Introduction to Macroeconomics
Test Preparation
Course Introduction
Introduction to Macroeconomics explores the fundamental principles and concepts that govern the behavior of economies on a large scale. Students will examine key topics such as national income, economic growth, unemployment, inflation, and the role of government fiscal and monetary policy. The course also introduces important macroeconomic models and tools for analyzing aggregate economic activity, international trade, and the impact of global events on domestic economies. Designed for those new to economics, this course provides a solid foundation for understanding how economic factors influence societies and shape public policy decisions.
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) An economist claims that "the evidence suggests that high rates of inflation are associated with slow long-term economic growth." This is an example of
A) positive economics
B) normative economics
C) negative economics
D) a simplifying assumption
E) microeconomic analysis
Answer: A
Q2) Economists disagree about many things.When those disagreements are about which model best explains the economy,these disagreements are primarily over "positive" statements.
A)True
B)False
Answer: True
Q3) Simplifying assumptions always affect the conclusions derived from an economic model.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Scarcity,choice,and Economic Systems
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146 Flashcards
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Sample Questions
Q1) Under a market system of resource allocation
A) prices determine what consumers buy while the government determines what firms produce
B) prices determine what firms produce while the government determines what consumers buy
C) prices determine both what firms produce and what consumers buy
D) the government determines both what firms produce and what consumers buy
E) the government allocates resources while prices allocate goods and services
Answer: C
Q2) Traditional economies tend to be
A) unstable and unpredictable
B) stable,predictable,and growing
C) unstable,unpredictable,and stagnant
D) unstable and unpredictable,but growing
E) stable and predictable,but stagnant
Answer: E
Q3) An economy's production possibilities frontier is fixed in the long run.
A)True
B)False
Answer: False
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Chapter 2: Scarcity, choice, and Economic Systems: Part A
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184 Verified Questions
184 Flashcards
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Sample Questions
Q1) At the market equilibrium
A) quantity exceeds price
B) excess demand equals excess supply (and both are zero)
C) price and quantity are equal
D) each seller produces at full capacity
E) everyone who is represented along the demand curve buys the good
Answer: B
Q2) Which of the following could cause the market demand curve for hot dogs to shift to the left?
A) an increase in the price of hot dogs
B) a decrease in the price of hamburgers
C) an increase in the size of the population
D) an increase in the price of hot dog buns or rolls
E) an increase in the price of mustard
Answer: D
Q3) Both the supply and demand curves can shift due to changes in income.
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) Which of the following might explain why the government would create a price ceiling for a certain good?
A) The equilibrium price that would result in the market would be considered too high
B) The equilibrium price that would result in the market would be considered too low
C) The equilibrium quantity that would result in the market would be considered too high
D) The equilibrium quantity that would result in the market would be considered too low
E) The government never has a reason to create price floors or price ceilings
Q2) Whether an excise tax is imposed on a demander or supplier is irrelevant because
A) in either case the price that the demander has to pay will decrease;while the price the supplier receives will increase
B) in either case the price that the demander has to pay will increase;while the price the supplier receives will decrease
C) either situation will create excess demand
D) either situation will create excess supply
E) none of these are correct
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6
Chapter 5: Elasticity
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Sample Questions
Q1) Price elasticity of supply
A) is always a number between 0 and 1
B) is always a negative number
C) is always greater than or equal to 0
D) is always greater than 1.
E) can take on any value.
Q2) If the demand for good A is more elastic than the demand for good B,a small increase in supply in both markets will cause
A) a much greater decrease in price for good A than for good B
B) a much greater decrease in price for good B than for good A
C) the price will decrease by the same amount in both markets
D) only the price of good B will decrease
E) only the price of good A will decrease
Q3) Which of the following goods is likely to have the least elastic demand over the relevant range of prices?
A) insulin
B) eggs
C) milk
D) Pepsi Cola
E) gasoline
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Chapter 6: Consumer Choice
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143 Flashcards
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Sample Questions
Q1) For an inferior good,the income effect
A) is zero
B) at least partially offsets the substitution effect
C) operates to increase the quantity demanded
D) helps explain why the demand curve slopes upward
E) does not exist
Q2) Beginning at the horizontal axis intercept,as a consumer moves upward along the budget line,he will find that
A) the marginal utility per dollar spent on the vertical axis good increases
B) the marginal utility per dollar spent on the horizontal axis good increases
C) the marginal utility per dollar spent on the horizontal axis good decreases
D) the marginal utilities per dollar spent on both goods increase
E) the marginal utilities per dollar spent on both goods remain constant along that particular budget line
Q3) Marginal utility is the extra utility a consumer derives from consuming an extra unit of a good.
A)True
B)False
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8
Chapter 7: Production and Cost
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Sample Questions
Q1) Last month,Sally spent $3,000 in repairing her old car.Now her car requires an additional $2,000 in repairs.She could get a comparable car for $2,500.She should
A) repair her car because the money she has already spent repairing the car ($3,000)exceeds the price of the new car ($2,500)
B) buy a new car because sunk costs should be ignored in decision making
C) buy a new car because the price of the new car ($2,500)is less than the total amount she would spend on her current car ($5,000)
D) repair her car since the cost of repairing it is lower than the cost of buying another car
E) repair the car or buy a comparable one because the opportunity costs are the same
Q2) The vertical distance between a firm's total cost curve and its total variable cost curve
A) is zero
B) is negative when the firm incurs fixed costs in the short run
C) represents total fixed costs
D) represents marginal costs
E) represents average fixed costs
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Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) Leugers Custom Cabinetmakers is currently operating at a profit while producing four custom cabinets per week.At that output level,marginal cost exceeds marginal revenue.In order to maximize profit,Leugers should
A) decrease output
B) increase output
C) leave output at four cabinets per week
D) either increase or decrease output,depending on its level of fixed costs
E) either increase or decrease output,depending on its level of variable costs
Q2) The change in total profit when a firm increases its output by one unit equals
A) total revenue minus total cost
B) total revenue minus marginal revenue
C) marginal revenue minus marginal cost
D) total revenue minus marginal cost
E) marginal revenue plus marginal cost
Q3) The difference between accounting profit and economic profit relates to
A) the manner in which revenues are defined
B) how total revenue is calculated
C) the market structure for the firm's industry
D) the price of the good in the market
E) the manner in which costs are defined
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Chapter 9: Perfect Competition
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248 Flashcards
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Sample Questions
Q1) The perfectly competitive firm represented in Figure 9-10 has a short-run supply curve that follows the
A) marginal cost curve
B) vertical axis for prices less than $4.00 and follows the marginal cost curve for prices above $4.00
C) vertical axis for prices less than $2.50 and follows the marginal cost curve for prices above $2.50
D) vertical axis for prices less than $5.50 and follows the marginal cost curve for prices above $5.50
E) horizontal axis for quantities less than 50 and follows the marginal cost curve for quantities above 50
Q2) All of the following conditions,except one,will necessarily be satisfied when a perfectly competitive firm is in short-run equilibrium.Which condition is the exception?
A) marginal revenue equals average total cost
B) marginal cost crosses marginal revenue from below
C) marginal revenue equals price
D) price equals marginal revenue
E) profit is maximized or loss is minimized
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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) In perfect competition,technological advances will allow economic profits for
A) all firms.
B) only the firm developing the new technology.
C) early adopters.
D) none of the firms,as the advance will be immediately adopted by all of them.
Q3) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Q4) 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
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Chapter 10: Monopoly
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Sample Questions
Q1) If a monopolist incurs a large fixed cost that shifts its average total cost curve upward,the effect on price and output will be
A) price and output will both rise
B) price will rise and output will fall
C) the firm will lower its price so that elastic demand will raise revenues to cover the additional cost
D) the firm will pass the higher cost on to customers without changing the amount consumers will buy
E) there will be no effect on price or output
Q2) Absent an ability to price discriminate,if a monopoly wants to sell more output,it must
A) raise its price
B) lower its price
C) increase barriers to entry
D) obtain government permission
E) negate its patent protection
Q3) Price discrimination always harms consumers.
A)True
B)False
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Page 13
Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The key characteristic of oligopoly is
A) that firms are price takers
B) strategic interaction among firms
C) strategic independence among firms
D) that firms deal with few resource suppliers
E) a low minimum efficient scale of production
Q2) What characteristic is common to perfect competition,monopolistic competition,and monopoly?
A) free entry and exit
B) zero economic profit in the long run
C) firms treat the market price as given
D) firms maximize profits by producing where MR = MC
E) small number of buyers relative to the number of sellers
Q3) The minimum efficient scale for the firm in Figure 11-11
A) is less than Q<sub>1</sub>
B) is Q<sub>1</sub>
C) is Q<sub>2</sub>
D) is Q<sub>3</sub>
E) cannot be determined from this graph
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Page 14
Chapter 12: Labor Markets
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Sample Questions
Q1) The relationship between the marginal product of labor (MP),the product price (P)and the marginal revenue product of labor (MRP)in a perfectly competitive market is
A) MP = P x MRP
B) MP = P + MRP
C) MRP = P / MP
D) MRP = P x MP
E) MRP = P + MP
Q2) As baby boomers move into their retirement years,the incomes of geriatricians (doctors for the aged)will most likely
A) fall due to a fall in the demand for geriatricians
B) rise due to a fall in the price of complementary inputs
C) rise due to a rise in the demand for geriatricians
D) fall due to a drop in the number of medical providers
E) rise due to a rise in the supply of geriatricians
Q3) The wage premium for the average college graduate (vs.the average high school graduate)has gone up significantly in recent years.
A)True
B)False
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Chapter 12: labor Markets: Part A
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86 Flashcards
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Sample Questions
Q1) If a professional organization imposes strict licensing procedures that increase entry costs for new members,then labor
A) supply will fall,and the equilibrium wage rate will rise
B) supply will fall,and the equilibrium wage rate will fall
C) supply will rise,and the equilibrium wage rate will fall
D) demand will rise,and the equilibrium wage rate will rise
E) demand will rise,labor supply will fall,and the equilibrium wage rate will rise
Q2) In the short run,those who are hurt by the minimum wage are
A) some workers who lose their jobs
B) employers who have to pay more
C) consumers who have to pay more for goods
D) all of these
Q3) Less-risky professions tend to enjoy compensating wage differentials.
A)True
B)False
Q4) More enjoyable professions tend to enjoy compensating wage differentials.
A)True
B)False
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16
Chapter 13: Capital and Financial Markets
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Sample Questions
Q1) The key difference between the primary and secondary bond markets is that __________ bonds are traded on the primary market,while __________ bonds are traded on the secondary market.
A) newly issued;previously issued
B) government;corporate
C) more valuable;less valuable
D) low risk;high risk
E) high yield;low yield
Q2) You are thinking of buying a 10-year bond on the secondary bond market.The face value of the bond is $10,000,the interest rate is 5 percent (0.05)per year,and the bond was issued exactly eight years ago.What is the value of the bond today?
A) $5,295.43
B) $9,070.30
C) $10,000.00
D) $20,000.00
E) $100,000.00
Q3) The supply curve for a particular bond is vertical.
A)True
B)False
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Page 17
Chapter 14: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) If a perfectly competitive market is in equilibrium and market demand decreases,which of the following would happen?
A) both producer and consumer surplus would increase
B) both producer and consumer surplus would decrease
C) producer surplus would decrease and consumer surplus would increase
D) producer surplus would increase and consumer surplus would decrease
E) producer and consumer surplus would remain unchanged
Q2) A Pareto improvement is any action that makes at least one individual better off,and harms no one.
A)True
B)False
Q3) The height of the demand curve at any quantity indicates
A) total expenditure on the good or service
B) total revenue to the seller of the good or service
C) whether the price is fair or not
D) how much that particular unit is worth to the person who buys it
E) how much the person who buys that unit actually pays for it
Q4) Economic efficiency requires that Pareto improvements still be possible.
A)True
B)False
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Chapter 15: Governments Role in Economic Efficiency
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Sample Questions
Q1) Under Section 2 of the Sherman Act,
A) firms cannot act in ways that increase prices
B) contracts between parties are deemed binding
C) firms cannot operate in perfectly competitive markets
D) firms that earn short-run profits face penalties
E) a firm cannot attempt to monopolize an industry
Q2) Which of the following helps encourage specialization?
A) property law
B) criminal law
C) contract law
D) tort law
E) constitutional law
Q3) When a positive externality exists,the marginal social demand curve
A) is the same as the market supply curve
B) is the same as the market demand curve
C) lies below the market demand curve
D) lies above the market demand curve
E) lies below the market supply curve.
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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) A nation has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good than other countries have.
A)True
B)False
Q3) In Figure 15-3,the opportunity cost in Panama of producing one additional rug is A) 4 bicycles
B) 5 bicycles
C) 1/4 of a bicycle
D) 1/5 of a bicycle
E) 2 bicycles
Q4) Tariffs are government policies designed to encourage international trade. A)True
B)False
Page 20
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Chapter 17: What Macroeconomics Tries to Explain
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Sample Questions
Q1) If the rate of economic growth is positive,then everyone becomes better off.
A)True
B)False
Q2) In the Full Employment and Balanced Growth Act of 1978,Congress set a target rate of unemployment.The nation achieves this target rate
A) in most years
B) at least once a year
C) only rarely
D) in election years
E) at least once every five years
Q3) Which of the following is a period of decreasing output that is severe and long lasting?
A) business cycle
B) expansion
C) peak
D) recession
E) depression
Q4) Seemingly positive disagreements often have normative origins.
A)True
B)False
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Chapter 18: Production, income, and Employment
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Sample Questions
Q1) GDP is a flow variable because
A) all macroeconomic aggregates are flow variables
B) it measures the production that takes place over a period of time
C) it measures the amount of goods and services that exist at the end of a time period
D) the number of goods and services produced is usually a fixed number
E) it accounts for the goods and services transferred from one firm to another
Q2) Unemployment rates in many continental European countries have been consistently higher compared to the United States.The difference is mostly
A) due to differing monetary policies
B) cyclical unemployment
C) frictional unemployment
D) structural unemployment
E) seasonal unemployment
Q3) The September 11 attacks no doubt worsened the slowdown that had already begun earlier in mid-2000..
A)True
B)False
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Page 22
Chapter 19: The Price Level and Inflation
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Sample Questions
Q1) 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.
Q2) When the value of a payment is adjusted in proportion to changes in the CPI,economists refer to that as
A) nominalization
B) realization
C) indexation
D) stabilization
E) depreciation
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Page 23
Chapter 20: The Classical Long-Run Model
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Sample Questions
Q1) Refer to Figure 8-2.The economy is at full employment if
A) the quantity of labor supplied exceeds the quantity demanded
B) the quantity of labor demanded exceeds the quantity supplied
C) 130 million workers are employed
D) the real hourly wage is rising
E) we reach the maximum point on the production function
Q2) In the classical model,fiscal policy has no demand-side effects on output or employment..
A)True
B)False
Q3) Which of the following is more of a short-run than a long-run goal?
A) Increasing the capital stock
B) Encouraging investment in human capital
C) Moderating economic fluctuations
D) Stimulating economic growth
E) Increasing private investment
Q4) Investment spending is inversely related to the interest rate.
A)True
B)False
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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) 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
Q3) In the classical model,when an open economy has balanced trade,Say's law holds. A)True
B)False
Q4) In the classical model with an open economy,an increase in government purchases always causes complete crowding out.
A)True
B)False
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Chapter 21: Economic Growth and Rising Living Standards
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Sample Questions
Q1) If output grows faster than the population,the average standard of living will
A) rise
B) fall
C) remain the same
D) stagnate
E) rise and then fall
Q2) Less-developed countries often have low economic growth rates because of
A) low population growth rates and poor infrastructure
B) low current output per capita,high population growth rates and good infrastructure
C) low current output per capita,high population growth rates and poor infrastructure
D) low current output per capita,low population growth rates and poor infrastructure
E) low current output per capita and poor infrastructure
Q3) If labor supply increases,the wage rate increases.
A)True
B)False
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Chapter 22: Economic Fluctuations
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Sample Questions
Q1) The classical model does not do a good job of explaining short-run fluctuations in the level of economic activity.
A)True
B)False
Q2) The classical model predicts the real GDP will always be A) rising.
B) falling.
C) equal to its full-employment level.
D) constant.
E) equal to its full-taxation level.
Q3) The most recent economic expansion started in A) 2005
B) 2003
C) 1998
D) 2007
Q4) Say's law will prevent recessions only if a critical assumption of the classical model holds: That the interest rate adjusts until saving is equal to business and government borrowing.
A)True
B)False
Page 27
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Chapter 23: The Short-Run Macro Model
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Sample Questions
Q1) Fiscal policy
A) is dangerous in the short run because it crowds out investment spending
B) can change equilibrium GDP in the short run
C) can change equilibrium GDP in the long run
D) can change equilibrium GDP in both the long and the short run
E) is dangerous in the long run because it triggers a multiplier effect
Q2) If the marginal propensity to consume is 0.75 and government spending decreases by $2,000 billion,what is the change in GDP?
A) -$2,000 billion
B) -$8,000 billion
C) $2,000 billion
D) $1,500 billion
E) $8,000 billion
Q3) Aggregate expenditure includes final spending by households,businesses,and government on final goods and services.
A)True
B)False
Q4) The larger the multiplier,the more stable the economy.
A)True
B)False
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Chapter 24: Fiscal Policy
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Sample Questions
Q1) Which of the following is true?
A) The federal budget deficit is a flow and so is the national debt.
B) The national debt is both a stock and a flow.
C) The federal budget deficit is a stock and the national debt is a flow.
D) The federal budget deficit is a flow and the national debt is a stock.
E) The federal budget deficit is a stock and so is the national debt.
Q2) Debt held by the public and total debt are two different concepts.
A)True
B)False
Q3) Under which of the following circumstances should we be concerned about a rising national debt?
A) When it rises at a slower pace than GDP.
B) When the government runs deficits over a long period of time,such as a decade.
C) When it rises at a faster pace than GDP.
D) When the government does not run enough surpluses to counteract prior deficits.
E) When it rises at a slower pace than the money supply.
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Chapter 25: Money,banks,and the Federal Reserve
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Sample Questions
Q1) In the United States between 1790 and the Civil War,who issued paper currency?
A) The Federal Reserve System
B) The U.S.Treasury Department
C) The U.S.Congress
D) The British government
E) Private banks.
Q2) Suppose a bank has total assets of $300 million and a net worth of $15 million.Its demand deposit liabilities must be equal to
A) $20 million
B) $315 million
C) $0.05 million
D) $285 million
E) $585 million.
Q3) The Federal Open Market Committee (FOMC)controls the U.S.money supply by buying and selling loans in the public loan market.
A)True
B)False
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Chapter 26: The Money Market and Monetary Policy
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Q1) If income changes,that leads to a movement along the money demand curve.
A)True
B)False
Q2) When considering the demand for money,which two assets do we assume individuals can hold?
A) Stocks and bonds
B) Money and stocks
C) Money and bonds
D) Checking accounts and savings accounts
E) Money and real estate
Q3) In the short-run macro model,rising GDP and a falling interest rate are most likely to be the result of a(n)
A) increase in the money supply
B) decrease in the money supply
C) increase in government purchases
D) decrease in government purchases
E) decrease in taxes
Q4) An increase in the interest rate shifts the money demand curve to the right. A)True
B)False
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Chapter 26: Feedback Effects From GDP to the Money
Market
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Q1) An increase in government spending leads to a(n)
A) downward shift of the aggregate expenditure line and a leftward shift of the money demand curve
B) upward shift of the aggregate expenditure line and a rightward shift of the money demand curve
C) downward shift of the aggregate expenditure line and a rightward shift of the money demand curve
D) upward shift of the aggregate expenditure line and a leftward shift of the money demand curve
E) upward shift of the aggregate expenditure line but no shift of the money demand curve
Q2) Crowding out occurs
A) when an increase in government spending crowds out tax revenues.
B) when an increase in government spending increases investment spending.
C) when an increase in government spending crowds out bonds.
D) when an increase in government spending crowds out other types of spending.
E) when an increase in government spending crowds out the money supply.
Q3) The rise in equilibrium GDP shifts the money demand curve to the left.
A)True
B)False
Page 32
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Chapter 27: Aggregate Demand and Aggregate Supply
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Q1) Which of the following will shift the aggregate supply curve upward?
A) A decrease in world oil prices
B) Bad weather,which increases farmers' costs per unit of output
C) Increases in consumer spending
D) An increase in the price level
E) Technological changes that improve worker productivity
Q2) If equilibrium GDP is below potential,then
A) unemployment is unusually low
B) the Fed will lower the money supply
C) the wage rate will fall as workers compete for scarce jobs
D) the aggregate supply curve will shift leftward
E) the wage rate will remain stable as labor productivity increases
Q3) The aggregate demand curve identifies the level of aggregate production corresponding to a change in the price level.
A)True
B)False
Q4) A negative demand shock decreases the price level in the short run.
A)True
B)False
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Chapter 28: Inflation and Monetary Policy
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Q1) The Fed's objectives present it with a true dilemma when
A) there are demand shocks caused by shifts in money demand
B) there are demand shocks caused by changes in spending
C) there are negative supply shocks
D) cyclical unemployment exists
E) there is member bank opposition
Q2) The natural rate of unemployment
A) is a specific unemployment rate that can be a target for the Fed
B) changes as the inflation rate changes
C) is natural because it does not change from period to period
D) is a measure of the quality of the Fed's performance
E) changes as the efficiency of job searches change
Q3) The choice between hawk and dove positions depends on
A) the extent of cyclical unemployment at the time of the decision
B) relative importance of short-run and long-run monetary considerations
C) cooperation between Congress and the monetary authorities
D) the frequency of negative supply shocks
E) the Fed's relative concern for price and employment stability
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Chapter 29: Exchange Rates and Macroeconomic Policy
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Q1) In a foreign exchange market,one country's currency is exchanged for another's.
A)True
B)False
Q2) The 1997-1998 Asian crisis began as a crisis of confidence in China's financial system.
A)True
B)False
Q3) If the U.S.inflation rate is 3 percent annually and the Japanese inflation rate is 1 percent annually,by what percent would the dollar price of the yen need to change according to purchasing power parity?
A) Appreciate by 2 percent
B) Appreciate by 1 percent
C) Depreciate by 2 percent
D) Appreciate by 3 percent
E) Depreciate by 1 percent
Q4) An appreciating currency is always a sign of economic health.
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 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
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Chapter 31: Appendix: Capital and Leverage
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Q1) Just as greater leverage multiplies a bank's potential profits,it also multiplies a bank's potential losses.
A)True
B)False
Q2) Deleveraging is the process of reducing leverage,and therefore reducing the risk to capital from any further declines in asset prices.
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) It was the rapid and system-wide deleveraging that contributed to the downward spiral of the 2008 financial crisis.
A)True
B)False
Q5) One way to decrease leverage is increasing capital.
A)True
B)False
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