Applied Economics Exam
Bank
Course Introduction
Applied Economics explores the practical application of economic theories and quantitative methodologies to real-world issues, including policy analysis, business decision-making, and societal challenges. This course emphasizes the use of economic models and statistical techniques to analyze market behavior, evaluate public policies, and assess outcomes in areas such as labor, health, environment, and industry. Students will develop skills in interpreting data, formulating research questions, and presenting evidence-based solutions, preparing them to address complex economic problems in professional and academic settings.
Recommended Textbook
Economics Principles and Applications 6th Edition by Robert E. Hall
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35 Chapters
4566 Verified Questions
4566 Flashcards
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Page 2
Chapter 1: What Is Economics
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) The unemployment rate for the economy as a whole is a(n)
A) normative value judgment
B) positive value judgment
C) microeconomic statistic
D) macroeconomic statistic
E) example of an economic model
Answer: D
Q2) For society as a whole,producing more of one good or service has an opportunity cost because
A) human wants are limited and resources are unlimited
B) both human wants and resources are unlimited
C) resources are limited;human wants are irrelevant
D) human wants are unlimited and resources are limited
E) both human wants and resources are limited
Answer: D
Q3) If Sally purchases a particular compact disk,it is because the opportunity cost is higher than it would be for any other compact disk.
A)True
B)False
Answer: False
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Chapter 2: Scarcity,choice,and Economic Systems
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146 Flashcards
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Sample Questions
Q1) We say that a particular life saving method is efficient
A) if it requires very few resources
B) if it requires many resources
C) if total expenditures on that method are low
D) if the cost per life year saved is very high
E) if the cost per life year saved is very low
Answer: E
Q2) The role of prices in a market economy is to
A) make producers rich at the expense of consumers
B) replicate what society produced in the past
C) determine the allocation of resources
D) enforce what the government chooses
E) force consumers to pay for business profits
Answer: C
Q3) Specialization of labor typically leads to higher levels of productive inefficiency in an economy.
A)True
B)False
Answer: False
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Page 4
Chapter 2: Scarcity, choice, and Economic Systems: Part A
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184 Flashcards
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Sample Questions
Q1) Which of the following would be the best example of a spot market?
A) the market for fine art
B) the market for bananas
C) the market for stocks and bonds
D) the market for baseball cards
Answer: B
Q2) Suppose that a large dairy farmer is able to raise the market price of milk by withholding milk supply from the market.In this instance,
A) the milk market is perfectly competitive
B) buyers will decrease their demand for milk
C) buyers will increase their demand for milk
D) the milk market is imperfectly competitive
E) the milk market will collapse in the long run
Answer: D
Q3) The demand curve for a product will shift rightward when the price of a substitute decreases.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) Nancy buys a $150,000 home using $30,000 of her own money and gets a mortgage for the remaining $120,000.If the price of the house increases 5%,what will Nancy's capital gain be?
A) $30,000
B) $31,500
C) $35,000
D) $37,500
E) $45,550
Q2) When analyzing the housing market,the supply curve
A) will be upward sloping because the higher the price of a house the more that will exist
B) will be horizontal to illustrate that the supply of housing is a stock variable
C) will be downward sloping;that is what went wrong with the housing market
D) will be vertical to illustrate that the supply of housing is a stock variable
E) could be horizontal,vertical or upward sloping depending upon the housing market in question
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Chapter 5: Elasticity
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Sample Questions
Q1) Figure 5-6 shows the demand curve for chicken.Between points L and M,the price elasticity of demand is
A) 0.44,and demand is elastic
B) 0.44,and demand is inelastic
C) 2.25,and demand is elastic
D) 2.25,and demand is inelastic
E) 0.028,and demand is inelastic
Q2) The cross-price elasticity of demand is measured by the
A) change in quantity demanded of one good divided by the change in price of another good
B) percentage change in quantity demanded of one good divided by the percentage change in its price
C) percentage change in demand for one good divided by the percentage change in income
D) percentage change in quantity supplied of one good divided by the percentage change in the price of another good
E) percentage change in quantity demanded of one good divided by the percentage change in price of another good
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Chapter 6: Consumer Choice
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Sample Questions
Q1) A consumer's demand curve
A) shows the quantity of a good or service that individual will demand at each different price
B) shows the quantity of a good or service that individual will demand at different levels of income
C) is derived by equating the income and substitution effects
D) slopes downward because the income effect offsets the substitution effect
E) will be vertical if the income effect outweighs the substitution effect
Q2) Suppose that the price of a pizza is $10 and that the price of a blouse is $30.At her present level of consumption,Magda's ratio of marginal utility of pizza to marginal utility of blouses is 1/4.To maximize total utility,she should
A) buy more pizzas and fewer blouses
B) buy fewer pizzas and more blouses
C) continue to buy the same quantities of pizza and blouses
D) spend more time consuming pizza
E) spend more time buying blouses
Q3) The budget line is useful for illustrating the notion of opportunity cost.
A)True
B)False
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Page 8
Chapter 7: Production and Cost
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Sample Questions
Q1) A corporation has been steadily losing money on one of its product lines.The factory used to produce that brand cost $20 million to build.The firm now is considering an offer to buy that factory for $15 million.Which of the following statements about the decision to sell or not is correct?
A) The firm should turn down the purchase offer because the factory cost more than $15 million to build.
B) The $20 million spent on the factory is a sunk cost that should not affect the decision.
C) The $20 million spent on the factory is an implicit cost that should be included in the decision.
D) The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.
E) The firm's opportunity cost would be $35 million if it decides to sell the factory.
Q2) Total product begins to decline when diminishing marginal returns are first experienced.
A)True
B)False
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9
Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) A firm's total revenue
A) can be read off the demand curve it faces,but only if we know total cost of production
B) can be read off the demand curve it faces,but only if we know how must output the firm sells
C) is found by multiplying price per unit by the number of units produced and sold
D) is equal to profit when inputs are fixed in the short run
E) will be positive at any level of output
Q2) If a firm shuts down in the short run,
A) it exits the industry
B) losses would equal its variable costs
C) losses would equal its fixed costs
D) profits would be zero
E) losses would equal to zero
Q3) If average fixed cost exceeds average variable cost,a firm should shut down in the short run.
A)True B)False
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10
Chapter 9: Perfect Competition
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Sample
Questions
Q1) The portion of the marginal cost curve above the minimum point on the average variable cost curve is part of the perfectly competitive firm's
A) average revenue curve
B) effective demand curve
C) average variable cost curve
D) supply curve
E) total revenue curve
Q2) All of the following help define market structure,except one.Which is the exception?
A) number of sellers
B) barriers to entry
C) barriers to exit
D) standardization of product
E) how firms are organized (i.e. ,as proprietorships,partnerships,or corporations)
Q3) Because perfectly competitive markets rarely exist in the real world,the model has limited usefulness.
A)True
B)False
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11
Chapter 9: Perfect Competition: Part A
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Sample Questions
Q1) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Q2) One of the defining characteristics of a perfectly competitive market is
A) both buyers and sellers are well informed about the market
B) a small number of buyers
C) high barriers to entry
D) a small number of buyers but a large number of sellers
E) buyers are better informed about the market than sellers
Q3) Which of the following is not a characteristic of a perfectly competitive market
A) buyers and sellers are well informed about the market
B) standardized product
C) many buyers and few sellers
D) easy exit out of the industry
E) easy entry into the industry
Q4) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Page 12
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Chapter 10: Monopoly
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Sample Questions
Q1) Monopolies are sometimes more technologically efficient than perfectly competitive markets.
A)True
B)False
Q2) Suppose that for a monopolist,MR = MC = $10 and P = $15 at the profit-maximizing level of output.At this level of output,the firm
A) is earning a profit
B) will shut down if AVC > $15
C) is making $5 profit on each unit sold
D) will shut down if ATC > $15
E) is losing $5 per unit produced
Q3) Which of the following is a potential barrier to entry?
A) a low market price
B) a high market price
C) a standardized product
D) economies of scale
E) diminishing marginal productivity
Q4) Most government franchises are granted to natural monopolies.
A)True
B)False
Page 13
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The total fixed cost in Figure 11-2 is
A) increasing as more is produced
B) decreasing as more is produced
C) larger than variable costs
D) less than $1,000
E) more than $1,000
Q2) Collusive arrangements tend to collapse when
A) there is a small number of sellers
B) the benefits of cheating are great and the costs are low
C) inflation is high
D) interest rates are low
E) there is a powerful price leader
Q3) If a market has more than one seller,but fewer sellers than under perfect competition,it is referred to as
A) a monopoly
B) competitive
C) imperfect competition
D) an efficient market
E) optimal
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Page 14
Chapter 12: Labor Markets
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95 Flashcards
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Sample Questions
Q1) A perfectly competitive firm should hire additional units of labor in a competitive labor market if
A) marginal revenue is less than marginal cost
B) the marginal revenue product exceeds the wage rate
C) total revenue exceeds total cost
D) the marginal product of labor exceeds the wage rate
E) the marginal product of labor is less than the wage rate
Q2) Figure 12-7 shows the number of calculators that can be assembled each day by various numbers of workers.If calculators sell in a perfectly competitive market where the price per calculator is $20,what is the marginal revenue product (MRP)of hiring the second worker?
A) $20
B) $2,000
C) $100
D) $1,600
E) $3,200
Q3) An increase in the wage rate will cause the labor supply curve to shift to the right.
A)True
B)False
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Page 15
Chapter 12: labor Markets: Part A
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Sample Questions
Q1) One difficulty with the idea of comparable worth is that
A) it does not address the idea of compensating wage differentials
B) it would reduce the federal budget deficit
C) it would cause aggregate wages to fall
D) a government agency cannot accurately evaluate the many different characteristics of jobs
E) it would not take into account differences in the supply of labor among firms
Q2) Everything else being equal,a job in which workers face a relatively small chance of being laid off would generally have
A) a lower wage rate
B) a higher wage rate
C) more fringe benefits
D) higher skill requirements
E) no expected wage differentials in equilibrium
Q3) If men,on average,earn 20 percent more than women in a particular occupation,
A) this is clear evidence of discrimination
B) some of this differential could be due to differences in human capital
C) most but not all of the differential is due to discrimination
D) comparable worth laws must not be in effect
E) men must have higher skills levels than women
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Chapter 13: Capital and Financial Markets
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114 Flashcards
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Sample Questions
Q1) There is a specific relationship between the price of a bond and its yield.Which of the following describes that relationship?
A) If the price falls,the yield stays the same,but if the price rises,the yield rises.
B) As the price falls,the yield falls.
C) If the price rises,the yield stays the same,but if the price falls,the yield falls.
D) As the price rises,the yield rises.
E) As the price rises,the yield falls.
Q2) What is the value of a newly issued 3-year bond with a face value of $5,000 and no coupon payments? Assume the interest rate is 8 percent (0.08)per year.
A) $4,629.63
B) $5,000.00
C) $3,969.16
D) $3,756.57
E) $4,545.45
Q3) The supply curve for a particular bond is horizontal.
A)True
B)False
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Chapter 14: Economic Efficiency and the Competitive Ideal
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80 Flashcards
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Sample Questions
Q1) A Pareto improvement is
A) an action in which the gains to the gainers outweigh the losses to the losers
B) any action that does not harm a third party
C) an action that makes at least one person better off,and no one worse off
D) any action that involves a side payment to a third party
E) the typical outcome of government action
Q2) An individual seller's producer surplus on a unit of a good is
A) zero in perfect competition
B) zero in monopoly
C) greater than the buyer's consumer surplus on that unit
D) an example of a side payment
E) the difference between the price the seller receives and the cost of producing that unit.
Q3) The height of the market demand curve
A) at any quantity shows the value - to someone - of the last unit of the good consumed
B) shows the market value of a good or service
C) increases as more of a good or service is consumed
D) shows the cost of producing each unit of a good or service
E) measures the side payment necessary to achieve economic efficiency
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Page 18
Chapter 15: Governments Role in Economic Efficiency
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Sample Questions
Q1) Price-fixing agreements among competing firms are a violation of the Sherman Antitrust Act.
A)True
B)False
Q2) Robbery reduces economic efficiency by
A) creating voluntary exchanges
B) decreasing government spending
C) increasing unemployment
D) creating involuntary exchanges
E) lowering the number of potential Pareto improvements
Q3) Monopoly is a prime example of a market failure that leaves potential Pareto improvements unexploited.This is demonstrated by the fact that
A) monopolies produce public goods rather than private goods
B) monopolies substitute excludability for rivalry
C) monopolies substitute rivalry for excludability
D) the price in a monopolized market is less than the marginal cost of production
E) the price in a monopolized market exceeds the marginal cost of production
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Chapter 16: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Assume Japan must forego producing 60 computers for each automobile it produces.Moreover,the United States can produce one automobile if it forgoes producing 80 computers.Which of the following is true?
A) The United States has a lower opportunity cost of producing automobiles.
B) The United States has a comparative advantage in producing automobiles.
C) Japan has a comparative advantage in producing computers.
D) No trade will occur between Japan and the United States.
E) Japan has a lower opportunity cost of producing automobiles.
Q2) In an Israeli factory,each worker can produce 2/5 of a shirt in an hour or 1/10 of a pair of pants in an hour.If there are 500 workers in the factory,what is opportunity cost of producing one pair of pants?
A) 1 shirt
B) 4 shirts
C) 1/2 shirt
D) 1/4 shirt
E) 2 shirts
Q3) In general,a society will benefit more,the more self-sufficient it is.
A)True
B)False
Page 20
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Chapter 17: What Macroeconomics Tries to Explain
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Sample Questions
Q1) In macroeconomics,
A) we study one market at a time
B) we try to understand how the entire economy behaves
C) we focus on large,important products and ignore the rest
D) we study one nation's economy only
E) we aggregate all national economies into a world economy
Q2) For the average living standard of a nation to rise,the only thing that needs to happen is for nominal GDP to increase faster than the price level.
A)True
B)False
Q3) The Employment Act of 1946 directed the federal government to pursue the three objectives of maximizing employment,production,and purchasing power.
A)True
B)False
Q4) One macroeconomic goal is to achieve an unemployment rate of zero. A)True
B)False
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Chapter 18: Production, income, and Employment
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Sample Questions
Q1) Frictional unemployment is joblessness
A) related to changes in weather and similar factors
B) arising from a mismatch between available jobs and workers' skills
C) resulting from macroeconomic fluctuations
D) that is short-term and is experienced by people who are between jobs
E) that is caused by structural changes in the economy
Q2) The committee of the National Bureau of Economic Research that determines when a recession in the U.S begins and ends looks at
A) employment,industrial production,sales,and personal income.
B) real GDP.
C) employment and sales.
D) employment.
E) sales and industrial production.
Q3) Which of the following are included in GDP?
A) Traffic congestion
B) Crime
C) Pollution
D) Underground economic activity
E) None of the above
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Page 22
Chapter 19: The Price Level and Inflation
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Sample Questions
Q1) In general,a higher-than-anticipated inflation rate
A) helps everyone
B) hurts everyone
C) helps creditors and harms debtors
D) helps debtors and harms creditors
E) helps sellers
Q2) Suppose the economy consists of two distinct groups: wage earners and goods sellers.If the price level increases by 30 percent and real wages increase by 30 percent, A) there will be no redistribution of purchasing power between goods sellers and wage earners
B) purchasing power will be redistributed from wage earners to goods sellers
C) purchasing power will be redistributed from goods sellers to wage earners
D) nominal wages will increase by 90 percent
E) nominal wages will decrease by 60 percent
Q3) The Bureau of :Labor Statistics has been compiling an experimental CPI for the elderly,called CPI-E.
A)True
B)False
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23
Chapter 20: The Classical Long-Run Model
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Sample Questions
Q1) Refer to Figure 8-1.If the labor market is in equilibrium,there is no
A) unemployment
B) frictional unemployment
C) structural unemployment
D) seasonal unemployment
E) cyclical unemployment
Q2) Suppose the current equilibrium real wage is $15 an hour.Which of the following is true?
A) A real wage above $15 an hour would lead to an excess demand for labor
B) A real wage above $15 an hour would lead to an excess supply of labor
C) The real wage must fall to prevent unemployment
D) The real wage must rise to prevent unemployment
E) A real wage below $15 an hour would lead to an excess supply of labor
Q3) The labor demand curve slopes downward because
A) firms wish to hire fewer workers as the wage rate increases
B) households wish to hire fewer workers as the wage rate decreases
C) firms wish to hire more workers as the wage rate increases
D) firms wish to supply fewer workers as the wage rate increases
E) households wish to provide fewer hours of work as the wage rate decreases
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Page 24
Chapter 20: Part A: The Classical Model in an Open Economy
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Sample Questions
Q1) In the classical model with an open economy,an increase in government purchases may not cause complete crowding out,but crowding out will be complete worldwide.
A)True
B)False
Q2) In the classical model with an open economy,an increase in government purchases can affect a country's exchange rate,causing its imports and exports to change.
A)True
B)False
Q3) Which of the following is a leakage in an open economy?
A) Planned investment
B) Imports
C) Exports
D) Government purchases
E) Money
Q4) In the classical model,when an open economy has balanced trade,Say's law holds.
A)True
B)False
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Chapter 21: Economic Growth and Rising Living Standards
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Sample Questions
Q1) Most nations do not push the rate of economic growth to the maximum because A) it would be impossible to do so
B) they do not know how to do so
C) there is an opportunity cost associated with economic growth
D) maximum growth would create an inefficient economy
E) government budget deficits prevent them from doing so
Q2) Refer to Figure 9-1.If labor supply shifts from S<sub>1</sub> to S<sub>2</sub>,what will happen to the real hourly wage rate?
A) It will remain constant and employment will increase to 130 million
B) It will fall to $15 and employment will increase to 120 million
C) It will fall to $10 and employment will remain at 110 million
D) It will fall to $15 and employment will remain at 110 million
E) It will fall to $15 and employment will fall to 100 million
Q3) Economic growth in less-developed countries comes at the cost of
A) higher taxes
B) lower current consumption
C) lower taxes
D) lower government spending
E) lower future consumption
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Page 26
Chapter 22: Economic Fluctuations
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Sample Questions
Q1) Assume the economy is at full employment.Which of the following would you expect if oil prices suddenly decreased?
A) A recession
B) A decrease in employment below its full-employment level
C) An economic contraction
D) A technological breakthrough
E) An increase in employment above its full-employment level
Q2) A logical explanation for recessions might be that households have suddenly altered their willingness to work.A problem with this explanation is
A) it is inconsistent with patterns of job searches during recessions
B) the demand for labor rarely shifts
C) the large number of women who entered the labor force in the last four decades
D) it is inconsistent with the classical model
E) the work ethic that is responsible for the decline in American vacations
Q3) Over time the full-employment level of output in the United States has risen steadily.
A)True
B)False
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Chapter 23: The Short-Run Macro Model
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Sample Questions
Q1) If an economy is at equilibrium,it will also be operating at full employment.
A)True
B)False
Q2) Which of the following is held constant in the short-run macro model?
A) GDP
B) Prices
C) Investment spending
D) Consumption
E) The money supply
Q3) Which of the following would cause the consumption function to shift downward?
A) A decrease in taxes
B) A decrease in interest rates
C) Consumers become more pessimistic about the future
D) Consumers become more optimistic about the future
E) None of the above
Q4) The marginal propensity to consume tells us the intercept of the consumption function.
A)True
B)False
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Chapter 24: Fiscal Policy
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Sample Questions
Q1) Before about 1975
A) any federal deficits were at least 5 percent of GDP.
B) most federal deficits were less than 2 percent of GDP.
C) the federal government never ran deficits.
D) the federal government always ran a surplus.
E) any federal deficits were at least 7 percent of GDP.
Q2) If net taxes increase by $100 billion and the marginal propensity to consume is 0.6,by how much will GDP change?
A) -$250 billion
B) $150 billion
C) $250 billion
D) -$100 billion
E) -$150 billion
Q3) When negative spending shocks occur,transfer payments automatically fall.
A)True
B)False
Q4) In the 2000s,government budget deficits became larger as a percent of GDP.
A)True
B)False
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Chapter 25: Money,banks,and the Federal Reserve
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Sample Questions
Q1) One problem with changing the required reserve ratio is that
A) the policy must be kept secret from the public in order to have any effect
B) the results are unpredictable
C) the changes are usually not effective
D) banks will often ignore the changes
E) it takes too much time for these changes to affect the economy
Q2) What is the range of the required reserve ratio?
A) Between 0 and 2
B) Between 0 and 1
C) Between 0 and 100
D) Between 0 and infinity
E) Between 0 and 10
Q3) Why do financial intermediaries aid in the efficient operation of the economy?
A) Without them it would be difficult for small savers to lend to large borrowers.
B) They lend funds to businesses at a zero interest rate.
C) They print currency.
D) They regulate the money supply.
E) They engage in open market operations.
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Chapter 26: The Money Market and Monetary Policy
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Sample Questions
Q1) The economy's money supply curve is vertical.
A)True
B)False
Q2) The difference between an interest rate and some other,benchmark interest rate is known as the
A) spread.
B) rate difference
C) rate of return differential.
D) rent.
E) income differential.
Q3) If the price of a bond increases,the interest rate (or rate of return on the bond)decreases.
A)True
B)False
Q4) A reduced interest rate stimulates investment by
A) improving the prospects for a large profit from new investment
B) enabling firms to ignore the opportunity costs of financing new investment
C) increasing the opportunity cost of the investment
D) reducing the cost of the investment
E) signaling the existence of eager buyers
Page 31
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Chapter 26: Feedback Effects From GDP to the Money
Market
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Q1) In the short-run macro model,which of the following increases when government spending increases?
A) The interest rate
B) Investment spending
C) Taxes
D) Spending on consumer durables
E) The money supply
Q2) If the federal government announces a tax cut,which of the following is most likely in the short run?
A) A decrease in output,an increase in money demand,and an increase in the interest rate
B) An increase in output,a decrease in money demand,and a decrease in the interest rate
C) A decrease in output,a decrease in money demand,and a decrease in the interest rate
D) An increase in output,an increase in money demand,and a decrease in the interest rate
E) An increase in output,an increase in money demand,and an increase in the interest rate.
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Chapter 27: Aggregate Demand and Aggregate Supply
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Q1) If government spending increases,which of the following would be most likely in the short and in the long run? (Both comparisons are with regard to the original price level/output combination. )
A) Short-run increases in the price level,no change in output;long-run increases in output and in the price level
B) Short-run increases in output and in the price level;long-run increase in output,decrease in the price level
C) Short-run decreases in output and in the price level;long-run increase in the price level,no change in output
D) Short-run increases in output and in the price level;long-run increase in the price level,no change in output
E) Short-run decreases in output and in the price level;long-run decreases in output and in the price level
Q2) The 2008-2009 recession began as oil prices increased,and then was followed by a negative demand shock..
A)True
B)False
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Page 33
Chapter 28: Inflation and Monetary Policy
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Q1) What is the major cost associated with fighting ongoing inflation?
A) Higher interest rates.
B) Lost potential output.
C) Lower price level.
D) Higher price level.
E) None of the above.
Q2) Newspaper reports about good news in the economy are often followed by declines in stock and bond prices because
A) the Fed reacts in anticipation of the news to prevent speculation
B) financial markets are often irrational
C) financial markets prefer recessions to spending shocks
D) stock and bond holders fear the Fed's reaction to possible overheating
E) newspapers may be confused about the performance of financial markets
Q3) If the inflation rate is 3 percent and the nominal wage is frozen for one year,by how much will the real wage change?
A) It will decrease by about 3 percent.
B) It will not change.
C) It will increase by 3 percent.
D) It will triple.
E) We do not have enough information to determine this answer.
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Chapter 29: Exchange Rates and Macroeconomic Policy
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Q1) Which of the following is equivalent to the trade deficit?
A) Imports \(\div\) exports
B) Net capital inflow
C) Exports + imports
D) Net exports - imports
E) Exports \(\times\) imports
Q2) The hard-landing scenario begins with
A) a US recession.
B) a decline in foreign demand for US assets.
C) an increase in foreign demand for dollars.
D) an increase in foreign demand for assets.
E) a US expansion.
Q3) If the dollars per euro exchange rate increased,
A) Americans would purchase fewer European goods
B) more U.S.firms would want to relocate to Europe
C) more American tourists would travel to Europe
D) the demand for euros would increase
E) Europeans would become more highly respected
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Chapter 30: Appendix-finding Equilibrium GDP
Algebraically
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Q1) If autonomous consumption is $1,000,the MPC is 0.75,net taxes are $500,investment spending is $800,and government purchases equals $500,and NX = $0,what is equilibrium GDP?
A) $1,800
B) $1,925
C) $2,566.7
D) $7,200
E) $7,700
Q2) If net taxes are included in the model,the equation that shows consumption at each level of income is: C = a + b(Y - T)or C = a + bY - bT.
A)True
B)False
Q3) If I = $2,000,G = $4,000,T = $1,000,NX = $0,autonomous consumption = $1,000 and the marginal propensity to consume is 0.6,what is the equilibrium value of output?
A) $16,000
B) $7,000
C) $6,400
D) $3,840
E) $8,000
Page 36
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Chapter 31: Appendix: Capital and Leverage
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Q1) One way to decrease leverage is increasing capital.
A)True
B)False
Q2) It is easy for one financial institution to reduce its leverage by acting alone,but when many financial institutions try to do the same thing at once,asset prices fall rapidly and bank capital declines for all such institutions.
A)True
B)False
Q3) In the aftermath of the 2008 financial crisis,everyone agreed that lower leverage ratios would be a good thing.
A)True
B)False
Q4) Deleveraging is the process of reducing leverage,and therefore increasing the risk to capital from any further declines in asset prices.
A)True
B)False
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