ECON 400 EXAM 2 QUESTIONS AND ANSWERS
Which of the following would be most likely to cause a reduction in current aggregate
demand in the United States?
a. increased fear of a recession
b. an increase in the expected rate of inflation
c. a sharp increase in the value of stocks owned by Americans
d. a rapid increase in the growth of income in Canada, Mexico, and Western Europe -
Answers - a. increased fear of a recession
The international substitution effect exists because a
a. higher price level will reduce interest rates and stimulate foreign investment.
b. lower price level will make domestically produced goods less expensive relative to
foreign goods.
c. higher price level will reduce the purchasing power of money.
d. lower price level will encourage Americans to import more foreign goods. - Answers -
b. lower price level will make domestically produced goods less expensive relative to
foreign goods.
Which of the following contributed to the crisis of 2008?
a. falling housing and stock prices
b. a sharp increase in the price of housing during 2008
c. inclement weather in 2008
d. falling resource prices and a reduction in the cost of production - Answers - a. falling
housing and stock prices
During 2003-2007, the price of crude oil increased substantially on the world market.
Other things constant, how will an unanticipated increase in oil prices influence the
general level of prices and real output of oil-importing nations such as the United States
and Japan?
a. both real output and the general level of prices will decrease.
b. both real output and the general level of prices will increase.
c. real output will increase, and the general level of prices will decrease.
d. real output will decrease, and the general level of prices will increase. - Answers - d.
real output will decrease, and the general level of prices will increase.
The supply of resources, level of technology, and the quality of an economy's
institutional arrangements provide the constraint that determines the shape of the
a. short-run aggregate supply curve.
b. long-run aggregate supply curve.
, c. supply of loanable funds.
d. aggregate demand curve. - Answers - b. long-run aggregate supply curve.
If resource prices are fixed and the product selling price rises, then
a. profits will decrease.
b. profits will increase.
c. profits will remain constant.
d. both profits and output will decrease. - Answers - b. profits will increase.
The market for labor services is included in the
a. loanable funds market.
b. goods and services market.
c. resource market.
d. financial market. - Answers - c. resource market.
An improvement in technology would shift which of the following curves?
a. aggregate demand and short-run aggregate supply
b. only the short-run aggregate supply
c. only the aggregate demand
d. short-run and long-run aggregate supply - Answers - d. short-run and long-run
aggregate supply
The actions of borrowers and lenders are coordinated by
a. the interest rate in the loanable funds market.
b. the government in the resources market.
c. businesses in the resources market.
d. the interest rate in the goods and services market. - Answers - a. the interest rate in
the loanable funds market.
An unanticipated increase in the level of prices in the goods and services market, which
results in a temporary reduction in real wage rates, will
a. decrease the natural rate of unemployment
b. increase the natural rate of unemployment.
c. result in an actual rate of unemployment that is less than the natural rate of
unemployment
d. result in an actual rate of unemployment that is greater than the natural rate of
unemployment - Answers - c. result in an actual rate of unemployment that is less than
the natural of unemployment
Since the end of World War II, the U.S. has almost always had rising prices and an
upward trend in real GDP. To explain this
Which of the following would be most likely to cause a reduction in current aggregate
demand in the United States?
a. increased fear of a recession
b. an increase in the expected rate of inflation
c. a sharp increase in the value of stocks owned by Americans
d. a rapid increase in the growth of income in Canada, Mexico, and Western Europe -
Answers - a. increased fear of a recession
The international substitution effect exists because a
a. higher price level will reduce interest rates and stimulate foreign investment.
b. lower price level will make domestically produced goods less expensive relative to
foreign goods.
c. higher price level will reduce the purchasing power of money.
d. lower price level will encourage Americans to import more foreign goods. - Answers -
b. lower price level will make domestically produced goods less expensive relative to
foreign goods.
Which of the following contributed to the crisis of 2008?
a. falling housing and stock prices
b. a sharp increase in the price of housing during 2008
c. inclement weather in 2008
d. falling resource prices and a reduction in the cost of production - Answers - a. falling
housing and stock prices
During 2003-2007, the price of crude oil increased substantially on the world market.
Other things constant, how will an unanticipated increase in oil prices influence the
general level of prices and real output of oil-importing nations such as the United States
and Japan?
a. both real output and the general level of prices will decrease.
b. both real output and the general level of prices will increase.
c. real output will increase, and the general level of prices will decrease.
d. real output will decrease, and the general level of prices will increase. - Answers - d.
real output will decrease, and the general level of prices will increase.
The supply of resources, level of technology, and the quality of an economy's
institutional arrangements provide the constraint that determines the shape of the
a. short-run aggregate supply curve.
b. long-run aggregate supply curve.
, c. supply of loanable funds.
d. aggregate demand curve. - Answers - b. long-run aggregate supply curve.
If resource prices are fixed and the product selling price rises, then
a. profits will decrease.
b. profits will increase.
c. profits will remain constant.
d. both profits and output will decrease. - Answers - b. profits will increase.
The market for labor services is included in the
a. loanable funds market.
b. goods and services market.
c. resource market.
d. financial market. - Answers - c. resource market.
An improvement in technology would shift which of the following curves?
a. aggregate demand and short-run aggregate supply
b. only the short-run aggregate supply
c. only the aggregate demand
d. short-run and long-run aggregate supply - Answers - d. short-run and long-run
aggregate supply
The actions of borrowers and lenders are coordinated by
a. the interest rate in the loanable funds market.
b. the government in the resources market.
c. businesses in the resources market.
d. the interest rate in the goods and services market. - Answers - a. the interest rate in
the loanable funds market.
An unanticipated increase in the level of prices in the goods and services market, which
results in a temporary reduction in real wage rates, will
a. decrease the natural rate of unemployment
b. increase the natural rate of unemployment.
c. result in an actual rate of unemployment that is less than the natural rate of
unemployment
d. result in an actual rate of unemployment that is greater than the natural rate of
unemployment - Answers - c. result in an actual rate of unemployment that is less than
the natural of unemployment
Since the end of World War II, the U.S. has almost always had rising prices and an
upward trend in real GDP. To explain this
