When the unemployment rate is greater than the natural rate, wages and prices will fall
eventually.
The marginal propensity to consume is the increase in consumption brought about by an
increase in wealth.
The aggregate demand curve is the sum of all demand curves for all goods and services
in the economy.
For most firms, the biggest cost of doing business is wages.
John Taylor of Stanford University believed that the 2009 stimulus package was very
effective in getting the economy out of the recession.
Figure 19.1
Referring to Figure 19.1, the dollar is likely to depreciate if the exchange rate is either
________ or ________ pesos to the dollar.
A) 10; 11
B) 11; 12
C) 12; 13
D) 13; 14
Recall Application 3, “Is a VAT in our Future?” to answer the following questions.
According to the application, what is the difficulty in imposing VAT in the U.S.?
A) The US already imposes retail level taxes collected by state governments.
B) The VAT is a lot more difficult to collect than sales taxes.
C) Some conservatives oppose the tax because the VAT is regressive.
D) Some liberals oppose the tax because the VAT is too efficient.
Figure 10.1 Refer to Figure 10.1 to answer this question. Suppose that the economy
were at point A, and the government decreases government spending. In the short run,
the economy will move to point:
A) B.
B) C.
C) D.
D) E.
Recall Application 4, “The Locomotive Effect: Why Do Foreign Demand Affects a
Country’s Output,” to answer the following questions:
According to the application, the U.S. growth acts as a “locomotive” for the growth
rates of other countries because:
A) other countries grow when the US grows.
B) other countries will experience a recession when the US grows.
C) the US will experience a recession when the other countries grow.
D) the US exports new trains to the other countries.
Recall Application 2, “Increased Political Independence for the Bank of England
Lowered Inflation Expectations,” to answer the following questions:
According to the application, independence from political influence reinforces central
bank credibility because:
A) it makes central banks more believable in their commitment to fighting inflation.
B) it increases the central bank’s capability to stabilize real GDP.
C) it allows the central bank to aim for zero inflation.
D) all of the above
In terms of the demand for money, the interest rate is:
A) the price of borrowing money.
B) the return on money that is saved for the future.
C) the rate at which current consumption can be exchanged for future consumption.
D) the opportunity cost of holding money.
Table 11.1
Refer to Table 11.1. What is the value of the marginal propensity to consume?
A) 0.15
B) 0.6
C) 0.75
D) 0.9
If you have $10,000 to start a lawn-cutting business, the interest rate is 4 percent, your
cost of equipment is $3,000, and the earnings you sacrifice from working at another job
are $32,000, your yearly cost of doing business would be
A) $13,000.
B) $13,400.
C) $35,400.
D) $45,000.
Figure 4.4 illustrates the supply of tacos. A decrease in the supply of tacos is
represented by a movement from
A) point a to point .
B) point c to point .
C) S2 to S1.
D) S0 to S1.
If a government had a debt of $300 billion and then ran deficits of $200 billion each
year for the next three years, by the end of the third year its total debt would be
A) -$300.
B) $300 billion.
C) $600 billion.
D) $1,200 billion.
The group of economists who emphasize the role that the money supply plays in
determining nominal income and inflation are called:
A) monetarists.
B) Keynesians.
C) classicals.
D) inflationists.
Historically, Democrats have been known to be primarily concerned with fighting
unemployment. Assuming this is true, then after a Democratic electoral victory, the
public could anticipate which of the following economic actions to fight
unemployment?
A) an increase in taxes and an increase in government spending
B) open market purchases and a decrease in taxes
C) open market sales and a decrease in government spending
D) a decrease in the discount rate and an increase in reserve requirements
Recall the Application about how society will cope with increased demands for
entitlement programs to answer the following question(s). This Application addresses
the impact of increasing life expectancy and aging populations on the costs of
government entitlement programs such as Social Security, Medicare and Medicaid, and
examines several possible solutions to the potential problem.
According to this Application, current spending on federal retirement and health
programs accounts for 10 percent of GDP. Experts estimate that this spending
component’s share of GDP ________ by the year 2075.
A) is likely to shrink
B) will more than double
C) will remain constant
D) will grow moderately initially then taper off
Real business cycle theory emphasizes the role of
A) demand shocks as a cause of economic fluctuations.
B) technology shocks as a cause of economic fluctuations.
C) shocks to the money supply as a cause of economic fluctuations.
D) government spending as a cause of economic fluctuations.
Figure 9.2 Refer to Figure 9.2. A movement from point d to point could be caused by
a(n)
A) increase in government spending.
B) increase in the price of oil.
C) increase in taxes.
D) decrease in short-run aggregate supply.
Recall Application 3, “A Closer Look at the 2009 Stimulus Package,” to answer the
following questions:
According to the Application, what were the major components of the 2009 Stimulus
package?
A) temporary tax cuts, aid to state and local government and increased federal
government purchases of goods and services
B) permanent tax cuts, aid to state and local government and increased federal
government purchases of goods and services
C) temporary tax cuts, aid to banks and increased federal government purchases of
goods and services
D) permanent tax cuts, aid to the elderly and bailouts to the automobile industry
Figure 19.2
Refer to Figure 19.2. The demand and supply of euros (¬) are and . If fewer
investors from the US want to invest in euro denominated bonds in Germany, then:
A) the supply of euros decreases and the new exchange rate is $1/¬.
B) the demand for euros increases and the new exchange rate is $1/¬.
C) the demand for euros decreases and the new exchange rate is $0.3/¬.
D) the supply of euros increases and the new exchange rate is $0.3/¬.
How would the Fed’s sale of government bonds on the open market affect the money
supply?
List and describe the three channels through which budget deficits work as automatic
economic stabilizers.
What are the two basic reasons inside lags occur?
Explain how a change in tax rates influences aggregate demand and aggregate supply.
What is the opportunity cost of your college degree?
Consider the following five investments. If the nominal interest rate is five percent,
which projects should be undertaken? (Note: The Returns are for one period later.)
Why does investment spending rise and fall with the overall level of GDP in the
economy?
Proponents of a balanced budget amendment to the Constitution argue that it will
finally exert discipline on the federal government and so prevent large peacetime
deficits. What do the critics argue?
Consider the following weekly production possibilities of bagpipes and accordions in
Poland and Scotland:
What is the possible range of terms of trade between
Poland and Scotland?