Question 1

The inflationary premium is that portion of the interest rate that reflects

Accepted Answer

A) the real return derived by lenders. 
B) the rush to buy goods before prices rise. 
C) the expected annual rate of decline in the purchasing power of money while a loan is outstanding. 
D) the price that one must pay for earlier availability of goods and services during a period of price stability. 
A) the real return derived by lenders. 
B) the rush to buy goods before prices rise. 
C) the expected annual rate of decline in the purchasing power of money while a loan is outstanding. 
D) the price that one must pay for earlier availability of goods and services during a period of price stability. C

Question 2

If the dollar depreciates relative to the Peso, it can be said that

Accepted Answer

A) Mexican citizens no longer respect the United States. 
B) the dollar falls in value within the United States. 
C) it takes fewer dollars to buy Pesos. 
D) the Peso appreciates relative to the dollar. 
A) Mexican citizens no longer respect the United States. 
B) the dollar falls in value within the United States. 
C) it takes fewer dollars to buy Pesos. 
D) the Peso appreciates relative to the dollar. D

Question 3

The "loanable funds market" is a term used by economists to describe the

Accepted Answer

A) demand for goods and services by households. 
B) market that includes resources such as labor and capital. 
C) supply of goods and services by firms. 
D) market that coordinates the borrowing and lending of individuals and firms. 
A) demand for goods and services by households. 
B) market that includes resources such as labor and capital. 
C) supply of goods and services by firms. 
D) market that coordinates the borrowing and lending of individuals and firms. D

Question 4

The price that a person must pay in order acquire purchasing power now rather than in the future is called

Accepted Answer

A) the interest rate. 
B) the foreign exchange rate. 
C) the inflationary premium. 
D) the risk premium. 
A) the interest rate. 
B) the foreign exchange rate. 
C) the inflationary premium. 
D) the risk premium.

Question 5

The resource market is important from a macroeconomic perspective because

Accepted Answer

A) it coordinates the allocation of productive resources and determines the costs of production. 
B) it determines the interest rates faced by borrowers and lenders. 
C) inflation rates are set in the resource market by the government. 
D) resource prices determine the position of the long-run aggregate supply curve. 
A) it coordinates the allocation of productive resources and determines the costs of production. 
B) it determines the interest rates faced by borrowers and lenders. 
C) inflation rates are set in the resource market by the government. 
D) resource prices determine the position of the long-run aggregate supply curve.

Question 6

When persistent inflation is present, we would expect

Accepted Answer

A) borrowers to systematically gain at the expense of lenders. 
B) lenders to systematically gain at the expense of borrowers. 
C) nominal interest rates to be higher than would be true if prices were stable. 
D) nominal interest rates to be lower than real interest rates. 
A) borrowers to systematically gain at the expense of lenders. 
B) lenders to systematically gain at the expense of borrowers. 
C) nominal interest rates to be higher than would be true if prices were stable. 
D) nominal interest rates to be lower than real interest rates.

Question 7

The aggregate demand curve is downward sloping because

Accepted Answer

A) an increase in the price level will cause an increase in spending on goods and services. 
B) at lower price levels, real wealth decreases, causing a decrease in the quantity demanded of goods and services. 
C) at lower price levels, interest rates increase, causing a decrease in the quantity demanded of goods and services. 
D) at lower price levels, net exports increase, causing an increase in quantity demanded of goods and services. 
A) an increase in the price level will cause an increase in spending on goods and services. 
B) at lower price levels, real wealth decreases, causing a decrease in the quantity demanded of goods and services. 
C) at lower price levels, interest rates increase, causing a decrease in the quantity demanded of goods and services. 
D) at lower price levels, net exports increase, causing an increase in quantity demanded of goods and services.

Question 8

The difference between the money interest rate and the real interest rate is the

Accepted Answer

A) prime interest rate. 
B) nominal interest rate. 
C) exchange rate. 
D) inflationary premium. 
A) prime interest rate. 
B) nominal interest rate. 
C) exchange rate. 
D) inflationary premium.

Question 9

Zari takes a summer course in London, England. She doesn't buy British pounds at the U.S. airport, where the rate is 1 pound = $1.60. Upon arrival in London, she finds that she can buy pounds for $1.65 each. Which of the following is true?

Accepted Answer

A) Zari would have been better off if she had bought pounds in the United States where U.S.dollars were cheaper. 
B) Zari would have been better off if she had bought pounds in the United States where pounds were less expensive. 
C) The pounds were more expensive in London because a currency is always most valued in its home country. 
D) The pounds were more expensive in the United States because they are less available there. 
E) It doesn't matter where she buys the pounds, since she can't use U.S.money anyway once she's in England. 
A) Zari would have been better off if she had bought pounds in the United States where U.S.dollars were cheaper. 
B) Zari would have been better off if she had bought pounds in the United States where pounds were less expensive. 
C) The pounds were more expensive in London because a currency is always most valued in its home country. 
D) The pounds were more expensive in the United States because they are less available there. 
E) It doesn't matter where she buys the pounds, since she can't use U.S.money anyway once she's in England.

Question 10

If the quantity of euro demanded were greater than the quantity supplied, then the price of the

Accepted Answer

A) euro would rise. 
B) euro would fall. 
C) dollar would rise. 
D) euro would be in equilibrium. 
A) euro would rise. 
B) euro would fall. 
C) dollar would rise. 
D) euro would be in equilibrium.

Question 11

When an economy is in long run equilibrium,

Accepted Answer

A) it will be impossible to sustain the current rate of output in the future. 
B) the interest rate will decline. 
C) the foreign exchange value of the dollar will tend to appreciate. 
D) the actual and natural rates of unemployment will be equal. 
A) it will be impossible to sustain the current rate of output in the future. 
B) the interest rate will decline. 
C) the foreign exchange value of the dollar will tend to appreciate. 
D) the actual and natural rates of unemployment will be equal.

Question 12

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

Accepted Answer

A) The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run. 
B) The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output. 
C) The higher prices will expand the economy's resource base and, thereby, stimulate additional output. 
D) The higher prices will improve technology and, thereby, stimulate additional output. 
A) The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run. 
B) The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output. 
C) The higher prices will expand the economy's resource base and, thereby, stimulate additional output. 
D) The higher prices will improve technology and, thereby, stimulate additional output.

Question 13

Which of the following properly describes the interest-rate effect of aggregate demand?

Accepted Answer

A) A higher price level leads to higher money demand, higher money demand leads to higher interest rates, a higher interest rate increases the quantity of goods and services demanded. 
B) A higher price level leads to higher money demand, higher money demand leads to lower interest rates, a higher interest rate reduces the quantity of goods and services demanded. 
C) A lower price level leads to lower money demand, lower money demand leads to lower interest rates, a lower interest rate reduces the quantity of goods and services demanded. 
D) A lower price level leads to lower money demand, lower money demand leads to lower interest rates, a lower interest rate increases the quantity of goods and services demanded. 
A) A higher price level leads to higher money demand, higher money demand leads to higher interest rates, a higher interest rate increases the quantity of goods and services demanded. 
B) A higher price level leads to higher money demand, higher money demand leads to lower interest rates, a higher interest rate reduces the quantity of goods and services demanded. 
C) A lower price level leads to lower money demand, lower money demand leads to lower interest rates, a lower interest rate reduces the quantity of goods and services demanded. 
D) A lower price level leads to lower money demand, lower money demand leads to lower interest rates, a lower interest rate increases the quantity of goods and services demanded.

Question 14

Americans needing foreign currencies get those currencies from a bank. The ultimate source of these currencies is

Accepted Answer

A) U.S.investments abroad. 
B) U.S.sales to foreign countries. 
C) U.S.purchases of foreign goods, services, and assets. 
D) the International Monetary Fund. 
A) U.S.investments abroad. 
B) U.S.sales to foreign countries. 
C) U.S.purchases of foreign goods, services, and assets. 
D) the International Monetary Fund.

Question 15

Ceteris paribus, a decrease in the U.S. price level will cause

Accepted Answer

A) an increase in U.S.exports. 
B) an increase in U.S.imports. 
C) the aggregate demand curve to shift to the right. 
D) the aggregate demand curve to shift to the left. 
A) an increase in U.S.exports. 
B) an increase in U.S.imports. 
C) the aggregate demand curve to shift to the right. 
D) the aggregate demand curve to shift to the left.

Question 16

Which of the following will most likely result from an unexpected increase in prices that decreases real wages and resource prices?

Accepted Answer

A) a decrease in unemployment 
B) an increase in unemployment 
C) a decrease in the nominal interest rate 
D) a decrease in aggregate supply and real output 
A) a decrease in unemployment 
B) an increase in unemployment 
C) a decrease in the nominal interest rate 
D) a decrease in aggregate supply and real output

Question 17

During a period of persistent inflation,

Accepted Answer

A) borrowers will systematically gain at the expense of lenders. 
B) nominal interest rates will rise and eventually reflect the expected rate of inflation. 
C) once borrowers and lenders fully anticipate the inflation rate, there is no reason to expect that either will systematically gain relative to the other. 
D) both b and c are correct. 
A) borrowers will systematically gain at the expense of lenders. 
B) nominal interest rates will rise and eventually reflect the expected rate of inflation. 
C) once borrowers and lenders fully anticipate the inflation rate, there is no reason to expect that either will systematically gain relative to the other. 
D) both b and c are correct.

Question 18

The aggregate supply curve indicates the

Accepted Answer

A) relationship between prices and the aggregate quantity of goods and services purchased by consumers, investors, governments, and foreigners (net exports). 
B) relationship between prices and the natural rate of unemployment. 
C) relationship between the real wage rate and the quantity of labor supplied by households. 
D) quantity of goods and services producers will supply at different price levels. 
A) relationship between prices and the aggregate quantity of goods and services purchased by consumers, investors, governments, and foreigners (net exports). 
B) relationship between prices and the natural rate of unemployment. 
C) relationship between the real wage rate and the quantity of labor supplied by households. 
D) quantity of goods and services producers will supply at different price levels.

Question 19

Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years. If you expect that the inflation rate during the next five years will be 2 percent annually, what real rate of return do you expect to earn?

Accepted Answer

A) 2 percent 
B) 5 percent 
C) 7 percent 
D) 9 percent 
A) 2 percent 
B) 5 percent 
C) 7 percent 
D) 9 percent

Question 20

Suppose, over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent.

Accepted Answer

A) The dollar value of savings increased at 2 percent, and the value of savings measured in goods increased at 3 percent. 
B) The dollar value of savings increased at 1 percent, and the value of savings measured in goods increased at 2 percent. 
C) The dollar value of savings increased at 3 percent, and the value of savings measured in goods increased at 1 percent. 
D) The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent. 
A) The dollar value of savings increased at 2 percent, and the value of savings measured in goods increased at 3 percent. 
B) The dollar value of savings increased at 1 percent, and the value of savings measured in goods increased at 2 percent. 
C) The dollar value of savings increased at 3 percent, and the value of savings measured in goods increased at 1 percent. 
D) The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent.

The inflationary premium is that portion of the interest rate that reflects

If the dollar depreciates relative to the Peso, it can be said that

The "loanable funds market" is a term used by economists to describe the

The price that a person must pay in order acquire purchasing power now rather than in the future is called

The resource market is important from a macroeconomic perspective because

When persistent inflation is present, we would expect

The aggregate demand curve is downward sloping because

The difference between the money interest rate and the real interest rate is the

Zari takes a summer course in London, England. She doesn't buy British pounds at the U.S. airport, where the rate is 1 pound = $1.60. Upon arrival in London, she finds that she can buy pounds for $1.65 each. Which of the following is true?

If the quantity of euro demanded were greater than the quantity supplied, then the price of the

When an economy is in long run equilibrium,

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

Which of the following properly describes the interest-rate effect of aggregate demand?

Americans needing foreign currencies get those currencies from a bank. The ultimate source of these currencies is

Ceteris paribus, a decrease in the U.S. price level will cause

Which of the following will most likely result from an unexpected increase in prices that decreases real wages and resource prices?

During a period of persistent inflation,

The aggregate supply curve indicates the

Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years. If you expect that the inflation rate during the next five years will be 2 percent annually, what real rate of return do you expect to earn?

Suppose, over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent.

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 9: An Introduction to Basic Macroeconomic Markets

The inflationary premium is that portion of the interest rate that reflects

If the dollar depreciates relative to the Peso, it can be said that

The "loanable funds market" is a term used by economists to describe the

The price that a person must pay in order acquire purchasing power now rather than in the future is called

The resource market is important from a macroeconomic perspective because

When persistent inflation is present, we would expect

The aggregate demand curve is downward sloping because

The difference between the money interest rate and the real interest rate is the

Zari takes a summer course in London, England. She doesn't buy British pounds at the U.S. airport, where the rate is 1 pound = $1.60. Upon arrival in London, she finds that she can buy pounds for $1.65 each. Which of the following is true?

If the quantity of euro demanded were greater than the quantity supplied, then the price of the

When an economy is in long run equilibrium,

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

Which of the following properly describes the interest-rate effect of aggregate demand?

Americans needing foreign currencies get those currencies from a bank. The ultimate source of these currencies is

Ceteris paribus, a decrease in the U.S. price level will cause

Which of the following will most likely result from an unexpected increase in prices that decreases real wages and resource prices?

During a period of persistent inflation,

The aggregate supply curve indicates the

Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years. If you expect that the inflation rate during the next five years will be 2 percent annually, what real rate of return do you expect to earn?

Suppose, over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent.

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters