On March 28, 2006, the Federal Reserve released a statement that began, "The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4 ¾ percent." How does the Federal Reserve attempt to reach its target? (4)

  The Federal Reserve instructs Congress to pass legislation setting the interest rate banks can charge one another for short term loans.
  The Federal Reserve increases the money supply.
  The Federal Reserve opens more branches. The increased competition raises the interest rate.
  The Federal Reserve sells bonds in the open market.
  The Federal Reserve decreases the discount rate

Based on the graph above, in which of the following years was the U.S. economy most likely in a recession?

  1965
  1974
  1984
  1997
  all of the above

Historically, the greatest upward spike in U.S. real GDP growth occurred during:

  the 9/11 terrorist attacks
  the Great Depression
  the Dot-com boom
  World War II
  the recent collapse of the housing bubble

Which of the following countries has the highest Gini coefficient?

  France
  United States
  Switzerland
  Japan
  United Kingdom

Which of the following is the largest component of GDP?

  investment
  imports
  government expenditures
  consumption
  exports

Which of the following would, other things equal, decrease U.S. aggregate demand?

  An increase in the money supply
  U.S. citizens begin to believe in the slogan “Spend is the new save!”
  A decrease in the discount rate
  A decrease in the federal funds rate
  None of the above decrease U.S. aggregate demand

In early 1980s, the Greek government decided to shut off the electric service in big cities across the country every day after 9pm in order to:

  protest the acceptance of Turkey into NATO
  reduce inflation across the country
  prevent total failure of the country's electricity grid
  encourage the Greeks to make more children
  save money to pay back government debts

In 1981, a gallon of gas cost $1.75, a hamburger cost a $.75, and a loaf of white bread cost $.60. The value of the CPI in 1981 was 91. In 2013, a gallon of gas costs $3.80, a hamburger costs $2.00, and a loaf of white bread costs $1.75. The current CPI is 232.17. Which of these goods are relatively more expensive now (in real terms) than they were back in 1981?

  the burger and bread are more expensive
  the burger is more expensive
  gas and bread are both more expensive
  they're all more expensive in terms of real buying power
  none of the above

11. Which of the following factors cannot generate demand pull inflation?

  advertisement campaigns
  increase in energy prices
  fiscal policy
  increase in population
  monetary policy

A period of inflation can be stopped by:

  increasing the money supply
  increasing the interest rates
  stimulating aggregate demand
  increasing the growth rate of real output, to absorb consumer spending
  none of the above

If the nominal wage went up by 6% and the CPI during the same period went up by 8%, one can conclude that the real wage:

  went up by about 14%
  went down by about 14%
  went up by about 2%
  went down by about 2%
  went up by about 6%

If Federal Reserve chairman Ben Bernanke uses Amazon’s new unmanned drones to deliver a briefcase full of freshly printed $50,000 to each household in the U.S. and each household decides to stash the money under the mattress without spending a single dime then this policy will:l

  result in an increase in production in the short run
  generate huge inflation over time
  cause a decrease in bank reserves
  cause an increase in aggregate demand
  have no effect, as the money does not enter circulation

Based on the following table for our beloved country Snackland, what was Snackland's nominal GDP in 2011?

Peanuts Crackerjacks
Price Quantity Price Quantity

2011 $1.25 10,000 $1.50 2000
2012 $1.40 10,500 $1.90 2150

  $6,250
  $10,500
  $12,500
  $15,500
  $16,350

Based on the following table for our beloved country Snackland, what was Snackland's real GDP in 2012 (if 2011 is used as the base year)?

Peanuts Crackerjacks
Price Quantity Price Quantity

2011 $1.25 10,000 $1.50 2000
2012 $1.40 10,500 $1.90 2150

  $6,250
  $10,500
  $12,500
  $15,500
  $16,350

Suppose the Fed has observed that:

i) GDP is growing very fast,
ii) commodity prices have begun to rise, and
iii) business inventories are shrinking.

Given this information, the Fed should:

  buy bonds on the open market, driving the interest rate down and increase aggregate demand
  sell bonds on the open market, driving the interest rate down and increase aggregate demand
  buy bonds on the open market, driving the interest rate up and decrease aggregate demand
  sell bonds on the open market, driving the interest rate up and decrease aggregate demand
  increase energy prices and decrease aggregate demand

Investment, a component of GDP, includes:

  purchases of any kind of earning assets
  purchases of government bonds
  purchases of equipment, machines, and buildings used in production by firms
  purchases of equities either newly issued or previously issued
  purchases of newly issued equities (stocks)

If your friend claims that he made a solid 20% last year by investing in the Brazilian stock market and suggests that you too should invest in Brazil, the first question you should ask is:

  what was the growth rate of GDP in Brazil last year?
  what was the growth rate of CPI in Brazil last year?

The U.S. Federal Reserve is made up of this many districts (okay, forget the Hunger Games now):

  3
  4
  6
  8
  12

Which of the following statements best characterizes the Federal Reserve’s relationship to the U.S. economy?

  The Federal Reserve can control the economy with precise accuracy.
  The Federal Reserve cannot affect the economy in any predictable manner.
  The Federal Reserve is required by mandate to execute the demands of Congress
  The Federal Reserve can indirectly affect output by influencing aggregate demand.
  Answers C and D are both correct.

What are the twin goals of monetary policy?

  to promote “maximum” sustainable output and to promote “unstable” prices
  to promote “minimum” sustainable output and to promote “stable” prices
  to promote “maximum” sustainable output and to promote “stable” prices
  to promote “minimum” sustainable output and to promote “declining” prices
  to promote “maximum” sustainable output and to promote “declining” prices

The discount rate refers to:

  the maximum interest rate mandated by Congress
  the interest rate that banks charge to loan customers with good credit
  the interest rate that banks must pay to borrow from other banks
  the interest rate that banks must pay to borrow directly from the Federal Reserve
  the interest rate that firms charge during discounted sale periods

The federal funds rate refers to:

  the maximum interest rate mandated by Congress
  the interest rate that banks charge to loan customers with good credit
  the interest rate that banks must pay to borrow from other banks
  the interest rate that banks must pay to borrow directly from the Federal Reserve
  the interest rate that firms charge during discounted sale periods

Which of the above scenarios would generate cost push inflation?

i) An increase in the price of oil
ii) An increase in population
iii) A change in the tax law that gives everybody a larger tax rebate
iv) National and religious holidays being promoted as shopping holidays
v) An increase in the price of raw materials due to a supply shortage

  i. only
  i. and iv. only
  i. and v. only
  ii., iii. and iv.
  ii. and iii. only

Which of the above scenarios would generate demand pull inflation?

i) An increase in the price of oil
ii) An increase in population
iii) A change in the tax law that gives everybody a larger tax rebate
iv) National and religious holidays being promoted as shopping holidays
v) An increase in the price of raw materials due to a supply shortage

  i. only
  i. and iv. only
  i. and v. only
  ii., iii. and iv.
  ii. and iii. only

The profit earned by the monopolist is represented by the area whose corners are:

  P4, A, B, P2
  P4, A, C, P1
  P3, D, Q2, 0
  P2, B, C, P1
  P2, B, Q1, 0

The perfectly competitive equilibrium price and quantity are represented by point:

  A
  B
  C
  D
  none of the above

Compared to a perfectly competitive market, a monopoly will usually generate:

  lower prices and lower output
  lower prices and higher output
  higher prices and lower output
  higher prices and higher output
  stable prices and stable output

A grocery store should close at night if:

  variable costs of staying open are less than the total revenue obtained from staying open
  total costs of staying open are less than the total revenue obtained from staying open
  variable costs of staying open exceed the total revenue obtained from staying open
  total costs of staying open exceed the total revenue obtained from staying open
  there are no customers

A monopolist maximizes profit by producing the quantity at which:

  marginal cost equals price
  marginal cost equals demand
  marginal revenue equals price
  marginal revenue equals marginal cost
  none of the above

A firm whose average total cost (ATC) continually declines at least to the quantity that could supply the entire market is known as a/an:

  regulated monopoly
  natural monopoly
  perfect competitor
  oligopoly
  cartel

The inefficiency associated with monopoly is due to:

  the monopoly's profit
  the monopoly's losses
  the high start-up costs
  the overproduction of the good
  the underproduction of the good

If marginal cost (MC) equals average total cost then:

  average total cost (ATC) is minimized
  average total cost (ATC) is maximized
  average total cost (ATC) is falling
  average total cost (ATC) is rising
  marginal cost (MC) never equals average total cost (ATC)

The average fixed cost (AFC) of producing 4 units is:

  $2.50
  $5.00
  $10.00
  $26.00
  $36.00

The average total cost (ATC) of producing 5 units is

  $5.00
  $7.20
  $9.20
  $10.00
  $15.00

he marginal cost (MC) of changing production from 3 units to 4 units is:

  $5
  $6
  $7
  $8
  $9

Q 1 2 3 4 5 6 7 8
ATC $33.00 $17.50 $13.33 $12.00 $11.80 $12.17 $12.86 $13.75
AVC 20.00 18.00 16.67 15.50 15.20 15.33 15.71 16.25
MC 18.00 2.00 5.00 8.00 11.00 14.00 17.00 20.00
MR 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00

The profit-maximizing output level for this firm is:

  Q4
  Q5
  Q6
  Q7
  Q8

Q 1 2 3 4 5 6 7 8
ATC $33.00 $17.50 $13.33 $12.00 $11.80 $12.17 $12.86 $13.75
AVC 20.00 18.00 16.67 15.50 15.20 15.33 15.71 16.25
MC 18.00 2.00 5.00 8.00 11.00 14.00 17.00 20.00
MR 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00

The firms profit is:

  $6.98
  $13.02
  $28.98
  $62.00
  $90.02

If a production function exhibits diminishing marginal product, its slope

  is linear
  becomes flatter as the quantity of the input increases
  becomes steeper as the quantity of the input increases
  becomes exponentially steep
  becomes infinite

Suppose that, at its profit maximizing quantity of output, a firm's average variable cost (AVC) is $7.25, average total cost (ATC) is $12.50, and the market price (P) is $8.33. In this case, the firm should:

  shut down immediately
  decrease the quantity of output
  continue to produce because it's making a profit
  continue producing even though it is not covering all of its fixed costs
  none of the above

If a perfectly competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it:

  increased production
  decreased production
  maintained production at the current level
  temporarily shut down
  increase the price

Which of the following is true about a monopoly but not about a perfectly competitive market?

  There is only one firm in the market.
  It is very difficult for new producers to enter the market.
  The firm can earn positive economic profits in the long run.
  All of the above are correct.
  Only answers A & B are correct.

In the short run, the perfectly competitive firm's supply curve is the:

  upward-sloping portion of its average total cost curve.
  entire marginal cost curve
  portion of its average variable cost curve that lies above the average fixed cost curve.
  upward-sloping portion of its average variable cost curve.
  portion of its marginal cost curve that lies above its average variable cost curve.

In the short run, some competitive firms will shut down if the market if the price is below:

  P1
  P2
  P3
  P4

If the price is P4, the firm will earn profits equal to the area:

  (P2-P1) x Q2
  (P3-P2) x Q3
  (P4-P3) x Q3
  (P4-P2) x Q4
  (P3-P2) x Q4

Which of the following is true of a monopoly, but not of a perfectly competitive market?

  The good produced has substitutes.
  Firms cannot earn positive economic profits in the long run.
  There are a large number of firms in the market.
  It is very difficult for new producers to enter the market.
  All of the above.

A cartel refers to:

  a group of perfectly competitive firms that collude and act like a monopoly
  a group of oligopolistic firms that collude and act like a monopoly
  a group of oligopolistic firms engaged in a price war.
  none of the above

In the short run, if the price is above average total cost (ATC) in a perfectly competitive market, the firms make

  losses and decrease production
  losses and increase production
  profits and firms are forced to shut down
  profits and firms enter the market

Real GDP per person is a useful measure of economic well-being because:

  GDP per person is not a useful measure of economic well-being
  it can be used to understand the changes in the income distribution within a country
  it can be used as a measure of cross-country comparisons
  it accurately reflects the changes in economic well-being during war times
  answers B, C, and D are correct