represent promises to repay a fixed amount of funds are known as
a. stocks.
b. insurance premiums.
c. pension funds.
d. bonds.
6) In a closed economy, public saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
a. Y – C – T
b. Y – C – T + TR
c. Y – G – T
d. T – G – TR
Scenario 13-1
Consider the following data for a closed economy:
Y = $12 trillion
C = $8 trillion
I= $4 trillion
TR = $2 trillion
T = $3 trillion
7) Refer to Scenario 13-1. Based on the information above, what is the level of public saving?
a. $2 trillion
b. $0
c. $1 trillion
d. negative $1 trillion (a deficit of $1 trillion)
8) What is investment in a closed economy if you have the following economic data?
Y = $10 trillion
C = $5 trillion
TR = $2 trillion
G = $2 trillion
a. $5 trillion
b. $2 trillion
c. $3 trillion
d. cannot be determined without information on taxes (T)
9) If Ebenezer Scrooge spends rather than saves his vast wealth he will
a. promote economic growth because he is increasing the amount of funds available for
investment.
b. slow economic growth because he is reducing the amount of funds available for investment.
c. slow economic growth because he is increasing the amount of funds available for investment.
d. promote economic growth because he is decreasing the amount of funds available for investment.

10) Refer to Figure 13-1. Which of the following is consistent with the graph depicted above?
a. Technological change increases the profitability of new investment.
b. The government runs a budget surplus.
c. Households become spendthrifts and begin to save less.
d. An expected recession decreases the profitability of new investment.
11) Which of the following would encourage economic growth through increases in the capital stock?
a. an increase in household savings
b. a change from an income tax to a consumption tax
c. a decrease in the government deficit
d. all of the above
12) During the expansion phase of the business cycle, which of the following eventually increases?
a. employment
b. income
c. production
d. all of the above
13) From 1991 until 2001 the United States was in a period of
a. business cycle peaks.
b. business cycle troughs.
c. expansion.
d. recession.
14) As the economy nears the end of a recession, which of the following do we typically see?
a. increased spending on capital goods by firms
b. increasing interest rates
c. further decreases in consumer spending
d. all of the above
15) When the economy enters a recessionary phase of the business cycle, unemployment tends to
a. increase.
b. decrease.
c. be unchanged.
d. change in the same direction as the rate of inflation.
16) Since 1950, expansions in the United States have become ________, while recessions have become ________.
a. shorter; longer
b. longer; shorter
c. shorter; shorter
d. longer; longer
17) The aggregate demand curve shows the relationship between the ________ and ________.
a. real interest rate: quantity of real GDP supplied
b. nominal interest rate; quantity of real GDP demanded
c. inflation rate; quantity of real GDP demanded
d. price level; quantity of real GDP demanded
18) Which of the following best describes the “wealth effect”?
a. When the price level falls, the nominal value of household wealth rises.
b. When the price level falls, the real value of household wealth rises.
c. When the price level falls, the real value of household wealth falls.
d. When the price level falls, the nominal value of household wealth falls.

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19) Potential GDP is also referred to as
a. politico-economic GDP.
b. balanced-budget GDP.
c. full-employment GDP.
d. realized GDP.
20) The short-run aggregate supply curve has a
a. negative slope.
b. slope equal to zero.
c. slope equal to infinity.
d. positive slope.
21) If workers leave a country to seek out better opportunities in another country, then this will
a. shift the short-run aggregate supply curve of the original country to the right.
b. shift the short-run aggregate supply curve of the original country to the left.
c. move the original economy down along a stationary short-run aggregate supply curve.
d. move the original economy up along a stationary short-run aggregate supply curve.
22) Workers expect inflation to rise from 3% to 5% next year. As a result this should
a. move the economy up along a stationary short-run aggregate supply curve.
b. move the economy down along a stationary short-run aggregate supply curve.
c. shift the short-run aggregate supply curve to the right.
d. shift the short-run aggregate supply curve to the left.
23) Which of the following correctly describes the automatic mechanism through which
the economy adjusts to long-run equilibrium?
a. the leftward shift in short-run aggregate supply that occurs after a recession
b. the rightward shift in short-run aggregate supply that occurs after a recession
c. the rightward shift in aggregate demand that occurs after a recession
d. the leftward shift in aggregate demand that occurs after a recession
24) Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. Which of the following will happen in the short run?
a. Aggregate demand will shift to the left.
b. Output will decline.
c. Unemployment will decline.
d. Prices will decline.

25) Which of the following can explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?
a. AD shifted to the right by less than SRAS.
b. SRAS shifted to the right by more than LRAS.
c. SRAS and AD do not shift.
d. AD shifted to the right by more than SRAS.

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