Question 1

Suppose the government imposes a binding price ceiling on gasoline. Which of the following is the most likely immediate effect in the gasoline market?

Accepted Answer

A shortage of gasoline, as the quantity demanded exceeds the quantity supplied.

Question 2

If the nominal GDP of a country increases from $$\1$$,000$$ billion to $$\$$1,100$$ billion while the GDP deflator rises from $$100 to$$ $$110$$, what is the real GDP growth rate?

Accepted Answer

$$0\%$$

Question 3

Which of the following best describes the concept of comparative advantage?

Accepted Answer

The ability to produce a good at a lower opportunity cost than another producer.

Question 4

If the marginal propensity to consume (MPC) is $$0.8$$, what is the value of the government spending multiplier?

Accepted Answer

$$5$$

Question 5

Suppose the economy is experiencing a recessionary gap. Which of the following fiscal policies is most appropriate to close the gap?

Accepted Answer

Decrease taxes and increase government spending.

Question 6

If the required reserve ratio is $$10\%$$ and a bank receives a new deposit of $$\1$$,000$, what is the maximum possible increase in the money supply?

Accepted Answer

$$\9$$,000$

Question 7

Which of the following would cause the short-run aggregate supply (SRAS) curve to shift to the left?

Accepted Answer

An increase in wages.

Question 8

If the unemployment rate is $$6\%$$ and the natural rate of unemployment is $$4\%$$, which of the following is true?

Accepted Answer

There is cyclical unemployment present.

Question 9

Suppose the Federal Reserve wants to decrease the money supply. Which of the following actions would achieve this goal?

Accepted Answer

Selling government securities in the open market.

Question 10

Country A can produce either $$10$$ tons of steel or $$20$$ tons of wheat per day. Country B can produce either $$8$$ tons of steel or $$16$$ tons of wheat per day. Which country has the comparative advantage in producing steel?

Accepted Answer

Country A, because its opportunity cost of steel is lower.

Question 11

If the velocity of money ($$V) is$$ $$5$$, the money supply ($$M) is$$ $$\2$ trillion, and nominal GDP (P$$ 	imes Y$$) is $$\$$10$$ trillion, which equation correctly represents the quantity theory of money?

Accepted Answer

$$M 	imes V = P 	imes Y$$

Question 12

Which of the following best explains why the aggregate demand curve is downward sloping?

Accepted Answer

As the price level rises, the purchasing power of money falls, leading to lower consumption.

Question 13

Suppose the government increases its budget deficit. According to the loanable funds market, what is the likely effect on the real interest rate?

Accepted Answer

The real interest rate will increase.

Question 14

If the U.S. dollar appreciates relative to the euro, what is the likely effect on U.S. net exports?

Accepted Answer

U.S. net exports will decrease because U.S. goods become more expensive for Europeans.

Question 15

Which of the following is included in the calculation of GDP using the expenditure approach?

Accepted Answer

Purchases of new machinery by a factory.

Question 16

Suppose the economy is at full employment and the government increases spending without raising taxes. In the long run, what is the most likely outcome according to the aggregate demand and aggregate supply model?

Accepted Answer

The price level increases, but output returns to its potential level.

Question 17

If the labor force participation rate increases while the unemployment rate remains constant, what happens to the number of employed people?

Accepted Answer

It increases.

Question 18

Which of the following policies would be most effective in combating demand-pull inflation?

Accepted Answer

The central bank sells government securities to reduce the money supply.

Question 19

Suppose the marginal propensity to save (MPS) is $$0.25. If $$investment increases by $$\200$ million, what is the total change in equilibrium GDP?

Accepted Answer

$$\800$ million

Question 20

If the economy is operating above potential GDP, which of the following is most likely to occur in the long run?

Accepted Answer

The short-run aggregate supply curve will shift to the left.

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