13. Which of the following will decrease consumer expenditures? A) a decrease in

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13. Which of the following will decrease consumer expenditures? A) a decrease in interest rates B) a general increase in housing prices C) an increase in expected future income D) an increase in the price level 14. If inflation in the United States is lower than inflation in other countries, what will be the effect on net exports for the United States? A) Net exports will rise as U.S. exports increase. B) Net exports will rise as U.S. imports decrease. C) Net exports will decrease as U.S. exports decrease. D) Net exports will decrease as U.S. imports decrease. 15. If the economy is currently in equilibrium at a level of GDP that is below potential GDP, which of the following would move the economy back to potential GDP? A) an decrease in wealth B) an decrease in interest rate C) a decrease in business confidence D) an increase in tax 16. If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve? A) This will move the economy up along a stationary aggregate demand curve. B) This will move the economy down along a stationary aggregate demand curve. C) This will shift the aggregate demand curve to the left. D) This will shift the aggregate demand curve to the right. 17. Suppose you withdraw $800 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 20 percent, checking account deposits in the banking system as a whole could drop up to a maximum of A) $500. B) $1,600. C) $4,000. D) $8,000. 18. Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ________ and real GDP to be relatively ________. A) higher; higher B) higher; lower C) lower; higher D) lower; lower 19. From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then Congress and the president would most likely A) increase the required reserve ratio and decrease government spending. B) decrease government spending. C) decrease oil prices. D) decrease taxes. 20. How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market? A) The demand for dollars falls, and the supply of dollars falls. B) The demand for dollars rises, and the supply of dollars rises. C) The demand for dollars rises, and the supply of dollars falls. D) The demand for dollars falls, and the supply of dollars rises. 21. Why did the United States abandon the gold standard in the 1930s? A) The government wanted to rapidly expand the money supply in response to the Great Depression. B) The government wanted to move away from a floating exchange rate system to a fixed exchange rate system. C) The Treasury Department in the United States found it was cheaper to print paper money instead of gold coins. D) New sources of gold were discovered, so the price of gold plummeted, dramatically reducing the value of the dollar. 22. If a country has a fixed exchange rate, A) the equilibrium exchange rate in that market does not respond to changes in supply and demand for currency. B) central banks have more control over real GDP in the economy. C) central banks must buy and sell their holdings of currencies to maintain a given exchange rate. D) the exchange rate is allowed to fluctuate in response to changes in the supply and demand for currency. 23. You are traveling in Ireland and are thinking about buying a new digital camera. You have decided you would be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the camera you?re looking at costs 115 euros, under which of the following exchange rates would you be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.) A) 0.56 euros per dollar B) 0.89 euros per dollar C) 0.92 euros per dollar D) You would purchase the new camera at any of the above exchange rates. 24. Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession. If the economy had been at potential GDP, it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower. Using these estimates, the cyclically adjusted budget A) deficit was $210 billion. B) deficit was $110 billion. C) surplus was $10 billion. D) surplus was $110 billion. 25. Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion. To move the economy back to potential GDP, Congress should A) lower taxes by an amount less than $500 billion. B) raise government purchases by $500 billion. C) raise government purchases by more than $500 billion. D) lower taxes by $500 billion. E) lower government purchases by $500 billion.

Explanation / Answer

Ans. 13. (D)

Ans 14. (A)

Ans 15. (B)

Ans 16. (C)

Ans 17. (B)

Ans 18. (A)

Ans 19. (C) or (D)

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