Intro to Macroeconomics

Midterm 1 Boot Camp

Assignment 1

Which of the following is not a reason to study economics?

A. To learn how people allocate scarce resources to produce goods.
B. To learn how to trade off quantities of goods for quality of life.
C. To learn a systematic model of economic principles for comprehending reality.
D. To learn to avoid the fallacy of composition in analyses of public policy.
E. All of the above are valid reasons for studying economics.

If you, as a farmer, have an extra-large crop this year you will make more money.
If all farmers have an extra-large crop this year, all farmers will make more
money. What kind of fallacy does this statement exhibit?

A. post hoc fallacy.

B. failure to hold other things constant fallacy.
C. fallacy of composition.
D. fallacy of normalcy.
E. None of the above.

Of the following, economics may best be defined as the study of:

A. how to stretch the family dollar.

B. how to make money in the stock market.
C. the interpretation of scarce data.
D. how scarce resources are used to produce various goods allocated among individuals in
society.
E. why resources are as scarce as they are.
•

The single word that best describes the fundamental essence of economics is:
Answers: A. employment.
B. inflation.
C. prices.
D. trade.
E. scarcity.
• Question 5

“Inflation is less of a problem, over the long term, than unemployment.” is an example of:
Answers: A. a positive statement.
B. a normative statement.
C. a statement that could never be true.
D. a statement that suffers from a logical error.
E. none of the above.
• Question 6

What is the fundamental difference between macroeconomics and microeconomics?

Answers: A.Macroeconomics involves studying the economy as a whole, while
microeconomics involves studying the behavior of individual industries, firms,
and households.
B. Macroeconomics concentrates on those parts of the economy involving very
large amounts of money, while microeconomics concentrates on those parts of
the economy involving small sums of money.
C. Macroeconomics studies the behavior of large firms, while microeconomics
studies the behavior of small firms.
D.There is no difference, basically macroeconomics and microeconomics are one
and the same.
E. None of the above.
 Question 7

Which of the following is the most basic of the subjects with which the study of economics
must try to deal?
Answers: A. Markets.

B. Money.
C. Profit seeking.
D. The price mechanism.
E. Scarcity.
• Question 8
“Distribution” in economics refers to:
Answers: A. retailing, wholesaling, and transportation.
B. what.
C. how.
D. for whom.
E. none of the above.
• Question 9

The main difference between a free good and an economic good is that:
Answers: A. it is not produced.
B. no one desires any amount.
C. it is not tradable.
D. it is not scarce.
E.
none of the above.
• Question 10

When the price of gasoline increases consumers may purchase more gasoline than
before, if their incomes are rising as well. Concluding that there is a positive relationship
between gasoline prices and the quantity demanded would be an example of:
Answers: A. the post hoc fallacy.
B. the failure to hold other things constant.
C. the fallacy of composition.
D. a mixed market economy.
E. none of the above.
• Question 11

When Paul decides to not go to the concert, but goes to the library to study instead, he is:
Answers: A. realizing that his time is a scarce resource that must be allocated.
B. at least implicitly recognizing that the opportunity cost of going to the library
is the concert he is giving up.
C. making an economic decision.
D. doing all of the above.
E.
doing choices A) and B) only.
• Question 12

Opportunity cost:
Answers: A. is useful when discussing the allocation of resources.
B. refers to a next-best alternative that is not chosen when making decisions.
C. can be used to measure the cost of something without using monetary prices.
D. is all of the above.
E.
statements A) and B) only.
• Question 13
The production possibilities frontier between two normal goods and services is typically
bowed out or concave to the origin because:
Answers: B. society must give up one good to get more of the other.
B. consumers do not want too much of either good.
C. government restrictions place limits on the production of certain goods.
D. consumers want as much of both goods as possible.
E.
the resources used to produce goods and services are not equally suited to the
production of both goods.
• Question 14

Being on the production-possibility frontier between guns and butter means that:
Answers: A. it is impossible to produce any more guns.
B. it is impossible to produce any more butter.
C. more guns can be produced only by doing without some butter.
D. population is in equilibrium.
E. if
society becomes more productive in producing butter, then we can have more
butter but not more guns.
• Question 15

Which one of the following must be held constant in drawing up a production-possibility

frontier?
Answers: B. The total resources.
B. The quantity of money.
C. Money income.
D. Prices.
E.
The allocation of resources among alternate uses.
• Question 16

Use the following graph to answer questions 16-18:

Figure 1-1

Which point on the production-possibility frontiers drawn in Figure 1-1 indicates no

consumption goods being produced?

Answers: A. A.
B. B.
C. C.
D. D.
E. E
• Question 17

Use the following graph to answer questions 16-18:

Figure 1-1

Of the following points, which point reflects the most efficient use of available resources in
relation to frontier AE in Figure 1-1?
Answers: A. F.
B. G.
C. C.
D. H.
E. Cannot tell from the information provided.
• Question 18

Use the following graph to answer questions 16-18:

Figure 1-1

In Figure 1-1, what could account for a shift in the frontier from AE to A’ E’?
Answers: A. A decrease in unemployment.
B. A decrease in inflation.
C. A war.
D. An increase in technology.
E. None of the above.
• Question 19

Answers: A. 2/3 units of y.

B. 1 units of y.
C. 3/2 units of y.
D. Cannot be determined from the given information.
E. None of the above.
• Question 20

Use the following to answer questions 19-20:

Figure 1-2

As country A’s economy grows, what will happen to the PPF in Figure 1-2?
Answers: A. The PPF will be stationary.
B. The PPF will shift inward.
C. The PPF will shift outward.
D. The PPF will shift outward then back in, until it is back at its original position.
E. None of the above.
• Question 21

Use the following figure to answer questions 21-23:

Figure 1-3

In Figure 1-3, what is Country A’s cost of producing 1 unit of y in terms of x?

Answers: B. The same as country B’s opportunity cost of producing 1 unit of y in
terms of x.
B. Less than country B’s opportunity cost of producing 1 unit of y in terms of x.
C. More than country B’s opportunity cost of producing 1 unit of y in terms of x.
D. 4 units of x.
E. None of the above.
• Question 22

Use the following figure to answer questions 21-23:

Figure 1-3

In Figure 1-3, what does point H represent?

Answers: A. A mixture of goods both nations can produce.
B. A mixture of goods only country A can produce.
C. A mixture of goods only country B can produce.
D. A mixture of goods neither country can produce.
E. None of the above.
• Question 23

Use the following figure to answer questions 21-23:

Figure 1-3

Country A has a PPF denoted by the lower line segment in Figure 1-3. Country B has a
PPF denoted by the higher line segment. Which country enjoys greater consumption
possibilities?
Answers: B. Country A.
B. Country B.
C. They have the same consumption possibilities.
D. Cannot be determined from the given information.
E. None of the above.
• Question 24

Use the following to answer questions 24:

Figure 1-4

Figure 1-4 displays the production-possibilities of two countries. Given that both countries
produce five units of x, which of the following best describes country B’s production of y?
B. The same as country A’s production of y.
C. More than country A’s production of y.
D. Cannot be determined from the graph.
E. Noneof the above.
• Question 25

Economies never operate beyond their production-possibility frontiers.

Answers: A. True

B. False
Answer Sheet
1. E
2. C
3. D
4. E
5. B
6. A
7. E
8. D
9. D
10.B
11. D
12. D
13. E
14. C
15. A
16. E
17. C
18. D
19. C
20. C
21. A
22. C
23. B
24. A
25. A
 Assignment 2

• Question 1
An increase in price will lead to a lower quantity demanded because:
Answers: A. suppliers will supply only the smaller amount.
B. some individuals will no longer purchase the good.
C. individuals purchase less of the good.
D. and b.
E. b and c.
• Question 2

A change in which of the following will not alter the demand curve for rental housing?
Answers: A. The price of houses.
B. Rental prices.
C. Incomes of consumers.
D. Energy prices.
E. Growth in the community.
• Question 3

The demand curve for a normal good will shift to the right if:
Answers: A. income increases.
B. population increases.
C. the price of a substitute good increases.
D. all the above.
E. none of the above.

• Question 4
 If E were the old equilibrium in the market for wheat in the figure below, and E' the new one,
which of the following could have caused the change?

Answers: A. Consumer income rose, causing a supply shift.

B. Bad weather caused a supply shift.
C. Consumer income rose, causing a demand shift.
D. Supply and demand both shifted.
E. None of the above are plausible descriptions.
• Question 5

In a competitive market, price is determined by:

Answers: A. the costs of producing the good in question.
B. the supply of the good.
C. the decisions of the buyers about how much they are willing to pay.
D. the interaction of tastes and demand.
E. all of the above.
• Question 6

If the demand schedule may be written P = 100 - 4Q, and the supply schedule P = 40 + 2Q,
then the market clearing price and quantity are:
Answers: A. P = 60, Q = 10.
B. P = 10, Q = 6.
C. P = 40, Q = 6.
D. P = 20, Q = 20.
E. none of the above.
• Question 7

Four of the five events described below might reasonably be expected to shift the demand
curve for beef to a new position. One would not shift that demand curve. The single
exception is:
Answers: A. a rise in the price of some good which consumers regard as a substitute for beef.
B. a fall in the price of beef.
C. an increase in the money incomes of beef consumers.
D. a
widespread advertising campaign undertaken by the producers of a product
competitive with beef (e.g. chicken).
E. a change in people's tastes with respect to beef.
• Question 8

If the market demand curve shifts sharply to the left as the market supply curve moves to the
right, we would expect:
Answers: A. the same price to prevail, with no change in quantity.
B. the same quantity to prevail.
C. price and quantity to fall.
D. price to fall while quantity may or may not change.
E. quantity to fall while price may or may not change.
• Question 9

Use the following to answer questions 9-13:

Figure 3-1

Given the supply and demand curves drawn for a normal good in Figure 3-1, an increase in
income can be expected to cause:
Answers: A. equilibrium price and quantity to increase.
B. equilibrium price to increase and equilibrium quantity to fall.
C. equilibrium price to increase while equilibrium quantity holds steady.
D. equilibrium price and quantity to fall.
E. equilibrium price to fall and equilibrium quantity to climb.
• Question 10

Use the following to answer questions 9-13:

Figure 3-1

When the demand curve shifts to the right:

Answers: A. equilibrium price increases.
B. equilibrium price decreases.
C. equilibrium quantity increases.
D. a and c.
E. b and c.
• Question 11
Use the following to answer questions 9-13:
Figure 3-1

According to the law of demand:

Answers: A. the intersection of demand and supply establishes the market equilibrium point.
B. consumers' tastes can influence the quantity demanded.
C. there is an inverse relationship between price and the quantity demanded.
D. "all other things held equal" is an important concept.
E. there is a direct relationship between price and the quantity demanded.
• Question 12

Use the following to answer questions 9-13:

Figure 3-1

Upward-sloping supply curves are the result of:

Answers: A. increasing returns to scale.
B. increasing costs of labor.
C. changes in government policies.
D. changes in technology.
E. none of the above.
• Question 13

Use the following to answer questions 9-13:

Figure 3-1

When we say that a price in a competitive market is "too low to clear the market," we usually
mean that:
Selected A. the
quantity supplied exceeds the quantity demanded at that price, so there is
Answer:
too much competition among producers to try to get rid of that supply.
Answers: A. the
quantity supplied exceeds the quantity demanded at that price, so there is
too much competition among producers to try to get rid of that supply.
B. consumers are not willing to buy enough at that price.
C. producers are leaving the industry.
D. the quantity demanded exceeds the quantity supplied at that price.
E. no producer can cover costs of production at that price.
• Question 14

If E were the old equilibrium in the wheat market depicted in the figure below and E' were the
new one, which of the following might have caused the change?

Answers: A. Good weather caused a supply shift.

B. Good weather caused a demand shift.
C. Bad weather caused a supply shift.
D. Bad weather caused a demand shift.
E. Consumer incomes changed, causing a supply shift.
• Question 15

If you were a government official and wanted to raise the price of oil, which of the following
actions would you take?
Answers: A. Take oil from government storage and sell it on the open market.
B. Encourage producers to drill more wells.
C. Try to lower the price of alternative fuels.
D. Try to lower average family income.
E. Encourage producers to cut back on drilling for oil.
• Question 16

Use the following to answer questions 16-17:

Figure 3-2

Let P* and Q* in Figure 3-2 represent market clearing price and quantity, respectively, of
good Q. Given the supply and demand curves drawn in Figure 3-2, a reduction in the price of
a substitute good for Q will cause:
Answers: A. P* and Q* to climb.
B. P* to climb while Q* declines.
C. P* to climb while Q* holds fixed.
D. P* to fall while Q* climbs.
E. P* and Q* to fall.
• Question 17

Use the following to answer questions 16-17:

Figure 3-2

Let P* and Q* represent market clearing price and quantity, respectively. Given the supply
and demand curves drawn in Figure 3-2, a technological advance that makes the production of
Q more efficient will cause:
Answers: A. P* and Q* to climb.
B. P* and Q* to fall.
C. P* to climb while Q* falls.
D. Q* to climb while P* holds fixed.
E. none of the above.
• Question 18

Use the following to answer questions 18:

Figure 3-3

Assume that automotive workers strike and the technological improvements occur at the same
time. If initial market conditions were reflected by the structure of Figure 3-3, which of the
following must occur?
Answers: A. Lower prices.
B. Less quantity.
C. More quantity.
D. Higher prices.
E. Cannot be determined from the given information.

• Question 19
 Which of the following could affect a demand schedule for petroleum products?
Answers: A. A change in the technology of oil production.
B. The discovery of new oil fields in Texas.
C. A strike by oil refinery workers.
D. An increase in national income.
E. None of the above.

• Question 20

Use the following to answer questions 20-22:

Table 3-1

According to Table 3-1, the equilibrium price for potato chips is:
Answers: A. $1.00.

B. $2.00.
C. $2.50.
D. $3.00.
E. $4.00.

• Question 21
Use the following to answer questions 20-22:
Table 3-1
 According to Table 3-1, for every $1.00 increase in price, the quantity demanded decreases by:
Answers: A. 5.

B. 500.
C. 10.
D. 25.
E.250.
• Question 22

Use the following to answer questions 20-22:

Table 3-1

The data in Table 3-1:

Answers: A. support the law of demand.
B. indicate that the supply curve is vertical.
C. contradict economic reasoning.
D. both b and c.
E. none of the above.

• Question 23
 An increase in demand means a movement to a higher quantity along a given demand curve.
Answers: A. True
B. False
• Question 24

Equilibrium occurs where the demand curve intersects the supply curve.
Answers: A. True
B. False
• Question 25
Over time the fact that some people buy more hamburger at 89 cents per pound than at 69
cents per pound refutes the law of downward-sloping demand.
Answers: A. True
B. False
Answer Sheet
1- E
2- B
3- D
4- C
5- E
6- A
7- B
8- D
9- A
10- D
11- C
12- E
13- D
14- A
15- E
16- E
17- E
18- E
19- D
20- D
21- E
22- A
23- B
24- A
25- B
 Assignment 3

• Question 1

Which of the following is primarily a macroeconomic topic?

Answers: A. monetary policy.
B. fiscal policy.
C. the growth rate of GDP.
D. inflation.
E. all of the above.
• Question 2

Which of the following are central themes of macroeconomics?

Answers: A. The short-term fluctuations in output, employment, financial conditions, and
prices.
B. The longer-term trends in output and living standards.
C. Studies in individual prices, quantities, and markets.
D. Both A and B.
E. none of the above.
• Question 3

Gross Domestic Product (GDP) is:

Answers: A. the
measure of the market value of only part of the goods and services produced in
a country during a year.
B. the
measure of the market value of all final goods and services produced in a
country during a year.
C. the
measure of the market value of all goods and services produced in a country
during a month.
D. not useful, so economist do not use it.
E. none of the above.
• Question 4

The goals of macroeconomic policy include:

Answers: A. high employment.
B. low unemployment.
C. stable prices.
D. growing real GDP.
E. all of the above.
• Question 5

Which of the following items is NOT part of fiscal policy?

Answers: A. Government purchases of goods and services.
B. Transfer payments.
C. The money supply.
D. Taxes.
E. Government borrowing by selling bonds.
• Question 6

Which of the following most accurately describes a recession?

Answers: A. a period of significant decline in total output, income, and employment, usually
lasting more than a few months and marked by widespread contractions in many
sectors of the economy.
B. a period of slight decline in employment, usually lasting only a few months.
C. aperiod of significant decline in total output, income, and employment, usually
lasting more than a few years and marked by widespread contractions in many
sectors of the economy.
D. a
period of decline in total output, usually lasting more than a few months and
marked by contractions in one or two sectors of the economy.
E. none of the above.
• Question 7
Personal income taxes are examples of:
Answers: A. fiscal-policy instruments.
B. monetary-policy instruments.
C. trade-policy instruments.
D. incomes policy instruments.
E. all of the above.
• Question 8

The aggregate demand curve is downward-sloping because:

Answers: A. higher prices make businesses more profitable and thus output expands.
B. lower prices makes business conditions more attractive so that quantities expand.
C. lower prices make some people feel wealthier and they therefore demand more.
D. lower prices cause substitutions that increase the quantity demanded.
E. none of the above.
• Question 9

An increase in government spending that increases aggregate demand should, in the short run,
cause:
Answers: A. prices to fall and output to remain fixed.
B. prices to climb and output to remain fixed.
C. prices to climb and output to fall.
D. prices to fall and output to climb.
E. none of the above.
• Question 10

The ups and downs of real GDP are called:

Answers: A. statistical errors.
B. accounting errors.
C. business cycles.
D. the Phillips curve.
E. consumption wave patterns.
• Question 11

Use the following to answer questions 11-12:

Figure-1

Which panel in Figure-1 most accurately reflects the effect of large increase in interest rates?
Answers: A. a.
B. b.
C. c.
D. d.
E. none of the above.
• Question 12

Use the following to answer questions 11-12:

Figure-1

Which panel in Figure-1 most accurately reflects the short-run effect of an increase in
efficiency?
Answers: A. a.
B. b.
C. c.
D. d.
E. none of the above.
• Question 13

Which of the following is a tool of fiscal policy?

Answers: A. Wage and price controls.
B. Government expenditures.
C. Control of the money supply.
D. Control of the exchange rate.
E. All of the above.
• Question 14

Potential GDP is:

Answers: A. the total value of goods and services measured at current prices.
B. the total value of goods and services that could be produced at full employment.
C. the total value of goods and services measured at prices corrected for inflation.
D. the total value of goods and services net of government borrowing.
E. none of the above.
• Question 15

Aggregate supply refers to:

Answers: A. the
total quantity of goods and services that the nation’s businesses willingly
produce and sell in a given period of time.
partial quantity of goods and services that the nation’s businesses willingly
B. the
produce and sell in a given period of time.
total quantity of goods and services that the nation’s government willingly
C. the
produce and sell in a given period of time.
total quantity of goods and services that the nation’s businesses hope to
D. the
produce and sell in a given period of time.
E. none of the above.
• Question 16

Positive price inflation necessarily means that:

Answers: A. all prices are increasing at the same time.
B. prices are climbing but wages are not.
C. though some prices may be falling, prices are, on the average, climbing.
D. the associated rate of unemployment is rising.
E. none of the above.
• Question 17

Use the following to answer questions 17-20:

Figure-2

Which panel in Figure-2 most accurately reflects the short-run effect of an increase in
personal income taxes?
Answers: A. a.
B. b.
C. c.
D. d.
E. None of the panels.
• Question 18

Use the following to answer questions 17-20:

Figure-2

Which panel in Figure-2 most accurately reflects the short-run effect of the imposition of an
environmental control that increases the cost of production?
Answers: A. a.
B. b.
C. c.
D. d.
E. None of the panels.
• Question 19

Use the following to answer questions 17-20:

Figure-2

Which panel in Figure-2 most accurately illustrates a period of high prices and low output?
Answers: A. a.
B. b.
C. c.
D. d.
E. none of the panels.
• Question 20

Use the following to answer questions 17-20:

Figure-2

Assuming that the new curve in each panel in Figure-2 is the one labeled with an apostrophe
or prime symbol ('), and that each panel begins in the same position, which panel would be the
"best" one for an economy?
Answers: A. a.
B. b.
C. c.
D. d.
E. Cannot be determined.
• Question 21

The most common measure of the price level in the U.S. economy is:
Answers: A. the Dow Jones Industrial Average.
B. the Consumer Price Index.
 C. the Laspeyres Index.
D. an incomes policy.
E. none of the above.

• Question 22

Real GDP is:

Answers: A. the total value of goods and services net of imports.
B. thetotal value of goods and services deflated by an index of current prices
to correct for inflation.
C. the
total value of goods and services that could be produced at low (full)
employment.
D. thetotal value of goods and services corrected so that it is measured in terms of
current prices.
E. none of the above.
• Question 23

With an upward sloping aggregate supply curve in the short run, an increase in aggregate
demand can be expected to cause:
Answers: A. the price level to climb.
B. the price level to fall.
C. output to climb.
D. the price level and output to climb.
E. the price level to fall even as output climbs.
• Question 24

Which of the following is likely to happen during wartime?

Answers: A. An increase in aggregate demand.
B. An increase in net exports.
C. An increase in aggregate supply.
D. An increase in prices.
E. A and D are correct.
• Question 25

The interaction of aggregate supply and demand help determine all of the following except:
 Answers: A. Output.

B. Employment.
C. Prices.
D. Exports.
E. None of the above.

Answer Sheet:
1- E
2- D
3- B
4- E
5- C
6- A
7- A
8- C
9- E
10- C
11- D
12- A
13- B
14- B
15- A
16- C
17- D
18- A
19- A
20- B
21- B
22- B
23- D
24- E
25- E
 Midterm 2 Bootcamp
Assignment 4

Question 1

The two approaches that economists use to measure GDP are:

Answers: A.
the goods flow and investment flow.
B.
current surveys and historical data.
C.
the product flow and spending flow.
D.
household tax returns and corporate tax returns.
E.
the product flow and the earnings flow.
• Question 2

The earnings and product flows:

Answers: A.
provide a check for each other.
B.
measure GDP two different ways.
C.
would be identical in a world of complete information and perfect measurement.
D.
all of the above.
E.
A and B only.

Question 3
 What is the name we give to the total market value of the final goods and services produced within a
nation during a given year?
Answers: A.
Gross Domestic Product.
B.
Gross Domestic Consumption.
C.
Total Value.
D.
Total National Product.
E.
none of the above.
• Question 4

The circular flow model of the economy:

Answers: A.
cannot handle leakages from the spending flow.
B.
is useful only when the economy is at full employment.
C.
compares spending on goods and services with payments to factors of production.
D.
compares consumer spending with corporate investment.
E.
is useful in market economies, but not in planned economies.
• Question 5

Value added is measured as the:

Answers: A.
difference between a firm's sales and its purchases of materials and services from other firms.
B.
difference between net and gross investment.
C.
additional output the economy produces when it is at full employment.
D.
additional consumer goods produced when the economy moves from war-time to peace-
time.
E.
increase in corporate profits from one year to the next.

• Question 6
When economists measure variables in "real" terms it means that:
 Answers: A.
physical goods are separated from intangible services.
B.
data are collected from at least two sources before final measurements are made.
C.
consumption spending is separated from financial investment.
D.
in GDP a distinction is made between financial capital and physical capital.
E.
the data are adjusted to account for changes in prices from one period to the next.
• Question 7

NDP does not include:

Answers: A.
payments made for income taxes.
B.
depreciation allowances.
C.
undistributed profits.
D.
net exports.
E.
the value added from intermediate goods.
• Question 8
0 out of 1 points
Personal income equals disposable income plus:
Answers: A.
personal income taxes.
B.
residual wages.
C.
transfer payments.
D.
dividend payments.
E.
personal savings.

• Question 9

Real GDP is computed by:

 Answers: A.
subtracting depreciation costs from nominal GDP.
B.
multiplying Nominal GDP by a cost-of-living increase.
C.
adding the dollar value of services to Nominal GDP.
D.
dividing Nominal GDP by the GDP price deflator.
E.
none of the above.
• Question 10

The result of subtracting a depreciation allowance from GDP is:

Answers: A.
disposable income.
B.
personal income.
C.
net domestic product.
D.
yearly capital expenditure.
E.
adjusted gross domestic product.
• Question 11

"Double-counting" of national product would result from including:

Answers: A.
total production of autos and total production of bowling balls.
B.
value-added of both bakers and flour mills.
C.
total of investment expenditures and the total of government purchases of goods and
services.
D.
consumer expenditures on bread and the value added of wheat producers.
E.
none of the above.

• Question 12

If an economy consumes more than it produces, then:

 Answers: A.
imports must exceed exports.
B.
depreciation must exceed consumption.
C.
government spending must exceed government tax revenues.
D.
exports must exceed imports.
E.
no economy can be consuming more than it is producing.
• Question 13

"Capital formation" in an economy means:

Answers: A.
net national product.
B.
investment.
C.
depreciation.
D.
existing stock of buildings, equipment, and inventories.
E.
the total quantity of stocks, bonds, gold, and money.
• Question 14

If GDP is falling and GNP is rising, which of the following statements is true?
Answers: A.
The country is in a recession.
B.
The country is experiencing inflation.
C.
The country is producing fewer products overseas and foreigners are producing more in
the country.
D.
The country is producing more products overseas and foreigners are producing less in the
country.
E.
The country is borrowing money from foreigners.

• Question 15

The flow-of-product and earnings or cost approaches to GDP:

 Answers: A.
measure two different aspects of GDP and are therefore unrelated to each other.
B.
are two different ways of measuring the same thing.
C.
should both arrive at the same number if GDP is measured in real terms, but not if GDP is
measured nominally.
D.
have nothing to do with the circular-flow diagram.
E.
none of the above.
• Question 16

Real GDP is calculated by:

Answers: A.
multiplying nominal GDP by the GDP deflator.
B.
dividing nominal GDP by the GDP deflator.
C.
evaluating current output at base year prices.
D.
none of the above.
E.
both B and C.
• Question 17

The "double counting" problem occurs when intermediate goods are included in GDP.
Selected Answer: A.
True.
Answers: A.
True.
B.
False.

• Question 18

NDP is a better measure of national output than GDP, because NDP can be more easily calculated.
 Answers: A.
True.
B.
False.
• Question 19

GDP is a measure of the total sales revenues of all government and business enterprises, minus
international sales.
Answers: A.
True.
B.
False.
• Question 20

NDP includes net investment, but excludes depreciation.

Answers: A.
True.
B.
False.
• Question 21

By definition, savings must equal investment plus consumption.

Answers: A.
True.
B.
False.
• Question 22
Dramatic changes in real GDP are often caused by large fluctuations in current prices.
Answers: A.
True.
B.
False.
• Question 23

When GDP is computed as a measure of the goods and services produced in the United States, capital
formation is excluded.
Answers: A.
True.
B.
False.

• Question 24

Which of the following is not included in "investment"?

 Answers: A.
An increase in inventories.
B.
The addition of a new wing to the factory.
C.
The installation of new factory machinery.
D.
New motor truck production.
E.
The purchase of an old factory by a merging conglomerate.
• Question 25

The gross domestic product (GDP) of an economy is:

Answers: A.
the sum in dollar values of all goods consumed within a stated period.
B.
the sum in dollar values of all intermediate goods produced in the economy.
C.
the sum in dollar values of all final goods and services produced in an economy during a
stated period.
D.
the sum in dollar values of all consumption goods, along with purchases by the
government.
E.
the sum in dollar values of all wages and profits related to the production of final goods.
Question 26
Omar wants to calculate the gross domestic product (GDP) of New Zealand for the year 2020.
He can measure it utilizing:
Answers: A.
The product flow approach.
B.
The data available on household tax returns.
C.
The earnings flow approach.
D.
The average prices of stocks at the end of the year.
E.
Both answers A and C are correct.
• Question 27

Karma wants to compute the value of Mauritania’s net exports for the year 2017. She must
accordingly:
 Answers: A.
subtract the value of the total imported goods and services from the value of the total
exported goods and services.
B.
add the value of the total imported goods and services to the value of the total
exported goods and services.
C.
subtract the value of tariffs, or taxes on imports, from the value of the total imported
goods and services and then add the value obtained to the value of the total exported
goods and services.
D.
divide the value of the total imported goods and services by the value of the total
exported goods and services.
E.
subtract the value of the total exported goods and services by the GDP deflator.
• Question 28

Nermine wishes to calculate the gross domestic product (GDP) of the West African country of
Liberia for the year 2010. While examining the receipts of a t-shirt factory, she includes the
total value of the t-shirts sold (sales) as well as the cost of the cotton used to produce the shirts.
This is known as:
Answers: A.
The fallacy of composition.
B.
The earnings approach.
C.
Nominal GDP.
D.
Double Counting.
E.
None of the above.
• Question 29

The real gross domestic product (GDP) is the nominal GDP corrected to account for price
inflation.
Answers:
True
False

• Question 30
 The formula for calculating the real GDP is composed of the nominal GDP divided by 12 to
account for monthly purchased final goods and services.
Answers: True

False
Question 31
The gross domestic product (GDP) price deflator is an index that encompasses the prices of
different goods and services and that is used to adjust the GDP to account for inflation.
Answers:
True
False
• Question 32

A base or reference year is used when calculating the real GDP of a country to correct for
changes in prices.
Answers:
True
False
• Question 33

The nominal gross domestic product (GDP) refers to a form of the GDP that accounts for both
a country’s output in a given year as well as the actual, or purchasing, prices then.
Answers:
True
False
• Question 34

If Eid wants to calculate the net investment value for a country for the year 2019, he would
have to:
Answers: A.
add depreciation costs to the gross investment value.
B.
divide the gross investment value by the gross domestic product (GDP) deflator.
C.
subtract the value of exports from the value of imports.
D.
subtract depreciation costs from the gross investment value.
E.
None of the above are valid measurement approaches.

• Question 35
 Laila is an Egyptian citizen working in Canada. She sends a portion of the profits from her
record shop in Canada to her family in Egypt. The sales from Laila’s record shop thus
contributes to:
Answers: A.
Egypt’s gross national product (GNP) only.
B.
Canada’s gross domestic product (GDP) only.
C.
Egypt’s gross domestic product (GDP) and gross national product (GNP).
D.
Canada’s gross domestic product and Egypt’s gross national product (GNP).
E.
Canada’s gross domestic product (GDP) and gross national product (GNP).
• Question 36

The net domestic product (NDP) is:

Answers: A.
calculated by subtracting depreciation costs from the gross domestic product (GDP).
B.
easier than the gross domestic product to calculate.
C.
a more accurate measurement of national output, in comparison to the gross
domestic product (GDP) approach.
D.
Both answer options “A” and “B” are valid.
E.
Both answer options “A” and “C” are valid.
• Question 37

Investment must always exceed savings.

Answers: True

False
• Question 38

The sum of total private domestic investment and net exports must be equal to the sum of
private saving and government saving.
Answers:
True
False
 Answer Sheet
1- E
2- D
3- A
4- C
5- A
6- E
7- B
8- A
9- D
10- C
11- D
12- A
13- B
14- D
15- B
16- E
17- A
18- B
19- B
20- A
21- B
22- B
23- B
24- E
25- C
26- E
27- A
28- D
29- T
30- F
31- T
32- T
33- T
34- D
35- D
36- E
37- F
38- T
 Assignment 5

• Question 1

Economic growth represents:

Answers: A.
the expansion of a country’s potential GDP or national output.
B.
the expansion of the work force.
C.
the expansion of jobs.
D.
the expansion of technology.
E.
none of the above.
• Question 2

Which of the following are factors of economic growth?

Answers: A.
human resources.
B.
natural resources.
C.
capital.
D.
technology.
E.
all of the above.
• Question 3

Some capital investments are only able to be done by the government, we called these
investments what?
Answers: A.
social overhead capital.
B.
social welfare.
C.
big capital projects.
D.
 social reform capital.
E.
none of the above.
Question 4
Technological improvement causes:
Answers: A.
a drop in the return on capital.
B.
a drop in the return on labor.
C.
a reduction in the rate of growth.
D.
a decrease in the rate of capital accumulation.
E.
a rightward shift in the production-possibility frontier.
• Question 5

If the growth rates of output and capital are 3 and 5 percent, respectively, and labor's share of
income is 2/3, then in a neoclassical growth model with no technical change, labor's growth
rate is:
Answers: A.
1 percent.
B.
2 percent.
C.
4 percent.
D.
indeterminable on the basis of data given.
E.
none of the above.
• Question 6

Capital deepening occurs when:

Answers: A.
the stock of capital grows more rapidly than the labor force.
B.
the stock of capital declines more rapidly than the labor force.
C.
the labor force increases faster than the stock of capital.
D.
there is a recession.
 E.
none of the above.
• Question 7

Capital-deepening coupled with steady profit rates and technological progress must result in:
Answers: A.
a higher capital-output ratio.
B.
a lower interest rate.
C.
a higher wage rate.
D.
an increase in labor's relative share of GDP.
E.
capital depreciation increases.
• Question 8

If the growth of labor, of capital, and of output were always 1 percent, 6 percent, and 2
percent, respectively with no technological change, then labor's share of output in the
neoclassical growth model would be:
Answers: A.
1/3.
B.
1/2.
C.
2/3.
D.
1/4
E.
4/5
• Question 9

Use the following figure to answer questions 9-10:

Figure 25-1

In Figure 25-1, a movement from point A to point B along an aggregate production function
would illustrate:
Answers: A.
labor deepening.
B.
capital-deepening.
C.
an increase in the amount of capital per worker.
D.
both B and C.
E.
none of the above.

• Question 10
 Use the following figure to answer questions 9-10:
Figure 25-1

In Figure 25-1, a shift in the aggregate production function from APF1 to APF2 could be
caused by:
Answers: A.
an increase in technology.
B.
an improvement in the quality of labor.
C.
a discovery of new resources.
D.
all the above.
E.
A and C only.
• Question 11

Productivity is best measured as the:

Answers: A.
ratio of capital to labor.
B.
ratio of inputs to output.
C.
ratio of output to inputs.
D.
increased educational level of the labor force.
E.
increase in level of experience of the labor force.
• Question 12
 Social overhead capital includes:
Answers: A.
government investments in roads.
B.
government investments in water projects.
C.
measures to improve public health.
D.
investments in infrastructure.
E.
all of the above.
• Question 13

According to the Solow growth model, capital deepening refers to:

Answers: A.
the process by which the capital-labor ratio increases over time.
B.
technological advances in capital equipment over time.
C.
the decline in economic growth resulting from the displacement of workers by
capital equipment.
D.
the self-perpetuating cycle of growth between technological advances and capital
equipment.
E.
none of the above.
• Question 14

Which of the following occurs in the long run neoclassical growth model without
technological change?
Answers: A.
Capital deepening ceases.
B.
Real wages stop growing.
C.
The return to capital is constant.
D.
Real interest rates are constant.
E.
All of the above.
• Question 15
 The aggregate production function relates total national output to:
Answers: A.
inputs and outputs.
B.
inputs and technology.
C.
employment and growth.
D.
the production possibilities frontier.
E.
inflation and economic growth.
• Question 16

As capital deepening occurs, the wage rate of labor will tend to fall.
Answers: A.
True.
B.
False.
• Question 17

Economic growth inevitably rides on the four wheels of labor, government, investment and
money.
Answers: A.
True.
B.
False.
Question 18
The fundamental equation of growth accounting includes a measurement of technological
change.
Answers: A.
True.
B.
False

• Question 19
 Assume the growth-accounting equation is: % Q growth = 4/5 (% L growth) + 1/5
(% K growth) + T.C. Calculate the growth of output if labor grows at 2 percent per year,
capital grows at 7 percent per year, and technological change is ¼ percent per year.
Answers: A.
3 percent
B.
3.5 percent
C.
3.25 percent
D.
0.3 percent
E.
0.35 percent
• Question 20

Assume the labor’s share of output in the neoclassical growth model is 2/3 and technological
change is 1¼ percent per year. If the labor growth rate is 2.5 percent per year and capital
growth rate is 4.25% per year, what would the output growth rate be?
Answers: A.
3.4 percent
B.
5 percent
C.
4.67 percent
D.
4.33 percent
E.
0.4 percent
• Question 21

If the growth of labor, of capital, and of output were always 2 percent, 12 percent, and 4
percent, respectively with no technological change, then labor's share of output in the
neoclassical growth model would be:
Answers: A.
1/3
B.
1/2
C.
2/3
D.
1/4
 E.
4/5
• Question 22

Capital-deepening can cause output per capita to rise steadily and thus mask the law of
diminishing returns.
Answers: A.
True.
B.
False.
• Question 23

The equation for growth accounting includes measures for labor growth, capital growth, and
technical change.
Answers: A.
True.
B.
False.
• Question 24

Capital-deepening, other things equal, results in a lower interest rate.

Answers: A.
True.
B.
False.
• Question 25

An increase in the capital-labor ratio is implied by capital-deepening.

Answers: A.
True.
B.
False.
 Answer Sheet

1- A
2- E
3- A
4- E
5- B
6- A
7- C
8- E
9- D
10- D
11- C
12- E
13- A
14- E
15- B
16- B
17- B
18- A
19- C
20- D
21- E
22- B
23- A
24- A
25- A
 Assignment 6

• Question 1

Which of the following situations would you expect to see during a period of economic
expansion?
Answers: A.
Falling tax receipts.
B.
Falling corporate profits.
C.
Falling unemployment claims.
D.
Falling stock prices.
E.
All of the above.
• Question 2

Which of the following situations would you expect to see during a period of recession?
Answers: A.
Falling tax receipts.
B.
Falling corporate profits.
C.
Falling stock prices.
D.
Falling business investment.
E.
All of the above.
• Question 3

Use the following Figure to answer questions 3-4:

What type of government activity would move the economy from E to F in above Figure?
Answers: A.
Nuclear war.
B.
High taxes.
C.
Public health spending.
D.
Building of highways.
E.
C and D.

• Question 4
 Use the following Figure to answer questions 3-4:

What type of event could move the economy from E to D in above Figure?
Answers: A.
Inefficient dictator takes over government.
B.
Nuclear war.
C.
New income taxes on A.
D.
A and B
E.
None of the above
• Question 5

An example of a government transfer payment is

Answers: A.
the cost of a submarine purchased by the government.
B.
a mail carrier's wage.
C.
payments to General Electric to develop nuclear energy.
D.
the salary of a Department of State employee.
E.
unemployment insurance compensation

• Question 6
 The best technical description of a progressive tax is a:
Answers: A.
tax which takes more money from the rich than from the poor.
B.
tax likely to discourage incentive
C.
more equitable tax than a regressive one.
D.
tax which takes a higher proportion of extra dollars received as income rises.
E.
tax which falls directly on those in the high income bracket.
• Question 7

Which of the following are typical characteristics of a recession?

Answers: A.
Consumer purchases decline sharply.
B.
Business inventories of durable goods increase unexpectedly.
C.
The demand for labor falls.
D.
All of the above.
E.
Choices A and B only.
Question 8
A general sales tax is:
Answers: A.
a progressive tax because it applies to luxuries as well as necessities
B.
a progressive tax because wealthy people spend more than poor people.
C.
a regressive tax because wealthy people spend a smaller percentage of their total
income on taxed commodities.
D.
a regressive tax because more money is collected from a poor person than from a
rich one.
E.
a proportional tax because everybody pays the same tax percentage on each
purchase.
• Question 9
As people's incomes rise, a progressive tax is best described as taking:
 Answers: A.
an increasing amount of tax.
B.
the same amount of tax.
C.
the same percent of income as tax
D.
an increasing percent of additional income as tax.
E.
a decreasing percent of additional income as tax.
• Question 10

Which of the following is an appropriate economic goal for government in a mixed economy?
Answers: A.
Improving economic efficiency.
B.
Reducing economic inequality.
C.
Stabilizing the economy through macroeconomic policies.
D.
Conducting international economic policy.
E.
All of the above.
• Question 11

Double-taxation in the U.S. tax system generally refers to:

Answers: A.
the fact that both employers and employees pay a payroll tax.
B.
the taxation as regular income of dividends paid to stockholders out of profits upon
which taxes have already been paid.
C.
the occasional imposition of a tax surcharge on the personal income tax paid by
Americans to their federal government.
D.
the doubling of the corporate profits tax rate as corporations' incomes climb above
$100,000.
E.
none of the above.
• Question 12

Welfare payments are an example of a redistributional government policy.

 Answers: A.
True
B.
False
• Question 13

Income redistribution is usually accomplished through taxation and spending policies.

Answers: A.
True
B.
False
• Question 14

Government intervention is necessary to control breakdowns in the market mechanism.

Answers: A.
True
B.
False
Question 15
Governments can function to reallocate resources more equitably, but are powerless to effect
greater efficiency.
Answers: A.
True
B.
False
• Question 16

On March 6th, 2021, the US Senate passed a coronavirus relief package that includes the
distribution of up to $1,400 stimulus, or financial aid, checks over most Americans. These
stimulus checks would:
Answers: A.
be considered transfer payments.
B.
be considered governmental expenditures.
C.
contribute to the aggregate demand.
D.
All of the above are valid answers.
E.
None of the above are valid answers.
• Question 17
 If a government’s expenditures exceed its tax revenues and assuming that this
government maintains no other source of income, this must mean that there is
a(n):
Answers: A.
government surplus.
B.
government deficit.
C.
reduction in taxes.
D.
decrease in the funding for the public education sector.
E.
population decline.
• Question 18

Mariam is contemplating taking a new job that would offer her a higher pay. Her
current monthly salary is EGP 10,000, while the new job is offering her EGP
15,000. However, she realized that she would have to pay a higher income tax
percentage on the additional EGP 5,000. If she accepts the job, Mariam would be
subjected to:
Answers: A.
regressive taxation.
B.
proportional taxation.
C.
progressive taxation.
D.
indirect taxation.
E.
corporate income taxation.

• Question 19

A government might impose taxes:

 Answers: A.
To accumulate funding for a new infrastructure project.
B.
To deter people from exercising a bad habit.
C.
To reduce demand and thus inflation.
D.
As a mean for wealth and resource redistribution.
E.
All of the above are valid answers.
• Question 20

A proportional tax is based on the horizontal equity principle of taxation.

Answers:
True
False
• Question 21

Marginal tax rate refers to the additional tax imposed on every dollar of extra
income.
Answers:
True
False
Question 22
If the government imposes additional tariffs, or tax on imports, on baby hygiene
products, then for the customers of Pampers, an American brand for baby
products, this tax would be considered a(n):
Answers: A.
direct tax.
B.
indirect tax.
C.
progressive tax.
D.
regressive tax.
E.
personal income tax.
• Question 23

If Yehia wants to calculate the effective or average tax rate, he would have to:
 Answers: A.
divide total taxes by 12 to obtain the monthly rate.
B.
multiply the average personal income tax rate by the average
individual’s income.
C.
divide total taxes by total income.
D.
subtract the old tax rate from the new tax rate and then dividing the
obtained value by the old tax rate.
E.
None of the above are valid methods for calculating the effective tax
rate.
• Question 24

When the government decided to set up toll booths in Suez route, the
government was employing which of the following taxation principle?
Answers: A.
Benefit Principle
B.
Progressive Taxation Principle
C.
Ability-to-Pay Principle
D.
Regressive Taxation Principle
E.
Indirect Taxation Principle

• Question 25

The difference between the ability-to-pay principle and the benefit principle is
that the ability-to-pay principle:
Answers: A.
 takes into account the different income levels in a society.
B.
may be employed as a method for wealth, or resource, distribution.
C.
includes taxes that compose a diminishing component of government
revenues.
D.
Both answers “A” and “B” are valid distinctions.
E.
All of the above are valid distinctions.

Answer Sheet

1- C
2- E
3- E
4- D
5- E
6- D
7- D
8- C
9- D
10- E
11- B
12- A
13- A
14- A
15- B
16- D
17- B
18- C
19- E
20- T
21- T
22- B
23- C
24- A
25- D
 Intro to Macroeconomics
Final Bootcamp

Assignment 7

The multiplier model is:

Answers: A.
a macroeconomic theory used to explain how output is determined in the short
run.
B.
a microeconomic theory used to explain how output is determined in the short
run.
C.
a macroeconomic theory used to explain how employment is determined in the
short run.
D.
a microeconomic theory used to explain how wages are determined in the short
run.
E.
none of the above
• Question 2

Which of the following should be expected to shift the aggregate demand curve to the right?

Answers: A.
an increase in government spending.
B.
a reduction in net exports.

C.
a reduction in labor force participation.
D.
an increase in taxes.
E.
a decrease in the money-supply.

• Question 3
 Which of the following would contribute to a rightward shift in the aggregate demand
curve?
Answers: A.
An increase in the money supply.
B.
An increase in government purchases of goods and services.
C.
Technological advances.
D.
All of the above.
E.
Choices A and B only.
• Question 4

The aggregate demand curve relates total spending to the price level.
Answers: A.
True
B.
False
• Question 5

All business cycles are alike.

Answers: A.
True
B.
False
• Question 6
v
A recession is the same as a depression except for scale and duration.

Answers: A.
True
B.
False

• Question 7
 Employment usually falls sharply in the early stages of a recession.

Answers: A.
True
B.
False
• Question 8
Hyperinflation occurs when prices fall by 10 percent or more per month.

Answers: A.
True
B.
False
• Question 9

The "trough" of the business cycle comes when economic activity is at its lowest.

Answers: A.
True
B.
False
• Question 10

Which of the following is a reason why the aggregate demand curve should be drawn
downward-sloping?

Answers: A.
Higher prices reduce potential GDP by reducing labor force participation.
B.
Higher prices cause interest rates to fall, thereby depressing investment.
C.
Higher prices cause interest rates to rise, thereby depressing investment.
D.
Higher prices inspire increased labor force participation and therefore increase
consumption expenditures.
E.
None of the above makes any sense in explaining the negative slope of an aggregate
curve.

• Question 11
 The two main phases of the business cycle are:

Answers: A.
peaks and troughs.
B.
contraction and expansion.
C.
depression and recession.
D.
peaks and expansion.
E.
troughs and expansion
• Question 12

The effects of business cycles tend to:

Answers: A.
be limited to the construction industry.
B.
limit themselves to retail sales or construction.
C.
come and go in a highly regular rhythm.
D.
reach even non-economic matters like births and alcoholism.
E.
start with consumption slowdowns and accelerate through nondurable goods.
• Question 13

Which of the following situations would you expect to see during a period of economic
expansion?

Answers: A.
Falling tax receipts.
B.
Falling corporate profits.
C.
Falling unemployment claims.
D.
Falling stock prices.
E.
 All of the above.
• Question 14

Economic forecasters regularly use:

Answers: A.
quarterly measurements of national income, GDP, and construction.
B.
the Federal Reserve Board's index of production.
C.
weekly department store sales figures.
D.
consumer surveys.
E.
all of the above.
• Question 15

A depression is:

Answers: A.
a recession but larger in scale and duration.
B.
smaller than a recession.
C.
a recurring period of decline in employment
D.
not possible since the discovery of macroeconomics.
E.
none of the above.
• Question 16

Which of the following are typical characteristics of a recession?

Answers: A.
Consumer purchases decline sharply.
B.
Business inventories of durable goods increase unexpectedly.
C.
The demand for labor falls.
D.
 All of the above.
E.
Choices A and B only.
• Question 17

Which of the following are typical characteristics of a recession?

Answers: A.
The length of the average workweek declines.
B.
Inflation slows.
C.
Business profits fall sharply.
D.
All of the above.
E.
None of the above.
• Question 18
A recession is:

Answers: A.
a recurring period of decline in total output, income, and employment lasting from 6
to 12 months and marked by contractions in many sectors of the economy.
B.
a recurring period of incline in total output, income, and employment lasting from 6
to 12 months and marked by contractions in many sectors of the economy.
C.
a recurring period of decline in total output, income, and employment. lasting from 6
to 12 hours and marked by contractions in many sectors of the economy.
D.
not possible since the discovery of macroeconomics.
E.
none of the above.
• Question 19

The multiplier-accelerator theory:

Answers: A.
suggests that business cycles may be self-generating.
B.
is an external theory of business cycles.
 C.
is related primarily to fluctuations in the automobile industry.
D.
follows from shocks to the aggregate demand curve.
E.
is one of the political theories of the business cycle.
• Question 20

Theories which attribute the source of the business cycle to the fluctuations of factors outside
the economic system are called?

Answers: A.
internal theories.
B.
exogenous theories.
C.
system theories.
D.
business theories.
E.
none of the above.
• Question 21

After the 2011 revolution in Egypt, there was a relatively brief period of time
when unemployment rates surged, consumption decreased, investment declined,
and business profits and output fell. Egypt was experiencing a period of:

Answers: A.
recession
B.
depression
C.
hyperinflation
D.
expansion
E.
None of the above are valid answers.

• Question 22
 Being at the point of equilibrium between total expenditures and gross domestic
product (GDP) means that:

Answers: A.
the economy is at a break-even point.
B.
total investment and consumption spending, which represents the
demand, is equal to total output, which represents the supply.
C.
any point above it indicates a surplus.
D.
any point below it indicates a shortage.
E.
All of the above are valid answers.
• Question 23

According to the multiplier model, if Sarah invests EGP10 million in the

construction and operation of a new factory, we would expect that the gross
domestic product (GDP) to increase by more than EGP10 million.

Answers:
True
False
• Question 24

If Farah’s income increases by EGP 3,000 and her marginal propensity to save is
1/3, then the multiplier value would be estimated at:

Answers: A. 4

B. 3

C. 1

D. 2/3

E. None of the above are valid answers.

• Question 25

At a state of disequilibrium where consumer spending exceeds total output,

producers are expected to increase their supply.
Answers:
True
False
 Answers

1- A
2- A
3- D
4- A
5- B
6- A
7- A
8- B
9- A
10- C
11- B
12- D
13- C
14- E
15- A
16- D
17- D
18- A
19- A
20- B
21- A
22- E
23- A
24- B
25- A

Assignment 8
• Question 1

If all commercial banks were forced to keep 100 percent reserves on checking and saving
accounts:

Answers: A.
no financial institution would make loans.
B.
multiple money creation would not be possible.
C.
people could not have the modern convenience of check writing.
D.
all of the above would be true.
E.
none of the above would be true.
• Question 2

Assuming a required 20 percent reserve ratio, a small bank which receives a cash deposit of
$1,000 is in a position to:

Answers: A.
lend out an extra $5,000.
B.
lend out an extra $4,000.
C.
lend out an extra $1,000.
D.
lend out an extra $800.
E.
lend out an extra $200.
• Question 3

If a deposit of $100 in the banking system can lead to a total expansion in bank deposits of
$400, then the required reserve ratio must be:

Answers: A.
40 percent.
B.
400 percent.
C.
 25 percent.
D.
4 percent.
E.
2.5 percent.
• Question 4

Required reserve ratios:

Answers: A.
exist primarily to ensure that deposits are safe.
B.
exist to penalize banks that are members of the Federal Reserve System.
C.
exist primarily to help the Fed control the money supply.
D.
exist for all of the above reasons.
E.
exist for none of the above reasons.
• Question 5
The main function of legal required reserve ratios is:

Answers: A.
to enable the Fed to control the growth of the money supply.
B.
to make deposits payable upon demand.
C.
to increase competition among financial institutions.
D.
to make deposits safe and liquid.
E.
none of the above.
• Question 6

Assuming no excess reserves, if the public converts $50 million of demand deposits into
currency, this will, in the end:

Answers: A.
increase the money supply.
B.
 increase bank reserves.
C.
increase bank excess reserves.
D.
require banks to reduce their outstanding loans.
E.
leave the assets of the public unchanged.
• Question 7
The definition of M1 includes:

Answers: A.
coins, currency, and time deposits.
B.
coins, currency, and demand deposits.
C.
coins, currency, and all bank deposits.
D.
all currencies, both in banks and in the hands of the public.
E.
none of the above.
• Question 8

The value of equities are:

Answers: A.
fixed in dollar amounts.
B.
fixed in real terms.
C.
set by the corporations that issue them.
D.
set by the federal government.
E.
determined by the forces of supply and demand in the market.
• Question 9
1 out of 1 points
When economists talk about a random walk they mean:

Answers: A.
the unpredictable nature of changes in interest rates.
 B.
the unpredictable nature of changes in the money supply.
C.
the unpredictable nature of movements in stock prices.
D.
all of the above.
E.
none of the above.
• Question 10

Regardless of what you pay for a bond, you get paid back the value of the original principal,
plus interest, when it matures.

Answers: A.
True
B.
False
• Question 11

An asset is said to be liquid if it can be converted quickly into cash.

Answers: A.
True
B.
False
• Question 12

The riskiness of an investment is measured by the standard deviation of the returns on the
investment.

Answers: A.
True
B.
False
• Question 13
M1 includes checking accounts but not saving accounts.

Answers: A.
True
B.
False
• Question 14

The commercial bank, not some governmental agency, is the ultimate originator of the money
supply.

Answers: A.
True
B.
False
• Question 15

As economies develop, people generally no longer barter one good for another.

Answers: A.
True
B.
False
• Question 16

If banks held 100 percent reserves against deposits, there would be no net change in the money
supply when currency was withdrawn from these banks by the public.

Answers: A.
True
B.
False
• Question 17
The inconvenience of the barter system comes from the need for a double coincidence of
wants.

Answers: A.
True
B.
False
• Question 18

Most paper currency in the United States is backed by precious metals such as gold or silver.

Answers: A. True

B. False
• Question 19

Holding money is costless; this is why it can be a good store of value.

Answers: A.
True
B.
False
• Question 20

There is no limit to the amount of money that the banking system can create through the
multiple expansion of bank deposits.

Answers: A.
True
B.
False
• Question 21
The Commercial International Bank (CIB) utilizes some of the deposits made as
loans for other business entities and people. It accordingly:

Answers: A.
constitutes a financial intermediary.
B.
is contributing to the creation of money.
C.
holds 100 percent reserves.
D.
All of the above are valid answers.
E.
Only answer options “A” and “B” are valid.
• Question 22

If Ahmed wants to invest his money is a low-risk financial instrument, he should

invest in stocks.

Answers: True

False
• Question 23

All of the following are depictions of the functions of the financial system except
for:

Answers: A.
Leena registering for a homeowners’ insurance that covers interior and
exterior damages to her North Coast chalet.
B.
Karim, who is an Egyptian citizen living in Germany, transferring a
portion of his salary to his family in Egypt.
C.
the clearinghouse in the stock market debiting (i.e. removing money
from) Mariam’s bank account after she bought stocks in Telecom Egypt
and crediting (i.e. depositing the money in) Telecom Egypt’s account.
D.
A hedge fund in which private investors pool their money together to
buy a portfolio of stocks in 15 companies.
E.
All of the above are valid answers.
• Question 24

Checking accounts, also known as demand deposit accounts, are only used as a
store of value.

Answers: True

False
• Question 25
0 out of 1 points
If Hana deposited EGP 1 million into a checking account in Audi Bank last
January, this money should have been recorded as a ___________ in the bank’s
balance sheet. If Audi Bank decided to hold EGP 700,000 as reserves and lend
out EGP 300,000, these values would be recorded as ___________ in the bank’s
balance sheet.

Answers: A.
Liabilities; Assets.
B.
Assets; Liabilities
C.
Liabilities; Liabilities.
D.
Assets; Assets.
E.
Investment; Securities.
 Answers

1- B
2- D
3- C
4- C
5- A
6- D
7- B
8- E
9- C
10- A
11- A
12- A
13- A
14- B
15- A
16- A
17- A
18- B
19- B
20- B
21- E
22- B
23- E
24- B
25- A
 Assignment #9

• Question 1

Which of the following items is not an asset of the Central Banks?

Answers: A.
Cash of member banks.
B.
Government securities.
C.
Loans to member banks.
D.
All the above are assets of the Central Banks.
• Question 2
Which of the following are objectives of Central Banks?

Answers: A.
to maintain economic stability.
B.
low and stable inflation.
C.
low unemployment.
D.
stable exchange rate.
E.
all of the above.
• Question 3

By purchasing government securities in the open market, the Federal Reserve authorities hope
ultimately to accomplish:

Answers: A.
an increase in bank reserves larger than the original purchases by the appropriate
multiple.
B.
an increase in bank reserves by the amount of the original purchase.
C.
a decrease in bank reserves.
 D.
an equal increase in bank reserves and Federal Reserve notes.
E.
an increase in Federal Reserve notes larger than the original purchases by the
appropriate multiple.
• Question 4

The instrument of monetary control best suited to offsetting a reduction in commercial bank
reserves due to weekly increases in currency in circulation is:

Answers: A.
reserve requirements.
B.
open-market operations.
C.
terms of consumer credit.
D.
margins on security loans.
E.
moral suasion.
• Question 5

Assume that the banking system keeps no excess reserves and that the reserve requirement is
1/6. The sale of $1 billion of securities by the Federal Reserve Bank, if not accompanied by
any compensating action elsewhere, would:

Answers: A.
increase the quantity of money by $5 billion.
B.
decrease the quantity of money by $5 billion.
C.
decrease the assets and liabilities of the Federal Reserve Bank by $6 billion.
D.
decrease the assets and liabilities of the Federal Reserve Bank by $5 billion.
E.
decrease the assets and liabilities of the Federal Reserve Bank by $1 billion.
• Question 6

New reserves for the American commercial banking system can come into existence when:

Answers: A.
 aggregate demand falls.
B.
currency flows out of the country.
C.
the Federal Reserve sells an asset.
D.
the Federal Reserve buys an asset.
E.
individuals hold more of their money in the form of coin and currency.
• Question 7

When the United States pays for foreign (imported) goods:

Answers: A.
international reserves move out of the United States.
B.
there is no net change in international reserves since exporters are receiving reserves.
C.
the Fed is following a countercyclical monetary policy.
D.
foreigners are unable to absorb these dollars.
E.
foreigners are paid in gold rather than in U.S. dollars.
• Question 8
The largest asset of the Federal Reserve Banks is:

Answers: A.
gold certificates.
B.
discounts and loans to member banks.
C.
U.S. government securities.
D.
Federal Reserve notes.
E.
member bank reserves.

• Question 9
 When a central bank wishes to increase the quantity of money held by the public, it:

Answers: A.
sells securities.
B.
buys securities.
C.
sells goods or services.
D.
buys goods or services.
E.
does none of the above, since its function is not to change the quantity of publicly
held money.
• Question 10

Reserves of the American banking system can be reduced if:

Answers: A.
the price of gold falls.
B.
the public's preferences switch from deposits to currency.
C.
foreign currency flows into the United States.
D.
the real interest rate rises in the United States.
E.
the Federal Reserve buys an asset.
• Question 11
The effectiveness of monetary policy in a recession will be reduced or destroyed if:

Answers: A.
interest rates cannot be forced down much because the level of borrowing is highly
responsive to small changes in the level of the interest rate.
B.
the Fed finds that security prices start to go up as soon as it begins its easy-money
operations.
C.
the asset or liquidity demand for money is very low.
D.
 interest rates are so low that individuals are indifferent between holding money and
government bonds.
E.
the value of the multiplier is very high.
• Question 12

Which of the following is not a function of money?

Answers: A.
medium of exchange.
B.
unit of account.
C.
supply of reserves.
D.
store of value.
E.
all of the above are functions of money.
• Question 13

If Germany withdraws $1000 from an account it has in a U.S. commercial bank and takes the
money to Germany:

Answers: A.
the effect of the withdrawal on the money supply is no different from a domestic
withdrawal.
B.
the money supply will contract in the U.S.
C.
the money supply will grow in the U.S.
D.
the Fed has little ability to counteract the withdrawal.
• Question 14

A drop in the interest rate will cause the investment schedule to shift up and out.

Answers: A.
True
B.
False
• Question 15

Interest rates affect investment, but not consumption spending on consumer durables.

Answers: A.
True
B.
False
• Question 16

The balances kept on deposit at the Federal Reserve by commercial banks are considered
liabilities of the Federal Reserve.

Answers: A.
True
B.
False
• Question 17

An open-market purchase increases the liabilities of the Federal Reserve.

Answers: A.
True
B.
False
• Question 18
An open-market operation designed to increase the money supply would seek to purchase U.S.
government bonds.

Answers: A.
True
B.
False
• Question 19

If banks maintain a reserve ratio of 1 to 5, a $1 billion purchase of U.S. government securities

by the Federal Reserve will result in a $5 billion increase in the money supply.

Answers: A.
True
B.
 False
• Question 20

A Federal Reserve note is now backed by gold.

Answers: True

False
• Question 21

Open market operations are one of the major instruments of monetary policy.
Answers:
True
False
• Question 22

High interest rates encourage investment, since investors can earn more money.

Answers: True

False
• Question 23

Every modern country has a central bank.

Answers:
True
False
• Question 24

Use the following to answer questions 24-25:

Figure 24-1

In Figure 24-1, if the Fed tightens monetary policy:

Answers: A.
the money demand schedule will shift to the left.
B.
the money demand schedule will shift to the right.
C.
the money supply schedule will shift to the left.
D.
the money supply schedule will shift to the right.
E.
interest rates will remain unchanged.
• Question 25

In Figure 24-1 if the Fed increases the supply of money:

Answers: A.
interest rates should fall, investment spending should increase and GDP should
increase.
B.
interest rates should increase, investment spending should increase and GDP should
increase.
C.
interest rates should increase, investment spending should decrease and GDP should
decrease.
D.
interest rates should fall, investment spending should increase, but GDP would
remain unchanged.
 Answers

1- A
2- E
3- B
4- B
5- E
6- D
7- A
8- C
9- B
10- B
11- D
12- C
13- B
14- B
15- B
16- A
17- A
18- A
19- A
20- B
21- A
22- B
23- A
24- C
25- A