pro sendric only 1

1. If the President increases spending, then the President _________ order the Fed to create more money. This illustrates ___________.

a. can // the autonomy of the Fed

b. cannot // the autonomy of the Fed

c. can // the need for strict coordination of fiscal and monetary policy as per the U.S. Constitution

d. cannot // since the Fed cannot actually print money, its power to control the money supply is very limited


2.The policy combinations given below would consistently work in the direction of DECREASING the rate of growth of the money supply, also known as contractionary policy are

a.Raise the discount rate, lower the reserve requirement and engage in open market sales.

b.Lower the discount rate, lower the reserve requirement and engage in open market purchases.

c.Lower the discount rate, raise the reserve requirement and engage in open market sales.

d.Raise the discount rate, raise the reserve requirement and engage in open market sales of bonds.

e.Raise the discount rate, raise the reserve requirement and engage in open market purchases of bonds.

3.Which of the two talked about the problem of insufficient spending?

a.Adam Smith and John Maynard Keynes

b.John Maynard Keynes and Karl Marx

c.Adam Smith and Karl Marx

d.Groucho and Harpo Marx


4.Dialectic materialism refers to which of the following concepts?

a.hunger and pain

b.happiness and sadness

c.economic circumstances and conflict

d.conflict and utility maximization


5.According to Marx

a.socialism and communism could exist simultaneously in any society.

b.capitalism would inevitably end.

c.technological change and class conflict go hand in hand.

d.both b) and c) are correct.

e.both a) and b) are correct.


6.The monetarists want to take away the discretionary authority of the Federal Reserve Board of Governors to decide how much the money supply should grow every year.




7.The Laffer curve of supply side economics shows that it is not always possible to increase tax revenues by increasing marginal tax rates.




8.A horizontal supply curve of labor is consistent with

a.flexible wages.

b.rigid wages.

c.full employment.

d.efficiency wages.

e.both b) and d) are correct. 


9. Consider the equation of exchange MV=PQ. Assume V and Q are constant. Therefore an increase in the money supply will cause

a. recession.

b. more output.

c. an increase in the price level.

d. both b) and c) are correct.


10.Joe and Mo produce raincoats and shirts.  Joe’s opportunity cost for producing a raincoat is 5 shirts.  Mo’s opportunity cost for producing a raincoat is 12 shirts.  Therefore

a.Joe has a comparative advantage in the production of raincoats.

b.Mo has a comparative advantage in the production of raincoats.

c.Joe has no comparative advantage in producing anything.

d.Mo has no comparative advantage in producing anything.  


11. Comparative advantage is the ability of a country to produce a good at a ____________ opportunity cost relative to other countries. It ____ possible to have a comparative advantage even if the country does not have an absolute advantage in producing anything. 

a. higher // is

b. lower // is

c. equivalent // is not

d. higher // is not 


12. Suppose the U.S. can produce 4 tons of food or 3 yards of cloth, while Mexico could produce 12 tons of food per hour and 6 yards of cloth per hour.  If a country exports what it has a comparative advantage in and imports what the other country has a comparative advantage in, then

a. the United States will export food.

b. Mexico will import cloth.

c. the United States will import both cloth and food.

d.Mexico will import both cloth and food.


13.If the U.S. has inflation, but British prices stay stable, then

a.the dollar will depreciate.

b.the pound will appreciate. will give up less pounds for a dollar than before.

d.all of the above.


14.Are all three of these consistent?  

Increase in demand for Toba dollars

Increase in supply of U.S. dollars

Increase in U.S. demand for Toba goods



15.The Federal Reserve can make the dollar stronger in foreign exchange if it buys up dollars, which is the equivalent of an expansionary monetary policy.




16.If insurance pays for medical care, it creates an illusion to the consumer.  Which of the following describes the illusion?

a.Insurance hides the fact that medical care, like any other good, is scarce.

b.Insurance only works in the private sector, not the public sector.

c.Insurance only works if consumers purchase the same amount of medical services no matter what the price.

d.Both a) and b) are correct.


17.The video “The Cost of Health Care” argues that there should be more reliance on the free market and less reliance on insurance in providing health care.




18.If you wanted to argue why Toga has good rates of growth, the weakest argument to make is that Toba has high rates of growth of

a.the money supply.


c.the labor force.



19.In the __________ range of the aggregate supply curve it is difficult to make policy decisions on whether to increase or decrease aggregate demand because _________.

a.classical an increase in aggregate demand will cause both prices and output to increase

b.intermediate an increase in aggregate demand will cause both prices and output to increase

c.intermediate – an increase in aggregate demand will cause both employment and unemployment to increase

d.Keynesian – no matter what the policy, unemployment remains high


20.The Walmart Effect of globalization refers to

a.that globalization is taking away the charm of small town downtown areas.

b.the costs of globalization.

c.the fact that globalization makes industries more competitive and goods less expensive.

d.the jobs being taken away by globalization.



The following three questions are based on the video Inside Job  

21.The evil(s) that the video implies caused the housing and banking crisis was (were)


b.the Glass Steagall Act.

c.outdated regulations.

d.both b) and c) are correct.


22.Which of the following is (are) true?

a.The Glass Steagall Act overturned the Gramm Leach Bliley Act.

b.The Gramm Leach Bliley Act overturned the Glass Steagall Act

c.The Glass Steagall and Gramm Leach Bliley Act Acts came out about the same time but had contradictory aims.


23.The video supports further deregulation.




The remaining questions are on the Commanding Heights videos.

24.The battle of ideas is NOT between markets and government intervention.

b.Hayek vs. Keynes.

c.classical macroeconomic ideas vs. Keynesian ideas.

d.Hayek vs. laissez faire


25.Germany after WWII began to show good economic results

a.immediately after peace was declared.

b.not until the building of the Berlin Wall.

c.when price controls were abolished.

d.both b) and c) are correct.


26.The battle of ideas according to the video was won by __________.  If we consider the Obama stimulus policy dominating macroeconomic thinking ______ won the battle of ideas.

a.Hayek – Keynes

b.Keynes – Hayek

c.Hayek – also Hayek

d.Keynes   also Keynes


27.Hayek’s belief about macroeconomics was

a.he accepted monetarism but not Keynesian macroeconomics.

b.he did not believe in macroeconomics.

c.he treated macroeconomics as a complement to the free market beliefs of microeconomics.

d.he accepted any nonactivist macroeconomic school of thought.


28.Did Jeffrey Sachs, the Harvard economist, say that reforming of the Soviet Union was basically a carbon copy of the reforming of China?



29.The significance of the phrase “We pretend to work” is consistent with

a.a real commitment to equality in socialism.

b.the lack of any real economic incentives in socialism.

c.that Marx always said labor worked much too hard.

d.that the Tienneman Square demonstrations in 1989 were wholeheartedly embraced by the Communist Party of China.


30.Deng, the once leader of China, said “I can distribute poverty or I can distribute wealth.” In this remark he is questioning the effectiveness of



c.the mixed market economy.  


31.Which of the following sequence of events in Chile is correct?

a.socialist rule, overthrow of Allende, Milton Friedman advising Chile on free markets

b.Milton Friedman advising Chile on free markets, overthrow of Allende, socialist rule

c.overthrow of Allende, socialist rule, Milton Friedman advising Chile on democratic socialism

d.Milton Friedman’s economic advising to Pinochet, John Maynard Keynes’ visit to Chile


32.Although Commanding Heights is ________ of market reforms, it concedes that the reforms can cause _________.

a.supportive unemployment

b.supportive – dictators to get elected such as Chile’s Pinochet

c.critical – economic growth

d.critical – higher profits 


For the following three questions match the good with its significance.  Each one is only used once.


33.Potato chips

34.Panty hose 


a.the good to follow to see if market reforms in Poland were really working

b.threw guards off the trail while a British Soviet spy was escaping the Soviet Union

c.shortage in the Soviet Union represented the general lack of consumer goods in the Soviet Union

d.the good to follow to see if market reforms in Chile were really working


36.The significance of the remark about more presents under the Christmas tree

a.points out the costs of globalization.

b.signified more religious commitment to increased production.

c.suggests that off shoring is a bad macroeconomic policy.

d.points out the benefits of globalization.


37.Hernando de Soto, the economist from Peru, a dedicated Marxist socialist. an avid free market economist, who says that unequal income distribution is a necessary evil of free markets.

d.says that for capitalism to work properly property rights must be clearly defined. an avid free market economist, who says that capitalism can help the poor.

e.both a) and b) are correct.


38.The Long Term Capital Management was affected by the Asian crisis, and the Congress and the President made direct taxpayer financed loans to them.




39.Jeff Sachs says that the reason for more global inequality now than in earlier history is

a.most tax laws favor profit incomes.

b.the Marxist predictions about inequality are correct. earlier times almost everyone was poor.

d.both a) and b) are correct.


40.What did the problems of Thailand and Eastern Asia in the 1990s have in common with the U.S. starting in 2008?

a.a housing bubble

b.a recession caused by the financial sector

c.a problem of one region/sector spilling over into another

d.all of the above

e.none, since the two cultures have very little in common

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