Placement Test IEC 2022

Full Name

Unlike a market economy, a command economy uses …….

More centralized planning in economic decision making

Consumer sovereignty to make production decisions

Its resources more efficiently

Price signals in economic decision making

The value of a country’s currency will tend to appreciate if ……

Demand for the country’s exports increases

The country’s money supply increases

The country’s citizens increase their travel abroad

Domestic interest rates decrease

Which of the following best illustrates an improvement in a country’s standard of living?

An increase in real per capita gross domestic product

An increase in nominal per capita gross domestic product

Price stability

A balanced budget

All of the following changes will shift the investment demand curve to the right EXCEPT…….

A decrease in the corporate income tax rate

An increase in the productivity of new capital goods

An increase in the real interest rate

An increase in corporate profits

If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur?

Output will increase.

Output will decrease.

Output will not change.

The price level will increase.

The amount of money that the public wants to hold in the form of cash will ……

Be unaffected by any change in interest rates or the price level

Increase if interest rates increase

Decrease if interest rates increase

Increase if the price level decreases

For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production?

Households are producers of goods and services and consumers of resources.

Households are users of resources, and businesses are sources of saving.

Households are suppliers of resources and consumers of goods and services.

Businesses are users of taxes, and households are sources of taxes.

According to the short-run Phillips curve, lower inflation rates are associated with …..

Higher unemployment rates

Higher government spending

Larger budget deficits

Greater labor-force participation rates

Which of the following will lead to a decrease in a nation’s money supply?

A decrease in income tax rates

A decrease in the discount rate

An open market purchase of government securities by the central bank

An increase in reserve requirements

Which of the following is likely to occur following the depreciation of the United States dollar?

United States imports will increase.

United States exports will increase.

Demand for the United States dollar will decrease.

United States demand for foreign currencies will increase.

Which of the following individuals is considered officially unemployed?

Chris, who has not worked for more than three years and has given up looking for work

Kim, who is going to school full-time and he is waiting until graduation before looking for a job

Pat, who recently left a job to look for a different job in another town

Leslie, who retired after turning 65 only five months ago

If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true?

Alpha’s currency will have appreciated relative to Beta’s currency.

Alpha’s currency will have depreciated relative to Beta’s currency.

Alpha will have had lower nominal interest rates than Beta.

Alpha will have had slower growth in the money supply than Beta.

Which of the following best explains the increase in national income that results from equal increases in government spending and taxes?

Consumers do not reduce their spending by the full amount of the tax increase.

The government purchases some goods that consumers would have purchased on their own anyway.

Consumers believe all tax cuts are transitory.

The increase in government spending causes a decrease in investment.

A simultaneous increase in inflation and unemployment could be explained by an increase in which of the following?

Consumer spending

Labor productivity

Investment spending

Inflationary expectations

A country can have an increased surplus in its balance of trade as a result of …….

An increase in domestic inflation

Declining imports and rising exports

Higher tariffs imposed by its trading partners

An increase in capital inflow

An increase in the government budget deficit is most likely to result in an increase in which of the following?

The marginal propensity to consume

Exports

The real interest rate

The money supply

A commercial bank’s ability to create money depends on which of the following?

The existence of a central bank

A fractional reserve banking system

Gold or silver reserves backing up the currency

A large national debt

The consumer price index (CPI) is designed to measure changes in the

Spending patterns of urban consumers only

Spending patterns of all consumers

Prices of all goods and services produced in an economy

Cost of a select market basket of goods and services

Which of the following would be the initial impact on an economy if wages were to increase more than worker productivity?

There would be no initial impact, since neither the aggregate supply curve nor the aggregate demand curve would shift.

Employment would increase, causing a rightward shift in the aggregate demand curve.

The price level would increase, resulting in excess aggregate supply.

The short-run aggregate supply curve would shift to the left, increasing the price level.The short-run aggregate supply curve would shift to the left, increasing the price level.The short-run aggregate supply curve would shift to the left, increasing the price level.The short-run aggregate supply curve would shift to the left, increasing the price level.The short-run aggregate supply curve would shift to the left, increasing the price level.

Which of the following occurs as investment becomes more responsive to changes in the interest rate?

Monetary policy becomes more effective at changing real gross domestic product.

Fiscal policy becomes more effective at changing real gross domestic product.

Monetary policy becomes more effective at changing interest rates.

Fiscal policy becomes more effective at changing interest rates.

The shifting of a country’s production possibilities curve to the right will most likely cause …..

Net exports to decline

The aggregate demand curve to shift to the left

The long-run aggregate supply curve to shift to the left

The long-run aggregate supply curve to shift to the right

One explanation for the downward slope of the aggregate demand curve is that when the price level increases, which of the following will decrease?

Real value of assets

Prices of foreign goods

Prices of substitute goods

Expectations of future prices

An increase in which of the following would LEAST likely increase labor productivity?

Human capital

Technological improvements

Educational achievement

The labor force

Advocates of a monetary rule recommend increasing the money supply at a rate that is equal to the rate of increase in which of the following?

Unemployment rate

Level of exports

Level of imports

Long-run real gross domestic product

Assume that Jane’s marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by …….

$4,000

$8,000

$9,000

$10,000

Economics is best defined as the study of how people, businesses, governments, and societies ……

Attain wealth

Make choices to cope with scarcity

Choose abundance over scarcity

Use their infinite resources

Making a choice at the margin means ________

Making a choice by comparing the total benefit and the total cost

Deciding to do a little bit more or a little bit less of an activity

Waiting until the last minute to make a choice

Letting someone else choose for you

Scarcity is a situation in which ________.

Something is being wasted

Long lines form at gas stations

Some people are poor and others are rich

We are unable to satisfy all our wants

If the exchange rate changes from 4 Brazilian reals per dollar to 5 reals per euro,

The euro has depreciated

The euro has appreciated

There is no correct answer

Euro can be depreciated or appreciated depending on the condition of the relative price in Brazil and other European countries

When the price rises at an unusually fast rate, it is called …..

Inflation

Hyperinflation

Deflation

Hypoinflation

The initial impact of the increase in government spending is a shift on _____

Aggregate demand to the left

Aggregate demand to the right

Aggregate supply to the left

Aggregate supply to the right

When the demand for money is expressed on a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, the interest rate increases

Increase the demand for moneyincrease the demand for money

Reduce the demand for money

Increase the amount of money demanded

Reduce the amount of money demanded

The term ceteris paribus means ________.

When other things all change

Equal access to public transportation

Other things being equal

For better or worse

Consider the specification of money demand: M = kPY Suppose the actual money supply is M* which is not equal to M; according to the neutrality principle, the variable that would adjust to achieve equilibrium is:

In the long-run the growth rate of money demand equals the sum of the growth rates of (A) _________ and (B) __________.

A: the money supply and B: inflation

A: the money supply and B: GDP growth

A: inflation and B: GDP growth

A: inflation and B: the effective exchange rate

The real exchange rate is constant when the nominal exchange rate appreciates at a rate equal to …

The rate of inflation plus the real rate of interest.

The nominal rate of interest, assuming the Fisher Principle holds.

The difference between the rate of growth of the money supply and the rate of inflation.

The difference between the foreign and domestic inflation rates.

Which of the following variables would be affected if the supply of money would change?

Unemployment

Price level

Standards of living

Real growth

The aggregate production function for the Solow growth model assumes (A) ___________ returns to scale and (B) _____________marginal productivity of labor and capital.

A: increasing and B: diminishing

A: constant and B: diminishing

A: decreasing and B: constant

A: constant and B: increasing

"Dynamic inefficiency" in the context of a model of economic growth means...

The economy's output per unit labor is below its steady-state value.

The economy's unemployment rate is too high.

The economy's steady state is not at the golden-rule steady-state.

None of the other answers are correct.

The difference between a nation's current account surplus and its primary account surplus is its ……

Net asset position with respect to the rest of the world.

Net investment income from abroad.

Balance of payments.

Net sovereign borrowing.

An intertemporal budget constraint links...

Current savings to future capital.

Current income and consumption.

Multiple periods of time.

Inputs and output.

The rational expectations hypothesis assumes that agents...

Always behave rationally.

Make mistakes, but learn from them.

Have perfect foresight.

Have no expectations about the future.

An endowment is exogenous if...

Agents produce it.

It is not taken as given.

A production function is assumed.

No assumption about its origin is made.

The Taylor rule shows combinations of (A) ____ and (B) ____ which characterize (C) _____ of the central bank.

(A) interest rates; (B) the real money stock; (C) monetary targeting

(A) inflation; (B) interest rates; (C) inflation targeting

(A) real GDP; (B) interest rates; (C) the monetary policy

(A) inflation; (B) real GDP (C) the monetary policy

When only such disturbances as changes in technology/tastes or in public spending and taxes can affect economic growth and employment, whereas changes in the money supply would have no effect upon economic growth and employment, we have...

...the Keynesian assumption.

...the classical dichotomy.

...sticky prices.

...the Taylor rule.

Instead of relying on the price mechanism to match the supply and demand for goods, the Keynesian approach assumes...

...the real money supply adjusts, changing interest rates to bring about the match between output and demand.

...output adjusts to demand.

...exogenous disturbances induce spending multiplier effects.

...collective bargaining adjusts the real wage to bring about full-employment.

The Keynesian assumption is a convenient analytical short cut and turns out to be a rather accurate description of reality. What does it assume?

Constant prices

Firms cannot reduce fixed costs

Output is predetermined

The interest rate stimulates growth

What is not a component of the GDP?

Consumption goods

Investment spending by firms on capital goods

Public sector's own demand for goods

Employment rate

In short run macroeconomic analysis, demand is often viewed as the driving force. Which component of total demand is often regarded as being independent of economic conditions and thus exogenous in the model?

Consumption and private spending

Investment, saving

Net exports

Government spending and tax receipts

It is the (A) _______ interest rate that matters for spending decisions and the (B) _______ interest rate that is relevant when we look at monetary questions.

(A) interbank, (B) exchange

(A) exchange, (B) interbank

(A) real, (B) nominal

(A) nominal, (B) real

Which kind of demand fluctuates the most?

Consumption demand.

Private demand for investment.

Aggregated demand.

Demand by firms for investment goods.

Under a fixed exchange rate system (A)_________ would be an exogenous monetary policy instrument, whereas under a flexible exchange rate system (B) ______________ would be an endogenous monetary policy instrument.

(A) the exchange rate; (B) the exchange rate

(A) the exchange rate; (B) the interest rate

(A) the interest rate; (B) the exchange rate

(A) the interest rate; (B) the interest rate

Suppose a country with a fixed exchange rate decides to implement a devaluation of its currency and commits to maintaining the new fixed parity. This implies (A) ______________ in the demand for its goods and a monetary (B) _______________.

(A) contraction ; (B) contraction

(A) contraction ; (B) expansion

(A) expansion ; (B) contraction

(A) expansion ; (B) expansion

With respect to a country having a fixed exchange rate, which of the following statements is not correct?

The fixed exchange rate system imposes strict discipline on the central bank.

The economy is vulnerable to foreign but not domestic demand disturbances.

The Taylor Rule schedule is irrelevant.

Shifts in world interest rates can pose a risk to the sustainability of the fixed exchange rate.

The Mundell-Fleming framework studies (A) _____ , (B) _________ economies in a world with (C) _____ financial markets and (D) _____ capital mobility.

(A) small; (B) open; (C) integrated; (D) free

(A) large; (B) open; (C) integrated; (D) free

(A) small; (B) mercantilist; (C) integrated; (D) free

(A) large; (B) open; (C) restricted; (D) free(A) large; (B) open; (C) restricted; (D) free

The model utilizes the concept of a small, open economy. Which of the following statements is true?

There are effects on the rest of the world, depending on developments in one country.

Japan is a good example, relative to the world GDP.

Open means that there are no transaction costs, whatsoever.

Financial openness means that lending and borrowing across borders take place freely.

How is financial openness measured?

Equivalent to the net external position.

The value that households, banks, firms and the public sector lends to, or borrows from, a peer in a foreign country.

Grading by monetary institutions that include restrictions on financial trade.

Investments received from abroad as a percentage of total GDP.

The negative relationship between the gap between actual GDP and its trend value and the difference between actual unemployment rate and its equilibrium value is called:

The Aggregate Supply Curve

The Battle of the Mark-ups

The Phillips Curve

Okun's Law

Dividing nominal wages (W) by labor productivity (Y/L) yields:

Real unit labor costs

Nominal unit labor costs

Total factor productivity

Labour share of total income

The critical macroeconomic policy implication of a vertical long-run Phillips Curve that...

...inflation is everywhere and always a monetary phenomenon.

...big inflation will be stopped by a big recession.

...money illusion is the source of unemployment in the long-run.

...demand policies cannot move the actual unemployment rate permanently away from its equilibrium level.

Keynes rebelled against the neoclassical assumption. What does that mean?

Prices are not flexible.

Inflation must be ignored in the short run.

Prices are fully flexible.

None of the above.

In the Keynesian view, the price level is (A) _____. In the neoclassical view, the price level is (B) _____.

(A) endogenous, (B) exogenous.

(A) exogenous, (B) endogenous.

(A) relevant, (B) irrelevant.

(A) irrelevant, (B) relevant.

What is a problem the Central Bank has to face when setting interest rates?

Setting interest rates is unproblematic.

It has to fix the exchange rate, too.

It must withdraw former loans.

It must supply all demanded liquidity.

The AD curve is downward sloping for a small economy in a fixed exchange rate system because (A) __________ weakens the country's external competitiveness, which (B) ____________ for domestic goods.

(A) positive domestic inflation; (B) reduces domestic and foreign demand

(A) positive domestic inflation; (B) increases the domestic demand

(A) rising domestic inflation; (B) reduces domestic and foreign demand

(A) rising domestic inflation; (B) increases the domestic demand

For a small economy in a fixed exchange rate system in the long run, the domestic underlying rate of inflation must equal the foreign rate of inflation because:

Otherwise the real exchange rate would change

The Principle of Purchasing Power Parity would be violated

This is inconsistent with Okun's Law

Each must equal the domestic rate of inflation so that AS does not shift and the relative competitiveness of domestic goods does not change

According to the following information, what is the unemployment rate? (Round to the nearest tenth of a percent. Screenshot 2022-11-17 205421

5.0%

4.8%

3.7%

30.0%

Which of the following would be included in Gross National Product (GNP) but not in Gross Domestic Product (GDP) of the United States?

The earnings of an American-owned factory in Germany

The income of a Texan employed in Oklahoma

The earnings of a Japanese-owned factory in the U.S.

The income of American government employees working in Washington, D.C.

Which of the following is not an example of an automatic stabilizer?

the increase in unemployment insurance payments during a recession

The increase in welfare payments during a recession

The reduction in income tax revenues during a recession

The passage of a stimulus package to respond to a recession

To decrease the money supply, the Fed would

Buy government bonds.

increase the discount rate.

decrease the reserve requirement.

any of the above

In economics, “National Saving” is calculated by

Subtracting private consumption and investment from total income.

Subtracting credit card debt from the total value of stock market investments.

Combining the total value of savings accounts with stock market investments.

Subtracting private and government consumption from total income.

Governments can increase the likelihood of economic development by

Instituting policies to see that everyone shares equally.

Supporting smooth transitions from one set of office-holders to another.

Encouraging banks to lend to politically favored borrowers at below-market interest rates.

Adopting policies that specifically benefit those in office.

The quantity equation relates a measure of the money supply (M), to the velocity of money (V), the GDP deflator (P) and real GDP (Y). Which of the following expressions accurately describes the quantity equation?

MY = PV

MP = VY

MV = PY

M/P = V/Y

Which of the following is NOT one of the components of aggregate demand?

Consumption spending.

Investment spending.

Government purchases of goods and services.

Money supply.

Negative net exports means that

The country sells more goods abroad than it buys from other countries.

The country buys more goods from other countries than it sells to other countries.

The country has a closed economy.

The country’s tariffs are too low.

Which of the following is an example of active fiscal policy?

Government expenditures rise during a recession because unemployment insurance benefits increase.

The government runs a budget deficit during a recession because income tax collections fall.

Congress passes a tax cut after the beginning of a recession with the aim of stimulating the economy.

All of the above

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