Identify the letter of the choice that best completes the statement or answers the question.
__B__ 151. Changes in technology and changes in consumer tastes can cause
a. frictional unemployment. c. cyclical unemployment.
b. structural unemployment. d. seasonal unemployment.
__D__ 152. According to the demand-pull theory, inflation is caused by
a. workers. c. producers.
b. government. d. consumers.
__D__ 153. The Lorenz curve is used to demonstrate
a. consumer demand and spending. c. the severity of inflation.
b. the severity of a recession. d. the degree of income inequality.
__C__ 154. All of the following account for the growing income gap EXCEPT
a. a decline in unions.
b. a shift in employment from the manufacturing to the service industry.
c. lessening wage advantages for the well educated.
d. a shift from married-couple families to single-parent families.
A key gauge of future U.S. economic activity declined 0.5% last month, as the Sept. 11terrorist attacks in New York and Washington weakened an already troubled economy.The Conference Board said Monday its index of leading economic indicators fell to 109.2 in September,...the largest one-month decline since January 1996.... The index indicates where the overall U.S. economy is headed in the next three to six months....The economy had been struggling for several months before the Sept. 11 attacks. Manyeconomists have said they believe that a recession is unavoidable with the new uncertainties raised by the disaster.Source: “Leading Indicators Decline,” USAToday.com, October 22, 2001.
The passage discusses a business fluctuation influenced by
a. capital expenditures. c. innovation.
b. monetary factors. d. external shock.
The Roaring Twenties in the graph can be characterized as a period of economic
a. contraction. c. expansion.
b. recession. d. trough.
What type of unemployment does the cartoon depict?
a. cyclical c. seasonal
b. technological d. frictional
Is the number of available but jobless workers in the United States shrinking to the point that employers may be forced to grant inflationary wage increases to attract new employees or keep the ones they have?“Should labor markets continue to tighten, significant increases in wages, in excess ofproductivity growth, will inevitably emerge, absent the unlikely repeal of the law of supply and demand,” [Federal Reserve Chairman Alan] Greenspan told Congress.Source: “Shrinking Labor Pool Raises Fear of Wage Pressures and Higher Prices,” The Washington Post, June 25, 1999.
This passage is describing a(an)
a. job shortage. c. worker shortage.
b. decrease in productivity. d. increase in unemployment.
For all the recent talk of cutting taxes, Congress rarely cuts them when the economy isgrowing robustly, as it is now, and unemployment is low. The worry among economists is that the extra money in people’s pockets may make an already strong economy too strong, finally stoking inflation after a long period of relatively stable prices.Source: The New York Times, July 14, 1999.
The passage describes rising inflation as a possible result of
a. tax cuts. c. rising unemployment.
b. a booming economy. d. a prolonged period of stable prices.
__A__ 160. The Federal Reserve
a. is made up of 12 district banks and 25 branch banks.
b. is made up of district banks that operate independently from one another.
c. is managed by a 12-member board of directors.
d. was established in 1930s.
__B__ 161. Liabilities are
a. reserves a bank must set aside. c. cash a bank can use for making loans.
b. debts and obligations. d. the same as net worth.
__A__ 162. A balance sheet shows all of the following EXCEPT
a. bank assets on the right of the T account.
b. net worth.
c. legal reserves.
d. deposits and loans.
__A__ 163. In the short run, an increase in the money supply results in
a. lower interest rates. c. economic expansion.
b. higher interest rates. d. increased consumer spending.
__D__ 164. Unlike many politicians, the Fed
a. must respond to pressure from the public.
b. recognizes high interest rates as a sign of an unhealthy economy.
c. is concerned about short-term interest rates.
d. is concerned about the long-run health of the economy.
__D__ 165. The Fed's Federal Open Market Committee
a. advises the Fed on the overall health of the economy.
b. regulates savings and loan associations, savings banks, and credit unions.
c. advises the Fed on consumer credit laws.
d. is the Fed's primary monetary policymaking body.
__A__ 166. Assets are
a. properties, possessions, and claims on others.
b. cash a bank owes to depositors.
c. the same as net worth.
d. legal reserves.
__B__ 167. For a bank to be profitable, how much of a spread must it maintain between the rate it charges on loans and the rate it pays for borrowed funds?
a. 1 percent c. 5–6 percent
b. 2–3 percent d. 8–9 percent
__A__ 168. To monetize the debt incurred by deficit spending during the Vietnam War, the money supply was
a. increased to keep interest rates stable.
b. decreased to keep interest rates stable.
c. increased to increase interest rates.
d. decreased to decrease interest rates.
__C__ 169. When the Fed refers to M1, it is referring to such elements of the money supply as
a. money market funds. c. traveler's checks and currency.
b. savings deposits. d. stocks.
Like a driver applying a quick tap of the brakes, the Federal Reserve yesterday raised the cost of borrowing to keep the U.S. economy from running ahead too fast. As a result, consumers can expect to pay a little more when buying homes, cars, and other big-ticket items, as well as when carrying credit-card balances.Source: The Columbus Dispatch, July 1, 1999.
Why will the Fed’s action in the passage cause the result described?
a. Sellers of expensive items will raise their prices.
b. Banks will raise their loan interest rates.
c. Inflation will increase.
d. Banks will have to meet a higher reserve requirement.
...[Federal Reserve] Chairman Alan Greenspan decided seven years ago to publicize thecentral bank’s interest-rate moves once they were made. Now, each meeting of the Fed—whether the central bank changes rates or not—triggers a chorus of instant analysis of what it means for the economy and the financial markets.Source: Business Week, July 23, 2001.
Which function of the Federal Reserve is the subject of this passage?
a. serving as the federal government’s banker
b. holding and settling reserve requirements
c. regulating the money supply
d. supplying paper currency
Federal Reserve Easy Money Policy
__B__ 172. Which of the following results should be included where the question mark appears in the illustration?
a. unemployment c. the reserve requirement
b. inflation d. interest rates
Federal Reserve Tight Money Policy
Which of the following results should be included where the question mark appears in the illustration?
a. unemployment c. consumer spending
b. inflation d. production
This cartoon illustrates that when the Federal Reserve raises interest rates, banks
a. lend more money to their customers.
b. increase interest rates to their borrowers.
c. impose late payment penalties on their customers.
d. compound interest on their savings accounts.
Federal Reserve policymakers cut their short-term interest rate target an aggressive half-point to 2% Tuesday.... This cut was the Fed’s 10th a ttempt this year to shore up the U.S. economy, which is still weakening after the Sept. 11 attacks. The moves represent some of the most furious rate-cutting in Fed history.... Fed officials have now pushed the rate banks charge each other for overnight loans to its lowest level since 1961....Major banks lowered the prime rate in [lockstep] with the Fed, bringing it down to 5% from 5.5%. That translates into lower rates for home-equity loans, business loans, and some credit cards.Source: “Fed Slashes Interest Rates,” ISA Today, November 7, 2001.
In taking the actions described in the passage, the Fed was trying to
a. increase the amount banks keep on reserve.
b. decrease the money supply.
c. increase business activity.
d. decrease business activity.
Suppose supply curve SS on the graph represents the money supply. Which of the following Federal
Reserve actions could cause curve SS to move to S1S1?
a. lowering the reserve requirement
b. buying bonds in open market operations
c. increasing the discount rate
d. printing more currency
Not too many years ago, Federal Reserve officials conducted monetary policy as if they were members of the Politburo plotting behind the thick walls of the Kremlin.Source: Business Week, January 11, 1999.
Based on this quotation, the author believed that the Federal Reserve had been too
a. dictatorial. c. sinister.
b. powerful. d. secretive.
In the cartoon, the comments by Federal Reserve Board Chairman Alan Greenspan probably
a. predicted an economic upturn ahead.
b. encouraged stock market investment.
c. predicted strong growth in pharmaceuticals.
d. dampened investor enthusiasm about the economic outlook.
__A__ 179. A comprehensive measure of consumer discomfort during a period of rising inflation and high unemployment is the
a. misery index. c. Laffer curve.
b. aggregate supply curve. d. aggregate supply curve.
__D__ 180. Aggregate demand will increase
a. if the dollar declines in value.
b. when productivity is low.
c. if consumers save more and spend less.
d. if consumers save less and spend more.
__B__ 181. According to John Maynard Keynes's theory of the multiplier-accelerator effect, a decline in investment
a. lead to an upward spiral of the economy.
b. lead to a downward spiral of the economy.
c. be offset by an increase in consumer demand.
d. lead to lower consumer prices.
__A__ 182. Unlike demand-side economics, supply-side economics
a. advocates reduced government involvement in business.
b. advocates increased government involvement in business.
c. emphasizes increasing consumer purchasing power.
d. urges higher taxes to increase spending on government programs.
__A__ 183. The nation's monetary policy
a. often comes under attack from politicians.
b. almost always complements presidential and Congressional aims.
c. is determined by the Council of Economic Advisers.
d. is tightly managed by Congress.
__A__ 184. Some people believe that a weak economy will result in
a. a higher crime rate. c. higher taxes.
b. increased production. d. expansion of municipal services.
__D__ 185. Decreases in aggregate supply can be caused by
a. decreases in fuel and transportation costs.
b. reduced government regulation.
c. lower taxes.
d. tightening of immigration laws.
__D__ 186. John Maynard Keynes
a. argued that foreign-sector spending should not be ignored.
b. argued that government should limit its involvement in business.
c. introduced his theories in the 1970s.
d. introduced his theories in 1936.
__C__ 187. The Council of Economic Advisers
a. is an independent agency with broad regulatory powers.
b. determines the Fed's monetary policy.
c. advises the president on economic developments and strategy.
d. advises Congress on economic developments and strategy.
It will take a few years for the global economy to achieve a new equilibrium betweenmanufacturing production and consumer demand. Many goods are now in oversupply, and consumer demand is impaired by falling currencies and growth-inhibiting governmental policies.... But these are cyclical imbalances of the sort that have occurred for decades and will keep recurring from time to time.Source: Kiplinger’s Personal Finance Magazine, November 1998.
This passage is describing a
a. shift in aggregate demand. c. shortage.
b. shift in aggregate supply. d. surplus.
Based on the graph, the increase in oil prices caused output to
a. rise from Q2 to Q0. c. rise from Q0 to Q1.
b. fall from Q0 to Q2. d. fall from Q1 to Q0.
__B__ 190. Which of the following events could cause aggregate supply curve AS1 to shift to AS0?
a. higher labor productivity c. lower prices for foreign oil
b. higher interest rates d. lower taxes
__A__ 191. Which of the following events could cause aggregate supply curve AS0 to shift to AS1?
a. a tax cut c. an increase in the price for foreign oil
b. a rise in interest rates d. a decrease in the price level
Which of the following situations could cause aggregate demand curve AD1 to shift to AD0?
a. higher transfer payments
b. a forecast of better economic conditions ahead
c. a decrease in the personal income tax rate
d. an increase in consumer saving
Have monetary policymakers got [inflation] licked?Central bankers will tell you that they have not, and not just out of modesty. Although plenty of them have targets for inflation, none is sure precisely how, or how rapidly, changes in monetary policy affect the economy. So they cannot be certain that a sensible-looking interest-rate cut will not revive inflation—or that a cautious-looking rise will not tip the economy into a recession.Hence the search for...a simple rule for choosing [a] monetary policy that keeps inflationdown without hitting the economy too hard.Source: The Economist, August 10, 1996.
In the passage, central bankers are wrestling with what tradeoff?
a. monetary versus fiscal policy
b. inflation versus economic growth
c. interest-rate cut versus recession
d. supply-side versus demand-side policies
__B__ 194. Suppose policymakers target a goal of continuous, stable economic growth without inflation. Where on
the diagram does this goal belong?
a. W c. Y
b. X d. Z
__D__ 195. Suppose policymakers decide to increase federal spending to put more money in people’s hands. Where
on the diagram does this policy action belong?
a. W c. Y
b. X d. Z
__B__ 196. Suppose policymakers decide to cut taxes. Where on the diagram does this policy action belong?
a. W c. Y
b. X d. Z
__A__ 197. Tariffs and quotas can have all of the following effects EXCEPT
a. promoting third-world development.
b. increasing prices consumers pay for goods.
c. protecting domestic industry.
d. reducing trade deficits.
__C__ 198. Revenue tariffs are levied to
a. increase imports. c. raise money.
b. lower exports. d. protect domestic producers.
__B__ 199. The Smoot-Hawley Tariff of 1930 resulted in
a. the lowest tariff rates in U.S. history.
b. the highest tariff rates in U.S. history.
c. rapid growth of international trade.
d. significant growth of domestic industry.
__B__ 200. The international agency that administers trade agreements and settles trade disputes is
a. GATT. c. NAFTA.
b. WTO. d. the United Nations.