Chloe talked to several stockbrokers and made the following conclusions. Which, if
any, of Chloe’s conclusions are
correct?
a. It is relatively easy to reduce firm-specific risk by increasing the number of
companies one holds stock in.
b. Stock prices, even if not exactly a random walk, are very close to it.
c. Some people have made a lot of money in the stock market by using insider
information, but these cases are not contrary to the efficient markets hypothesis.
d. All of Chloe’s conclusions are correct.
Table 3-6
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Refer to Table3-6. Which of the following combinations of toothbrushes and
hairbrushes could Portugal produce in 30 minutes?
a. 1 toothbrush and 4 hairbrushes
b. 4 toothbrushes and 2 hairbrushes
c. 5 toothbrushes and 6 hairbrushes
d. 6 toothbrushes and 5 hairbrushes
Figure 2-2
Refer to Figure2-2. Devin works as an attorney for a corporation and is paid a salary in
exchange for the legal services he performs. Juan owns office buildings and rents his
buildings to companies in exchange for rent payments. If Devin’s income is represented
by a flow of dollars from Box D to Box B of this circularflow diagram, then Juan’s
income is represented by a flow of dollars
a. from Box A to Box C.
b. from Box C to Box A.
c. from Box B to Box D.
d. from Box D to Box B.
The value of a stock depends on the ability of the company to generate dividends and
the expected price of the stock when the stockholder sells her shares.
a. True
b. False
Efficiency wages
a. may increase productivity.
b. will increase unemployment.
c. may improve worker health.
d. All of the above are correct.
Which of the following statements is correct for the short run?
a. Output is determined by the amount of capital, labor, and technology; the interest rate
adjusts to balance the supply and demand for money; the price level adjusts to balance
the supply and demand for loanable funds.
b. Output is determined by the amount of capital, labor, and technology; the interest rate
adjusts to balance the supply and demand for loanable funds; the price level adjusts to
balance the supply and demand for money.
c. Output responds to the aggregate demand for goods and services; the interest rate
adjusts to balance the supply and demand for money; the price level is relatively slow to
adjust.
d. Output responds to the aggregate demand for goods and services; the interest rate
adjusts to balance the supply and demand for loanable funds; the price level adjusts to
balance the supply and demand for money.
On which of these bonds is the prospect of default least likely?
a. a junk bond
b. a bond issued by the state of Arizona
c. a bond issued by the federal government
d. a bond issued by General Electric Corporation
Figure 3-19
Refer to Figure3-19. Chile would incur an opportunity cost of 36 pounds of coffee if it
increased its production of soybeans by
a. 12 pounds.
b. 27 pounds.
c. 30 pounds.
d. 48 pounds.
Figure 4-18
RefertoFigure4-18. Equilibrium price and quantity are, respectively,
a. $15 and 200 units.
b. $25 and 600 units.
c. $25 and 400 units.
d. $35 and 200 units.
Table 3-22
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Refer to Table3-22. Zimbabwe and Portugal would notbe able to gain from trade if
Zimbabwe’s opportunity cost of one toothbrush changed to
a. 0 hairbrushes.
b. 5/6 hairbrushes.
c. 6/5 hairbrushes.
d. Zimbabwe and Portugal can always gain from trade regardless of their opportunity
costs.
If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would
a. rise from 10 to 20.
b. rise from 5 to 10.
c. fall from 10 to 5.
d. not change.
Lawrence is a photographer. He has $230 to spend and wants to buy either a flash for
his camera or a new tripod. Both the flash and tripod cost $230, so he can only buy one.
This illustrates the principle that
a. trade can make everyone better off.
b. people face trade-offs.
c. rational people think at the margin.
d. people respond to incentives.
Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve
and two aggregate-demand (AD) curves. On the right-hand diagram, “Inf Rate” means
“Inflation Rate.”
RefertoFigure35-9. Faced with the shift of the Phillips curve from PC1to PC2,
policymakers will
a. ask whether the shift is temporary or permanent.
b. be concerned with how people adjust their expectations of inflation as a result of the
shift.
c. face, as well, a decision as to whether to accommodate the shock.
d. All of the above are correct.
Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two
demand-for-loanable-funds curves.
RefertoFigure26-2.Which of the following events would shift the demand curve from
D1 to D2?
a. The government goes from running a budget deficit to running a budget surplus.
b. Firms become optimistic about the future and, as a result, they plan to increase their
purchases of new equipment and construction of new factories.
c. A change in the tax laws encourages people to consume less and save more.
d. A change in the tax laws encourages people to consume more and save less.
According to the political business cycle, after an election, unless the central bank acts
inflation is likely to
a. have risen. To counter this the central bank would raise interest rates.
b. have risen. To counter this the central bank would lower interest rates.
c. have fallen. To counter this the central bank would raise interest rates.
d. have fallen. To counter this the central bank would lower interest rates.
Historical episodes allow economists to illustrate and evaluate current economic
theories.
a. True
b. False
Economic models
a. are people who act out the behavior of firms and households so that economists can
study this behavior.
b. are usually detailed replications of reality.
c. incorporate simplifying assumptions that often contradict reality, but also help
economists better understand reality.
d. are useful to researchers but not to teachers because economic models omit many
details of the real-world economy.
If a bank that desires to hold no excess reserves and has just enough reserves to meet
the required reserve ratio of 15 percent receives a deposit of $600, it has a
a. $600 increase in excess reserves and no increase in required reserves.
b. $600 increase in required reserves and no increase in excess reserves.
c. $510 increase in excess reserves and a $90 increase in required reserves.
d. $90 increase in excess reserves and a $510 increase in required reserves.
Which of the following equations represents GDP for an open economy?
a. Y= C+ I+ G+ NX
b. NX= I– G
c. I= Y– C+ G+ NX
d. Y= C+ I+ G
Which of the following is a determinant of productivity?
a. human capital per worker
b. physical capital per worker
c. natural resources per worker
d. All of the above are correct.
Table 28-11
2010 Labor Data for Tajnia
RefetoTable28-11.The labor force of Tajnia in 2010 is 12,250.
a. True
b. False
Figure 3-21
Refer to Figure3-21. Suppose Azerbaijan decides to increase its production of nails by
20. What is the opportunity cost of this decision?
a. 1/4 bolt
b. 4 bolts
c. 5 bolts
d. 80 bolts
Which of the following would cause price to increase?
a. an increase in supply
b. a decrease in demand
c. a surplus of the good
d. a shortage of the good
Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year
and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP
of about 400 billion units of currency and current nominal national debt of 200 billion
units of domestic currency. Which of the following government spending and taxation
figures will keep the debt to-income ratio constant?
a. government spending equal to 30 billion units and tax collections equal to 25 billion
units
b. government spending equal to 30 billion units and tax collections equal to 20 billion
units
c. government spending equal to 30 billion units and tax collections equal to 10 billion
units
d. government spending equal to 30 billion units and tax collections equal to 5 billion
units
During a certain year, the nominal interest rate was 8 percent, the real interest rate was
3 percent, and the CPI was 176.7 at the beginning of the year. The CPI at the end of the
year was
a. 196.1.
b. 185.5.
c. 168.3.
d. 159.2.
Good assumptions simplify a problem without substantially affecting the answer.
a. True
b. False
The Bureau of Labor Statistics’ “unemployed” category includes those who were not
employed, were available for work, and had tried to find employment during the
previous four weeks.
a. True
b. False
Which of the following is a decision that economists study?
a. how much people work
b. what people buy
c. how much money people save
d. All of the above are correct.
Which of the following has been suggested as a cause of the Great Depression?
a. a decline in the money supply
b. a decrease in stock prices
c. the collapse of the banking system
d. All of the above are correct.
A Chinese company exchanges yuan (Chinese currency) for dollars. It uses these dollars
to purchase scrap metal from a U.S. company. As a result of these transactions, Chinese
a. net exports increase, and U.S. net capital outflow increases.
b. net exports increase, and U.S. net capital outflow decreases.
c. net exports decrease, and U.S. net capital outflow increases.
d. net exports decrease, and U.S. net capital outflow decreases.
Which of the following statements is correct?
a. In the late 1800s, real GDP per person was higher in the United Kingdom than in the
United States.
b. In 2010, real GDP per person was higher in the United Kingdom than in the United
States.
c. The average annual growth rate of real GDP was higher in the United Kingdom than
in the United States between the late 1800s and 2010.
d. All of the above are correct.
When economists make normative statements, they are
a. speaking as scientists.
b. speaking as policy advisers.
c. making claims about how the world is.
d. revealing that they are very liberal in their views of how the world works.
In the loanable funds model, an increase in an investment tax credit would create a
a. shortage at the former equilibrium interest rate. This shortage would lead to a rise in
the interest rate.
b. shortage at the former equilibrium interest rate. This shortage would lead to a fall in
the interest rate.
c. surplus at the former equilibrium interest rate. This surplus would lead to a rise in the
interest rate.
d. surplus at the former equilibrium interest rate. This surplus would lead to a fall in the
interest rate.
A typical American worker covered by unemployment insurance receives
a. 50 percent of his former wages for 26 weeks.
b. 50 percent of his former wages for 52 weeks.
c. 100 percent of his former wages for 26 weeks.
d. 100 percent of his former wages for 52 weeks.