Macroeconomics QuestionnaireIntroduction of Macroeconomics
1. In economics the central problem is:a. consumption.b.
allocation.c. production.d. money.e. scarcity.2. Indicate below
what is NOT a factor of production.a. Capital.b. Land.c. Labour.d.
A bank loan.3. Macroeconomics deals with:a. the behaviour of the
electronics industry.b. economic aggregates.c. the behaviour of
firms.d. the activities of individual units.4. Microeconomics is
not concerned with the behaviour of:a. industries.b. firms.c.
aggregate demand.d. consumers.5. The study of inflation is part of
:a. normative economics.b. macroeconomics.c. microeconomics.d.
descriptive economics.6. Aggregate supply is the total amount:a. of
labour supplied by all households.b. of products produced by a
given industry.c. produced by the government.d. of goods and
services produced in an economy.7. The total demand for goods and
services in an economy is known as:a. national demand.b. aggregate
demand.c. gross national product.d. economy-wide demand.8.
Inflation is:a. a decrease in the overall level of economic
activity.b. an increase in the overall price level.c. an increase
in the overall level of economic activity.d. a decrease in the
overall price level.9. A recession is:a. a period during which
aggregate output declines.b. a period of declining prices.c. a
period of declining unemployment.d. a period of very rapidly
declining prices.10. Unemployment means that: a. at the going wage
rate, there are people who want to work but cannot find work.b.
there are some people who will not work at the going wage rate.c.
people are not willing to work at the going wage rate.d. there is
excess demand in the labour market.11. If marginal benefit is
greater than marginal cost, a rational choice involves:a. more or
less, depending on the benefits of other activities.b. less of the
activity.c. no more of the activity.d. more of the activity.12. A
student chooses to study because the marginal benefit is greater
than the ________ cost.a. totalb. marginalc. expectedd. average13.
The concept of opportunity cost:a. would be irrelevant if we
eliminated poverty.b. suggests a major increase in public
health-care spending means an expansion in other areas will be
harder to achieve.c. is relevant only for a capitalist economy like
the United States.d. suggests all our wants can be achieved.14.
Opportunity cost isa. the cost incurred in the past before we make
a decision about what to do in the future.b. a cost that cannot be
avoided, regardless of what is done in the future.c. that which we
forgo, or give up, when we make a choice or a decision.d. the
additional benefit of buying an additional unit of a product.15. A
graph showing all the combinations of goods and services that can
be produced if all of society's resources are used efficiently is
a:a. capital consumption frontier.b. circular-flow diagram.c.
Lorenz curve.d. production possibility curve.16. Periods of less
than full employment correspond to:a. either points inside or
outside the production possibility curve.b. points inside the
production possibility curve.c. points outside the production
possibility curve.d. points on the production possibility curve.17.
The circular flow of goods and incomes shows the relationship
between:a. income and money.b. goods and services.c. wages and
salaries.d. firms and households.18. In a free market system, the
amount of goods and services that any one household gets depends
upon its:a. income.b. wage and interest income.c. income and
wealth.d. wealth.19. In a planned or command economy, all the
economic decisions are taken by the:a. workers.b. government.c.
voters.d. consumers.20. Which one of the following is a normative
statement?a. Inequality in the distribution of income is a more
serious problem than unemployment.b. Inflation is rising.c. The
proportion of people's income paid in taxes is higher under this
government than under the previous one.d. The richest 10 per cent
of the population has had a bigger percentage increase in incomes
over the past 10 years than the poorest 10 per cent.
National Income Accounting21. Macroeconomics is the branch of
economics that deals with:a. the functioning of individual
industries and the behaviour of individual decision-making units -
business firms and households.b. the economy as a whole.c. only the
long run adjustments to equilibrium in the economy.d. imperfectly
competitive markets.22. The diagram that shows the income received
and payments made by each sector of the economy is the:a. circular
flow diagram.b. income-price diagram.c. income-expenditures
diagram.d. aggregate demand-aggregate supply diagram.23.
Macroeconomic theory that emphasised the theories of Keynes and
de-emphasised the classical theory developed as the result of the
failure of:a. the economy to grow at a rapid rate during the
1950s.b. economic theory to explain the simultaneous increases in
inflation and unemployment during the 1970s.c. fine tuning during
the 1960s.d. the classical model to explain the prolonged existence
of high unemployment during the Great Depression.24. The percentage
of the labour force that is unemployed is the:a. labour force
rate.b. unemployment population ratio.c. unemployment rate.d.
employment rate.25. The index used most often to measure inflation
is the:a. GDP deflator.b. consumer price index.c. wholesale price
index.(WPI).d. producer price index (PPI).26. An index of prices of
all domestically produced goods in the economy is the:a. consumer
price index (CPI).b. wholesale price index (WPI).c. producer price
index (PPI).d. GDP deflator.27. It has become conventional to
classify a recession as a period where national output falls for
______ or more.a. a yearb. three yearsc. six monthsd. two years28.
The length of a business cycle would be measured from:a. peak to
trough.b. the slump to the expansion.c. trough to peak.d. peak to
peak.
29. Indicate below what is NOT a main macroeconomic goal.a.
Achieving a sustainable rate of economic growth.b. Increasing North
Sea oil production.c. Reducing unemployment.d. Reducing
inflation.30. Aggregate demand includes only:a. consumer
expenditure, investment, government expenditure, and exports less
imports.b. consumer expenditure, government expenditure and
investment.c. consumer expenditure and investment.d. consumer debt,
investment debt and government debt.31. Total withdrawals from the
circular flow of income include:a. savings, taxes and imports.b.
savings, government expenditure and imports.c. consumption, savings
and taxes.d. savings, taxes and exports.32. Total injections are
made up of:a. savings + government expenditure + exportsb.
Investment + government expenditure + exportsc. investment +
government expenditure + importsd. investment + tax + exports33.
Equilibrium in the circular flow of income occurs when:a.
Injections = withdrawalsb. Injections < withdrawalsc. There is a
Bank Holiday.d. Injections > withdrawals34. There are three ways
to measure GDP.a. Trueb. False35. Real GDP is nominal GDP measured
in constant:a. prices.b. interest rates.c. taxes.36. The
underground economy consists of:a. the water distribution system.b.
part of the rail network.c. legal transactions.d. legal
transactions not declared for tax and illegal activities.37.
Purchasing power parity exchange rates are used to:a. pay wages by
multinational companies.b. estimate the costs of economic growth.c.
convert nominal GDP to real GDP.d. compare living standards of
different countries.38. Two of the major factors contributing to
growth are:a. money and luck.b. resources and efficiency.c.
resources and a good climate.d. money and efficiency.39. According
to the classical economists, the only gainers from growth would
be:a. peasants.b. politicians.c. landlords.d. the army.40.
Aggregate supply is the total amount:a. of goods and services
produced in an economy.b. produced by the government.c. of products
produced by a given industry.d. of labour supplied by all
households.
MCROECONOMISC ISSUES & ANALYSIS
41. The percentage of the labour force that is unemployed is
the:a. unemployment population ratio.b. unemployment rate.c. labour
force rate.d. employment rate.42. The labour force can be defined
as:a. anyone who is working, or actively seeking work.b. the
population between school-leaving age and retirement age.c. those
of working age who are seeking work and are available to for work
at current wage rates.d. those who could claim benefit if they were
to become unemployed.43. Since 1998 the UK government has defined
unemployment using:a. the ILO/OECD standardised unemployment
measurement.b. a labour force survey.c. the percentage of the
labour force not in work.d. the number out of work and claiming
benefit.44. An individual who is not working and who has given up
looking for work is classified as:a. unemployable.b. a discouraged
worker.c. unemployed.d. hard core unemployed.45. Classifying
discouraged workers as unemployed would:a. not change the
unemployment rate.b. increase the unemployment rate.c. have an
indeterminate impact on the unemployment rate.d. decrease the
unemployment rate.46. Cyclical unemployment is the:a. unemployment
that occurs during recessions and depressions.b. portion of
unemployment that is due to the normal working of the labour
market.c. unemployment that results when people become discouraged
about their chances of finding a job so they stop looking for
work.d. portion of unemployment that is due to changes in the
structure of the economy that results in a significant loss of jobs
in certain industries.47. Aggregate demand is the total demand for
all goods and services in an economy from:a. the household and
government sectors.b. all sectors except the rest of the world.c.
all sectors of the economy including the rest of the world.d. the
household sector.48. Aggregate supply is the total amount:a. of
labour supplied by all households.b. of goods and services produced
in an economy.c. produced by the government.d. of products produced
by a given industry.49. Unemployment resulting from real wages
being above their equilibrium level is called ______
unemployment.a. structuralb. frictionalc. naturald.
disequilibrium50. Unemployment resulting from imperfect information
in the labour market is called ______ unemployment.a. frictionalb.
naturalc. real-waged. disequilibrium51. Unemployment resulting from
changes in the pattern of demand or supply in the economy is called
______ unemployment.a. technologicalb. structuralc. regionald.
demand-deficient52. The demand for ice-cream is lower outside of
summer causing lower demand for ice-cream salesmen. If they cannot
find other work, this is called ____________ unemploymenta.
seasonalb. regionalc. structural53. The natural rate of
unemployment is generally thought of as the:a. sum of structural
unemployment and cyclical unemployment.b. ratio of the frictional
unemployment rate to the cyclical unemployment rate.c. sum of
frictional unemployment and structural unemployment.d. sum of
frictional unemployment and cyclical unemployment.54. As prices
rise, people will want to keep more money as cash and in bank
accounts. This is called:a. cash ratio.b. menu costs of
inflation.c. real balance effect.55. As prices rise, there will be
costs of constantly changing price-tags and reprinting price-lists.
This is called:a. cost-push inflation.b. real balance effect.c.
money illusion.d. menu costs of inflation.56. Government policies
that focus on increasing production rather than demand are
called:a. incomes policies.b. supply-side policies.c. monetary
policies.57. Government policies that focus on changing taxes and
government spending are called:a. monetary policies.b. incomes
policies.c. supply-side policies.d. fiscal policies.58. Government
policies that focus on changing interest rates are called:a. fiscal
policies.b. incomes policies.c. monetary policies.d. supply-side
policies.59. If interest rates rise, then costs are likely to
______ and demand is likely to ______. a. fall; riseb. fall; fallc.
rise; rised. rise; fall60. If VAT rates rise, then costs are likely
to ______ and demand is likely to ______.a. rise; riseb. fall;
fallc. rise; falld. fall; rise61. An economy that trades with and
has financial dealings with other countries is called a/an ______
economy.a. openb. free-tradec. mixedd. autarkic62. The record of a
country's imports and exports of goods is called its:a. balance of
payments on current account.b. visible trade balance.c. balance of
payments.d. balance of trade.63. The record of a country's imports
and exports of goods and services is called its:a. balance of
payments on current account.b. visible trade balance.c. balance of
payments.d. balance of trade.64. The record of a country's imports
and exports of goods and services plus net investment incomes and
current transfers of money to and from abroad, is called its:a.
visible trade balance.b. balance of trade.c. balance of payments on
current account.d. balance of payments.65. The record of a
country's transfers of shareholdings, property and bank deposits to
and from abroad is called its:a. capital account of the balance of
payments.b. financial account of the balance of payments.c. balance
of payments.d. balance of payments on current account.66. The
record of a country's transfers of land, inter-government payments
and money sent by migrants to and from abroad is called its:a.
capital account of the balance of payments.b. balance of payments
on current account.c. financial account of the balance of
payments.d. balance of payments.67. The situation when a country
imports more than it exports is:a. a recession.b. a trade
deficit.c. an expansion.d. a trade surplus.68. The price of one
country's currency in terms of another country's currency is the:a.
exchange rate.b. balance of trade.c. terms of trade.d. currency
validation.69. If the exchange rate between the UK and Japan
changes from 1 = 100 yen to 1 = 150 yen, then, ceteris paribus, the
price of UK goods in Japan:a. will decrease.b. will increase.c.
could either increase or decrease.d. will remain the same.70. If a
nation's interest rates are relatively low compared to those of
other countries, then the exchange value of its currency will tend
to:a. depreciate.b. not be affected.c. appreciate.d. fluctuate more
than if interest rates were high.71. If the UK receives larger than
expected revenues from exports, then the exchange value of its
currency will tend to:a. depreciate.b. appreciate.c. fluctuate more
than if exports were lower.d. not be affected.72. If the UK takes
part in a war in the Middle East, then the exchange value of its
currency will tend to:a. depreciate.b. not be affected.c.
appreciate.d. fluctuate more than if it were at peace.73. If
currency dealers expect the value of the pound to fall, then the
exchange value will tend to:a. not be affected.b. appreciate.c.
depreciate.d. fluctuate more than it would do otherwise.74. If UK
incomes rise faster than those in most other countries, then the
exchange value will tend to:a. depreciate.b. fluctuate more than it
would do otherwise.c. not be affected.d. appreciate.75. If the US
economy is forecast to come out of recession because military
expenditure has increased, then the exchange value of the UK pound
will tend to:a. fluctuate more than it would do otherwise.b.
depreciate.c. appreciate.d. not be affected.76. If a large car
importer in the UK wants to import many cars, then the exchange
value of the UK pound will tend to:a. appreciate.b. depreciate.c.
fluctuate more than it would do otherwise.d. not be affected.77. If
the economy is in the expansionary phase of the business cycle,
aggregate demand ______, unemployment ______, inflation ______ and
the current account of the balance of payments is likely to move
towards ______.a. rises; falls; rises; deficitb. falls; rises;
falls; surplusc. is static; low; rises; deficitd. falls; falls;
falls; surplus78. If the economy is at the peak of the business
cycle, aggregate demand ______, unemployment ______, inflation
_______ and the current account of the balance of payments is
likely to move towards ______.a. is static; low; rises; deficitb.
falls; rises; falls; surplusc. rises; falls; rises; deficitd.
falls; falls; falls; surplus79. If the economy is in the
recessionary phase of the business cycle, aggregate demand ______,
unemployment ______, inflation ______ and the current account of
the balance of payments is likely to move towards ______.a. falls;
rises; falls; surplusb. is static; low; rises; deficitc. falls;
falls; falls; surplusd. rises; falls; rises; deficit80. If the
economy is in the trough phase of the business cycle, aggregate
demand ______, unemployment ______, inflation ______ and the
current account of the balance of payments is likely to move
towards ______.a. falls; falls; falls; surplusb. falls; rises;
falls; surplusc. is static; low; rises; deficitd. rises; falls;
rises; deficit
The Roots of Modern Macroeconomics
81. Prices that do not always adjust rapidly to maintain
equality between quantity supplied and quantity demanded are:a.
fixed prices.b. regulatory prices.c. sticky prices.d. market
prices.82. The economists who emphasised wage-flexibility as a
solution for unemployment were:a. new-Keynesians.b.
post-Keynesians.c. Keynesians.d. classical economists.83. According
to the classical economists, the economy:a. requires fine tuning to
reach full employment.b. will never be at full employment.c. can
never deviate from full employment.d. is self correcting.84.
According to classical models, the level of employment is
determined primarily by:a. interest rates.b. the level of aggregate
demand for goods and services.c. prices and wages.d. the quantity
of money.85. Keynesian economics became popular because it was able
to explain:a. demand-pull inflation in the 1960s.b. stagflation in
the late 1970s.c. low growth rates in the 1950s.d. the prolonged
existence of high unemployment during the Great Depression.86.
According to Keynes, the level of employment is determined by:a.
the behaviour of trade unions.b. price and wages.c. the level of
aggregate demand for goods and services.d. the quantity of
money.87. The government increases government spending to try to
reduce unemployment. This is an example of:a. automatic
stablisers.b. fine tuning.c. laissez-faire.d. monetary policy.88.
The notion that the government can stabilise the macroeconomy is
known as:a. the classical model.b. monetarism.c. fine tuning.d.
microeconomic foundations of macroeconomics.89. Rapid increases in
the price level during periods of recession or high unemployment
are known as:a. inflation.b. stagflation.c. stagnation.d. slump.90.
The hypothesis that people know the 'true model' of the economy and
that they use this model to form their expectations of the future
is the:a. rational-expectations hypothesis.b. lagged-expectations
hypothesis.c. adaptive-expectations hypothesis.d.
passive-expectations hypothesis.91. The rational-expectations
hypothesis suggests that the forecasts that people make concerning
future inflation rates:a. consistently overestimate the actual rate
of inflation in the future.b. are always correct.c. are correct on
average, but are subject to errors that are distributed randomly.d.
consistently underestimate the actual rate of inflation in the
future.92. People are said to have rational expectations if they:a.
assume that this year's inflation rate will be the same as last
year's inflation rate.b. use all available information in forming
their expectations.c. merely guess at the inflation rate.d. assume
that this year's inflation rate will be equal to the average
inflation rate over the past 10 years.93. The persistence of a
phenomenon such as unemployment, even when its causes have been
removed, is called:a. the fallacy of composition.b. hysteresis.c.
negative entropy.d. ceteris paribus.94. The quantity theory of
money implies that a given percentage change in the money supply
will cause:a. a larger percentage change in nominal GDP.b. an equal
percentage change in nominal GDP.c. a smaller percentage change in
nominal GDP.d. an equal percentage change in real GDP.95. If the
demand for money depends on the interest rate, the velocity of
circulation is:a. not constant and the quantity theory of money
does not hold.b. not constant and the quantity theory of money does
hold.c. constant and the quantity theory of money does not hold.d.
constant and the quantity theory of money does hold.96. It is
difficult to determine if the velocity of money is constant over
time because:a. there has been very little fluctuation in the money
supply over time.b. it is difficult to measure the value of nominal
GDP over time.c. whether velocity is constant or not may depend on
how the money supply is measured.d. it is difficult to measure the
demand for money over time.97. New classical theories were an
attempt to explain:a. the stagflation of the 1970s.b. how
unemployment could have persisted for so long during the Great
Depression.c. why policy changes that are perceived as permanent
have more of an impact on a person's behaviour than policy changes
that are viewed as temporary.d. the increase in the growth rate of
real output in the 1950s.98. The key question regarding the new
classical macroeconomics is how realistic is the assumption:a. of
rational expectations.b. that fiscal policy affects aggregate
demand.c. that markets do not clear quickly.d. that monetary policy
affects aggregate demand.99. A group of modern economists who
believe that markets clear very rapidly and that expanding the
money supply will always increase prices rather than employment are
the:a. post-Keynesians.b. monetarists.c. Keynesians.d. new
classical school.100. A group of modern economists who believe that
institutional factors and confidence strongly influence business
behaviour and that expanding demand will usually increase output
rather than prices are the:a. monetarists.b. Keynesians.c. new
classical school.d. post-Keynesians.
Macroeconomics Equilibrium101. The total quantity of goods and
services produced (or supplied) in an economy in a given period
is:a. aggregate demand.b. aggregate expenditure.c. aggregate
output.d. aggregate investment.102. A variable whose value is
determined by the model of which it is a part is termed:a.
endogenouse.b. independent.c. constant.d. exogenous.103. In the
equation C = a + bY, which describes the aggregate consumption
function, 'b' stands for?a. The amount of income when consumption
is zero.b. The average consumption level.c. The marginal propensity
to consume.d. The amount of consumption when income is zero.104.
The fraction of a change in income that is consumed or spent is
called:a. the average propensity to consume.b. the marginal
propensity to save.c. the marginal propensity of expenditure.105.
Disposable income is the part of households' income left after the
deduction of:a. income tax.b. contractual payments such as pensions
and mortgages.c. taxes and the addition of benefits.d. income tax
and social security payments.106. Keynes suggested that decisions
to consume and save were based on:a. relative income.b. absolute
income.c. previous decisions.d. permanent income.107. The marginal
propensity to save (MPS) is:a. the ratio of saving to income.b. the
ratio of income to saving.c. the fraction of a change in income
that is saved.d. the average amount of income that is saved.108. As
the MPS increases, the multiplier will:a. either increase or
decrease depending on the size of the change in investment.b.
decrease.c. remain constant.d. increase.109. The proportion of an
increase in national income paid in tax is:a. the average tax
propensity.b. the tax multiplier.c. the marginal tax propensity.d.
the fiscal stance.110. The marginal propensity to withdraw is:a.
1/investment multiplierb. MPS + MPT + MPMc. 1-(1/injections
multiplier)d. the proportion of national income that is withdrawn
from the circular flow of income.111. In macroeconomics,
equilibrium is defined as that point at which:a. planned aggregate
expenditure equals aggregate output.b. saving equals consumption.c.
aggregate output equals consumption minus investment.d. planned
aggregate expenditure equals consumption.112. The ratio of the
change in the equilibrium level of output to a change in some
autonomous variable is the:a. elasticity coefficient.b. automatic
stabiliser.c. multiplier.d. marginal propensity of the autonomous
variable.113. Assuming there is no government or foreign sector, if
the MPC is .8, the multiplier is:a. 0.8b. 1.25c. 5.0d. 0.2114.
Assuming there is no government or foreign sector, the formula for
the multiplier is:a. 1/MPCb. 1/MPSc. 1/(1 + MPC)d. 1 - MPC115.
Assuming there is no government or foreign sector, if the
multiplier is 2.5, the MPC is:a. 0.25b. 2.5c. 0.4d. 0.6116. Assume
there is no government or foreign sector. If the MPC is .75, a 20
million decrease in planned investment will cause aggregate output
to decrease by:a. 15 million.b. 26.67 million.c. 20 million.d. 80
million.117. According to the 'paradox of thrift,' increased
efforts to save will cause:a. an increase in income and an increase
in overall saving.b. an increase in income but no overall change in
saving.c. a decrease in income but an increase in saving.d. a
decrease in income and an overall decrease in saving.118. If
injections are less than withdrawals at the full-employment level
of national income, there is:a. an inflationary gap.b.
hyperinflation.c. a deflationary gap.d. hysteresis.119. The
accelerator theory of investment says that induced investment is
determined by:a. expectations.b. the rate of change of national
income.c. the level of national income.d. the level of aggregate
demand.120. In which phase of the business cycle do firms try to
cut stocks in order to save costs?a. The expansion.b. The
recession.c. The peaking out.d. The upturn.
Money & Interest Rate121. Government securities with terms
of more than one year are called:a. bills of exchange.b. Treasury
bills.c. government bonds.d. capital bills.122. Money is:a.
anything that is generally accepted as a medium of exchange.b. the
same as income.c. the value of all coins and currency in
circulation at any time.d. all of the above.123. An item designated
as money that is intrinsically worthless is:a. precious metals.b.
barter items.c. fiat money.d. commodity money.124. Money that a
government has required to be accepted in settlement of debts is:a.
currency value.b. legal tender.c. barter money.d. commodity
money.125. Which of the following is included in broad money, but
not included in narrow money?a. Automatic-transfer savings
accounts.b. Travellers checks.c. Savings accounts.d. Currency held
outside banks.126. A checking deposit in a bank is considered
__________ of that bank.a. net worthb. a liabilityc. an assetd.
capital127. Which of the following activities is one of the
responsibilities of the Bank of England to the banking system?a.
Loaning money to other countries that are friendly to the UK.b.
Issuing new bonds to finance the PSBR.c. Assisting banks that are
in a difficult financial position.d. Auditing the various agencies
and departments of the government.128. The difference between a
bank's actual reserves and its required reserves is its:a. excess
reserves.b. net worth.c. profit margin.d. required reserve
ratio.129. As the required reserve ratio is decreased, the money
multiplier:a. remains the same, as long as banks hold no excess
reserves.b. could either increase or decrease.c. decreases.d.
increases.130. A bank has excess reserves to lend but is unable to
find anyone to borrow the money. This will __________ the size of
the money multiplier.a. doubleb. have no effect onc. increased.
reduce131. Assume that commercial banks are holding excess reserves
because business firms and consumers are not willing to borrow
money. A decrease in the discount rate is likely to:a. increase the
money supply because it is now cheaper for banks to borrow from the
central bankb. decrease the money supply because it will now be
more expensive for business firms and consumers to borrow money.c.
decrease the money supply because it is now cheaper for banks to
borrow from the central bank instead of buying government
securities.d. not change the money supply because banks already
have excess reserves they cannot lend.
132. If the quantity of money demanded exceeds the quantity of
money supplied, then the interest rate will:a. rise.b. fall.c.
remain constant.d. change in an uncertain direction.
133. When economists speak of the 'demand for money', which of
the following questions are they asking?a. How much cash do you
wish you could have?b. How much income would you like to earn?c.
How much wealth would you like?d. What proportion of your financial
assets do you want to hold in non-interest bearing forms?134. Which
of the following events will lead to an increase in the demand for
money?a. An increase in the supply of money.b. A decrease in the
price level.c. An increase in the level of aggregate output.d. An
increase in the interest rate.135. Which of the following events
will lead to a decrease in the equilibrium interest rate?a. An
increase in the level of aggregate output.b. A decrease in the
price level.c. A sale of government securities by the central
bankd. An increase in the discount rate.136. The main reason that
people hold money - 'to buy things' - is referred to as the:a.
speculation motive.b. profit motive.c. transactions motive.137. The
motive for holding money that encourages investors to hold bonds
when interest rates are low, with the hope of selling them when
interest rates are high, is the:a. precautionary motive.b.
speculation motive.c. profit motive.d. transactions motive.138. The
opportunity cost of holding money is determined by:a. the inflation
rate.b. the level of aggregate output.c. the interest rate.d. the
discount rate.139. The demand for money represents the idea that
there is:a. a positive relationship between the interest rate and
the quantity of money demanded.b. a negative relationship between
the level of aggregate output and the quantity of money demanded.c.
a negative relationship between the interest rate and the quantity
of money demanded.d. a negative relationship between the price
level and the quantity of money demanded.140. In terms of the
demand for money, the interest rate represents:a. the return on
money that is saved for the future.b. the rate at which current
consumption can be exchanged for future consumption.c. the
opportunity cost of holding money.d. the price of borrowing
money.
The Relationship between the Money and Goods Markets
141. The chain of events that results from an expansionary
monetary policy is:a. aggregate output increases, the demand for
money increases, the interest rate increases, planned investment
decreases, and aggregate output falls.b. money demand increases,
the interest rate decreases, planned investment increases,
aggregate output increases, and money demand increases.c. money
supply increases, the interest rate increases, planned investment
increases, aggregate output increases, and money demand
increases.d. money supply increases, the interest rate decreases,
planned investment increases, aggregate output increases, and money
demand increases.142. The equilibrium level of aggregate output is
determined in:a. the money and labour markets.b. the money
market.c. the goods and labour markets.143. The interest rate is
determined in:a. the money and labour markets.b. the money
market.c. the goods and labour markets.d. the goods market.144. An
increase in the money supply aimed at increasing aggregate output
is referred to as:a. expansionary monetary policy.b. contractionary
fiscal policy.c. expansionary fiscal policy.d. contractionary
monetary policy.145. An example of an expansionary monetary policy
is:a. an increase in the required reserve ratio.b. the Central bank
buying government securities in the open market.c. a reduction in
the taxes banks pay on their profits.d. an increase in the discount
rate.146. The interest rate:a. is determined in the money market
and influences the level of planned investment and thus the goods
market.b. is determined in the goods market and has no influence on
the money market.c. is determined in the goods market and
influences the level of planned investment and thus the money
market.d. is determined in the money market and has no influence on
the goods market.147. If the investment demand curve is vertical:a.
both monetary and fiscal policy are ineffective.b. both monetary
and fiscal policy are effective.c. monetary policy is effective,
but fiscal policy is ineffective.d. monetary policy is ineffective,
but fiscal policy is effective.148. For the Central bank to keep
the interest rate unchanged as the government increases spending,
the Central Bank must continue to:a. decrease the money supply.b.
increase the demand for money.c. increase the money supply.d.
decrease the demand for money.149. If the Central bank tries to
keep the interest rate constant when the economy is operating on
the steep part of the AS curve, ________ will occur.a. a
hyperinflationb. a recessionc. stagflationd. a depression150.
According to the 'simple' Keynesian view, the aggregate supply
curve is:a. vertical until it reaches full capacity and then
becomes horizontal.b. upward sloping over all levels of output.c.
downward sloping over all levels of output.d. horizontal until it
reaches full capacity and then becomes vertical.151. The idea that
government spending causes a reduction in private investment is
called:a. the Thatcher effect.b. fiscal drag.c. investment
blight.d. crowding-out.152. The way in which government spending is
supposed to reduce investment is by increasing:a. interest rates.b.
overseas investment.c. imports.d. incomes.153. If the central bank
increases the money supply at the same time as the government
increases spending, it is suggested that investment will:a. suffer
even more.b. be replaced by consumer spending.c. be replaced by
foreign investment.d. not be reduced as much as it would have
been.154. If planned investment becomes more sensitive to interest
rate changes, the crowding-out effect will:a. be reduced.b. not be
affected.c. be increased.d. fall to zero.155. Each point on the IS
curve represents the equilibrium point in the:a. money market for
the given level of the money supply.b. goods market for the given
level of government spending.c. money market for the given value of
aggregate output.d. goods market for the given interest rate.156.
The curve that illustrates the negative relationship between the
equilibrium values of aggregate output and the interest rate in the
goods market is the:a. aggregate demand curve.b. aggregate supply
curve.c. IS curve.d. LM curve.157. The curve that illustrates the
positive relationship between the equilibrium values of aggregate
output and the interest rate in the money market is the:a. money
demand curve.b. LM curve.c. money supply curve.d. IS curve.158.
When the money supply increases:a. the economy moves down the LM
curve.b. the LM curve shifts to the right.c. the LM curve shifts to
the left.d. the economy moves up the LM curve.159. Each point on
the LM curve represents the equilibrium point in the:a. goods
market for the given interest rate.b. goods market for the given
level of government spending.c. money market for the given level of
the money supply.d. money market for different combinations of
interest rates and output.160. Keynesians and monetarists differ
over how steep the IS and LM curves actually are. Monetarists claim
that the IS curve must be ___________ and the LM curve must be
____________.a. flat; flatb. steep; flatc. flat; steepd. steep;
steep
Fiscal & Moneytary Policy
161. Fiscal policy refers to:a. the actions of the central bank
in controlling the money supply.b. the government's regulation of
financial intermediaries.c. the government's attitude to
taxation.d. the spending and taxing policies used by the government
to influence the economy.162. Net taxes are:a. taxes paid by firms
and households to the government minus the transfer payments made
to firms and households.b. taxes paid by firms and households to
the government plus transfer payments made to firms and
households.c. government expenditures minus government revenues.d.
taxes paid by firms and households to the government minus the cost
of collecting the taxes.163. Automatic stabilisers act to__________
government expenditures and __________ government revenues during
recessions.a. decrease; increaseb. increase; decreasec. increase;
increased. decrease; decrease164. Automatic stabilisers act to
__________ government expenditures and __________ government
revenues during an expansionary period.a. increase; decreaseb.
decrease; decreasec. increase; increased. decrease; increase165.
The negative effect on the economy that occurs when average tax
rates increase because taxpayers have moved into higher income
brackets during an expansion is:a. debt burden.b. the Laffer
curve.c. bracket creep.d. fiscal drag.166. The budget deficit tends
to decrease when:a. GDP decreases rapidly.b. GDP remains
unchanged.c. GDP increases.d. GDP decreases slightly.167. Time lags
which often erode effectiveness of monetary and fiscal policy
measures represent:a. the foreign response to price changes.b. the
change in export and import prices.c. the change in exchange
rates.d. delays in the response of the economy to stabilisation
policy.168. The implementation lag for monetary policy is
generally:a. unrelated to central bank action.b. much longer than
it is for fiscal policy.c. much shorter than it is for fiscal
policy.d. the same as it is for fiscal policy.169. The response lag
of stabilisation policy represents:a. the time that is necessary to
put the desired policy into effect.b. the time that it takes for
policy makers to recognise the existence of a boom or bust.c. the
time that it takes for the economy to adjust to the new conditions
after a new policy has been implemented.170. The parable of 'Riding
a Switchback' suggests that stabilizing policy:a. is effective.b.
is desirable.c. is not sufficiently stimulating or contracting the
economy at any time.d. is stimulating or contracting the economy at
the wrong times.171. The multiple by which total deposits can
increase for every pound increase in reserves is the:a. bank's line
of credit.b. money multiplier.c. liquidity ratio.d. required
reserve ratio.172. As the required reserve ratio is decreased, the
money multiplier:a. increases.b. decreases.c. remains the same, as
long as banks hold no excess reserves.d. could either increase or
decrease.173. Following the work of _________________ in the 1960s,
and the controversy associated with these views in the 1970s, there
was a revival of interest by economists and government in monetary
policy.a. Margaret Thatcherb. Ronald Reaganc. Milton Friedmand.
John Maynard Keynes174. The idea that the money supply should
change to accommodate changes in aggregate demand is associated
with the ideas of:a. John Maynard Keynes.b. Ronald Reagan.c.
Margaret Thatcher.d. Milton Friedman.175. Goodhart's Law suggests
that:a. bad money drives out good.b. controlling one part of the
money supply will merely result in that item becoming less
important.c. monetary policy can only be effective if it is a
long-term policy.d. the money supply must only expand at the rate
of growth of real national income.176. By 'financial crowding out'
economists mean:a. government borrowing drives up interest rates.b.
Bank of England controls on commercial bank lending.c. credit
rationing.d. what the government borrows cannot be used for private
investment.177. If the Bank of England wished to pursue a 'tight'
monetary policy it would:a. sell government securities on the open
market.b. lower interest rates.c. reduce the minimum reserve asset
ratio.d. buy government securities on the open market.178. If the
Bank of England wished to pursue an expansionary monetary policy it
would:a. sell government securities on the open market.b. buy
government securities on the open market.c. raise interest rates.d.
increase the minimum reserve asset ratio.179. Over-funding is when
the Bank of England:a. sells less government bonds than are
required to finance the PSBR.b. sells more government bonds than
are required to finance the PSBR.c. buys government securities on
the open market.d. sells government securities on the open
market.180. By 'controlling the monetary base' economists mean:a.
not allowing commercial banks to issue notes and coins.b.
controlling the money multiplier.c. making banks keep a certain %
of their assets as M0.d. restricting the amount of cash in
circulation.
The Balance of Payments & Exchange Rates
181. The record of a country's transactions in goods, services,
and assets with the rest of the world is its:a. balance of
payments.b. balance of trade.c. current account.d. capital
account.182. The difference between a country's merchandise exports
and its merchandise imports is the:a. capital account.b. current
account.c. balance of trade.d. balance of payments.183. The balance
of payments is divided into two major accounts, the:a. current
account and the reserve account.b. trade account and the capital
account.c. current account and the trade account.d. current account
and the capital account.184. Which of the following statements is
correct?a. If the current account is in deficit, then the capital
account must also be in deficit.b. The overall sum of all the
entries in the balance of payments must be positive.c. The overall
sum of all the entries in the balance of payments must be zero.d.
If the current account is in surplus, then the capital account must
also be in surplus.185. Which of the following statements is
TRUE?a. A country runs a capital account deficit if it imports more
than it exports.b. If the current account is in surplus, the
capital account must be in deficit.c. A country runs a current
account surplus if it sells more of its assets abroad than it buys
abroad.d. The overall sum of all the entries in the balance of
payments must be positive.186. The difference between the balance
on current account and the balance on capital account is the:a.
trade deficit.b. balance of trade.c. statistical discrepancy.d.
balance of payments.187. The price of one country's currency in
terms of another country's currency is the:a. balance of trade.b.
terms of trade.c. exchange rate.d. currency valuation.188. All
currencies other than the domestic currency of a given country are
referred to as:a. reserve currencies.b. hard currency.c. foreign
exchange.d. near monies.189. The agreements that were reached at
the Bretton Woods conference in 1944 established a system:a. in
which the values of currencies were fixed in terms of a specific
number of ounces of gold, which in turn determined their values in
international trading.b. of essentially fixed exchange rates under
which each country agreed to intervene in the foreign exchange
market when necessary to maintain the agreed-upon value of its
currency.c. of floating exchange rates determined by the supply and
demand of one nation's currency relative to the currency of other
nations.d. that prohibited governments from intervening in the
foreign exchange markets.190. In 1971, most countries:a. adopted a
single, internationally accepted currency whose use is limited to
international transactions.b. returned to the gold standard.c.
adopted a new system of fixed exchange rates.d. gave up trying to
fix exchange rates formally and began allowing them to be
determined essentially by supply and demand.191. Exchange rates
that are determined by the unregulated forces of supply and demand
are:a. fixed exchange rates.b. floating exchange rates.c. pegged
exchange rates.d. managed exchange rates.192. If the Bank of
England reduces the money supply to reduce inflation, a floating
exchange rate will aid the Bank of England in fighting inflation
because:a. as the money supply is decreased, the interest rate will
increase, and the price of UK exports will rise and the price of UK
imports will fall.b. as the money supply is decreased, the interest
rate will increase, and the price of UK exports will fall and the
price of UK imports will rise.c. as the money supply is decreased,
the interest rate will increase, and the price of both UK exports
and UK imports will rise.d. as the money supply is decreased, the
interest rate will increase, and the price of UK exports and UK
imports will fall.193. Expansionary monetary policy:a. usually has
no effect on a currency's exchange value.b. tends to lead to an
appreciation of a nation's currency.c. tends to lead to a
depreciation of the currencies of other nations.194. A fiscal
expansion in the UK:a. tends to appreciate the pound sterling.b.
does not affect the price of the pound sterling.c. tends to
depreciate the pound sterling.d. has no predictable effect on the
price of the pound sterling.195. The fall in value of one currency
relative to another is:a. a floating of the currency.b. a
strengthening of a currency.c. a depreciation of a currency.d. an
appreciation of a currency.196. The rise in value of one currency
relative to another is:a. a depreciation of the currency.b. an
appreciation of the currency.c. a weakening of the currency.d. a
debasement of the currency.197. The theory of international
exchange that holds that exchange rates adjust to offset
differences in countries' inflation rates is the:a. J-curve
theory.b. trade feedback theory.c. purchasing-power-parity
theory.d. price feedback theory.198. Under a system of floating
exchange rates, there is a general tendency for:a. the currencies
of relatively high-inflation countries to appreciate.b. the
currencies of relatively low-inflation countries to depreciate.c.
the currencies of relatively high-inflation countries to
depreciate.d. exchange rates to be insensitive to the differential
rates of inflation between countries.199. If a nation's interest
rates are relatively low compared to those of other countries, then
the exchange value of its currency will tend to:a. appreciate under
a system of floating exchange rates.b. appreciate under a system of
fixed exchange rates.c. depreciate under a system of floating
exchange rates.d. depreciate under a system of fixed exchange
rates.200. The J-curve effect refers to the observation that:a. GDP
usually decreases before it increases after a currency
depreciation.b. the trade balance usually gets better before it
gets worse after a currency appreciation.c. GDP usually decreases
before it increases after a currency appreciation.d. the trade
balance usually gets worse before it improves after a currency
depreciation.
ANSWERIntroduction of Macroeconomics
1. In economics the central problem is:scarcity.2. Indicate
below what is NOT a factor of production.A bank loan.3.
Macroeconomics deals with:economic aggregates.4. Microeconomics is
not concerned with the behaviour of:aggregate demand.5. The study
of inflation is part of :macroeconomics.6. Aggregate supply is the
total amount:of goods and services produced in an economy.7. The
total demand for goods and services in an economy is known
as:aggregate demand.8. Inflation is:an increase in the overall
price level.9. A recession is:a period during which aggregate
output declines.10. Unemployment means that: at the going wage
rate, there are people who want to work but cannot find work11. If
marginal benefit is greater than marginal cost, a rational choice
involves:more of the activity.12. A student chooses to study
because the marginal benefit is greater than the ________
cost.marginal13. The concept of opportunity cost:suggests a major
increase in public health-care spending means an expansion in other
areas will be harder to achieve14. Opportunity cost is:that which
we forgo, or give up, when we make a choice or a decision.15. A
graph showing all the combinations of goods and services that can
be produced if all of society's resources are used efficiently is
a:production possibility curve.16. Periods of less than full
employment correspond to:points inside the production possibility
curve.17. The circular flow of goods and incomes shows the
relationship between:firms and households18. In a free market
system, the amount of goods and services that any one household
gets depends upon its:income and wealth.19. In a planned or command
economy, all the economic decisions are taken by the:government.20.
Which one of the following is a normative statement?Inequality in
the distribution of income is a more serious problem than
National Income Accounting
21. Macroeconomics is the branch of economics that deals
with:the economy as a whole.22. The diagram that shows the income
received and payments made by each sector of the economy is
the:circular flow diagram.23. Macroeconomic theory that emphasised
the theories of Keynes and de-emphasised the classical theory
developed as the result of the failure of:the classical model to
explain the prolonged existence of high unemployment during the
Great Depression.24. The percentage of the labour force that is
unemployed is the:unemployment rate.25. The index used most often
to measure inflation is the:consumer price index.26. An index of
prices of all domestically produced goods in the economy is the:GDP
deflator.27. It has become conventional to classify a recession as
a period where national output falls for ______ or more.six
months28. The length of a business cycle would be measured
from:peak to peak.29. Indicate below what is NOT a main
macroeconomic goal.Increasing North Sea oil production.30.
Aggregate demand includes only:consumer expenditure, investment,
government expenditure, and exports less imports.31. Total
withdrawals from the circular flow of income include:savings, taxes
and imports32. Total injections are made up of:Investment +
government expenditure + exports (Total injections (J) = investment
(I) + government expenditure (G) + exports (X))33. Equilibrium in
the circular flow of income occurs when:Injections <
withdrawals34. There are three ways to measure GDP.True35. Real GDP
is nominal GDP measured in constant:prices.36. The underground
economy consists of:legal transactions not declared for tax and
illegal activities.37. Purchasing power parity exchange rates are
used to:compare living standards of different countries.38. Two of
the major factors contributing to growth are:resources and
efficiency.39. According to the classical economists, the only
gainers from growth would be:landlords.40. Aggregate supply is the
total amount:of goods and services produced in an economy.
Macroeconomics Issues & Analysis
41. The percentage of the labour force that is unemployed is
the:unemployment rate.42. The labour force can be defined as:those
of working age who are seeking work and are available to for work
at current wage rates.43. Since 1998 the UK government has defined
unemployment using:the ILO/OECD standardized unemployment
measurement.44. An individual who is not working and who has given
up looking for work is classified as:a discouraged worker.45.
Classifying discouraged workers as unemployed would:increase the
unemployment rate.46. Cyclical unemployment is the:unemployment
that occurs during recessions and depressions.47. Aggregate demand
is the total demand for all goods and services in an economy
from:all sectors of the economy including the rest of the world.48.
Aggregate supply is the total amount:of goods and services produced
in an economy.49. Unemployment resulting from real wages being
above their equilibrium level is called ______
unemployment.disequilibrium50. Unemployment resulting from
imperfect information in the labour market is called ______
unemployment.frictional51. Unemployment resulting from changes in
the pattern of demand or supply in the economy is called ______
unemployment.structural52. The demand for ice-cream is lower
outside of summer causing lower demand for ice-cream salesmen. If
they cannot find other work, this is called ____________
unemploymentseasonal53. The natural rate of unemployment is
generally thought of as the:sum of frictional unemployment and
structural unemployment.54. As prices rise, people will want to
keep more money as cash and in bank accounts. This is called:real
balance effect.55. As prices rise, there will be costs of
constantly changing price-tags and reprinting price-lists. This is
called:menu costs of inflation.56. Government policies that focus
on increasing production rather than demand are called:supply-side
policies.57. Government policies that focus on changing taxes and
government spending are called:fiscal policies.58. Government
policies that focus on changing interest rates are called:monetary
policies.59. If interest rates rise, then costs are likely to
______ and demand is likely to ______. rise; fall60. If VAT rates
rise, then costs are likely to ______ and demand is likely to
______.rise; fall
61. An economy that trades with and has financial dealings with
other countries is called a/an ______ economy.open62. The visible
trade balance.balance of payments.63. The record of a country's
imports and exports of goods and services is called its:balance of
trade.64. The record of a country's imports and exports of goods
and services plus net investment incomes and current transfers of
money to and from abroad, is called its:balance of payments on
current account.65. The record of a country's transfers of
shareholdings, property and bank deposits to and from abroad is
called its:financial account of the balance of payments.66. The
record of a country's transfers of land, inter-government payments
and money sent by migrants to and from abroad is called its:capital
account of the balance of payments.67. The situation when a country
imports more than it exports is:a trade deficit.68. The price of
one country's currency in terms of another country's currency is
the:exchange rate.69. If the exchange rate between the UK and Japan
changes from 1 = 100 yen to 1 = 150 yen, then, ceteris paribus, the
price of UK goods in Japan:will increase.70. If a nation's interest
rates are relatively low compared to those of other countries, then
the exchange value of its currency will tend to:depreciate.71. If
the UK receives larger than expected revenues from exports, then
the exchange value of its currency will tend to:appreciate.72. If
the UK takes part in a war in the Middle East, then the exchange
value of its currency will tend to: depreciate.73. If currency
dealers expect the value of the pound to fall, then the exchange
value will tend to:depreciate.74. If UK incomes rise faster than
those in most other countries, then the exchange value will tend
to:depreciate.75. If the US economy is forecast to come out of
recession because military expenditure has increased, then the
exchange value of the UK pound will tend to:appreciate.76. If a
large car importer in the UK wants to import many cars, then the
exchange value of the UK pound will tend to:depreciate.77. If the
economy is in the expansionary phase of the business cycle,
aggregate demand ______, unemployment ______, inflation ______ and
the current account of the balance of payments is likely to move
towards ______.rises; falls; rises; deficit78. If the economy is at
the peak of the business cycle, aggregate demand ______,
unemployment ______, inflation _______ and the current account of
the balance of payments is likely to move towards ______.is static;
low; rises; deficit79. If the economy is in the recessionary phase
of the business cycle, aggregate demand ______, unemployment
______, inflation ______ and the current account of the balance of
payments is likely to move towards ______.falls; rises; falls;
surplus80. If the economy is in the trough phase of the business
cycle, aggregate demand ______, unemployment ______, inflation
______ and the current account of the balance of payments is likely
to move towards ______.falls; falls; falls; surplus
The Roots of Modern Macroeconomics
81. Prices that do not always adjust rapidly to maintain
equality between quantity supplied and quantity demanded are:sticky
prices.82. The economists who emphasised wage-flexibility as a
solution for unemployment were:classical economists.83. According
to the classical economists, the economy:is self correcting.84.
According to classical models, the level of employment is
determined primarily by:prices and wages.85. Keynesian economics
became popular because it was able to explain:the prolonged
existence of high unemployment during the Great Depression.86.
According to Keynes, the level of employment is determined by:the
level of aggregate demand for goods and services.87. The government
increases government spending to try to reduce unemployment. This
is an example of:fine tuning.88. The notion that the government can
stabilize the macroeconomics is known as:fine tuning.89. Rapid
increases in the price level during periods of recession or high
unemployment are known as:stagflation.90. The hypothesis that
people know the 'true model' of the economy and that they use this
model to form their expectations of the future is
the:rational-expectations hypothesis.91. The rational-expectations
hypothesis suggests that the forecasts that people make concerning
future inflation rates:are correct on average, but are subject to
errors that are distributed randomly.92. People are said to have
rational expectations if they:use all available information in
forming their expectations.93. The persistence of a phenomenon such
as unemployment, even when its causes have been removed, is
called:hysteresis.94. The quantity theory of money implies that a
given percentage change in the money supply will cause:an equal
percentage change in nominal GDP.95. If the demand for money
depends on the interest rate, the velocity of circulation is:not
constant and the quantity theory of money does not hold.96. It is
difficult to determine if the velocity of money is constant over
time because:whether velocity is constant or not may depend on how
the money supply is measured.97. New classical theories were an
attempt to explain:the stagflation of the 1970s.98. The key
question regarding the new classical macroeconomics is how
realistic is the assumption:Of rational expectations.99. A group of
modern economists who believe that markets clear very rapidly and
that expanding the money supply will always increase prices rather
than employment are the:New classical school100. A group of modern
economists who believe that institutional factors and confidence
strongly influence business behaviour and that expanding demand
will usually increase output rather than prices are
the:Post-Keynesians.
Macroeconomics Equilibrium
101. The total quantity of goods and services produced (or
supplied) in an economy in a given period is:aggregate output.102.
A variable whose value is determined by the model of which it is a
part is termed:endogenouse.103. In the equation C = a + bY, which
describes the aggregate consumption function, 'b' stands for?The
marginal propensity to consume.104. The fraction of a change in
income that is consumed or spent is called:the marginal propensity
to consume.105. Disposable income is the part of households' income
left after the deduction of:taxes and the addition of benefits.106.
Keynes suggested that decisions to consume and save were based
on:absolute income.107. The marginal propensity to save (MPS)
is:the fraction of a change in income that is saved.108. As the MPS
increases, the multiplier will:decrease.109. The proportion of an
increase in national income paid in tax is:the marginal tax
propensity.110. The marginal propensity to withdraw is:MPS + MPT +
MPM111. In macroeconomics, equilibrium is defined as that point at
which:planned aggregate expenditure equals aggregate output.112.
The ratio of the change in the equilibrium level of output to a
change in some autonomous variable is the:multiplier.113. Assuming
there is no government or foreign sector, if the MPC is .8, the
multiplier is:5.0114. Assuming there is no government or foreign
sector, the formula for the multiplier is:1/(1 + MPC)115. Assuming
there is no government or foreign sector, if the multiplier is 2.5,
the MPC is:0.6116. Assume there is no government or foreign sector.
If the MPC is .75, a 20 million decrease in planned investment will
cause aggregate output to decrease by:80 million.117. According to
the 'paradox of thrift,' increased efforts to save will cause:a
decrease in income and an overall decrease in saving.118. If
injections are less than withdrawals at the full-employment level
of national income, there is:a deflationary gap.119. The
accelerator theory of investment says that induced investment is
determined by:the rate of change of national income.120. In which
phase of the business cycle do firms try to cut stocks in order to
save costs?The recession.
Money & Interest Rate
121. Government securities with terms of more than one year are
called:government bonds.122. Money is:anything that is generally
accepted as a medium of exchange.123. An item designated as money
that is intrinsically worthless is:a. fiat money.124. Money that a
government has required to be accepted in settlement of debts
is:legal tender.125. Which of the following is included in broad
money, but not included in narrow money?Savings accounts.126. A
checking deposit in a bank is considered __________ of that bank.a
liability127. Which of the following activities is one of the
responsibilities of the Bank of England to the banking
system?Assisting banks that are in a difficult financial
position.128. The difference between a bank's actual reserves and
its required reserves is its:excess reserves.129. As the required
reserve ratio is decreased, the money multiplier:increases.130. A
bank has excess reserves to lend but is unable to find anyone to
borrow the money. This will __________ the size of the money
multiplier.reduce131. Assume that commercial banks are holding
excess reserves because business firms and consumers are not
willing to borrow money. A decrease in the discount rate is likely
to:not change the money supply because banks already have excess
reserves they cannot lend132. If the quantity of money demanded
exceeds the quantity of money supplied, then the interest rate
will:rise.133. When economists speak of the 'demand for money',
which of the following questions are they asking?What proportion of
your financial assets do you want to hold in non-interest bearing
forms?134. Which of the following events will lead to an increase
in the demand for money?An increase in the level of aggregate
output.135. Which of the following events will lead to a decrease
in the equilibrium interest rate?A decrease in the price level.136.
The main reason that people hold money - 'to buy things' - is
referred to as the:transactions motive.137. The motive for holding
money that encourages investors to hold bonds when interest rates
are low, with the hope of selling them when interest rates are
high, is the:speculation motive.138. The opportunity cost of
holding money is determined by:the interest rate.139. The demand
for money represents the idea that there is:a negative relationship
between the interest rate and the quantity of money demanded.140.
In terms of the demand for money, the interest rate represents:the
opportunity cost of holding money.
The Relationship between the Money and Goods Markets
141. The chain of events that results from an expansionary
monetary policy is:money demand increases, the interest rate
decreases, planned investment increases, aggregate output
increases, and money demand increases.142. The equilibrium level of
aggregate output is determined in:the goods markets.143. The
interest rate is determined in:the money market.144. An increase in
the money supply aimed at increasing aggregate output is referred
to as:expansionary monetary policy.145. An example of an
expansionary monetary policy is:the Central bank buying government
securities in the open market.146. The interest rate:is determined
in the money market and influences the level of planned investment
and thus the goods market.147. If the investment demand curve is
vertical:monetary policy is ineffective, but fiscal policy is
effective.148. For the Central bank to keep the interest rate
unchanged as the government increases spending, the Central Bank
must continue to:increase the money supply.149. If the Central bank
tries to keep the interest rate constant when the economy is
operating on the steep part of the AS curve, ________ will occur.a
hyperinflation150. According to the 'simple' Keynesian view, the
aggregate supply curve is:horizontal until it reaches full capacity
and then becomes vertical.151. The idea that government spending
causes a reduction in private investment is
called:crowding-out.152. The way in which government spending is
supposed to reduce investment is by increasing:interest rates.153.
If the central bank increases the money supply at the same time as
the government increases spending, it is suggested that investment
will:not be reduced as much as it would have been.154. If planned
investment becomes more sensitive to interest rate changes, the
crowding-out effect will:be increased.155. Each point on the IS
curve represents the equilibrium point in the:goods market for the
given interest rate.156. The curve that illustrates the negative
relationship between the equilibrium values of aggregate output and
the interest rate in the goods market is the:IS curve.157. The
curve that illustrates the positive relationship between the
equilibrium values of aggregate output and the interest rate in the
money market is the:LM curve.158. When the money supply
increases:the LM curve shifts to the right.159. Each point on the
LM curve represents the equilibrium point in the:money market for
different combinations of interest rates and output.160. Keynesians
and monetarists differ over how steep the IS and LM curves actually
are. Monetarists claim that the IS curve must be ___________ and
the LM curve must be ____________.flat; steep
Fiscal & Moneytary Policy
161. Fiscal policy refers to:the spending and taxing policies
used by the government to influence the economy.162. Net taxes
are:taxes paid by firms and households to the government minus the
transfer payments made to firms and households.163. Automatic
stabilisers act to__________ government expenditures and __________
government revenues during recessions.increase; decrease164.
Automatic stabilisers act to __________ government expenditures and
__________ government revenues during an expansionary
period.decrease; increase165. The negative effect on the economy
that occurs when average tax rates increase because taxpayers have
moved into higher income brackets during an expansion is:fiscal
drag.166. The budget deficit tends to decrease when:GDP
increases.167. Time lags which often erode effectiveness of
monetary and fiscal policy measures represent:delays in the
response of the economy to stabilisation policy.168. The
implementation lag for monetary policy is generally:much shorter
than it is for fiscal policy.169. The response lag of stabilisation
policy represents:the time that it takes for the economy to adjust
to the new conditions after a new policy has been implemented.170.
The parable of 'Riding a Switchback' suggests that stabilizing
policy:is stimulating or contracting the economy at the wrong
times.171. The multiple by which total deposits can increase for
every pound increase in reserves is the:money multiplier.172. As
the required reserve ratio is decreased, the money
multiplier:increases.173. Following the work of _________________
in the 1960s, and the controversy associated with these views in
the 1970s, there was a revival of interest by economists and
government in monetary policy.a. Milton Friedman174. The idea that
the money supply should change to accommodate changes in aggregate
demand is associated with the ideas of:John Maynard Keynes.175.
Goodhart's Law suggests that:controlling one part of the money
supply will merely result in that item becoming less important.176.
By 'financial crowding out' economists mean:government borrowing
drives up interest rates.177. If the Bank of England wished to
pursue a 'tight' monetary policy it would:sell government
securities on the open market.178. If the Bank of England wished to
pursue an expansionary monetary policy it would:buy government
securities on the open market.179. Over-funding is when the Bank of
England:sells more government bonds than are required to finance
the PSBR.180. By 'controlling the monetary base' economists
mean:making banks keep a certain % of their assets as M0.
The Balance of Payments & Exchange Rates
181. The record of a country's transactions in goods, services,
and assets with the rest of the world is its:balance of
payments.182. The difference between a country's merchandise
exports and its merchandise imports is the:balance of trade.183.
The balance of payments is divided into two major accounts,
the:current account and the capital account.184. Which of the
following statements is correct?The overall sum of all the entries
in the balance of payments must be zero.185. Which of the following
statements is TRUE?If the current account is in surplus, the
capital account must be in deficit.186. The difference between the
balance on current account and the balance on capital account is
the:a. statistical discrepancy.187. The price of one country's
currency in terms of another country's currency is the:exchange
rate.188. All currencies other than the domestic currency of a
given country are referred to as:foreign exchange.189. The
agreements that were reached at the Bretton Woods conference in
1944 established a system:of essentially fixed exchange rates under
which each country agreed to intervene in the foreign exchange
market when necessary to maintain the agreed-upon value of its
currency.190. In 1971, most countries:gave up trying to fix
exchange rates formally and began allowing them to be determined
essentially by supply and demand.191. Exchange rates that are
determined by the unregulated forces of supply and demand
are:floating exchange rates.192. If the Bank of England reduces the
money supply to reduce inflation, a floating exchange rate will aid
the Bank of England in fighting inflation because:as the money
supply is decreased, the interest rate will increase, and the price
of UK exports will rise and the price of UK imports will fall.193.
Expansionary monetary policy:tends to lead to a depreciation of a
nation's currency.194. A fiscal expansion in the UK:tends to
appreciate the pound sterling.195. The fall in value of one
currency relative to another is:a depreciation of a currency.196.
The rise in value of one currency relative to another is:an
appreciation of the currency.197. The theory of international
exchange that holds that exchange rates adjust to offset
differences in countries' inflation rates is
the:purchasing-power-parity theory.198. Under a system of floating
exchange rates, there is a general tendency for:the currencies of
relatively high-inflation countries to depreciate.199. If a
nation's interest rates are relatively low compared to those of
other countries, then the exchange value of its currency will tend
to:depreciate under a system of floating exchange rates.200. The
J-curve effect refers to the observation that:the trade balance
usually gets worse before it improves after a currency
depreciation.