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If a corporation goes bankrupt, bondholders have ________ on the firm’s assets. A) no claim B) third claim, after the IRS and stockholders, C) second claim, after stockholders, D) first claim In a market economy, those who are willing and […]

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 […]

Which of the following would you expect to result in faster economic growth? A) the invention of new computers that increase labor productivity B) a decrease in the average level of education in the economy C) a decrease in the […]

________ is/are the payment for the factor of production ________. A) Wages; capital B) Interest; labor C) Profit; entrepreneurship D) Rent; capital When Ford increases the production of cars in Australia, which of the following occurs? A) GDP in the […]

Table 8-11 Consider the following data for Tyrovia, a country that produces only two products: guns and butter. Refer to Table 8-11. Real GDP for Tyrovia for 2013 using 2005 as the base year equals A) $1,140. B) $880. C) […]

A voluntary export restraint is an agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country. Compared to the previous 20 years, productivity […]

If the marginal cost of producing a television is constant at $200, then a firm should produce this item A) only if the marginal benefit it receives is greater than $200 plus an acceptable profit margin. B) as long as […]

By the 2000s, an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages. A) investment banks B) Federal Reserve Banks C) commercial banks D) savings banks When Americans decrease their […]

The ratio at which a country can trade its exports for imports from other countries is called comparative advantage. In a market with positive externalities, the market equilibrium price will be greater than the efficient equilibrium price. Answer: FALSE “Cost […]

In September, buyers of silver expect that the price of silver will rise in October. What happens in the silver market in September, holding all else constant? A) The quantity demanded decreases. B) The demand curve shifts to the left. […]

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime. Exchange rates under the Bretton Woods system were determined by relative supplies of gold held by countries within the system. Answer: FALSE[/cpmembership] When […]

Raising taxes on interest and dividend income will increase the level of investment and economic growth. The rising cost of uninsured patients receiving treatment at hospital emergency rooms is one of the leading causes of the increase in health care […]

An efficient tax is A) a tax that imposes an equal tax burden on buyers and sellers. B) a tax that raises a maximum amount of revenue. C) a tax that imposes a small excess burden relative to the tax […]

Which of the following is part of an economic model? A) assumptions B) norms C) opinions D) preferences of economic agents In January, buyers of gold expect that the price of gold will fall in February. What happens in the […]

On the 45-degree line diagram, for points that lie below the 45-degree line, A) planned aggregate expenditure is greater than GDP. B) planned aggregate expenditure is less than GDP. C) planned aggregate expenditure is equal to GDP. D) planned aggregate […]

A voluntary export restraint is an agreement negotiated by two countries that places ________ that can be imported by one country from another country. A) a tax on goods B) a minimum quantity of a good C) quality standards on […]

Which of the following accurately describes growth rates in the United States from 1900 to the present? A) Growth rates rose until the 1970s and then fell until the present. B) Growth rates have risen continuously from 1900 to the […]

Table 3-2 Refer to Table 3-2. The table above shows the demand schedules for cashews of two individuals (Jordy and Amy) and the rest of the market. At a price of $10, the quantity demanded in the market would be […]

If the current account is in deficit and the capital account is zero, then A) the financial account must be in surplus. B) the balance of trade must be in surplus. C) the balance of payments must be in surplus. […]

If inflation in Mexico is lower than it is in the United States, A) the purchasing power of the peso in buying Mexican goods will fall relative to the dollar. B) the value of the dollar will rise in the […]

An economic growth model explains A) changes in real GDP per capita in the long run. B) how changes in the money supply affect real interest rates. C) changes in government tax policies over time. D) the growth rate of […]

A persistent shortage of yen at a given fixed exchange rate (in dollars per yen) is evidence that the yen is ________ versus the dollar. This shortage can be reduced or eliminated through a ________ of the yen. A) undervalued; […]

Under the Bretton Woods exchange rate system, ________ could sell their dollars to the American government in exchange for gold. A) foreign central banks B) American citizens C) foreign citizens D) all of the above Table 2-5 Table 2-5 shows […]

Increasing a fixed exchange rate is called a revaluation. There will be no deadweight loss if the marginal benefit to consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized. […]

An increase in imports increases aggregate demand. Accumulating a greater number of inputs will ensure that an economy will experience economic growth. Answer: FALSE Suppose the extra cost to a doctor of keeping her office open on Saturdays is $800. […]

The Soviet Union’s economy grew rapidly in terms of GDP per hour worked in the 1950s, but eventually this growth slowed. Why did this occur? A) Capital per hour worked grew rapidly from 1950 to 1980, but technological change occurred […]

The only type of business that faces limited liability is a corporation. For most goods and services, the burden of a tax is on the sellers. Answer: FALSE One consequence of adverse selection in the market for used cars is […]

“A decrease in the price of digital cameras will decrease the demand for camera film.” This statement is an example of a positive economic statement. Higher interest rates increase both consumption and investment spending. Answer: FALSE If the rate of […]

If you have trouble finding a job because of a slowdown in the overall economy, we would say that you are A) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) seasonally unemployed. It is difficult to determine if foreign […]

Inflation redistributes income to a greater extent when the inflation is unanticipated compared to when the inflation is anticipated. When Jack’s income increases by $1,000, he spends an additional $850 dollars. This implies that his marginal propensity to save is […]

The period between a business cycle peak and a business cycle trough is called A) expansion. B) recession. C) diffusion. D) recalculation. The interest payment on a bond is called A) the coupon payment. B) principal. C) the interest rate. […]

What are earnings per share equal to? A) the last dividend payment made B) total dividend payments plus retained earnings divided by outstanding stock shares C) the amount by which the stock’s market price has increased in the last year […]

If it costs Hobie $900 to produce 5 lamps and $1,200 to produce 6 lamps, then the difference of $300 is the marginal cost of producing the 5th lamp. Over the last three decades in the United States, services have […]

A decrease in a fixed exchange rate from $1.75 per pound to $1.60 per pound is called a(n) ________ of the pound. A) devaluation B) depreciation C) appreciation D) revaluation A decrease in individual income taxes ________ disposable income, which […]

What is the term that describes a situation in which one party to an economic transaction has less information than the other party? A) inefficient market hypothesis B) asymmetric information C) unequal market structure D) monopsony If your nominal wage […]

If the MPC is 0.5, then a $10 million increase in disposable income will increase consumption by A) $2 million. B) $5 million. C) $15 million D) $50 million. According to the World Bank, in 2006, China’s GDP was approximately […]

A sole proprietorship is A) the easiest type of business to set up. B) the most difficult type of business to set up. C) the most expensive type of business to set up. D) the least profitable type of business […]

The balance of trade is defined as A) the difference between the balance of the current account and the balance of the capital account. B) the difference between the value of the goods and services a country exports and the […]

Firms in a small economy planned that inventories would grow over the past year by $300,000. Over that year, inventories actually grew by $400,000. This implies that A) aggregate expenditure that year was less than GDP that year. B) there […]

What factors are not important in determining exchange rate fluctuations in the long run? A) relative price levels across countries B) relative rates of productivity growth across countries C) preferences for domestic and foreign goods across countries D) speculating in […]

Figure 2-8 Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts. Refer to Figure 2-8. What is the opportunity cost of producing 1 ton of pineapples in Costa Rica? […]

If property rights are not well enforced, all of the following are likely to occur except A) fewer goods and services will be produced. B) economic efficiency will be reduced. C) an economy will produce inside its production possibilities frontier. […]

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left, then the Fed A) cannot maintain the interest rate target. B) can maintain the interest rate target, but at a lower quantity of […]

For each of the following pairs of products state which are complements, which are substitutes, and which are unrelated. a. House plants and potato chips b. Eyeglasses and contact lenses c. Motorcycles and gasoline d. Smartphone and smartphone apps e. […]

Table 4-6 Refer to Table 4-6. The equations above describe the demand and supply for Aunt Maud’s Premium Hand Lotion. The equilibrium price and quantity for Aunt Maud’s lotion are $20 and 30 thousand units. What is the value of […]

An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier. An increase in government spending lowers interest rates and increases the rate of investment […]

If a corporate bond with a face value of $5,000 pays yearly coupon payments of $100, what is the coupon rate? A) 2% B) 5% C) 10% D) 20% An advantage of the establishment survey over the household survey of […]

The long-run aggregate supply curve will shift to the right if A) the economy experiences technological change. B) there is a decrease in population. C) the economy experiences high levels of inflation. D) net exports decrease. If, between 2003 and […]

If net exports are negative, A) net foreign investment is also negative. B) capital inflows must be less than capital outflows. C) net foreign investment is positive. D) Both A and B are correct. If actual inflation is greater than […]

Which of the following would shift the supply curve for energy drinks to the left? A) a decrease in the expected future price of energy drinks B) an increase in consumer income (assuming that energy drinks are normal goods) C) […]

A successful market economy requires well defined property rights and A) balanced supplies of all factors of production. B) an independent court system to adjudicate disputes based on the law. C) detailed government regulations. D) a safety net to ensure […]

If a bank receives a $20 million discount loan from the Federal Reserve, then the bank’s reserves will A) not change. B) increase by $20 million. C) increase by less than $20 million. D) increase by more than $20 million. […]

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil. If the exchange rate is 2 reals per dollar, purchasing power parity predicts that A) the dollar is undervalued. B) the dollar is overvalued. C) the […]

Figure 19-6 Refer to Figure 19-6. Which of the following would cause the change depicted in the figure above? A) Lack of investment in infrastructure causes Mexican productivity to fall relative to American productivity. B) A possibility of diseased poultry […]

According to Nobel laureate Douglass North, one reason why the Industrial Revolution occurred in England before many other countries was because the king in England consistently maintained control over the court system and the government. Price floors are illegal in […]

The difference between consumer surplus and producer surplus in a market is equal to the deadweight loss. Most U.S. currency held outside the U.S. banking system is held by foreigners. Answer: TRUE Examining the conditions that could lead to inflation […]

If the price of propane-fueled gas grills was to decrease, then A) the demand for propane would decrease. B) the demand for propane would increase. C) the quantity of propane demanded would increase. D) the quantity of propane demanded would […]

In a small Asian country, it is estimated that changing the level of capital from $8 million to $12 million will increase real GDP from $5 million to $6 million. If the number of hours worked in the labor force […]

Figure 17-6 Refer to Figure 17-6. If firms and workers have rational expectations, an expansionary monetary policy will cause the short-run equilibrium to move from A) point B to point C. B) point C to point A. C) point A […]

When the government runs a deficit, which of the following is true? A) T > TR – G B) G > T + TR C) G > TR – T D) T < G + TR As a percentage of […]

Tanesha sells homemade candles over the Internet. Her annual revenue is $64,000 per year, the explicit costs of her business are $17,000, and the opportunity costs of her business are $22,000. What is her economic profit? A) $17,000 B) $25,000 […]

In an economy with money, as opposed to barter, people are more likely to specialize in the production of goods and services. If gold is used as money in an economy, the money supply is easy to control. Answer: FALSE […]

Market economies tend to grow more quickly than centrally-planned economies. If nominal GDP is less than real GDP, then the GDP deflator will be greater than 100. Answer: FALSE In face of a negative supply shock, the Fed may avoid […]

The purchase by a foreign government of an airplane produced in the United States is included in U.S. A) consumption expenditures. B) investment expenditures. C) government purchases. D) net exports. If firms find that consumers are purchasing more than expected, […]

________ behavioral assumption about humans was that people usually act in a rational, self-interested way. A) Thomas Malthus’s B) Adam Smith’s C) Karl Marx’s D) Ben Bernanke’s Suppose that an increase in capital per hour worked from $15,000 to $20,000 […]

Which of the following is a result of government price controls? A) Some people win and some people lose. B) Price controls benefit poor consumers but harm producers and wealthy consumers. C) Price controls increase economic efficiency. D) The deadweight […]

Which of the following could increase unemployment and inflation simultaneously? A) an increase in oil prices B) expansionary monetary policy C) contractionary monetary policy D) a decrease in the real wage In the dynamic aggregated demand and aggregate supply model, […]

The deflation of the 1930s impacted the U.S. economy because it led some consumers to ________ and because it ________. A) postpone purchases while they waited for prices to fall even lower; increased the burden on borrowers B) demand higher […]

________ save a ________ of their income. This ________ capital in their economy and raises economic growth. A) Developing countries; large proportion; decreases B) Developing countries; small proportion; increases C) High-income countries; large proportion; increases D) High-income countries; small proportion; […]

Two consequences of asymmetric information are adverse selection and moral hazard. An important distinction between the two is A) adverse selection exists prior to the completion of a transaction while moral hazard occurs after the transaction is completed. B) moral […]

Contractionary monetary policy causes A) aggregate demand to rise and the price level to rise. B) aggregate demand to fall and the price level to fall. C) aggregate demand to rise and the price level to fall. D) aggregate demand […]

The Stogie Shop, a cigar store in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar? A) 4 machine-made cigars B) one-quarter of a machine-made cigar […]

If speculators believe a currency is soon going to be revalued, they will increase their demand for that currency. The division of the burden of a tax between buyers and sellers in a market is called tax incidence. Answer: TRUE […]

Table 2-5 Table 2-5 shows the number of labor hours required to produce a cell phone and a board foot of lumber in Estonia and Finland. Refer to Table 2-5. What is Finland’s opportunity cost of producing one board foot […]

With the Troubled Asset Relief Program (TARP), the Treasury provided funds to banks in exchange for stock. The natural rate of unemployment is the rate that exists when the economy is producing at potential GDP. Answer: TRUE Under current U.S. […]

High-income countries such as the United States spend a greater amount on services as compared to goods. In reality, the Fed is unable to use monetary policy to keep real GDP exactly at its potential level. Answer: TRUE Marginal benefit […]

A policy that offers parents a tax reduction based on how much they are saving for their children’s college education should ________ the equilibrium level of loanable funds and ________ the rate of long-term growth. A) decrease; increase B) increase; […]

Figure 2-2 Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. Refer to Figure 2-2. If Vidalia chooses to produce 40 dozen orchids, how many roses can it produce to […]

Which of the following would cause the short-run aggregate supply curve to shift to the right? A) an increase in the price level B) a decrease in inflation expectations C) a technological advance D) an increase in interest rates Figure […]

Technological change will A) shift the per-worker production function up. B) shift the per-worker production function down. C) move the economy to a point beneath the per-worker production function. D) move the economy along a given per-worker production function. Your […]

Figure 2-9 Figure 2-9 shows the production possibilities frontiers for Greenland and Iceland. Each country produces two goods, snow cones and popsicles. Refer to Figure 2-9. What is the opportunity cost of producing 1 popsicle in Iceland? A) 1 1/2 […]

Which of the following characterizes the Fed’s ability to prevent recessions? A) The Fed is able to “fine tune” the economy and entirely eliminate recessions. B) The Fed is incapable of changing aggregate demand through its monetary policy tools. C) […]

The overall mortality rate in the United States has declined for the past 30 years. Most economists believe that labor unions significantly increase the overall unemployment rate in the United States. Answer: FALSE The Fed has complete control over the […]

The value of what a U.S.-owned McDonald’s produces in South Korea is included in the U.S. ________ and the South Korean ________. A) GDP; GDP B) GNP; GDP C) GDP; GNP D) GNP; GNP When a celebrity has the desire […]

If labor productivity growth slows down in a country, this will A) accelerate the increase in real GDP per capita. B) accelerate the increase in nominal GDP. C) slow down the increase in real GDP per capita. D) slow down […]

A decrease in the real interest rate will A) cause consumers to spend less and save more. B) most likely increase consumer’s purchases of durable goods. C) most likely increase the reward to savings. D) most likely increase the cost […]

Figure 10-3 Refer to Figure 10-3. Which of the following is consistent with the graph depicted above? A) Taxes are changed so that real interest income is taxed rather than nominal interest income. B) An expected recession decreases the profitability […]

The quota on imported sugar costs U.S. consumers more than $2 billion annually and protects very few jobs. Why does Congress maintain a sugar quota that protects only a few thousand workers while forcing millions of people to pay higher […]

Suppose that when the price of ice cream increases, Liza decreases her purchase of hot fudge. To Liza, A) ice cream and hot fudge are complements. B) ice cream and hot fudge and substitutes. C) ice cream and hot fudge […]

Figure 4-3 Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price […]

Table 15-2 Refer to Table 15-2. Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy. If the […]

The seven members of the Board of Governors of the Federal Reserve are appointed by A) Congress. B) the President. C) the Governors of the States. D) leaders in the banking industry. E) the Treasury Department. The aggregate demand curve […]

According to the U.S. Treasury, A) the government will not accept cash in payment of taxes. B) creditors do not have to accept cash in payment of debts. C) firms do not have to accept cash as payment for goods […]

According to the “Rule of 70,” how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%? A) less than 1 year B) 5 years C) 14 […]

Article Summary In what is being called a “bail-in,” the finance ministers of the 17-nation Eurozone agreed to step in to assist the banking system in the nation of Cyprus. With this arrangement, the banks receive an infusion of capital, […]

Figure 3-4 Refer to Figure 3-4. At a price of $20, how many units will be supplied? A) 400 B) 500 C) 600 D) 800 The economic growth model predicts that A) GDP per capita of rich countries will grow […]

The long-run aggregate supply curve is vertical. Deadweight loss refers to a loss in revenue resulting from producers having to reduce their selling price to remain competitive. Answer: FALSE For the purchasing power of money to increase, the price level […]

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate is 0.1, and the marginal propensity to import equals 0.2. A) 2.1 B) 1.9 C) 1.7 D) 1.4 How can economic growth help a […]

Which of the following would occur if the United States switched from income taxes to consumption taxes? A) Consumption would increase. B) The supply of loanable funds would decrease. C) Saving would increase. D) Tax revenues would rise. Dollar bills […]

Consider the following T-account for a bank: If the required reserve ratio is 10 percent, the bank at this point can make no more loans. If the population increases and input prices increase, the equilibrium price of a product will […]

Table 2-2 Production choices for Nadia’s Neckware Refer to Table 2-2. Assume Nadia’s Neckware only produces ascots and bowties. A combination of 16 ascots and 6 bowties would appear A) along Nadia’s production possibilities frontier. B) inside Nadia’s production possibilities […]

Which of the following would you expect to increase both interest rates and exchange rates? A) expansionary monetary policy B) contractionary monetary policy C) expansionary fiscal policy D) Both B and C will increase both interest rates and exchange rates. […]

If two countries adhere to a gold standard, the exchange rate for their currencies is fixed. An increase in the inflation rate increases employment only if the increase in inflation is unexpected. Answer: FALSE Aggregate expenditure includes consumption spending, unplanned […]

The primary tool the Federal Reserve uses to increase the money supply is A) printing more money. B) lowering the required reserve ratio. C) buying Treasury securities. D) lowering the discount rate. As was demonstrated in 2007, firms in the […]

Suppose your expenses for this term are as follows: tuition: $5,000, room and board: $3,000, books and other educational supplies: $500. Further, during the term, you can only work part-time and earn $4,000 instead of your full-time salary of $10,000. […]

Protectionism is the use of ________ to protect domestic firms from foreign competition. A) military force B) trade barriers C) cheap labor D) dumping When the U.S. government places a tariff on a product, such as the tariff on tires […]

By the 2000s, investment banks had become significant participants in the secondary market for mortgages. The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises. Answer: TRUE The income effect of […]

Between 2013 and 2014, if an economy’s exports rise by $8 billion and its imports fall by $8 billion, by how much will GDP change between the two years, all else equal? A) Net exports will increase GDP by $8 […]

An increase in the price level causes a movement down the aggregate demand curve. If the demand for a product decreases and the supply of the product does not change, equilibrium price and equilibrium quantity will both increase. Answer: FALSE […]

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket. A) […]

In the long run, A) GDP = potential GDP. B) unemployment is below its natural rate. C) LRAS and SRAS lie on the same line. D) unemployment is above its natural rate. Which of the following is a true statement […]

The aggregate demand curve will shift to the right ________ the initial decrease in taxes. A) by less than B) by more than C) by the same amount as D) sometimes by more than and other times by less than […]

What impact might a decrease in the U.S. federal budget deficit have on interest rates and exchange rates in the market for the U.S. dollar? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.) A) […]

If a country produces only two goods, it is possible to have an absolute advantage in the production of both those goods. On average, people in the United States spend a smaller percentage of their income on health care than […]

If, in an economy experiencing inflation, the government decided to tax real interest income rather than nominal interest income, this change would cause the real interest rate to ________ and the equilibrium quantity of loanable funds to ________. A) fall; […]

Refer to Figure 17-2. Suppose the economy is at point C in the figure above. If workers adjust their expectations of inflation, which of the following will be true? A) The short-run Phillips curve will shift to the right. B) […]

An example of a factor of production is A) a car produced by an auto manufacturer. B) a worker hired by an auto manufacturer. C) a loan granted to an auto manufacturer. D) the automobiles exported by an auto manufacturer. […]

Scenario 1-1 Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, “Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 […]

Paying efficiency wages are a way for a company to cut costs and become more efficient, and are therefore lower than market wages. Stagflation occurs when aggregate supply and aggregate demand both increase. Answer: FALSE The Bretton Woods system was […]

Which of the following would be the best measure of the cost of living? A) real GDP B) real GDP per person C) GDP deflator D) consumer price index Which of the following is an example of foreign portfolio investment? […]

How does a decrease in value of a country’s currency relative to other currencies affect its balance of trade? A) A decrease in value of a country’s currency relative to other currencies raises imports, reduces exports, and reduces the balance […]

Consider a country that produces only two goods: bird feeders and binoculars. Suppose it is possible for this country to increase its production of bird feeders without producing fewer binoculars. In this case, its current output combination is inefficient. In […]

How are the fundamental economic decisions determined in Canada? A) Individuals, firms, and the government interact in a market to make these economic decisions. B) These decisions are made by the country’s elders who have had much experience in answering […]

If a country has an absolute advantage in producing a product, it may not have a comparative advantage in producing that product. The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order […]

The sum of public and private saving in an economy is equal to A) Y – C – T. B) T – TR – G. C) Y – C – G. D) I – C – G. Figure 12-2 Refer […]

The key factors in raising standards of living in low-income countries have been increases in A) capital accumulation and the money supply. B) technology and knowledge. C) foreign aid and population. D) income and government ownership of resources. Employers withhold […]

Figure 10-6 Refer to Figure 10-6. The loanable funds market is in equilibrium, as shown in the figure above. As a result of an increase in the government budget deficit, the ________ for loanable funds will ________, thereby ________ the […]

Figure 12-1 Refer to Figure 12-1. If the economy is at point L, what will happen? A) Inventories have fallen below their desired level, and firms decrease production. B) Inventories have fallen below their desired level, and firms increase production. […]

Adverse selection refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. One problem with deflation is that it can raise the real value of debt. Answer: […]

Table 7-6 Production and Consumption Production Without Trade With Trade Estonia and Morocco can produce both swords and belts. Table 7-6 shows the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. If […]

If the Fed lowers the reserve requirement, then this A) increases excess reserves, encourages banks to make more loans, and increases the money supply. B) decreases excess reserves, causes banks to reduce their loans, and decreases the money supply. C) […]

The budget deficit increases during wars and recessions. In a market with positive externalities, the market equilibrium quantity will be less than the efficient equilibrium quantity. Answer: TRUE Increasing the federal budget deficit will contribute to increasing the federal government […]

The long-run adjustment to a negative supply shock results in A) the short-run aggregate supply curve shifting to the right. B) the price level rising. C) unemployment rising. D) workers being willing to accept higher wages. The ________ effect of […]

Net foreign investment minus net foreign portfolio investment is equal to A) capital outflows. B) net foreign financial investment. C) the balance of trade. D) net foreign direct investment. Figure 3-1 Refer to Figure 3-1. If the product represented is […]

You earn $500 a month, currently have $200 in currency, $100 in your checking account, $2,000 in your savings accounts, $3,000 worth of illiquid assets and $1,000 of debt. You have A) money = $2,300, annual income = $6,000, and […]

An economy that grows too slowly fails to raise living standards. In the United States, the typical person who has lost his or her job finds another one in a few months except during severe recessions. Answer: TRUE The developing […]

One reason why many low-income countries experience low rates of growth is because of poor public education and health. If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money […]

Why do corporations want to keep the price of their stock high? A) A higher stock price increases the funds the firm can raise when it sells a given amount of stock. B) Corporations can pay their managers lower salaries […]

Suppose the government wants to maintain a balanced budget. To achieve this goal, when the economy falls into recession government would need to ________ taxes, which would cause aggregate demand to ________. A) decrease; decrease B) decrease; increase C) increase; […]

Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook. If inflation is higher than expected, this helps borrowers (by reducing the real interest rate they […]

Compared to the United States, health care spending per person in other high-income countries has been A) growing at a slower rate. B) growing at a faster rate. C) growing at approximately the same rate. D) declining at approximately the […]

In an attempt to bring lenders and borrowers together following the financial crisis of 2008, the Federal Reserve made a large amount of new funds available to financial markets. Any of these new funds that are loaned out by banks […]

National income equals gross national product minus A) imports. B) depreciation. C) inventories. D) changes in inventories. A bond’s coupon payment divided by the bond’s current price is equal to the bond’s A) dividend yield. B) current yield. C) price-earnings […]

The substitution effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded. If additional units of a good could be produced at a constant opportunity cost, the production possibility […]

Which of the following is a macroeconomics question? A) What determines the unemployment rate? B) How is the production quantity of digital cameras determined? C) What factors determine the price of iPhones? D) What determines the wages and benefits of […]

Which of the following is not a reason why low-income countries might experience low economic growth? A) The country has endured extended periods of war. B) The country fails to enforce a rule of law. C) The country has a […]

The principal-agent problem that exists between shareholders and managers also exists between managers and workers. When Javier’s income increases by $5,000, he spends an additional $3,750 dollars. This implies that his marginal propensity to consume is 0.75. Answer: TRUE An […]

The Congressional Budget Office estimates that ________ account(s) for less than 1 percent of health care costs in the United States. A) the aging population B) uninsured patients receiving treatment in hospital emergency rooms that could have been provided less […]

The Taylor rule helps explain the relationship between the Fed’s ________ and ________. A) money supply target; economic conditions B) money supply target; the federal funds target C) federal funds target; the monetary growth rule D) federal funds target; economic […]

Table 3-2 Refer to Table 3-2. The table above shows the demand schedules for cashews of two individuals (Jordy and Amy) and the rest of the market. If the price of cashews rises from $4 to $6, the market quantity […]

A decrease in the price level will A) shift the aggregate demand curve to the left. B) shift the aggregate demand curve to the right. C) move the economy up along a stationary aggregate demand curve. D) move the economy […]

The three most important international financial centers today are A) New York, Los Angeles, and London. B) London, Tokyo, and Beijing. C) San Francisco, Paris, and Mexico City. D) Tokyo, London, and New York. The consumer price index (CPI), the […]

New classical macroeconomic theory emphasizes the role of ‘sticky” prices in the economy. GDP is not a complete measure of well-being. Answer: TRUE The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates. Answer: FALSE […]

Market equilibrium occurs where the quantity supplied is equal to the quantity demanded. In the United States, domestic investment is greater than national saving. Answer: TRUE Potential GDP is always greater than real GDP in an economy. Answer: FALSE Expansionary […]

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation. As a percentage of GDP, health care spending on Medicare and Medicaid is expected to double over the next 40 years unless health care […]

Article Summary Concerned about slow economic growth, the Fed announced in September 2013 that it would postpone winding down its $85 billion a month bond purchasing program which has been a key component of its monetary stimulus package. Fed Chairman […]

Payments by a corporation to its shareholders are known as A) stocks. B) bonds. C) coupons. D) dividends. Table 7-6 Production and Consumption Production Without Trade With Trade Estonia and Morocco can produce both swords and belts. Table 7-6 shows […]

Economist Steve Landsburg has pointed out that Ebenezer Scrooge’s change in behavior from miser to spender might actually be detrimental to the economy because A) Scrooge’s miserly saving helped contribute to the production of investment goods rather than consumption goods. […]

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls? A) SRAS shifted to the right by more than LRAS. B) AD shifted to the right by more than […]

Most of the pressure for a monetary growth rule has disappeared because since 1980, A) the relationship between movements in the money supply and movements in real GDP and the price level have become much stronger. B) the relationship between […]

The purchase or building by a corporation of a facility in a foreign country is called A) foreign direct investment. B) foreign portfolio investment. C) foreign capital depreciation. D) globally-directed investment. By the year 2013, health care spending on Medicare, […]

All else being equal, if the rate of growth in productivity in Spain is greater than the rate of growth in productivity in the United States, the euro A) will decrease in value relative the U.S. dollar. B) will increase […]

Which of the following is an example of foreign direct investment in China? A) U.S. auto entrepreneur Elon Musk buys stock in Tata Motors of Mumbai, India. B) Chinese Shenzen Airlines company buys a small U.S. midwest airline company, Air […]

The argument advanced by Milton Friedman for adopting a monetary growth rule is that A) active monetary policy potentially destabilizes the economy. B) the Fed can control the money supply, but not the level of interest rates. C) a constant […]

The ________ is a measure of the price level and is calculated by dividing ________ by ________ and multiplying by 100. A) CPI; real GDP; nominal GDP B) GDP deflator; real GDP; nominal GDP C) GDP deflator; nominal GDP; real […]

An unplanned increase in inventories results from A) an increase in planned investment. B) a decrease in planned investment. C) actual investment that is greater than planned investment. D) actual investment that is less than planned investment. The marginal propensity […]

Figure 13-1 Refer to Figure 13-1. Ceteris paribus, a decrease in personal income taxes would be represented by a movement from A) AD1 to AD2. B) AD2 to AD1. C) point A to point B. D) point B to point […]

Table 2-9 Table 2-9 shows the number of labor hours required to produce a wristwatch and a pound of rice in Japan and Thailand. Refer to Table 2-9. Thailand has a comparative advantage in the production of A) rice. B) […]

The term “market” refers only to trading arrangements that have been approved by the government. Contractionary fiscal policy involves decreasing government purchases or increasing taxes. Answer: TRUE Economies cannot function without money. Answer: FALSE There are no costs to inflation […]

Which of the following would be directly counted in GDP in 2014? A) kitchen cabinets purchased from Home Depot in 2014 to be installed in a house built in 1997 B) kitchen cabinets built in 1887, extracted from the 1887 […]

If the federal budget has an actual budget surplus of $75 billion, but a cyclically adjusted budget surplus of $50 billion, then the economy must be above potential real GDP. One of the main sources of comparative advantage is natural […]

Direct finance includes the sale by a corporation of stocks or bonds, but does not include borrowing money from a bank. If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% […]

Figure 4-4 Refer to Figure 4-4. The figure above represents the market for iced tea. Assume that this is a competitive market. If 20,000 units of iced tea are sold A) the deadweight loss is equal to economic surplus. B) […]

The balance of payments includes which three accounts? A) the current account, the financial account, and the capital account B) the capital flows account, the financial account, and the trade account C) the net investment account, the net exports account, […]

The income effect explains why there is a direct relationship between the price of a product and the quantity of the product demanded. The United States would gain from the elimination of tariffs and quotas even if other countries do […]

Knowledge capital is A) rival. B) nonrival. C) nonexcludable. D) both B and C Answer: D Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal […]

Table 1-2 Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of hours the tailor shop […]

If the amount you owe on your house is less than the price of the house, you have A) positive equity in your house. B) an adjustable-rate mortgage on your house. C) negative equity in your house. D) a reverse […]

Securities dealers that trade stocks and bonds outside exchanges comprise the A) foreign exchange market. B) over-the-counter market. C) NASDAQ market. D) outlet market. Suppose the government launches a successful advertising campaign that convinces workers with high school degrees to […]

The decline in the value of the yen after 2012 occurred as a result of the Japanese central bank, the Bank of Japan, following an expansionary monetary policy. Investors expected that the result would be lower nominal Japanese interest rates […]

Holding everything else constant, a decrease in the price of GPS systems will result in A) an decrease in the quantity of GPS systems demanded. B) an increase in the demand for GPS systems. C) a decrease in the supply […]

In response to accounting scandals in 2002, the federal government passed legislation requiring that corporate directors have a certain level of expertise with financial information and mandating that chief executive officers personally certify the accuracy of financial statements. What is […]

New Keynesian macroeconomic theory emphasizes the role of ‘sticky” prices in the economy. On a diagram of a production possibility frontier, opportunity cost is represented by the slope of the production possibility frontier. Answer: TRUE The aggregate demand curve shows […]

Figure 3-3 Refer to Figure 3-3. The figure above shows the supply and demand curves for two markets: the market for original Michelangelo sculptures and the market for Ray Ban sunglasses. Which graph most likely represents which market? A) Graph […]

Figure 18-1 Refer to Figure 18-1. Europe experiences an economic boom. Assuming all else remains constant, this would be represented as a movement from A) D to A. B) D to C. C) C to B. D) B to A. […]

Figure 10-1 Refer to Figure 10-1. Which of the following is consistent with the graph depicted above? A) An expected recession decreases the profitability of new investment. B) Technological change increases the profitability of new investment. C) The government runs […]

In a fixed exchange rate system, speculation regarding an expected revaluation or devaluation of a currency makes it more difficult to maintain the existing exchange rate. If the Fed wishes to decrease the supply of money and credit, it may […]

Which type of business has the least government rules and regulations affecting it? A) sole proprietorship B) partnership C) corporation D) They all have the same set of rules and regulations affecting them. Figure 11-1 Refer to Figure 11-1. Diminishing […]

At market equilibrium, A) demand equals supply. B) quantity demanded equals quantity supplied. C) surpluses are greater than shortages. D) shortages are greater than surpluses. According to new growth theory, A) physical capital is nonexcludable. B) knowledge capital is excludable. […]

Table 7-6 Production and Consumption Production Without Trade With Trade Estonia and Morocco can produce both swords and belts. Table 7-6 shows the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. If […]

A full-time student who is not working is categorized as A) unemployed. B) employed. C) not in the labor force. D) a discouraged worker. E) frictionally unemployed. The increase in government spending on unemployment insurance payments to workers who lose […]

Which of the following is included in both the U.S. GDP and U.S. GNP? A) the value of all cars produced by General Motors in the United States B) the value of all cars produced by Ford in Mexico C) […]

If the balance of the current account in the United States is -$900 billion, which of the following is most likely to be true? A) The balance on the financial account is positive. B) The trade balance is positive. C) […]

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase. Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures. Answer: FALSE Most of the countries of Africa […]

An increase in the government budget deficit will shift the ________ curve for loanable funds to the ________ and the equilibrium real interest rate will ________. A) supply; right; fall B) supply; left; rise C) demand; right; rise D) demand; […]

When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise. A) imports; exports; net exports B) exports; imports; net exports C) net exports; […]

Due to slowing growth in China and other developing countries, Caterpillar ________ the number of persons it employed in 2013 and this ________ the total number of persons unemployed in the economy. A) decreased; increased B) decreased; decreased C) increased; […]

During which of the following time periods did inflation remain above 5 percent every year? A) 1990 through 1999 B) 1973 through 1982 C) 1968 through 1971 D) 1958 through 1962 In preparing their estimates of the stimulus package’s effect […]

If the Phillips curve represents a “________ relationship,” then the trade-off between unemployment and inflation is permanent. A) structural B) frictional C) cyclical D) dynamic An increase in the demand for peanuts due to changes in consumer tastes, accompanied by […]

Expansionary monetary policy refers to the ________ to increase real GDP. A) government’s increasing spending and lowering taxes B) government’s decreasing spending and raising taxes C) Federal Reserve’s increasing the money supply and decreasing interest rates D) Federal Reserve’s decreasing […]

Inflation that is ________ than what is expected benefits ________ and hurts ________. A) less; lenders; borrowers B) less; borrowers; lenders C) greater; lenders; borrowers D) greater; lenders; no one Figure 19-3 Refer to Figure 19-3. At what level should […]

Figure 4-5 Figure 4-5 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. Refer to Figure 4-5. Suppose that instead of a price ceiling, the government imposed a price floor of R1. […]

In the long run, most economists agree that a permanent increase in government spending leads to A) no decrease in private spending. B) a decrease in private spending by less than the amount that government spending increased. C) a decrease […]

Table 3-1 Refer to Table 3-1. The table above shows the demand schedules for Kona coffee of two individuals (Luke and Ravi) and the rest of the market. If the price of Kona coffee rises from $4 to $5, the […]

At macroeconomic equilibrium, A) total investment equals total inventories. B) total spending equals total production. C) total consumption equals total production. D) total taxes equal total transfers. Table 9-5 Refer to Table 9-5. Consider the following values of the consumer […]

The expansionary monetary and fiscal policies of the 1960s resulted in A) high inflation rates and high rates of unemployment. B) low inflation rates and low rates of unemployment. C) low inflation rates and high rates of unemployment. D) high […]

________ describes the relationship between consumption spending and disposable income. A) Household wealth B) The liquidity trap C) The consumption function D) The paradox of thrift A cash withdrawal from the banking system A) decreases reserves. B) decreases deposits. C) […]

What is economic profit? A) gross revenue minus explicit costs B) gross revenue minus implicit costs C) gross revenue minus explicit and implicit costs D) the same as accounting profit Which of the following would explain why accounting profit might […]

Unemployment caused by a business cycle recession is called cyclical unemployment. Examining the conditions that could lead to economic growth is an example of macroeconomic topic. Answer: TRUE The government purchases multiplier will be larger if the marginal income tax […]

Firms that participate in regular open market transactions with the Federal Reserve are called A) secondary market banks. B) Treasury banks. C) primary dealers. D) Federal Reserve partners. If the required reserve ratio is 5 percent, then the simple deposit […]

The existence of the principal-agent problem A) increases the risk of buying stock in a corporation. B) increases the risk of becoming the sole proprietor of a business. C) implies that managers that have the same incentives as the board […]

Table 8-1 Refer to Table 8-1. Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. […]

In a closed economy, A) I = Y – C – G. B) I = Y + C – G. C) I = Y – C + G. D) I = Y + C + G. If the growth rate […]

Figure 4-4 Refer to Figure 4-4. The figure above represents the market for iced tea. Assume that this is a competitive market. At a price of $3 A) the marginal cost of iced tea is greater than the marginal benefit; […]

The German Hyperinflation of the early 1920s was caused by A) the German government raising funds for expenditures by selling bonds to the central bank. B) an overly aggressive monetary policy implemented to combat a severe recession. C) rising oil […]

If opportunity costs are ________, the production possibilities frontier would be graphed as a negatively sloped straight line. A) decreasing B) increasing C) negative D) constant Pakistan has developed a comparative advantage in the production of clothing. The source of […]

The lengths of the recession and expansion phases and which sectors of the economy are most affected will rarely be the same in any two business cycles. At a short-run macroeconomic equilibrium, real GDP is always equal to potential GDP. […]

In the United States, health care spending as a percentage of GDP has declined since 1965. A person’s wealth is the same as his income. Answer: FALSE The marginal propensity to consume measures the average amount of wealth that a […]

Table 9-3 Refer to Table 9-3. Assume the market basket for the consumer price index has three products € Cokes, hamburgers, and CDs € with the following values in 2006 and 2013 for price and quantity: The Consumer Price Index […]

The impact of Hurricane Katrina on consumers in the economy was to make them very pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve? A) This will move the economy up along a stationary […]

In the United States, the average length of expansions from 1950 to 2009 was more than twice as long than they were from 1900 to 1950. Real business cycle models argue that fluctuations in real GDP are caused by unanticipated […]

Robert Lucas argues that there are ________ returns to human capital, and these productivity increases are not completely captured by individuals as they decide how much education to purchase. As a result, the market produces ________ education and training. A) […]

In a market economy, who decides what goods and services will be produced? A) only the producers B) only consumers C) consumers and producers D) the government Under a floating exchange rate, the exchange rate A) will change whenever the […]

A real appreciation of the dollar is caused by either a nominal appreciation of the dollar, a rise in the foreign price level, or a fall in the U.S. price level. An increase in the purchasing power of money need […]

Identify whether each of the following transactions will take place in the factor market or in the product market: a. Shondra buys a Harley-Davidson Softail motorcycle. b. Aimee works 20 hours a week at a grocery store. c. Gustavo sells […]

The federal funds rate is A) the interest rate the Fed charges commercial banks. B) the interest rate a bank charges its best customers. C) the interest rate banks charge each other for overnight loans. D) the interest rate on […]

Inflation targeting, typically, has been accompanied by lower inflation. The question of whether economic growth is desirable is a positive question, easily settled by economic analysis. Answer: FALSE[/cpmembership] Ceteris paribus, an increase in the money supply will lower short-term interest […]

Table 12-13 Refer to Table 12-13. Using the table above, answer the following questions. The numbers in the table are in billions of dollars. a. What is the equilibrium level of real GDP? b. What is the MPC? c. If […]

When Jack’s income increases by $1,000, he spends an additional $850 dollars. This implies that his marginal propensity to consume is 0.85. If the multiplier is 5, the marginal propensity to consume must be 0.8. Answer: TRUE According to new […]

If a country sets a pegged exchange rate that is above the equilibrium exchange rate, how can the country maintain the peg? A) by purchasing surplus domestic currency at the pegged rate B) by selling surplus domestic currency at the […]

The United States A) currently is one of the most corrupt countries. B) has never had a significant problem with corruption. C) had a significant problem with corruption in the 1930s. D) currently ranks among the least corrupt countries. Which […]

Figure 4-3 Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price […]

When the Federal Reserve decreases the money supply, at the previous equilibrium interest rate households and firms will now want to A) buy Treasury bills. B) sell Treasury bills. C) neither buy nor sell Treasury bills. D) hold less money. […]

Which of the following is not an example of inflation causing a redistribution of income because the inflation was unanticipated? A) A firm signs a 3-year contract with a union based on a 2 percent anticipated rate of inflation per […]

Figure 3-1 Refer to Figure 3-1. A decrease population would be represented by a movement from A) A to B. B) B to A. C) D1 to D2. D) D2 to D1. An increase in the price level will A) […]

If the U.S. dollar increases 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 […]

According to Douglass North, the Industrial Revolution occurred in England because A) the British Parliament took control of the government and could credibly commit to upholding property rights. B) the British monarchy took control of the government and pledged not […]

If a firm in Thailand borrows dollars from a U.S. bank, its interest payments on the loan in bahts will decrease if the baht appreciates against the dollar. The circular flow of income shows that GDP can be measured as […]

Figure 5-3 Figure 5-3 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 5-3. With insurance and a third-party payer system, what […]

Which of the following is not an example of a transfer payment? A) unemployment insurance payments B) health insurance payments to an army private C) social security payments to retirees D) social security payments to disabled persons When the government […]

Which of the following is not directly counted in GDP? A) investment expenditures B) government purchases C) intermediate goods D) consumer goods Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000, […]

Producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays. Ceteris paribus, an increase in the government’s budget deficit will increase the current account deficit. Answer: TRUE Foreign portfolio investment […]

Figure 4-5 Figure 4-5 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. Refer to Figure 4-5. Suppose that instead of a price ceiling, the government imposed a price floor of R1. […]

Evidence shows that for many people, delaying searching for a job for a year or longer after they are laid off will contribute to a deterioration of their job skills, making it harder for them to find employment. This deterioration […]

A person’s wealth A) is a measure of how much money the person has. B) equals the value the person’s assets minus his or her liabilities. C) is measured independent of his or her current and expected future income. D) […]

Suppose a positive technological change in the production of disease-resistant corn caused the price of corn to fall. Holding everything else constant, how would this affect the market for wheat (a substitute for corn)? A) The supply of wheat would […]

National income is defined as A) gross national product plus transfer payments. B) gross national product less retained earnings plus transfer payments. C) gross domestic product less retained earnings plus transfer payments. D) gross domestic product less the consumption of […]

An increase in public saving has what impact on the market for loanable funds? A) The supply of loanable funds increases. B) The demand for loanable funds increases. C) The supply of loanable funds decreases. D) The demand for loanable […]

Monetary policy refers to the actions the A) President and Congress take to manage the money supply and interest rates to pursue their economic objectives. B) Federal Reserve takes to manage the money supply and interest rates to pursue its […]

The government makes all economic decisions in a centrally planned economy. When voluntary exchange takes place, only one party gains from the exchange. Answer: FALSE Using “chain-weighted” prices to calculate real GDP remedies the distortions causes by changes in relative […]