The interest rate effect that helps explain the slope of the aggregate demand curve arises because A) an increase in the price level lead to decreases in interest rates, which induces more borrowing and hence raises planned real expenditures. B) interest rates and total planned real expenditures are unrelated. C) an increase in the price […]
Which of the following is an example of a topic studied by microeconomists? A) Price determination by a firm B) Interest rate determination C) Measures to combat inflation D) National income calculations ANSWER A
Jacob buys less soda when the price of soda rises 10 percent, while the prices of all other goods also rise 10 percent. Jacob is A) behaving in accordance with classical economic theory. B) worrying too much about a coming recession. C) suffering from money illusion. D) paying too much attention to changes in relative […]
It is likely that a small increase in a country’s saving rate will have A) a large effect on per capita real GDP immediately because the increase in saving leads to a much larger rate of economic growth. B) a small effect on per capita real GDP many years later because the increase in saving […]
Joe’s increase in wages has been identical to the increase in the price level. Joe thinks that he is better off and has increased his expenditures. Joe’s behavior is consistent with A) the classical model. B) Say’s law. C) money illusion. D) a vertical aggregate supply curve. ANSWER C
By definition, disposable income is equal to A) consumption minus saving. B) consumption plus saving. C) consumption plus investment. D) investment plus saving. ANSWER B
When interest rates rise, A) borrowing costs decline, and total planned real expenditures decline. B) borrowing costs increase and total planned real expenditures increase. C) borrowing costs decline, and total planned real expenditures increase. D) borrowing costs increase, and total planned real expenditures decline. ANSWER D
A rise in the price level has a direct effect on spending because A) the real value of the money people have decreases and they can buy less with it. B) a higher price gives people more money, and so the more goods and services they can buy. C) the real value of the money […]
Money illusion is A) when people think they are better off when their income increases even though prices have increased by the same amount. B) when people are motivated by self-interest. C) could not exist if the economy did not have competitive markets. D) a basic condition that all classical economists assume people have. […]
________ is the study of an economy as a whole. A) Game theory B) Microeconomics C) Behavioral economics D) Macroeconomics ANSWER D
