Week 1 Quiz - An Overview of Modern Macroeconomics

Question 1
Learning the principles of macroeconomics can help you make better
decisions in both your personal and professional life.
True
False
Question 2
If consumer confidence falls and unemployment rises, what happens to the
probability of a recession?
It goes up
Not sure
It goes down
There is no effect
Question 3
Which type of unemployment do economists primarily focus on curing?
Frictional
Structural
Cyclical
Pervasive

Question 4
If a world wide drought causes a rise in food prices and conflict in the Middle
East causes oil prices to rise, this will contribute to:
1. Cost-push Inflation
2. Demand-pull Inflation
Both 1 and 2
Neither
Question 5
Which type of inflation index measures changes in the cost of important raw
materials?
The PPI
The CPI
The FBI
The I dont know
Question 6
If price inflation rises faster than wages, what happens to our purchasing
power?
Falls
Rises
Stays the same
We need to find a new job

Question 7
Unexpected inflation can:
Benefit Borrowers
Benefit Lenders
Not Sure
Benefit Nobody
Question 8
The Flow of Expenditures approach is calculated by adding:
Real GDP plus Nominal GDP
Wages, rents, interest, and profits
Not sure
Consumption, investment, government spending, and net exports
Question 9
If actual output is above potential output, we run the risk of:
Inflation
Recession
Stagflation
Armageddon
Question 10
Real Gross Domestic Product (GDP) is equal to:

Nominal GDP minus inflation

Virtual GDP plus interest
Nominal GDP plus stagflation
Nominal GDP plus inflation
Question 11
Forecasting the business cycle is important to:
Business executives interested in implementing their plans and strategies
Policymakers interested in fighting recession or inflation
Stock market investors interested in allocating funds to various assets
All of the above
Question 12
If the government wants to use fiscal policy to stimulate the economy, it will:
Cut government spending and raise taxes
Increase government spending and increase taxes
Increase government spending and cut taxes
Cut government spending and cut taxes
Question 13
If the government wants to use monetary policy to fight inflation, it will:
Increase government spending
Increase the money supply

Decrease the money supply

Decrease government spending
Question 14
The Kennedy Tax Cut of 1964 was a modern day version of:
Classical economics
Keynesian economics
Marxism
Monetarism
Question 15
President Lyndon Johnsons refusal to cut his Great Society programs to
finance the Vietnam War resulted in:
Stagflation
Hyperinflation
Cost-push Inflation
Demand-pull inflation
Question 16
What is the Keynesian dilemma when it comes to curing stagflation?
Stimulating the economy to cure unemployment decreases inflation.
Not sure
Stimulating the economy to cure unemployment increases inflation

Question 17
When the economy simultaneously suffers from inflation and unemployment,
this is called:
Stagflation
Hyperinflation
Demand-pull inflation
Cost-push inflation
Question 18
The Classical economists believed that:
The economic cycle depends on the phases of the moon
The economy needs fiscal or monetary stimulus to recover from a
recession
The 56 Chevy is the best classic car ever built
The economy is self-correcting
Question 19
The Monetarists believe that inflation is caused by:
Printing too much money
Counterfeiting money
Not sure
Printing too little money
Question 20

Who famously said in the long run, were all dead.

John Maynard Keynes
Franklin Delano Roosevelt
Jean Baptiste Say
Freddy Krueger
Question 21
Fiscal policy relies on:
1. Changes in government expenditures
2. Changes in taxes
3. Changes in the money supply
Both 1 and 2
Both 2 and 3
Question 22
Supply side economics promises to:
Lower taxes to increase the budget deficit
Raise taxes to lower the budget deficit
Raise taxes to increase the budget deficit
Lower taxes to lower the budget deficit
Question 23
The theory of Rational Expectations supports the use of discretionary fiscal
and monetary policies to control inflation and solve unemployment.

False
True
Not sure
Question 24
Which was the most prosperous decade?
The 2000s
The 1980s
The 1990s
The 1970s
Question 25
What contributed to the slow growth of the United States during the 2000s?
Wars in Iraq and Afghanistan
Collapse of a housing bubble
Chinas entry into the World Trade Organization
All of the above
Question 26
The application of a massive fiscal and monetary policy after the Great
Recession of 2007:
Was moderately successful
Was applauded by the ghost of Milton Friedman
Was a total failure

Was highly successful

Week 2 Quiz - The Aggregate Supply-Aggregate Demand Model and the

Classical-Keynesian Debate

Question 1
The Classical versus Keynesian controversy is primarily a dispute about:
How the free market works
Not sure
How economies adjust and find their way back to full employment
Whether tax cuts or increased government spending should be used to
stimulate an economy
Question 2
The Classical view is that:
A price adjustment mechanism will bring the economy back to full
employment
An income adjustment mechanism will bring the economy back to full
employment
A currency adjustment mechanism will bring the economy back to full
employment
Not sure/dont know
Question 3

Laissez Faire economists believe:

A relatively small government sector is best
A relatively big government sector is best
No government is best
Not sure
Question 4
Classical economics views unemployment:
As a natural part of the business cycle and is self-correcting
As an aberration that government must fix
As healthy because it keeps wages low
Not sure
Question 5
John Maynard Keynes believed that:
Unemployment would be solved through government expenditures
Not sure
Unemployment would be solved through adjustments in wages and prices
Unemployment would be solved by tax increases
Question 6
Says Law says that:
Not sure
Supply must always exceed demand to curb inflation

Supply creates its own demand

Demand creates its own supply
Question 7
The equation PQ=MV is referred to as:
Not sure
The Quantity Theory of Money
The Velocity Theory of Money
The Price Theory of Money
Question 8
Who stated this critique of Says Law: If people dont spend all of their money,
there will be a glut of goods and people would be out of work.
Thomas Malthus
Adam Smith
Not sure
David Ricardo
Question 9
Say and the Classical Economists believed what had to adjust for
unemployment to go away?
1. Interest rates
2. Prices
3. Wages

All of the above

1 & 2 only
Question 10
How is real, inflation-adjusted output measured in the equation of exchange?
P/Q
M/P
Not sure
MV
PQ
Question 11
If the quantity of money increases in the quantity theory of money equation,
what must increase?
Not sure
Price
Velocity
Quantity
Question 12
The veil of money assumption means that:
Real output is not influenced by the money supply
Increasing M will increase Q
Nominal output is not influenced by the money supply

Not sure
Question 13
Keynes believed that the Classical economists price adjustment mechanism
would:
eBy dwarfed by a more powerful income adjustment mechanism
Not sure
Solve the Great Depression through the quantity of money equation
Work together with the income adjustment mechanism to cure recessions
Question 14
To Keynes, recessions are cause by a fall in:
1. Consumption
2. Investment
3. Savings
All of the above
1 & 2 only
Question 15
The AS-AD framework:
Not sure
Is independent of prices
Allows for price adjustments
Assumes prices are fixed

Question 16
Which statement is true?
The aggregate demand curve slopes downward
The aggregate demand curve is a horizontal line
Not sure
The aggregate demand curve slopes upward
Question 17
The real balance or wealth effect means that as prices fall:
Purchasing power stays the same
Purchasing power rises
Purchasing power falls
Not sure
Question 18
The net export effect means that as domestic prices falls:
1. Exports rise
2. Imports fall
3. Aggregate quantity demanded decreases
All of the above
1 & 2 only
Question 19

The aggregate demand curve will shift out or to the right if:
1. Taxes are cut
2. Interest rates fall
3. Excess capacity rises
All of the above
1 & 2 only
Question 20
The aggregate demand curve will shift in or to the left if:
Government spending rises
Consumer confidence improves
Excess capacity increases
Not sure
Question 21
The aggregate supply curve:
Slopes down
Is a horizontal line
Slopes up
Not sure
Question 22
Which way will the aggregate supply shift if the price of imported oil rises?
In

Not sure
Out
Right
Question 23
Cost-push inflation:
1. Shifts the aggregate supply curve in
2. Increases prices
3. Increases output
All of the above
1 & 2 only
Question 24
Which event will shift the aggregate supply curve in?
1. An increase in the excise tax
2. A decrease in the sales tax
3. A decrease in the payroll tax
1 & 2 only
Not sure
Question 25
In which range of the economy are prices fixed?
Classical range

Intermediate range
Keynesian range
Not sure
Question 26
In the Classical range of the economy, expansionary fiscal policy will lead to:
A large increase in the price level and a small increase in output
A small increase in the price level and a large increase in output
A large increase in the price level only
A large increase in output only
Question 27
In the Intermediate range of the economy, there is:
Any increase in output results in an increase in the price level
Any increase in output results in a decrease in the price level
Any increase in output has no impact on the price level
Not sure
Question 28
The Classical Price Adjustment Mechanism will return the economy to full
employment at:
With no impact on the price level
A lower price level
Not sure

A higher price level

Week 3 Quiz - The Keynesian Model and Fiscal Policy

Question 1
Fiscal policy:
Uses changes in the money supply to stimulate or contract the economy
Not sure
Uses changes in the size of the trade deficit to stimulate or contract the
economy.
Uses changes in government expenditures and taxes to stimulate the
economy
Question 2
Stagflation:
Not sure
Validated the use of Keynesian economics
Validated the use of Monetarism
Showed that Keynesian solutions didnt always work
Question 3
The fixed price assumption is valid in the Intermediate range of the economy
because:
Not sure

Prices vary a lot with output

Prices vary little with output
Prices are fixed
Question 4
Who was responsible for developing the textbook Keynesian model?
Not sure
Alvin Hansen and Paul Samuelson
Milton Friedman and Arthur Laffer
Delano Roosevelt
Question 5
Which of these is a leakage in the Circular Flow Diagram?
Savings
Not sure
Government spending
Investment
Question 6
Which of these is an injection?
Exports
Taxes
Not sure

Imports
Question 7
Aggregate production
1. Is the total amount of goods and services produced in the economy
2. Creates an equal amount of income
3. Is a 45 degree line
All of the above
1 & 3 only
Question 8
Aggregate expenditures
1. Represents total spending
2. Equals consumption plus investment plus government spending plus net
exports
3. Is the horizontal summation of four curves
All of the above
1 & 2 only
Question 9
Why does the AE curve intersect the vertical axis above zero?
Fractional consumption
Autonomous consumption
Not sure

Induced consumption
Question 10
Which is the largest component of Aggregate Expenditures?
Consumption
Net Exports
Investment
Government spending
Question 11
In the Keynesian consumption function, total consumption equals:
Autonomous consumption minus induced consumption
Autonomous consumption divided by induced consumption
Autonomous consumption plus induced consumption
Not sure
Question 12
The amount of money left after paying taxes to the government is referred to
as:
Disposable consumption
Disposable income
Disposable consumption
Induced consumption

Question 13
The extra amount people consume when they receive an extra dollar of
disposable income is referred to as the:
MPS
MPI
MPC
Not sure
Question 14
What is the formula for the marginal propensity to save?
Not sure
MPS = 1 + MPC
MPS = 1 MPC
MPS = 1/MPC
Question 15
Suppose people spend 60 cents of every dollar of their disposable income and
save 40 cents. What is the MPC?
.40
.20
.60
.80
Question 16

MPC = 0.6, MPS = 0.4

The aggregate expenditures curve is flatter than the 45 degree line in the
Keynesian model because the MPC is:
Less than one
Equal to one
Not sure
Greater than one
Question 17
What is the slope of the consumption function?
1. MPC
2. 1 MPS
3. MPS
All of the above
1 & 2 only
Question 18
In the investment function in the Keynesian model, expenditures:
Not sure
Are independent of income
Fall with income
Rise with income
Question 19
Investment increases when:

Not sure
Interest rates rise
Both prices and interest rates rise
Interest rates fall
Question 20
Animals spirits in the Keynesian model is important because:
1. If businesses are bearishly pessimistic on the economy, they will cut
back on investment
2. If businesses are bullishly optimistic on the economy, they will increase
investment
3. If businesses believe the economy will go bad, it could become a
self-fulfilling prophecy
All of the above
1 & 2 only
Question 21
Which of these components of the aggregate expenditure function is not
represented by a horizontal line?
Not sure
Consumption function
Investment function
Government function
Question 22

Which of these are the primary tools of fiscal policy?

1. Decreased or increased government expenditures
2. Decreased or increased taxes
3. Decreases or increases in the money supply
All of the above
1 & 2 only
Question 23
What type of expansionary fiscal policies can be used to close a recessionary
gap?
1. A tax cut
2. An increase in government expenditures
3. A decrease in the money supply
All of the above
1 & 2 only
Question 24
The purpose of contractionary fiscal policy is to:
Fight stagflation
Cool down an overheated economy
Close a recessionary gap
Not sure

Question 25
Transfer payments like unemployment compensation and welfare payments
act as automatic stabilizers because:
Not sure
They automatically rise during recessions and fall during expansions.
They contract the economy
They stimulate the economy
Question 26
Which part of the net export function adds to aggregate expenditures?
Exchange rates
Exports
Imports
Not sure
Question 27
A closed economy excludes:
Government expenditures
Investment
Consumption
Net exports
Question 28

Vertically summing the consumption, investment, and government expenditure

curves yields the AE function. Its slope is:
The MPC
MV
Not sure
The MPS
PQ
Question 29
The Keynesian multiplier is greater than one because:
Induced consumption is less than disposable income
Income is re-spent many times after the initial increase.
Autonomous consumption is greater than zero
Not sure
Question 30
Suppose the U.S. permanently decreases defense spending by $100 billion
after troops pull out of Afghanistan. How much will GDP be reduced assuming
an MPC of 0.75?
$400 billion
$300 billion
$200 billion
$100 billion

100B * 1 / (1 - 0.75)

$500 billion
Question 31
Compared to increases in government expenditures, tax cuts have:
Less of an expansionary effect
More of an expansionary effect
Not sure
The same expansionary effect
Question 32
The tax cut multiplier equals:
The expenditure multiplier/MPC
The expenditure multiplier * MPC
Not sure
The expenditure multiplier MPC
Question 33
Assume a recessionary gap of $180 billion and an MPS of .25. How much
should taxes be cut to close the gap?
$60 billion
multiplier = 1 / MPS = 1 / 0.25 = 4
yield a tax multiplier = multiplier * MPC = 4 * (1 - 0.25) = 3
tax = 180B / 3 = 60B

$20 billion
$80 billion

$40 billion
Question 34
Suppose you want to close an inflationary gap of $100 billion and the MPC
is .5. What fiscal policy options are available?
Raise taxes by $100 billion or cut G by $50 billion
multiplier = 1 / MPS = 1 / (1 - 0.5) = 2
tax = 100B / (multiplier * MPC) = 100B / (2 * 0.5) = 100B
G = 100B / multiplier = 100B / 2 = 50B
Cut taxes by $50 billion or raise G by $100 billion
Raise taxes by $50 billion or cut G by $100 billion
Cut taxes by $100 billion or raise G by $50 billion
Question 35
Is it better to cut taxes or increase government expenditures to close a
recessionary gap?
Cut taxes
Not sure
Increase government expenditures
It depends on whether you are a conservative or a liberal
Question 36
The paradox of thrift occurs when:
People try to save more during a recession but wind up saving less
because their incomes fall

People try to save less during a recession but wind up saving more
because their incomes fall
Not sure
Question 37
When the government increases its expenditures to close a recessionary gap
and finances those expenditures through increased borrowing, this can:
Drive up interest rates and investment
Drive down interest rates and drive up investment
Drive up interest rates and drive down investment
Drive down interest rates and investment
Question 38
Crowding out means that:
The net effect of a fiscal policy stimulus may be more than intended
Not sure
The net effect of a fiscal policy stimulus is unaffected
The net effect of a fiscal policy stimulus may be less than intended
Question 39
A key weakness of the Keynesian model is that it:
1. Assumes prices are fixed
2. Assumes away inflation
3. Assumes prices are flexible

All of the above

1 & 2 only

Week 4 Quiz - The Federal Reserve and Monetary Policy

Question 1
Monetary Policy involves changes in the money supply to:
1. Contract the economy
2. Expand the economy
3. Diversify the economy
1 & 2 only
2 & 3 only
Question 2
Richard Nixon may have lost the 1960 presidential election to John F.
Kennedy because of:
Monetary policy
Not sure
Exchange rate policy
Fiscal policy
Question 3

Checkbooks represent a form of:

Commodity money
Fiat or paper money
Not sure
Bank Money
Question 4
Which is NOT a function of money?
Standard of value
Store of value
Medium of exchange
Medium of barter
Question 5
When we say that one stick of butter exchanges for two loaves of bread, we
are referring to what function of money?
Medium of barter
Medium of exchange
Store of value
Standard of value
Question 6
In the presence of inflation, the value of money:
Not sure

Is unaffected
Decreases
Increases
Question 7
Interest is:
1. The payment made for the use of money
2. The price of money
3. The rate of return from commodity money
All of the above
1 & 2 only
Question 8
Suppose the interest rate is 8% and you deposit $5000 in the bank. What will
your deposit be worth in a year?
$5400

5000 * 1.08 = 5400

$5200
$5600
$5800
Question 9
The longer the term of a loan:
The higher the interest rate
The lower the interest rate

There is no difference in the interest rate

Not sure
Question 10
Which of these investments would have the lowest interest paid out?
The bonds of the U.S. government
The municipal bonds of cities with shrinking tax bases,
The bonds of countries with large overseas debt and unstable political
systems.
The junk bonds of businesses close to bankruptcy,
Question 11
The more liquid the loan:
Not sure
There is no difference in the interest rate
The higher the interest rate
The lower the interest rate
Question 12
If you want to adjust for inflation when evaluating an investment, you would
rely on the:
Nominal interest rate
Not sure
Real interest rate

Normalized interest rate

Question 13
Suppose the nominal interest rate is 12% and the real interest rate is 6%. What
must be the rate of inflation?
6%

nominal interest rate - real interest rate = 12% - 6% = 6%

24%
18%
3%
Question 14
The major determinants of money demand are:
1. Asset demand
2. Transactions demand
3. Withdrawal demand
All of the above
1 & 2 only
Question 15
The basic determinant of transactions demand is:
Real GDP
Nominal GDP
Not sure
Normalized GDP

Question 16
If prices and (real GDP plus inflation) triple, what happens to the transactions
demand for money?
Triples
Stays the same
Doubles
Not sure
Question 17
When you hold cash rather than invest it in stocks or bonds and wait for a
better price, such speculation is an example of what kind of demand for
money?
1. Asset demand
2. Transactions demand
3. Withdrawal demand
All of the above
1 & 2 only
Question 18
Inflation:
Decreases the value of money
Increases the value of money
Has no effect on the value of money

Not sure
Question 19
Examples of the opportunity cost of holding money include:
1. The interest that could have been earned by lending the money.
2. The rate of return that could have been earned by investing the money
in stocks.
3. The increase in value from holding money during inflation.
All of the above
1 & 2 only
Question 20
If interest rates rise, what happens to the asset demand for money?
Stays the same
Increases
Decreases
Not sure
Question 21
The goldsmiths of several hundred years ago accounted for the first:
1. Bank interest
2. Paper money
3. Fractional reserve banking
All of the above

1 & 2 only
Question 22
A system of fractional reserve banking works because:
Banks can close temporarily if they run of cash
Banks can loan to one another if one gets into trouble
Not sure
No more than a small amount of consumers are likely to come in for their
cash
Question 23
The money multiplier equals:
1/MPS
1/RR
1/RR MPC
Not sure
Question 24
If the money multiplier is 5, what must be the reserve requirement?
20%
MM(money multiplier) = 1 / RR(reserve requirement)
RR = 1 / MM = 1 / 5 = 0.2
10%
50%
40%

30%
Question 25
The money multiplier and reserve requirement are:
Inversely related
Equal to one another
Directly related
Not sure
Question 26
Which of these statements are true about bank runs?
1. Bank runs usually happen when people suddenly believe they may not
be able to get their money out of their bank.
2. When everybody tries to get their money at once during a bank run, the
bank fails
3. The fear that a bank may fail sets in motion a chain of events that can
lead to the actual failure of a perfectly healthy bank
All of the above
1 & 2 only
Question 27
A major purpose of a nations central bank is to be:
The lender of first resort
The primary lender in the banking system
Not sure

The lender of last resort

Question 28
Which is the most important function of the U.S. Federal Reserve, Americas
central bank?
Regulate financial institutions
Conduct monetary policy
Issue currency
Not sure
Question 29
Which of these are objectives of monetary policy?
1. Provide a high level of employment
2. Insure stable prices
3. Provide moderate long-term interest rates
All of the above
1 & 2 only
Question 30
If the Federal Reserve wants to increase the money supply, it can:
Increase the reserve requirement
Decrease the money multiplier
Not sure
Decrease the reserve requirement

Question 31
If the Federal Reserve wants to decrease the money supply, it can:
Increase the money multiplier
Increase the discount rate
Not sure
Decrease the discount rate
Question 32
If the Federal Reserve wants to use open market operations to increase the
money supply, it will:
Sell corporate bonds
Not sure
Sell government bonds
Buy government bonds
Question 33
Suppose the Federal Reserve wants to close a recessionary gap of $100
billion and the reserve requirement is 20%. How much money will it have to
create to close this gap?
Cannot be determined from the information
$10 billion
$20 billion
$50 billion

Not sure
Question 34
The monetary transmission mechanism involves which of the following to close
a recessionary gap?
1. An increase in the money supply
2. A fall in interest rates
3. An increase in investment and consumption
4. An increase in exports
All of the above
1, 2 & 3 only
Question 35
In theory, which can be used with more precision to close a recessionary gap?
Exchange rate policy
Fiscal policy
Not sure
Monetary policy
Question 36
Which school of macroeconomics supports an activist role for monetary
policy?
Classical economists
Keynesians

Monetarists
Not sure
Question 37
Which type of gap is monetary policy likely to be most effective at closing,
according to the Keynesians?
Inflationary gap
Not sure
Recessionary gap
Stagflationary gap
Question 38
According to the Monetarists:
1. Inflation happens when the government prints too much money.
2. Recession happens when the government prints too little money.
3. Stagflation happens when the government refuses to print additional
money
All of the above
1 & 2 only
Question 39
Milton Friedman believed that the Great Depression was caused by:
1. A dramatic cutback in government expenditures
2. A dramatic cutback in the money supply

3. A dramatic rise in the tax rate

4. All of the above
5. 1 & 2 only
Question 40
Stagflation is characterized by:
1. Inflation
2. Recession
3. A balanced budget
All of the above
1 & 2 only
Question 41
How would you use fiscal policy to fight stagflation?
1. Increase government expenditures
2. Raise taxes
3. Cut taxes
All of the above
None of the above
Question 42
If we want economic growth to proceed at a rate of 5%, the Monetarists would
recommend:
Increasing the money supply by 5% less the rate of inflation

Increasing the money supply by 5% plus the rate of inflation

Increasing the money supply by 5%
Not sure
Question 43
To fight the stagflation of the late 1970s, Federal Reserve Chairman Paul
Volcker:
1. Dramatically raised interest rates
2. Induced a recession
3. Cut taxes
All of the above
1 & 2 only

Week 5 Quiz - Unemployment, Inflation, and Stagflation

Question 1
In most cases, macroeconomists can:
1. Solve an inflation problem by making unemployment worse.
2. Solving an unemployment problem by making inflation worse.
3. Solve unemployment and inflation at the same time
1 & 2 only

Dont know
Question 2
Which statement is true?
Expansionary policies stimulate a recessionary economy but cause
inflation.
Contractionary policies fight inflation but can trigger unemployment and
recession.
Both
Neither
Question 3
What happens when an economy faces both high unemployment and
inflation?
It is necessary to use both Keynesian-style monetary and fiscal policy at
the same time.
Only monetary policy should be used
Keynesian-style monetary and fiscal policies are counterproductive
I dont know
Question 4
Which type of unemployment is the least of the macroeconomistss worries?
Structural
Frictional
Cyclical

Persistent
Question 5
Which type of unemployment requires the most targeted policies?
Cyclical
Frictional
Persistent
Structural
Question 6
Which of these types of people are not considered to be part of the labor
force?
1. Homemakers
2. Prisoners
3. Retirees
4. Students
All of the above
1, 3, & 4 only
Question 7
If there are 100 million people in the labor force and 6 million of them are
unemployed, what is the unemployment rate?
6%
unemployment rate = Unemployed / Labor Force = 6 / 100 = 0.06

6% minus those not in the labor force

6% plus summer workers
Dont know
Question 8
Much of teenage employment is considered to be:
Due to too many video games
Dont know
Frictional
Persistent
Question 9
Ideological conservatives tend to blame high rates of black unemployment
among teenagers on:
1. The minimum wage
2. The welfare state
3. Racism
1 & 2 only
Dont know
Question 10
According to Okens Law:
Output and inflation move together
Output and unemployment move together

Output and unemployment move in the opposite direction

Dont know
Question 11
Suppose GDP falls by 2%. By Okuns law, how much will inflation rise?
1%
2%
3%
Cant be determined
Dont know
Question 12
Suppose GDP falls by 2%. By Okuns law, how much will unemployment rise?
1%
2%
3%
Cant be determined
Dont know
Question 13
Suppose the inflation rate exceeds the rate of growth in income. That would
mean that purchasing power is:
Falling
Rising

Staying the same

Dont know
Question 14
Demand pull inflation is caused by:
Dont know
Too much money chasing too few goods.
A rise in the savings rate
Supply-side shocks like drought and oil price hikes.
Question 15
Cost-push inflation is caused by:
Too much money chasing too few goods.
Supply-side shocks like drought and oil price hikes.
A rise in the savings rate
Dont know
Question 16
Which type of inflation can best be controlled by Keynesian policies?
Cost-push inflation
Demand-pull inflation
Both
Dont know

Question 17
Stagflation is defined as:
Dont know
Simultaneous inflation and wage declines
Simultaneous unemployment and wage declines
Simultaneous unemployment and inflation
Question 18
Inflationary expectations are important because:
1. The expectation of inflation can significantly contribute
to actual inflation.
2. Inflationary expectations strongly influence the behavior of businesses,
investors, workers, and consumers!
3. They help fight both supply-side shocks and demand-pull inflation
1 & 2 only
Dont know
Question 19
The core or inertial rate of inflation is defined as:
The inflation that exists all a time
Inflation that tends to persist at the same rate until a demand or supply side
shock changes things
The inflation that exists before Keynesian stimulus
Dont know

Question 20
Under adaptive expectations:
Dont know
People believe that it is important to adapt ones investment strategy to the
inflation rate
People believe next years rate of inflation will be the same as last years.
People believe this years inflation rate was the same as last years.
Question 21
Under an adaptive expectations model, suppose you are a labor negotiator in
last years inflation rate was 3% and you believe that next year your workers
will achieve a 2% increase in their productivity. What is the minimum wage
increase for your workers for the next year that will you demand?
5%
demand

= productivity gain + expected inflation rate = 2% + 3% = 5%

4%
2%
Dont know
3%
Question 22
According to the theory of the Phillips Curve, what happens to prices went
unemployment rises?
They fall
They rise

They stay the same

Dont know
Question 23
The key policy implication of the Phillips Curve theory is that:
Keynesian monetary policy will not be effective at stimulating the economy.
Dont know
You can use expansionary policies to reduce unemployment and the only
price will be a bit more inflation.
Keynesian fiscal policy will not be effective at stimulating the economy.
Question 24
The natural rate of unemployment refers to:
The minimum unemployment rate consistent with steady inflation
The unemployment rate that must be achieved in order to reduce inflation
The unemployment rate associated with an economy that has failed to yet
reach its full level of industrialization
Dont know
Question 25
If it is impossible to drive the unemployment rate below the natural rate in the
long run, what does this imply about the slope of the Phillips Curve?
It is vertical
It is a 45 line similar to the aggregate production curve
Dont know

It is horizontal
Question 26
The natural rate of unemployment for any given country is:
Constant
Changing according to underlying structural factors
Accelerating as a country grows
Dont know
Question 27
If the government uses Keynesian stimulus in an attempt to drive the
unemployment rate below the natural rate in the short run, what will be the
inevitable result?
Rising unemployment
Rising inflation
Rising growth in the real gross domestic product over the long run
Dont know
Question 28
According to Monetarist theory, if a nation repeatedly uses Keynesian policies
to try and keep unemployment below the natural rate, what will be the result in
the long run?
Dont know
An inflationary spiral
A deflationary spiral

A supply-side shock
Question 29
According to the Monetarists, the only way to stop an inflationary spiral is to:
Push the actual unemployment rate above the natural rate using
Keynesian stimulus.
Push the actual unemployment rate above the natural rate by inducing a
recession
Reduce the natural rate of unemployment
Dont know
Question 30
According to Keynesian economists, the traditional solution to an inflationary
spiral is to:
Impose wage and price controls until we inflation dissipates
Increase the money supply
Cut taxes
Dont know
Question 31
Ronald Reagan ran on a supply-side economics platform that promise to:
1. Accelerate growth
2. Cut taxes
3. Increased tax revenues
All of the above

1 & 2 only
Question 32
The Laffer curve is:
Dont know
Backward bending
Forward bending
A vertical line
Question 33
According to the Laffer curve, it is possible to cut the marginal tax rate and:
Dont know
Increase GDP growth
Increase tax revenues
Decrease tax revenues
Reduce GDP growth
Question 34
According to Supply Side economics theory, the regulation will:
Shift out the aggregate demand curve and thereby increase both inflation
and GDP growth.
Shift out the aggregate demand curve and thereby decrease inflation and
increase GDP growth

Shift out the aggregate supply curve and thereby increase both inflation
and GDP growth
Shift at the aggregate supply curve and thereby decrease inflation and
increase GDP growth
Dont know

Week 6 Quiz - The Warring Schools of Macroeconomics

Question 1
New Classical Economics is based on:
Rational expectations
Adaptive expectations
Traditional expectations
Dont know
Question 2
If the inflation rate was 5% last year, rational expectations would predict that
inflation next year will be:
Cannot be determined from the information
10%
5%
Dont know

Question 3
The central policy implication of the rational expectations theory is that:
Keynesian policies work in the short run but not the long run
Keynesian policies work in the long run but not the short run
Keynesian policies work in the short run and the long run
Dont know
Question 4
Based on the theory of rational expectations, a Classical Economics advisor to
the president would:
Not recommend Keynesian policies
Recommend Keynesian policies in a recession
Recommend Keynesian policies to fight inflation
Dont know
Question 5
Under the theory of rational expectations, if the Federal Reserve expands the
money supply to close a recessionary gap:
1. Businesses will immediately raise prices
2. Workers will demand higher wages
3. The attempted expansionary monetary stimulus will be completely offset
by inflations contractionary effects
All of the above

1 and 2 only
Dont know
Question 6
From 1947 to 2000, real GDP grew annually by 3.5%. However, over the next
decade, GDP growth would fall by nearly 2%. How many jobs does the
economy of the United States fail to create when GDP growth slows by 1% in a
given year?
1 million
1% GPD growth lost = 1 million new jobs not created.
100,000
10 million
Dont know
Question 7
During the 2000s, average median household income was roughly equal to:
0% over the decade
5% over the decade
10% over the decade
Dont know
Question 8
Historically, the Federal Reserve has focused on:
Lowering short-term interest rates to stimulate investment
Lowering long-term interest rates to stimulate investment

Lowering both short and long-term interest rates to stimulate investment

Dont know
Question 9
The Federal Reserves policy of quantitative easing that was ushered in in
the late 2000s had what objective:
Lower long-term interest rates
Lower short-term interest rates
Lower both short and long-term interest rates
Dont know
Question 10
When the Federal Reserve lowers interest rates, this can stimulate:
Both 1 & 2
Dont know
1. Domestic investment
2. Exports to foreign countries
Question 11
What is the relationship between bond prices and bond yields?
As bond prices rise, bond yields fall
As bond prices rise, bond yields rise
As bond prices rise bond yields remain the same
Dont know

Question 12
The typical business cycle is characterized by:
1. An expansionary peak
2. A recessionary trough
3. A secular growth trend line
All of the above
1 and 2 only
Question 13
Which of the following are elements of the GDP forecasting equation?
1. Consumption
2. Investment
3. Government spending
4. Net exports
All of the above
1, 2, and 3 only
Dont know
Question 14
If a countrys imports are greater than its exports, the country is said to be
running a:
Trade deficit
Trade surplus

Dont know
Question 15
Everything else being equal, a country that runs a trade deficit will have a:
Lower GDP growth rate
Higher GDP growth rate
The GDP growth rate is not affected by the size of the trade deficit
Not sure
Question 16
Which of these leading economic indicators is not used to forecast
consumption in the GDP forecasting model?
ISM manufacturing index
Consumer confidence
Home sales
Retail sales
Dont know
Question 17
Why do economic forecasters pay very close attention to inflation measures?
If inflation begins to rise, the Federal Reserve may raise interest rates to
slow GDP growth
If inflation begins to rise, the Federal Reserve may lower interest rates to
slow GDP growth

If inflation begins to rise, the Federal Reserve may raise taxes to slow GDP
growth
Not sure
Question 18
The offshoring of American jobs:
Decreases the American GDP growth rate indirectly by reducing domestic
investment
Decreases the American GDP growth rate indirectly by reducing domestic
consumption
Decreases the American GDP growth rate indirectly by reducing
government spending
Not sure
Question 19
The structural problem of a global trade imbalance includes:
An export-dependent China, and import-dependent Europe, and an
import-dependent America
An export-dependent China, an export-dependent Europe, and an
import-dependent America
An export-dependent China, an import-dependent Europe, and an
export-dependent America
dont know
Question 20

Which one of these is not a commodity country whose economy depends

heavily on the export of commodities such as coal, iron ore, soybeans, and
energy?
Switzerland
Australia
Brazil
Russia
Not sure
Question 21
When export demand is weak in Europe and the United States because of
slow growth, what is likely to happen to Chinas import demand for
commodities such as coal and iron ore?
Falls
Rises
Stays the same
Dont know
Question 22
A Keynesian stimulus when used to addressed structural imbalances causing
an economic slowdown is likely to:
Unlikely to resolve the structural imbalances
Likely to resolve the structural imbalances
Dont know

Question 23
Keynesians believe that macroeconomic instability arises from:
1. Changes in investment and consumption that shift the aggregate
demand curve in or out
2. Adverse supply-side shocks that shift the aggregate supply curve in
3. Adverse supply shocks that shift the aggregate supply curve out
All of the above
1 and 2 only
Dont know
Question 24
Monetarists believe that macroeconomic instability arises from:
Bad government policies
Price and wage flexibility
Market processes
Dont know
Question 25
From the Monetarist perspective, government policies like the minimum wage,
farm price supports, and monopoly protections:
Lead to increased instability in the macroeconomy because they dont
allow wages and prices to adjust quickly
Are necessary to reduce instability in the macroeconomy

Lead to increased instability in the macroeconomy because they allow

wages and prices to adjust to quickly
Dont know
Question 26
Which is the equation of exchange?
MV=PQ
MP=VQ
MQ=VP
Not sure
Question 27
If the velocity of money is stable and real output is independent of the price
level, increasing the money supply will lead to:
Increased inflation
Decreased inflation
Decreased real GDP growth
Increased real GDP growth
Not sure
Question 28
Which school of macroeconomics believes that tends to be unstable?
Keynesians
Monetarists

Demand ciders
Not sure
Question 29
The Supply Side school of macroeconomics:
1. Agrees with Keynesians that macroeconomic stability can result from
supply-side shocks
2. Agrees with Monetarists the macroeconomic stability can result from
government failures
3. Prefers to focus on high tax rates and regulations that reduce supply
incentives as a source of instability
All of the above
2 and 3 only
Dont know
Question 30
The view that when the economy diverges from full employment output,
internal mechanisms automatically move back is associated with which school
or schools of macroeconomics thought?
1. Keynesianism
2. Monetarism
3. Supply Side economics
All of the above
2 and 3 only

Dont know
Question 31
The faster the speed of the adjustment process back to full potential output:
The less the need for activist fiscal and monetary policies
The more the need for activist fiscal and monetary policies
The use of activist fiscal and monetary policies is independent of the speed
of the adjustment process
Dont know
Question 32
Under the theory of adaptive expectations, shifts of the aggregate supply and
aggregate demand curves to bring the economy back to full employment:
Occur very slowly
Occur very quickly
Cannot occur
Dont know
Question 33
Which school or schools of macroeconomics thought believe that the
government should adhere to rules that prohibit it from causing instability in the
economy?
Keynesians
Monetarists
New Classicals

All the above

2 and 3 only
Dont know
Question 34
Which school of macroeconomic thought would most favor a rule that directed
the Federal Reserve to expand the money supply at the same rate is the
typical growth of the economys production capacity?
Monetarists
Keynesians
Both
Dont know
Question 35
Under the Rational Expectations theory, if the Federal Reserve lowers interest
rates to stimulate economic growth:
1. Workers will demand higher wages
2. Firms will increase prices
3. Lenders will lower interest rates
All the above
1 and 2 only
Dont know
Question 36

Which theory of expectations holds that any attempt by the government to use
activist fiscal and monetary policies to stimulate the economy will be
immediately offset?
Dont know
Rational expectations
Irrational expectations
Adaptive expectations
Question 37
To finance a budget deficit, the US Treasury Department may sell bonds
directly to the private capital markets. What is likely to be the effect on interest
rates in the level of private sector investment?
Interest rates rise and investment falls
Interest rates fall and investment falls
Interest rates rise and investment rises
Dont know
Question 38
When a bond-financed budget deficit leads to a reduction in private sector
investment, this is referred to as:
Crowding out
Crowding in
The fallacy of composition
Dont know

Question 39
Which school of macroeconomic thought believes the following: Fiscal policy
should not be used because increases in government spending are likely to be
offset by declines in investment.
Monetarists
Keynesians
Both
Dont know
Question 40
According to Keynesians, a Balance Budget Rule would:
Both
Require contractionary fiscal policy during a recession and deepen it
Require cutting taxes during an expansion in increased inflation
Neither
Not sure
Question 41
Which school of macroeconomic thought most favors the use of discretionary
monetary policy?
Keynesians
Monetarists
Both

Not sure

Week 7 Quiz - Economic Growth and Productivity

Question 1
Living standards are measured by:
1. Output per capita
2. Consumption per household
3. Nominal wages
All the above
1 & 2 only
Dont know
Question 2
Living standards are primarily determined by:
1. The growth of a country
2. The level of worker productivity
3. Nominal wages
1 & 2 only
Dont know
Question 3

Economic growth represents the expansion of the countrys potential GDP or

national output.
True
False
Dont know
Question 4
The growth rate of output per person determines the rate at which the
countrys standard of living is rising.
True
False
Dont know
Question 5
The four wheels of economic growth include:
1. Capital formation and Human resources
2. Natural resources and Technology
3. All of the above
1 only
Dont know
Question 6
Which of these may be the single most important element in economic growth?
The quality of labor inputs

The quantity of workers

The level of wages
Dont know
Question 7
Why is it necessary for the government to invest in certain types of projects to
fuel growth?
Some government projects involve external benefits that private firms
cannot capture
Some government projects involve internal benefits that private firms
cannot capture
The government has more expertise than private firms as a rule
Dont know
Question 8
Productive efficiency refers to the process of a country:
Using resources in the least costly way
Deploying a specific mix of goods and services so that they maximize
societys well-being
Building its manufacturing base
Dont know
Question 9
According to a key study by Professor Edward Denison, which factor of growth
has been the most instrumental in increasing labor productivity?

1. Economies of scale
2. An increase in the quantity of labor
3. An increase in the quantity of capital
4. Technological advance
1 & 2 only
Dont know
Question 10
In Adam Smiths growth model, what was the most critical assumption in
allowing national output to double as population doubled?
Unlimited capital
Unlimited labor
Unlimited land
Dont know
Question 11
In Adam Smiths growth model, output expands with population so:
The real wage per worker stays constant
The real wage per worker rises
The real wage per worker falls
Dont know
Question 12

When new workers are added to a fixed supply of land, the marginal product of
each additional worker is likely to:
Fall
Rise
Stay constant
Dont know
Question 13
According to the law of diminishing returns, with a fixed supply of land, the
marginal product of each additional worker must:
Fall
Rise
Stay constant
Dont know
Question 14
In Thomas Malthuss growth model, population pressures will drive wages:
To subsistence levels
Steadily upward
To a steady-state
Dont know
Question 15
In the world of Thomas Malthus, population will rise:

Faster than the food supply

Slower than the food supply
At the same rate as the food supply
Dont know
Question 16
The neoclassical growth model was pioneered by:
Robert Solow
Adam Smith
David Ricardo
Dont know
Question 17
Capital deepening refers to the process of:
Increasing the amount of capital per worker
Decreasing the amount of capital per worker
Keeping the amount of capital per worker constant
Dont know
Question 18
In the absence of technological change, why does capital deepening not lead
to a proportional increase in output?
The law of diminishing returns
The law of decreasing costs

Economies of scale
Dont know
Question 19
In the absence of technological change, in the neoclassical growth model,
what happens to wages for workers and the returns to capital before the
economy reaches a steady-state of stagnation?
Wages rise and the returns to capital fall
Wages fall and the returns to capital rise
Both wages and the returns to capital rise
Both wages and the returns to capital fall
Dont know
Question 20
In the neoclassical growth model, if economic growth consists only of
accumulating capital through replicating factories with existing methods of
production, what happens to the standard of living?
It eventually stops rising
It falls
It continues to rise
Dont know
Question 21
In the neoclassical growth model, what happens to wages and returns to
capital with technological change?

Both wages and the returns to capital rise

Wages fall and the returns to capital rise
Wages rise and the returns to capital fall
Both wages and the returns to capital fall
Dont know
Question 22
In traditional economics, what is the most essential measure of growth?
GDP per capita
GDP
GDP per worker
Dont know
Question 23
Examples of government policies to increase the ratio of capital labor include:
Accelerated depreciation
The minimum wage
The capital gains tax
All of the above
Dont know
Question 24
A higher savings rate will:

Increase investment funds and increase productivity

Reduce investment funds and decrease productivity
Have no effect on investment funds and productivity
Dont know
Question 25
Examples of government policies to boost the savings rate include:
1. Tax preferences for Individual Retirement Accounts
2. Tax preferences for pension funds
3. Tax increases on retirement income
All of the above
1 & 2 only
Dont know

Week 8 Quiz - Budget Deficits and Public Debt

Question 1
Classical economists argue that:
Budget deficits are a necessary byproduct of an expansionary fiscal policy
during recessions.
Budget deficits are bad and should be avoided except in wartime.

Budget deficits are normal for any developed economy

Dont know
Question 2
How is government debt calculated?
The accumulated budget deficits minus the accumulated surpluses.
The accumulated budget deficits plus the accumulated surpluses.
The accumulated budget deficits times the accumulated surpluses.
Dont know
Question 3
Who holds the national debt for a country like the United States?
1. Households
2. Businesses
3. Foreigners
All of the above
1 & 2 only
Question 4
In comparing the debt burden across countries, one common yardstick is:
Nominal GDP
Real GDP
Dont know

The Debt-to-GDP Ratio

Question 5
What is the correct formula for the Real Deficit?
Real Deficit = Nominal Deficit (Inflation * Total Debt)
Dont know
Real Deficit = Nominal Deficit (Inflation * Average Annual Debt)
Real Deficit = Nominal Deficit + (Inflation * Total Debt)
Question 6
Assume that the nominal deficit = $200 billion, the inflation rate = 20%, and the
total debt = $5 trillion. Whats the real deficit?
-$800 billion
Real Deficit = Nominal Deficit (Inflation * Total Debt)
= 200B - (20% * 5000B) = 200B - 1000B = -800B
-$400 billion
0
Dont know
Question 7
One strategy a government can use to lower its debt burden is to:
Contractionary monetary policy
Decrease inflation
Dont know

Increase inflation
Question 8
That part of the budget deficit that would exist even if the economy were at full
employment is called the:
Persistent deficit
Dont know
Cyclical deficit
Structural deficit
Question 9
Which of the following are automatic stabilizers?
Food stamps
Welfare benefits
Unemployment insurance
All of the above
Dont know
Question 10
The structural deficit results primarily from the shortfall of tax revenues that
arises when the economys resources are underutilized such as in the
downward portions of the business cycle.
True
Dont know

False
Question 11
Okuns Law says that a 1% fall in the unemployment rate will lead to a:
2% increase in the GDP growth rate
A 1% fall in the unemployment rate will lead to a 2% increase in GDP
2% increase in the inflation rate
Dont know
2% increase in the rate of productivity
Question 12
Suppose the GDP = $10 trillion, the budget deficit = $100 billion, the
unemployment rate = 7%, the natural rate of unemployment is 6%, and the
marginal tax rate = 30%. Which portion of the deficit is cyclical?
$60 billion
unemployment rate = unemployment rate - natural rate of unemployment
= 7% - 6% = 1%(GDP increase 2%)
new GDP = 10000B * 2% = 200B
tax revenues = new GDP * marginal tax rate = 200B * 30% = 60B(cyclical)
Strucural deficit = budget deficit - cyclical deficit = 100B - 60B = 40B
$20 billion
Dont know
$40 billion
Question 13

Suppose you are attempting to calculate the structural component of the

budget deficit. In your calculations, will that structural deficit be higher or lower
at a 4% natural rate of unemployment as opposed to a 6% rate?
Higher
Dont know
Lower
The same
Question 14
Three major ways to finance a budget deficit include:
1. Lower taxes
2. Borrow money
3. Print money
All of the above
2 & 3 only
Dont know
Question 15
Suppose the government institutes a $10 billion stimulus and finances that
stimulus package by raising taxes by $10 billion. Suppose further the MPC = .5.
What will be the net stimulus?
$5 billion
multipler = 1 / MPS = 1 / (1 - 0.5) = 2
comsumption fall = raising taxes * MPC = 10B * 0.5 = 5B
net = government institutes - comsumption fall = 10B - 5B = 5B

economic expansion = net * multipler = 5B * 2 = 10B

When you simultaneously increase government expenditures and increase
taxes by the same amount, you get an economic expansion exactly equal to
the increase in government expenditures.
$20 billion
$10 billion
Dont know
Question 16
Crowding out refers to:
The reduction in both G and I when interest rates rise
Dont know
The reduction in G that may come when I is increased
The reduction in I that may come when G is increased
Question 17
The view that crowding out is almost complete so that fiscal policy is totally
ineffective is associated with what school of macroeconomics?
Dont know
Libertarians
Keynesians
Monetarists
Question 18

To avoid crowding out, the Federal Reserve accommodates the Treasurys

expansionary fiscal policy by:
Selling Treasury securities
Dont know
Contracting the money supply
Buying Treasury securities
Question 19
What can derail the Feds plans when it tries to avoid crowding out by
accommodating government fiscal policy?
Unemployment
Dont know
Inflation
Rising productivity
Question 20
Budget deficits can cause trade deficits if:
Deficit financing raises interest rates and lowers the value of the dollar
Deficit financing lowers interest rates and raises the value of the dollar
Dont know
Deficit financing raises interest rates and raises the value of the dollar
Question 21
The Deficit Hawks argue that:

1. Internal debt leads to higher taxes

2. Internal debt redistributes income from the poor to the rich
3. Servicing the debt cuts government services
All of the above
2 & 3 only
Dont know
Question 22
The Deficit Doves argue that:
1. The national debt represents productive investment in public goods and
infrastructure.
2. The debt is manageable relative to GDP.
3. Since we owe it largely to ourselves, it is not a problem.
All of the above
2 & 3 only
Dont know
Question 23
A balanced budget amendment would require the government to balance the
budget during a recession by increasing taxes or by cutting spending. The
result would be:
A faster recovery
A deeper recession

No effect on growth
Dont know

Week 9 Quiz - International Trade and Protectionism

Question 1
A country that can produce a good at a lower cost than another country has
what kind of advantage in the production of that good.
Dont know
Absolute
Comparative
Relative
Question 2
The theory of comparative advantage predicts that:
Only the country with no absolute advantage will benefit from trade.
A country with an absolute advantage over another country in all goods will
benefit from trade.
Dont know
A country with an absolute advantage over another country in all goods will
not benefit from trade.
Question 3

The age-old political problem with free trade is this:

1. Domestic industries that gain jobs and profits from increased exports will
use their political power to protect their industries.
2. Domestic industries that suffer job losses from imports will use their
political power to protect their industries.
3. Domestic consumers that benefit from cheaper imports may be less
politically powerful than the domestic industries that suffer job losses.
All of the above
2 & 3 only
Question 4
A quota may be defined as:
Both
Dont know
A tax levied on imports.
A specific numerical restriction on imports
Question 5
If a tariff is imposed on imports, which of these statements will be true:
1. Consumers pay higher prices
2. Imports fall
3. Domestic producers see profits fall
All of the above
1 & 2 only

Dont know
Question 6
If a tariff is replaced with a quota, which of these statements is true?
Foreign producers gain and the domestic government loses
Foreign producers lose and the domestic government gains
Both foreign producers and the domestic government loses
Dont know
Question 7
In general, which is more likely to be used as a form of protectionism because
of political reasons.
Tariffs
Quotas
Dont know
Price supports
Question 8
Dumping occurs when:
Dont know
Producers sell off excess inventories at bargain prices
Foreign producers sell exports below the cost of production to penetrate
markets.

Domestic producers sell products below the cost of production to fend off
imports
Question 9
Strategically, dumping makes sense if it:
1. Drives competitors out of a market and allows the dumper to seize that
market.
2. Provides the dumper with monopoly power to raise prices.
3. Allows the dumper to earn long term profits that offset earlier losses.
All of the above
1 & 2 only
Question 10
If one country engages in protectionism or dumping, retaliation may be a
legitimate response.
True
False
Dont know
Question 11
The use of restrictions or regulations that make it difficult for countries to sell
their goods in foreign markets falls under the category of:
Non-tariff barriers
Quotas
Tariffs

Dont know
Question 12
Under the Ricardian Free Trade Model, two countries that engage in
unrestricted free trade and follow the principles of comparative advantage will
both experience gains from trade.
True
False
Dont know
Question 13
If two countries engage in trade and one protects its own markets while
subsidizing its exports:
Only the cheating country will gain
Both countries will lose
Both countries will still gain
Dont know
Question 14
Which of these practices are illegal under the rules of international trade?
Currency manipulation
Illegal export subsidies
Piracy
Forced technology transfer

All of the above

Dont know
Question 15
It takes Germany 100 labor hours to produce an automobile and 200 labor
hours to produce an airplane. In contrast, it takes Canada 300 labor hours to
produce an automobile and 400 labor hours to produce an airplane. Which
statement is true?
Germany has an absolute advantage in both autos and airplanes
Dont know
Germany has a comparative advantage in autos and Canada has a
comparative advantage in airplanes.
Canada has an absolute advantage in both autos and airplanes
Question 16
Which statement(s) accurately summarize the principle of comparative
advantage?
1. Each country will benefit if it specializes in the export of those goods that
it can produce at relatively low cost.
2. Each country will benefit if it imports those goods that it produces at
relatively high cost.
Both 1 & 2
Dont know
Question 17
The deadweight loss from a tariff equals:

Gain in producer surplus minus loss in consumer surplus

Loss in producer surplus minus loss in consumer surplus
Loss in producer surplus plus loss in consumer surplus
Dont know
Question 18
In the context of free trade, a zero sum game may be defined as a game in
which:
Both countries gain
One trading partner gains at the expense of another
Both trading partner loses
Dont know
Question 19
Shielding young domestic firms from the severe competition of more mature
and more efficient foreign firms to give these firms a chance to develop and
become efficient producers is called the:
Infant industry argument
Dont know
Mercantilist argument
National defense argument
Question 20
U.S. Congressmen Smoot and Hawley are most infamous for helping to trigger
what major economic event?

Dont know
The Bank Run of 1907
The Great Recession of the late 2000s
The Great Depression of the 1930s

Week 10 Quiz - Exchange Rates, The Balance of Payments, and Trade

Deficits

Question 1
The basic Trade Identity Equation requires that:
Dont know
The current account must equal the difference between the budget deficit
and the trade deficit
If a country runs a trade deficit in its current account, it must balance that
deficit with outflows from its capital account!
If a country runs a trade deficit in its current account, it must balance that
deficit with inflows into its capital account.
Question 2
When all countries have purely market-determined exchange rates,
official-reserve changes equal:
One hundred percent
Dont know

One
Zero
Question 3
When countries attempt to affect their exchange rates by buying and selling
foreign currencies, this is called:
Retribution
Compounding
Intervention
Dont know
Question 4
Which statement is true?
Exchange rates are quoted by currency pairs and therefore are relative
values.
Exchange rates are quoted for each country and therefore are absolute
values.
Dont know
Exchange rates are quoted in dollar terms and are typically pegged
Question 5
A countrys currency that gains in value relative to another is said to:
Appreciate.
Depreciate
Be manipulated

Dont know
Question 6
Suppose the exchange rate today is 1 dollar for 1.2 euros and next year it
changes to 1 dollar for 1.4 euros. Has the euro appreciated or depreciated?
Depreciated
Appreciated
No change
Dont know
Question 7
Which of the following are reasons why exchange rates may change?
1. Differing rates of GDP growth between countries.
2. Differing rates of inflation between countries.
3. Currency speculation.
All of the above
1 & 2 only
Question 8
If Great Britains GDP grows faster than Canadas, the British pound is like to
do what relative to the Canadian dollar?
Depreciate
Appreciate
No change

Dont know
Question 9
If Thailand experiences a more rapid rise in its inflation rate than Mexico, the
Thai baht will do what relative to the Mexican peso?
Depreciate
Appreciate
No change
Dont know
Question 10
The Law of One Price predicts that exchange rates must adjust to insure that:
1. The nominal price of an identical good produced in two different
countries must be the same.
2. The real, inflation-adjusted price of an identical good produced in two
different countries must be the same.
Both 1 & 2
Dont know
Question 11
Suppose the U.S. Federal Reserve raises interest rates while the Bank of
England takes no such action. In this case, will the British pound appreciate or
depreciate relative to the U.S. dollar?
Depreciate
Appreciate

No change
Dont know
Question 12
Suppose that a new study comes out showing that Brazilian coffee has a
higher cancer risk than other countries around the world. Will the Brazilian real
appreciate or depreciate relative to the euro?
Depreciate
Appreciate
No change
Dont know
Question 13
Suppose currency traders believe the Bank of Venezuela is going to soon
raise interest rates to fight inflation. Will currency speculators tend to buy or
sell the Venezuelas currency, the bolivar?
Buy
Sell
Neither Buy nor Sell
Dont know
Question 14
In a fixed exchange rate system:
1. A country will allow its currency to freely move in response to market
conditions.

2. A country will peg the value of its currency to the value of another.
Both 1& 2
Dont know
Question 15
Which of these is an example of a fixed exchange rate system?
1. The Gold Standard
2. The Dollar Standard
3. The International Monetary Fund
All of the above
1 & 2 only
Dont know
Question 16
Under the gold standard, a country that ran a trade surplus would:
Increase its gold reserves
Decrease its gold reserves
Dont know
Experience no change in its gold reserves
Question 17
The gold standard collapsed in large part because:
1. Some countries like France had their currencies undervalued

2. Some countries like Britain had their currencies overvalued

3. Gold reserves around the world rose dramatically
All of the above
1 & 2 only
Dont know
Question 18
A country that finds its currency significantly overvalued will:
1. Find it difficult to sell its exports
2. Be overwhelmed by cheap imports.
3. See its trade deficit fall
All of the above
1 & 2 only
Dont know
Question 19
Just before the start of the Great Depression, President Herbert Hoover sought
to stem the flow of gold overseas by doing what?
Ordering the mining of more gold
Cutting interest rates
Dont know
Raising interest rates

Question 20
When a country devalues its currency to boost exports and reduce imports,
this is called:
1. A competitive devaluation
2. A beggar thy neighbor policy
3. A fixed exchange rate system
All of the above
1 & 2 only
Dont know
Question 21
The Dollar Standard established at Bretton Woods, New Hampshire, USA
was:
1. Was a partially fixed or adjustable peg system.
2. Replaced the gold standard with a U.S. dollar standard.
3. Designated the U.S. dollar as the worlds key currency.
4. Set fixed exchange rate parities in both gold and dollar terms.
All of the above
1, 2, & 3 only
Dont Know
Question 22

Under the dollar standard, if the Swiss Franc was set at 10 francs per ounce of
gold and the Canadian dollar was set at $20 per ounce, what was the
exchange rate between the franc and the Canadian dollar?
Two Canadian dollars per one Swiss franc
Two Swiss francs per one Canadian dollar
Both
Dont know
Question 23
A big difference between the gold standard and the dollar standard was that:
Under the dollar standard, exchange rates were partially fixed and could
be periodically adjusted to reflect changes in currency values.
Under the gold standard, exchange rates were partially fixed and could be
periodically adjusted to reflect changes in currency values.
Dont know
Under the dollar standard, currencies floated once a year in the currency
markets
Question 24
The Dollar Standard and Bretton Woods agreement collapsed primarily
because of:
Americas growing trade surpluses
Dont know
Americas growing budget surpluses
Americas growing trade deficits

Question 25
Which president abandoned the Dollar Standard?
Richard Nixon
Lyndon Johnson
Jimmy Carter
Dont know
Dwight Eisenhower
Question 26
Under a managed float:
1. Markets determine the currencys value.
2. There is very little intervention.
3. A country buys or sells its currency to reduce day-to-day volatility of
currency fluctuations.
All of the above
1 & 2 only
Dont know
Question 27
When the United States runs a budget deficit, that tends to:
Decrease its trade deficit
Increase its trade deficit
Have no impact on its trade deficit

Dont know
Question 28
Suppose the GDP of the United States falls because of a recession. What is
likely to happen to European exports to the U.S. and European GDP growth?
European exports rise and GDP falls.
European exports and GDP rises
European exports and GDP fall
Don't know
European exports fall and GDP rises
Question 29
Suppose that America wants to reduce its trade deficit with Japan. Which
would be an example of a cooperative policy between the two countries to
achieve that goal?
Dont know
The U.S. raises the value of its currency relative to the Japanese yen
The U.S. imposes a new tariff on Japanese imports
Japan engages in increased fiscal stimulus
Question 30
Suppose the European Central Bank decides to raise interest rates to fight
inflation and neither the U.S. Federal Reserve or Canadas Central bank
respond with matching rate hikes? What is likely to happen to the trade
balance of Europe relative to the U.S. and Canada?
Europes exports and imports will fall

Europes exports will fall and its imports rise

Dont know
Europes exports will rise and it imports fall
Question 31
Exchange rates tend to:
Fall towards an asymptotic value
Rise and fall over time.
Tend to remain constant
Dont know

Week 11 Quiz - The Economics of Developing Countries

Question 1
Developing countries typically do NOT have:
Low levels of literacy
Poor health
Low per capita incomes
Dont know
High life expectancies
Question 2

The Four Elements in Development include:

1. Human Resources
2. Natural Resources
3. Capital Formation
All of the above
1 & 2 only
Dont know
Question 3
Developing countries often cannot escape poverty because:
GDP grows slower than population
GDP grows faster than population
Income grows faster than population
Dont know
Question 4
As income rises in a country, the birth rate tends to:
Fall
Rise
Stay the same
Dont know
Question 5

In the developing countries, the marginal benefits of another child born:

Are relatively large
Are relatively small
Are the same as in developed countries
Dont know
Question 6
The marginal cost of children is much greater in developed countries because
of the high costs of things like:
1. Food and healthcare
2. Daycare
3. Education
All of the above
1 & 2 only
Question 7
Pension and health care programs tend to:
Dont know
Have no impact on the birth rate
Decrease the birth rate
Increase the birth rate
Question 8
As labor becomes more skilled, it can:

1. Use capital more effectively

2. Adopt new technologies
3. Take more sick days
All of the above
1 & 2 only
Question 9
For developing countries:
The emphasis on manufacturing versus farming will depend on the
endowment of a countrys natural resources
It is always better to emphasis farming over manufacturing
Dont know
It is always better to emphasis manufacturing over farming
Question 10
Methods to increase productivity in a developing countrys agriculture sector
include:
1. Appropriate conservation
2. The use of fertilizers
3. Proper tillage
All of the above
1 & 2 only
Dont know

Question 11
Oil and mineral wealth in a country provides:
1. A solid base of industrial expansion
2. An endowment subject to plunder and rent seeking by corrupt leaders
and military cliques.
3. A guaranteed road to prosperity for a developing country
All of the above
1 & 2 only
Dont know
Question 12
When a small handful of the wealthy in a country own a large percentage of the
land:
Dont know
Political and social unrest is likely to decrease
Farm productivity is likely to rise
Farm productivity is likely to fall
Question 13
A key constraint on the ability of poor agrarian countries to develop is:
A low savings rate
A high savings rate
Dont know

A high investment rate

Question 14
In Max Webers theory of development, a key element for success was:
The Protestant ethic as a driving force behind capitalism.
Dont know
Powerful oligarchies
A temperate climate
Question 15
A Market Economy is NOT characterized by:
Dont know
The promotion of small business
High tariffs
An outward orientation in trade policy
Question 16
With a policy of import substitution, a country:
Dont know
Develops foreign markets and keeps trade barriers low
Builds high tariff walls around manufacturing industries so that local firms
can produce and sell goods that would otherwise be imported.
Minimizes interference with capital flows and allows supply and demand to
operate in financial markets.

Question 17
An open economy:
1. Avoids a state monopoly on exports and imports.
2. Keeps government regulation to bare necessities for an orderly market
economy.
3. Relies primarily on a private market system of profits and losses to guide
production, rather than the commands of a government planning system.
All of the above
1 & 2 only
Dont know
Question 18
Which policy is NOT included in our list of nine policies to best promote growth
in developing countries?
Dont know
Stimulating population growth
Encouraging foreign direct investment
Opening economies to international trade
Establishing the rule of law
Question 19
Which policy is NOT included in your list of nine policies to best promote
growth in developing countries?
Dont know

Establishing independent central banks.

Building human capital.
Establishing realistic exchange-rate policies.
Nationalizing private industries.
Question 20
Industrialized nations that open their markets to developing countries:
1. Help lift developing countries out of poverty
2. Run the risk of having their own workers compete against people willing
to work for a dollar or less a day
Both 1 & 2
Dont know
Question 21
When a developing countries runs up a heavy debt to other nations, monies
that would otherwise go to investment in the country have to be used for
servicing these debts.
True
False
Dont know
Question 22
The Brain Drain refers to a phenomenon in which:

1. Many of the best and brightest workers in developing countries go to the

industrialized nations temporarily to get an education but wind up staying
permanently to work.
2. There is a deterioration in the overall skill level and productivity of the
developing countries labor forces because of the loss of its best and brightest
workers.
Both 1 & 2
Dont know
Question 23
When industrialized nations sell weapons to developing countries, the result
often is the diversion of precious public expenditures from infrastructure and
education in the developing countries.
False
True
Dont know