Question26. Gross domestic product equals the sum of consumption, investment, and government purchase. (Points : 2) True.

26. Gross domestic product equals the sum of consumption, investment, and government purchase. (Points : 2)
True.
False.

27. If autonomous expenditures equal $600 and the mpe is 0.80, then equilibrium income in the multiplier model will be $3,000. (Points : 2)
True
False

28. In order of their occurrence, the phases of the business cycle are: (Points : 2)
peak, downturn, upturn, trough.
peak, upturn, downturn, trough.
peak, downturn, trough, upturn.
peak, upturn, trough, downturn.

29. The required reserve ratio refers to the ratio of a bank’s: (Points : 2)
liabilities to its net worth.
required reserves to its deposits.
reserves to its deposits.
deposits to its actual reserves.

30. A bank has a reserve requirement of 0.10. If it has demand deposits of $100,000 and is holding $12,000 in reserves: (Points : 2)
all the bank’s reserves are excess reserves.
the bank is not meeting its reserve requirement.
the bank is holding $2,000 in excess reserves.
all reserves are required reserves.

31. In the expenditures function AE = AE0 + mpe Y, induced expenditures are given by: (Points : 2)
AE0.
AE0 + Y.
mpe Y.
Y.

32. If a person uses money to compare the price of a pair of shoes to the price of a haircut, money is functioning as: (Points : 2)
unit of account.
store of wealth.
medium of exchange.
none of the above.

33. If the reserve ratio is 0.25, the simple money multiplier is: (Points : 2)
4.
5.
20.
25.

34. An increase in the price level: (Points : 2)
increases the purchasing power of money, and leads to lower interest rates and increases investment.
increases the purchasing power of money, and leads to higher interest rates and decreases investment.
decreases the purchasing power of money, and leads to lower interest rates and increases investment.
decreases the purchasing power of money, and leads to higher interest rates and decreases investment.

35. The largest component of aggregate income is: (Points : 2)
interest.
rents.
employee compensation.
profits.

36. If prices rose by 4% and nominal output rose by 3.2%, real output: (Points : 2)
rose by 7.2%.
rose by 0.8%.
fell by 0.8%.
fell by 7.2%.

37. If the price level rises, the interest rate effect will cause investment: (Points : 2)
and the quantity of aggregate demand to increase.
and the quantity of aggregate demand to decrease.
to increase and the quantity of aggregate demand to decrease.
to decrease and the quantity of aggregate demand to increase.

38. As the reserve ratio goes up, the simple money multiplier goes: (Points : 2)
up, and more money will be created.
down, and less money will be created.
up, and less money will be created.
down, and more money will be created.

39. A price index in its base year: (Points : 2)
is always greater than 100.
is always equal to 100.
is always less than 100.
cannot be determined without knowing the price level in the base year.

40. Given AE = $1,000 + 0.8Y, when income equals $6,000, total expenditures will be: (Points : 2)
$ 500.
$1,000.
$4,800.
$5,800.

41. A fall in the U.S. price level will cause foreigners to: (Points : 2)
substitute U.S. goods for their own domestically-produced goods.
substitute their own domestically-produced goods for U.S. goods.
buy more of their own domestically-produced goods.
buy fewer U.S. goods.

42. In the figure shown, autonomous expenditures:
(Points : 2)

equal $600 no matter what the income level.
equal $1,000 no matter what the income level.
equal $1,000 if the income level is $500.
cannot be determined without knowing the income level.

43. When Ben Bernanke (who succeeded Alan Greenspan) steps down as chairman of the Federal Reserve’s Board of Governors, his successor will be: (Points : 2)
elected by the public.
selected by commercial banks.
appointed by the President.
appointed by the Board of Governors.

44. Given the following information, we can infer that aggregate income equals:
(Points : 2)

$700.
$750
$900.
$950.

45. The three tools of monetary policy are open market operations, setting prices, and setting the velocity of money. (Points : 2)
True.
False.

46. According to Okun’s rule of thumb, an increase in the rate of unemployment from 6 percent to 8 percent would be expected to cause income in the economy to: (Points : 2)
fall by 4 percent.
rise by 4 percent.
fall by 2 percent.
rise by 2 percent.

47. Which of the following will cause the U.S. aggregate demand curve to shift to the right? (Points : 2)
lower current price level.
lower foreign income.
lower U.S. income.
a higher expected future price level.

48. Laissez-faire economists believe: (Points : 2)
government policies do not affect economic activity.
government can implement policy proposals that can positively impact the economy.
most government policies would probably make things worse.
government intervention in the market is necessary for a smoothly operating economy.

49. Workers at a car-manufacturing plant in Flint Michigan are laid off because the economy is weak and GM cars aren’t selling well. GM isn’t sure when the plant will reopen. What type of unemployment describes the workers’ situation? (Points : 2)
Cyclical unemployment.
Full unemployment.
Structural unemployment.
Frictional unemployment.

50. Refer to the graph. The upward sloping relationship in the diagram represents the:
(Points : 2)

aggregate demand curve.
short-run aggregate supply curve.
long-run aggregate supply curve.
quantity adjustment curve.

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