The laissez faire policy prescription to eliminate unemployment was to

ECO 372 Final Exam
Name

Course

Tutor

Date

1) The largest source of household income in the U.S. is obtained from

B. wages and salaries

2) The market where business sell goods and services to households and the government is called the

A. goods market

3) Real gross domestic product is best defined as

C. the market value of all final goods and services produced in an economy, stated in the prices of a given year

4) Underemployment includes people

B. who are working part time, or not using all their skills at a full-time job

5) The Bureau of Economic Analysis is responsible for which of the following?

C. Calculating U.S. gross domestic product]

6) The Federal Reserve provides which of the following data?

A. Federal funds rate

7) Consider if the government instituted a 10 percent income tax surcharge. In terms of the AS/AD model, this change should have

B. shifted the AD curve to the right

8) If the depreciation of a country's currency increases its aggregate expenditures by 20, the AD curve will

A. shift right by more than 20

9) Aggregate demand management policies are designed most directly to

B. minimize inflation

10) Suppose that consumer spending is expected to decrease in the near future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?

A. An increase in government spending

11) According to Keynes, market economies

C. may recover slowly after they experience a significant decline in aggregate demand

12) The laissez-faire policy prescription to eliminate unemployment was to

A. eliminate labor unions and government policies that hold real wages too high

B. strengthen unions and government regulations protecting unions and workers

C. increase real wages so that people are encouraged to work

D. have government guarantee jobs for everyone

13) In the AS/AD model, an expansionary monetary policy has the greatest effect on the price level when it

A. increases both nominal and real income

14) The Federal funds rate

A. is always slightly higher than the discount rate

15) What tool of monetary policy will the Federal Reserve use to increase the federal funds rate from 1% to 1.25%?

A. Open-market operations

16) If the Federal Reserve increases the required reserves, financial institutions will likely lend out

B. less than before, decreasing the money supply

17) Suppose the money multiplier in the U.S. is 3. Suppose further that if the Federal Reserve changes the discount rate by 1 percentage point, banks change their reserves by 300. To increase the money supply by 2700 the Federal Reserve should

A. reduce the discount rate by 3 percentage points

18) If the Federal Reserve reduced its reserve requirement from 6.5 percent to 5 percent. This policy would most likely

C. decrease the money multiplier but increase the money supply

19) A country can have a trade deficit as long as it can

D. produce more than it consumes.

20) A weaker dollar

A. raises inflation and contracts the economy.

21) In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because

A. the country eventually will consume more and produce less

22) Considering an economy with a current trade deficit and considering only the direct effect on income, an expansionary monetary policy tends to

D. increase the exchange rate and decrease the trade deficit

23) The balance of trade measures the

A. difference between the value of imports and exports

24) When a country runs a trade deficit, it does so by:

A. borrowing from foreign countries or selling assets to them.

25) Expansionary fiscal policy tends to

D. lower U.S. income, reduce U.S. imports, and lower the trade deficit

26) In considering the net effect of expansionary fiscal policy on the trade deficit, the

B. price effect offsets the income effect

27) If U.S. interest rates fall relative to Japanese interest rates and Japanese inflation falls relative to U.S. inflation, then the

B. dollar will gain value in terms of yen

28) Expansionary monetary policy tends to

C. increase the U.S. interest rate and decrease the U.S. exchange rate

29) The U.S. has limits on Chinese textile imports. Such limits are an example of

B. a quota

30) Duties imposed by the U.S. government on imported Chinese frozen and canned shrimp are an example of

A. tariffs