Contemporary Economic Issues
Practice Questions
Course Introduction
This course examines current and pressing economic challenges facing modern societies. Students will analyze issues such as globalization, income inequality, labor market changes, technological disruption, environmental sustainability, and fiscal and monetary policy debates. Emphasis is placed on understanding the economic theories and empirical evidence that shape these issues, as well as evaluating policy responses at both national and global levels. Through case studies and current events, students will develop critical thinking skills to assess the complex interactions between economic forces and societal outcomes.
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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Sample Questions
Q1) The level of detail in an economic model
A) is as close as possible to the level of detail in reality
B) depends on the purpose of the model
C) is as complex as possible
D) is the same regardless of the purpose of the model
E) is as complex as possible to accomplish its purpose
Answer: B
Q2) Which of the following would be studied in macroeconomics?
A) a drop in the price of personal computers
B) an individual household's decision on how to allocate its spending power
C) a rise in employment in movie theaters across the nation
D) total output in the nation
E) a local bank's increase in the interest rate offered on savings deposits
Answer: D
Q3) The basic problem of economics arises when there are unlimited resources available to fulfill society's limited wants.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Scarcity,choice,and Economic Systems
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Sample Questions
Q1) The production possibilities frontier illustrates
A) the combinations of goods that could be produced with resources and technology constant
B) how technology influences opportunity costs
C) the law of diminishing returns
D) how price changes affect decision making of individuals
E) the law of demand
Answer: A
Q2) The three primary systems for allocating resources are
A) tradition,command,and central planning
B) tradition,central planning,and communal
C) command,market,and socialism
D) tradition,command,and market
E) communal,command,and capitalism
Answer: D
Q3) Every economic system requires a means for determining resource allocation.
A)True
B)False
Answer: True
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Page 4
Chapter 2: Scarcity, choice, and Economic Systems: Part A
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Sample Questions
Q1) An increase in buyers' incomes
A) increases the quantity demanded of a good
B) decreases the quantity demanded of a good
C) increases the demand for a normal good
D) increases the demand for an inferior good
E) decreases the quantity demanded of a normal good
Answer: C
Q2) Which of the following would increase the amount of an inferior good that buyers would like to purchase?
A) an increase in buyers' incomes
B) an increase in the price of a complement
C) a decrease in the price of a substitute
D) a decrease in buyers' incomes
E) a decrease in its expected future price
Answer: D
Q3) If both the demand and supply curves for computers shift to the right,the price of computers may rise,fall,or remain unchanged.
A)True
B)False
Answer: True
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Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) Suppose that a market is initially in equilibrium.Then the government imposes a price floor above the equilibrium price.Which of the following will occur in the absence of a black market?
A) The market will remain in equilibrium.
B) The quantity sold will drop.
C) The quantity demanded will increase.
D) The quantity supplied will decrease.
E) An excess demand will develop.
Q2) Federal subsidies to higher education have the effect of
A) increasing the demand for higher education
B) increasing the supply of higher education
C) decreasing the demand for higher education
D) decreasing the supply of higher education
Q3) Which of the following is an example of a stock variable?
A) The amount of cereal in a person's pantry
B) The amount of cereal a person buys each week
C) The amount of cereal a child consumes each month
D) The amount of cereal produced each day
E) None of these are stock variables
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Chapter 5: Elasticity
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Sample Questions
Q1) Perfect planting and harvesting weather results in a record high crop of wheat.If wheat growers experience an increase in total sales revenue,then the demand for wheat must be
A) price-inelastic
B) unitary elastic
C) perfectly inelastic
D) price-elastic
E) perfectly elastic
Q2) The cross-price elasticity of demand between butter and margarine is most likely
A) positive,since the goods are substitutes
B) positive,since the goods are complements
C) negative,since the goods are complements
D) negative,since the goods are substitutes
E) zero,since the goods are both normal
Q3) The price elasticity of demand is usually equal to the slope of the demand curve.
A)True
B)False
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Chapter 6: Consumer Choice
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Sample Questions
Q1) If macaroni and cheese is an inferior good,then
A) the income effect and the substitution effect work in opposite directions
B) as the budget line shifts to the right,consumers demand more macaroni and cheese
C) when the price of macaroni and cheese rises,the quantity demanded also rises
D) the quantity demanded rises as purchasing power rises
E) individuals will not consume macaroni and cheese
Q2) Higher education is a normal good.If its price falls,
A) the quantity of higher education demanded will fall
B) the substitution and income effects work in opposite directions
C) the income effect is negative
D) higher education will satisfy to the law of demand
E) real purchasing power will fall
Q3) If income decreases,the budget constraint will shift in but the slope will remain the same.
A)True
B)False
Q4) If income decreases,there will be a parallel inward shift of the budget line.
A)True
B)False
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Chapter 7: Production and Cost
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Sample Questions
Q1) The change in cost resulting from producing one additional unit of output is
A) average total cost
B) total variable cost
C) average variable cost
D) marginal cost
E) total cost
Q2) A firm's implicit costs are
A) its maintenance costs
B) its paid-out costs of production
C) its main source of executive costs
D) irrelevant to the determination of economic profit
E) opportunity costs of production that do not involve money outlays
Q3) Total fixed costs decrease as output expands.
A)True
B)False
Q4) Total product begins to decline when diminishing marginal returns are first experienced.
A)True
B)False
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Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) The two important contributions of entrepreneurs are
A) innovation and independent wealth
B) good management skills and honesty
C) risk taking and honesty
D) good management skills and independent wealth
E) innovation and risk taking
Q2) William quits his job where he earns an annual salary of $75,000 and opens a management consulting business,charging an hourly rate of $120.He works out of his home,converting a storeroom into an office.(Zoning restrictions prevent William from renting out the room. )Start-up costs are financed by selling $15,000 worth of bonds he inherited that were earning annual interest payments of $900.During his first year,William incurs expenses for supplies and utilities that total $3,500.The total cost of production in the first year equals
A) $94,400
B) $79,400
C) $4,400
D) $3,500
E) $19,400
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Chapter 9: Perfect Competition
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Sample Questions
Q1) The automobile market is an example of a perfectly competitive market.
A)True
B)False
Q2) Assume that a constant-cost,perfectly competitive market is initially in long-run equilibrium.After all long-run adjustments are made,which of the following would occur as a result of an increase in the price of a complement to this industry's product?
A) The market price would remain unchanged;the market quantity would rise.
B) The market price would rise;the market quantity would fall.
C) The market price would remain unchanged;the market quantity would fall.
D) Both the market price and the market quantity would fall.
E) Both the market price and the market quantity would rise.
Q3) If there is an increase in market demand in a perfectly competitive market,then in the short run
A) there will be no change in the demand curves faced by individual firms in the market
B) the demand curves for firms will shift downward
C) the demand curves for firms will become more elastic
D) market supply will fall
E) profits will rise
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11
Chapter 9: Perfect Competition: Part A
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Sample Questions
Q1) 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
Q2) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Q3) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Q4) 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
Page 12
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Chapter 10: Monopoly
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Sample Questions
Q1) Figure 10-17 shows a single-price monopolist.In order to maximize its economic profit in the short run,the firm should produce
A) the output level associated with point F
B) the output level associated with point G
C) the output level associated with point H
D) the output level associated with point I
E) zero
Q2) In Figure 10-30,at its profit-maximizing output level the monopolist earns economic profit of
A) $10.
B) $500.
C) $750.
D) $1250.
Q3) The marginal revenue curve is the same as the demand curve for the A) monopolistic competitor
B) perfect price discriminator
C) oligopolistic price leader
D) single price monopoly
E) export producer
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Page 13
Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) U.S.antitrust enforcement policies have focused on
A) breaking up any firm with more than a 10 percent market share
B) forcing firms to produce output at the point where P = MC
C) preventing price-fixing arrangements
D) preventing "golden parachutes"
E) enforcing market codes of ethics
Q2) It is difficult to explain how firms behave in an oligopoly because
A) they produce differentiated products
B) there are many suppliers and few buyers
C) they do not attempt to maximize profits
D) each takes into account the behavior of other firms when making pricing decisions
E) there are no barriers to entry or exit
Q3) A cartel
A) has one firm that acts as the price leader
B) is a group of firms engaged in price discrimination
C) acts like a monopoly
D) involves competition between rival firms
E) prices its output equal to marginal cost
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Chapter 12: Labor Markets
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Sample Questions
Q1) Figure 12-8 provides production data for Peg's Pie Shop,indicating the output per day with different numbers of employees.The shop sells its pies and hires its labor in perfectly competitive markets.Currently,the equilibrium price of a pie is $5,and the equilibrium wage rate is $80 per day.In order to maximize profit,Peg's Pie Shop should hire
A) 1 worker
B) 2 workers
C) 3 workers
D) 4 workers
E) 5 workers
Q2) Which of the following would prevent a labor market from being classified as perfectly competitive?
A) It is difficult for new workers to enter the market.
B) All workers have the same abilities.
C) Exiting the market is easy for workers who are currently in the market.
D) Both buyers and sellers of labor are well-informed about market conditions.
E) Each firm hires only a tiny fraction of the total labor in the market.
Q3) A change in the wage rate causes a firm's labor demand curve to shift.
A)True
B)False
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Page 15
Chapter 12: labor Markets: Part A
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Sample Questions
Q1) A labor market is divided into two segments.All workers have the same qualifications and find jobs in either segment equally attractive.Initially,both segments are in competitive equilibrium.If the development of employer prejudice then reduces the employment of minorities in one segment,there will be a
A) permanent drop in labor supply to the discriminating segment
B) permanent increase in labor supply to the nondiscriminating segment
C) temporary drop in labor supply to the discriminating segment
D) permanent drop in labor demand to the discriminating segment
E) temporary drop in labor demand to the nondiscriminating segment
Q2) Positions that involve a considerable amount of personal risk
A) typically have negative compensating wage differentials
B) usually have better fringe benefits for employees
C) have higher demand by firms
D) pay lower wages
E) typically have positive compensating wage differentials
Q3) The Earned Income Tax Credit
A) is targeted to poor families
B) is less targeted to poor families than the minimum wage
C) is just a different name for the minimum wage
D) operates on the labor market in exactly the same as the minimum wage
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Chapter 13: Capital and Financial Markets
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Sample Questions
Q1) Your aunt gives you a PepsiCo bond with face value of $5,000.It will mature in two years.Currently,the interest rate is 10 percent (0.10)per year.How will the value of the bond change if the interest rate falls to 5 percent tomorrow morning?
A) It will rise by $413.22.
B) It will rise by $402.90.
C) It will rise by $432.90.
D) It will fall by $432.90.
E) It will fall by $402.92.
Q2) You have a choice among three options.Option 1: receive $900 immediately.Option 2: receive $1,200 one year from now.Option 3: Receive $2,000 five years from now.The interest rate is 15 percent (0.15)per year.Rank these three options from highest present value to lowest present value.
A) Option 1,Option 2,Option 3
B) Option 3,Option 2,Option 1
C) Option 2,Option 3,Option 1
D) Option 3,Option 1,Option 2
E) Option 1,Option 3,Option 2
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Page 17
Chapter 14: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Total net benefits gained in a market
A) minus any side payments equals total revenue from producing the good (or,equivalently,total expenditure on the good)
B) is the sum of producer and consumer surplus in that market
C) is the difference between consumer surplus and producer surplus in that market D) are maximized when the market price equals zero
E) always exceeds the sum of total expenditure on the good and the total cost of providing it
Q2) The total consumer surplus enjoyed by all consumers in a market
A) exceeds the market price
B) is measured by the area under the market demand curve
C) is measured by the area beneath the market price
D) is a Pareto improvement
E) is called market consumer surplus
Q3) If Bill Gates voluntarily gives some of his money to a destitute family,it would be a Pareto improvement.
A)True
B)False
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Chapter 15: Governments Role in Economic Efficiency
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Sample Questions
Q1) A monopoly's
A) supply curve is the same as its marginal cost curve
B) supply curve is the same as its marginal revenue curve
C) marginal cost curve is downward sloping
D) demand curve is horizontal
E) marginal revenue curve is downward sloping
Q2) Price-fixing agreements among competing firms are a violation of the Clayton Antitrust Act.
A)True
B)False
Q3) One way that natural monopolies are typically regulated is
A) by setting a price that makes economic profit zero.
B) by forcing the firm to set price equal to marginal cost
C) by setting a price that gives owners a "fair rate of return"
D) by forcing the firm to set price equal to minimum average total cost
E) by setting a price that maximizes the firm's economic profit
Q4) A subsidy equal to the marginal private benefit of a good can be used to make a market with a positive externality efficient.
A)True
B)False
Page 19
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Chapter 16: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Assume that India has a comparative advantage in producing a computer game.The United States has an absolute advantage in producing the same game.Mutually advantageous trade will have India producing and exporting the game while the United States will specialize in producing something else.
A)True
B)False
Q2) When a nation begins to export a good,
A) the domestic price of that good falls
B) less of that good is produced domestically
C) the domestic producers are made better off
D) the domestic consumers are made better off
E) both domestic and foreign consumers will purchase more of it
Q3) Differences in climate among nations
A) could lead to economic efficiency
B) reduce opportunities for gains from international trade
C) lower the terms of trade in favor of warm-climate nations
D) may create opportunities for international trade
E) raise the terms of trade in favor of warm-climate nations
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Chapter 17: What Macroeconomics Tries to Explain
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Sample Questions
Q1) Periodic fluctuations in real GDP are called
A) business cycles
B) recessions
C) peaks
D) expansions
E) troughs
Q2) The two phases of the business cycle are
A) high economic growth and low economic growth
B) expansion and contraction
C) expansion and depression
D) high inflation and low inflation
E) potential economic growth and actual economic growth
Q3) If the rate of economic growth is positive,then everyone becomes better off.
A)True
B)False
Q4) The U.S.economy experienced fluctuations in employment and output over the last half of the twentieth century.However,the length of the average recession has been about the same as the length of the average expansion.
A)True
B)False
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Chapter 18: Production, income, and Employment
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Sample Questions
Q1) A firm's value added is
A) the revenue it receives by selling its output
B) usually not included in GDP
C) the revenue it receives for its output,minus the cost of all the intermediate goods it buys
D) the revenue it receives for its output,plus the cost of all the intermediate goods it buys
E) the revenue it receives for its output,minus the taxes that it pays
Q2) The costs of unemployment is (are)
A) foregone output and psychological effects
B) foregone output and physical effects
C) psychological and physical effects
D) foregone output,psychological effects and physical effects
E) foregone output
Q3) GDP measures the output produced within a nation's borders.
A)True
B)False
Q4) Private investment expenditure,which is a flow,affects the stock of capital.
A)True
B)False
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Chapter 19: The Price Level and Inflation
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Sample Questions
Q1) If prices (as measured by the CPI)tripled and nominal wages tripled,what would happen to real wages?
A) They would triple.
B) They would remain unchanged.
C) They would increase by one-third.
D) They would decrease by one-third.
E) They would increase by a factor of nine.
Q2) In which of the following situations would a worker have the greatest real income?
A) She receives a pay cut and her nominal wage falls by 5 percent,while the CPI falls by 20 percent.
B) She receives a pay cut and her nominal wage falls by 5 percent,while the CPI increases by 10 percent.
C) Her nominal wage remains the same,as does the CPI.
D) She receives a raise and her nominal wage increases by 5 percent,while the CPI increases by 10 percent.
E) She receives a raise and her salary increases by 5 percent,while the CPI falls by 5 percent.
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Chapter 20: The Classical Long-Run Model
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Sample Questions
Q1) Say's Law
A) cannot be satisfied if there is excess supply or demand in individual markets in the long run
B) ensures that every firm will sell all of its output
C) can be satisfied even if there is a general overproduction or underproduction of goods in the economy
D) is satisfied only if every market clears in the short run
E) shows that the total value of spending in the economy will equal the total value of the output produced
Q2) In the classical model,markets clear
A) in the short run
B) every month
C) immediately
D) in the long run
E) as soon as any shock occurs
Q3) Classical economists believed that production could be stuck below its full employment level for a long period of time.
A)True
B)False
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Page 24
Chapter 20: Part A: The Classical Model in an Open Economy
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Sample Questions
Q1) When a country runs a trade deficit,
A) it must be running a budget surplus.
B) its imports will become injections instead of leakages.
C) its exports will become leakages instead of injections.
D) foreigners will demand loanable funds from the country.
E) foreigners will supply loanable funds to the country equal to its trade deficit
Q2) In the classical model with an open economy,an increase in government purchases always causes complete crowding out.
A)True
B)False
Q3) 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
Q4) In the classical model,when an open economy has balanced trade,Say's law does not hold.
A)True
B)False
25
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Chapter 21: Economic Growth and Rising Living Standards
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Sample Questions
Q1) A decrease in the government's budget deficit will
A) increase the supply of loanable funds,lower the interest rate,and increase investment spending
B) reduce the supply of loanable funds,raise the interest rate,and reduce investment
C) increase the demand for loanable funds,raise the interest rate,and reduce investment spending
D) reduce the demand for loanable funds,lower the interest rate,and increase investment spending
E) increase the supply of loanable funds,reduce the demand for loanable funds,leave the interest rate unchanged,and increase investment spending
Q2) In some developing countries,labor productivity has remained stagnant or fallen because
A) the capital stock has grown at about the same rate or more slowly than the population
B) the capital stock has grown faster than the population
C) the population has decreased
D) foreign labor has been utilized
E) wages have dropped
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26
Chapter 22: Economic Fluctuations
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Sample Questions
Q1) The process of moving from disequilibrium to equilibrium in labor markets creates special problems because
A) we are all workers threatened by recession
B) we cannot spend money we have not earned
C) the process is very short
D) the process is especially lengthy
E) negative shocks create economic expansions
Q2) The 2001-2007 economic expansion began when a change in Federal Reserve policy and other global conditions caused interest rates to drop and stay low.
A)True
B)False
Q3) In order for the classical model to explain expansions and recessions,which of the following would have to be true?
A) Labor supply could not change.
B) The labor market equilibrium would have to change suddenly and significantly.
C) Labor demand could not change.
D) The labor market equilibrium would have to change slowly.
E) The labor market equilibrium could not move.
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Chapter 23: The Short-Run Macro Model
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Sample Questions
Q1) When real consumption expenditure is plotted against real disposable income the resulting relationship is
A) very weak.
B) positive and very curvi-linear.
C) positive and very close to linear.
D) negative and very close to linear.
E) virtually flat.
Q2) The short-run macro model is used most often to determine changes in
A) nominal output
B) net output
C) gross output
D) financial output
E) real output.
Q3) If the expenditure multiplier is 10 and investment spending decreases by $1,000 billion,what will be the change in GDP?
A) -$10,000
B) $2,500
C) $1,000
D) $10,000
E) -$1,000
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Chapter 24: Fiscal Policy
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Sample Questions
Q1) Over the past several decades,federal transfer payments as a fraction of GDP have trended upward.
A)True
B)False
Q2) If the MPC is 0.75,what is the value of the government purchases multiplier?
A) -1.33
B) 3.0
C) -3.0
D) 4.0
E) -4.0
Q3) We expect a rise in transfer payments when
A) the needs of the poor receive more publicity
B) taxes rise
C) GDP rises and inflation soars
D) the retirement age remains unchanged over time
E) recessions occur
Q4) The federal government's budget been in deficit every year since 1959.
A)True
B)False
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Chapter 25: Money,banks,and the Federal Reserve
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Sample Questions
Q1) Cash in a commercial bank's vault is not part of the money supply.
A)True
B)False
Q2) One reason why financial intermediaries are beneficial is that
A) they can predict the pattern of the outflow of funds
B) they earn a profit
C) there are a variety of financial intermediaries
D) they reduce the risk to depositors by spreading loans among different borrowers
E) they charge high interest rates on funds they lend to depositors
Q3) Which of the following is a reason that the number of bank failures has generally decreased over time?
A) Banks have been replaced by savings and loan associations.
B) The overall riskiness of bank loans has decreased.
C) The Federal Reserve stands ready to inject reserves into the banking system.
D) All banks have been in good financial health.
E) Banks hold most of their assets in the form of reserves.
Q4) All items on a bank's balance sheet are stock variables.
A)True
B)False
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Chapter 26: The Money Market and Monetary Policy
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Q1) The money demand curve indicates the total quantity of money demanded in the economy at each
A) price level
B) level of GDP
C) quantity of money supplied
D) level of income
E) interest rate
Q2) If the price of bonds falls,the
A) demand for bonds will rise
B) supply of bonds will fall
C) supply of bonds will rise
D) interest rate will rise
E) interest rate will fall
Q3) Which of the following would be most likely to increase the demand for money?
A) An increase in the price level
B) A decrease in real income
C) An increase in the interest rate
D) A decrease in the cost of converting other assets into money
E) A decrease in the price level
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Chapter 26: Feedback Effects From GDP to the Money
Market
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Sample Questions
Q1) When the feedback effects from income to the money market are included,
A) a given change in the money supply will cause a smaller change in the quantity of money demanded.
B) a given change in the money supply will cause a larger change in the interest rate
C) given change in the money supply will cause no change in the interest rate
D) a given change in the money supply will cause a smaller change in the interest rate
E) a given change in the money supply will cause a larger change in the quantity of money demanded.
Q2) An increase in government purchases will increase GDP by an amount equal to the change in government purchases times the expenditure multiplier.
A)True
B)False
Q3) In the classical model there is complete crowding out when government spending increases,but in the short-run macro model there is only partial crowding out.
A)True
B)False
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Chapter 27: Aggregate Demand and Aggregate Supply
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Q1) In the long run,unusually high unemployment
A) indicates that an economy is operating above potential GDP
B) forces the wage rate down
C) eventually causes the aggregate supply curve to shift upward
D) pushes the price level upward
E) causes the aggregate demand curve to shift rightward
Q2) The aggregate demand curve slopes downward for the same reason that a microeconomic demand curve slopes downward.
A)True
B)False
Q3) Equilibrium GDP
A) is not affected by nominal wage adjustments
B) represents the level of output at which public welfare is maximized C) in the long run is equal to the average of the short-run GDP equilibria
D) is influenced by long-run adjustments in the labor market
E) falls if aggregate demand increases
Q4) If the money demand curve shifts rightward,the AD curve also shifts rightward.
A)True
B)False
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Chapter 28: Inflation and Monetary Policy
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Q1) If the actual inflation rate is equal to the expected rate,which of the following will happen?
A) inflationary expectations will increase and the Phillips curve will shift downward in the short run.
B) inflationary expectations will not change and the Phillips curve will remain in its current position in the short run.
C) inflationary expectations will decrease and the Phillips curve will shift downward in the short run.
D) inflationary expectations will stay constant and the Phillips curve will shift downward in the short run.
E) inflationary expectations will not change and the Phillips curve will become horizontal in the short run.
Q2) If the inflation rate is higher than expected,real income is redistributed from lenders to borrowers.
A)True
B)False
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34
Chapter 29: Exchange Rates and Macroeconomic Policy
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Sample Questions
Q1) If the exchange rate (dollars per unit of foreign currency)has increased,we say there has been a(n)
A) appreciation of the foreign currency
B) depreciation of the foreign currency
C) revaluation of the foreign currency
D) devaluation of the foreign currency
E) fixing of the foreign currency
Q2) The problem of moral hazard helps explain why the International Monetary Fund _______ the Asian countries during their 1997-1998 crisis and _______ Argentina during its 20011-2002 crisis.
A) helped;abandoned.
B) abandoned;helped.
C) helped;helped
D) abandoned;abandoned.
E) none of the above.
Q3) One reason why purchasing power parity may not work perfectly is that some goods,because of their nature,are difficult to trade.
A)True
B)False
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Chapter 30: Appendix-finding Equilibrium GDP
Algebraically
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Q1) If autonomous consumption is $5,000,the MPC is 0.7,net taxes are $2,000,investment spending is $4,000,and government purchases equal $2,500,and NX = $0,what is equilibrium GDP?
A) $14,428.6
B) $33,666.7
C) $40,800
D) $43,000
E) $45,000
Q2) 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
Q3) 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
Page 36
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Chapter 31: Appendix: Capital and Leverage
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Sample Questions
Q1) It was the rapid and system-wide deleveraging that contributed to the downward spiral of the 2008 financial crisis.
A)True
B)False
Q2) In the aftermath of the 2008 financial crisis,everyone agreed that lower leverage ratios would be a good thing.
A)True
B)False
Q3) 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
Q4) One way to decrease leverage is increasing capital.
A)True
B)False
Q5) Just as greater leverage multiplies a bank's potential profits,it also multiplies a bank's potential losses.
A)True
B)False
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