If Huedepool Beer runs into financial difficulty, the stockholders as
a. part owners of Huedepool are paid before bondholders get paid anything at all.
b. part owners of Huedepool are paid after bondholders get paid.
c. creditors of Huedepool are paid before bondholders get paid anything at all.
d. creditors of Huedepool are paid after bondholders get paid.
U.S. corporation Wright Air Conditions borrows funds to build a factory in the U.S. and
a factory in Mexico. Borrowing for factories in which location(s) is included in the U.S.
demand for loanable funds?
a. only the U.S.
b. only Mexico
c. Mexico and the U.S.
d. neither Mexico nor the U.S.
Figure 2-5
RefertoFigure2-5. It is notpossible for this economy to produce at point
a. A.
b. B.
c. C.
d. D.
Suppose that a country that has a high level of output per person agrees to trade with a
country that has a low level of output per person. Which country can benefit?
a. only the one with a low level of output per person.
b. only the one with a high level of output per person.
c. both
d. neither
In the early 1960s, the Kennedy administration made considerable use of
a. fiscal policy to stimulate the economy.
b. fiscal policy to slow down the economy.
c. monetary policy to stimulate the economy.
d. monetary policy to slow down the economy.
Paying efficiency wages means that wages are
a. above equilibrium, and profits are higher than otherwise.
b. above equilibrium, and profits are lower than otherwise.
c. below equilibrium, and profits are higher than otherwise.
d. below equilibrium, and profits are lower than otherwise.
Which of the following events would cause the price of oranges to fall?
a. There is a shortage of oranges.
b. The FDA announces that bananas cause strokes, and oranges and bananas are
substitutes.
c. The price of land throughout Florida decreases, and Florida produces a significant
proportion of the nation’s oranges.
d. All of the above are correct.
If the real exchange rate between the U.S. and Argentina is 1, then
a. purchasing-power parity holds, and 1 U.S. dollar buys 1 Argentinean bolivar.
b. purchasing-power parity holds, and the amount of dollars needed to buy goods in the
U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the
same goods in Argentina.
c. purchasing-power parity does not hold, but 1 U.S. dollar buys 1 Argentinean bolivar.
d. purchasing-power parity does not hold, but the amount of dollars needed to buy
goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars
to buy the same goods in Argentina.
Monetary Policy in Flosserland
In Flosserland, the Department of Finance is responsible for monetary policy.
Flosserland has had an inflation rate of 25% for many years.
RefertoMonetaryPolicyinFlosserland.Suppose that the Flosserland Department of
Finance has run a public relations campaign claiming it will reduce inflation to 12.5%
but that it actually leaves inflation at 25%. Suppose that the public had expected that the
Department of Finance would reduce inflation, but only to 20%. Then
a. unemployment falls, but it would have fallen more if people had been expecting
12.5% inflation.
b. unemployment falls, but it would have fallen more if people had been expecting 22%
inflation.
c. unemployment rises, but it would have risen more if people had been expecting
12.5% inflation.
d. unemployment rises, but it would have risen more if people had been expecting 22%
inflation.
When the price of a good is higher than the equilibrium price,
a. a shortage will exist.
b. buyers desire to purchase more than is produced.
c. sellers desire to produce and sell more than buyers wish to purchase.
d. quantity demanded exceeds quantity supplied.
An increase in the inflation rate permanently reduces the natural rate of unemployment.
a. True
b. False
Which of the following can lead to market failure?
a. externalities and market power
b. externalities but not market power
c. market power but not externalities
d. neither externalities nor market power
In a market, to find the total amount supplied at a particular price, we must
a. sum the quantities that individual firms are willing and able to supply at that price.
b. calculate the average of the quantities that individual firms are willing and able to
supply at that price.
c. sum the costs that individual firms incur to supply the product at that price.
d. account for all determinants of demand.
Other things the same, a decrease in the price level makes the interest rate decrease,
which leads to a depreciation of the dollar in the market for foreign-currency exchange.
a. True
b. False
Unemployment insurance increases frictional unemployment.
a. True
b. False
Skeptics of government policy to reduce taxes on saving argue that it would primarily
benefit the rich.
a. True
b. False
In competitive markets,
a. firms produce identical products.
b. no individual buyer can influence the market price.
c. no individual seller can influence the market price.
d. All of the above are correct.
Other things the same, which bond would you expect to pay the highest interest rate?
a. a bond issued by the U.S. government
b. a bond issued by Microsoft Corporation
c. a bond issued by the state of Montana
d. a bond issued by a new chain of Brazilian-style restaurants
Unemployment insurance
a. may improve the ability of the economy to match workers with appropriate jobs.
b. reduces the job search efforts of the unemployed.
c. increases the amount of frictional unemployment in the economy.
d. All of the above are correct.
The principle of comparative advantage states that, regardless of the price at which
trade takes place, everyone will benefit from trade if they specialize in the production of
the good for which they have a comparative advantage.
a. True
b. False
If a good produced this quarter goes into inventory, then it is included in this period’s
GDP. If it is sold in the next quarter, it will have no effect on GDP.
a. True
b. False
The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent
and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007,
what would the consumer price index value be in 2008?
a. 192
b. 208
c. 209
d. 217
In measuring the stock of money in the U.S., M1 includes
a. traveler’s checks.
b. savings deposits.
c. credit cards
d. none of the above.
The aggregate demand and aggregate supply model helps us to understand both
short-run economic fluctuations and how the economy moves from the short to the long
run.
a. True
b. False
Bottles of very fine wine are less liquid than demand deposits.
a. True
b. False
We depart from the assumptions of classical economics when we focus on the
relationship between
a. the quantity of output and the price level.
b. the quantity of output and the unemployment rate.
c. the price level and the inflation rate.
d. inflation and the nominal interest rate.
In which case(s) does(do) a country’s supply of loanable funds shift left?
a. both an increase in the budget deficit and capital flight
b. an increase in the budget deficit, but not capital flight
c. capital flight, but not an increase in the budget deficit
d. neither an increase in the budget deficit nor capital flight
Which of the following is included in the investment component of GDP?
a. spending on new residential construction and spending on stocks and bonds
b. spending on new residential construction but not spending on stocks and bonds
c. spending on stocks and bonds but not spending on new residential construction
d. neither spending on stocks and bonds nor spending on new residential construction
When the money market is drawn with the value of money on the vertical axis, if the
money supply rises
a. the price level and the value of money rise.
b. the price level rises and the value of money falls.
c. the price level falls and the value of money rises.
d. the price level and the value of money fall.
Equilibrium price must decrease when demand
a. increases and supply does not change, when demand does not change and supply
decreases, and when demand decreases and supply increases simultaneously.
b. increases and supply does not change, when demand does not change and supply
decreases, and when demand increases and supply decreases simultaneously.
c. decreases and supply does not change, when demand does not change and supply
increases, and when demand decreases and supply increases simultaneously.
d. decreases and supply does not change, when demand does not change and supply
increases, and when demand increases and supply decreases simultaneously.
Table 3-38
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
RefertoTable3-38.Spain should export
a. cheese and import bread.
b. bread and import cheese.
c. both goods and import neither good.
d. neither good and import both goods.
A central bank that accommodates an aggregate supply shock
a. increases the money supply, making the inflation rate rise.
b. increases the money supply, making the inflation rate fall.
c. decreases the money supply, making the inflation rate rise.
d. decreases the money supply, making the inflation rate fall.
Some countries have had high inflation for a long time. Others have had low or
moderate inflation for a long time. Which of the following, at least in theory, could
explain why some countries would continue to have high inflation?
a. High inflation countries have relatively small sacrifice ratios and so see no need to
reduce inflation.
b. Inflation reduction works best when it is unexpected, and people in high inflation
countries would quickly anticipate any change in monetary policy.
c. In a country where inflation has been high for a long time, people are likely to have
found ways to limit the costs.
d. In a country where inflation has been high for a long time, there are no costs to the
inflation.
An increase in the price of Irish whiskey imported into the United States will be
reflected in
a. both the U.S. GDP deflator and the U.S. CPI.
b. neither the U.S. GDP deflator nor the U.S. CPI.
c. the U.S. GDP deflator, but not the U.S. CPI.
d. the U.S. CPI, but not the U.S. GDP deflator.
Table 4-14
The table below shows the quantities demanded of milk per month by four families at
various prices.
RefertoTable4-14.If the four families listed are the only demanders in this market and
the price of a gallon of milk is $4.00, what is the market quantity demanded?
A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2%
less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?
Scenario 3-1
The production possibilities frontiers below show how much Greg and Catherine can
each produce in 8 hours of time.
Refer to Scenario3-1. What is Catherine’s opportunity cost of producing cake? Explain
how you derived your answer.
As the interest rate increases, what happens to the present value of a future payment?
Explain why changes in the interest rate will lead to changes in the quantity of loanable
funds demanded and investment spending.
Last year a country had $700 billion of saving and $900 of investment. What was its net
capital outflow? How is it possible for a country to have investment that exceeds
saving?
An important prerequisite for the price system to work is an economy-wide respect for
_______rights.
Figure 4-28
RefertoFigure4-28.Using the points on the figure, describe the change that would
occur if the price of a substitute for this good becomes more expensive.
Misperceptions theory helps explain what feature of the aggregate demand and
aggregate supply model?
Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of
$15 million, and currently has issued 10 million shares of stocks selling at $90 each.
Compute the price-earning ratio. Show your work. Is this ratio relatively high or low?
What might an increase in the price-earnings ratio indicate?
Suppose the price level is 115.00 at the end of 2020, 112.02 at the end of 2021, and
109.08 at the end of 2022. Can we accurately describe the period 2021-2022 as a period
of disinflation?
Advocates of cutting taxes rather than increasing government expenditures in response
to a recession argue that the increase in spending by consumers and business may be
more effective than that of the government. Explain this argument.
An important determinant of a country’s standard of living is the amount ofit typically
experiences.
Write the formula for finding the future value in n years of $x today.
Scenario 3-2
In country A a worker who works 40 hours can produce 200 pounds of rice or 100
pounds of broccoli. In country B a worker who works 40 hours can produce 160 pounds
of rice or 120 pounds of broccoli.
Refer to Scenario3-2. Which country, if either, has an absolute advantage producing
broccoli? Defend your answer.
A country recently had $800 billion worth of domestic investment and its residents
purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of
this country’s assets, what was this country’s saving? Explain how your found your
answer.
Suppose, as in the 1970’s in the U.S., that demographic groups which typically have
higher unemployment rates become a larger percentage of the labor force. Would this
have any effect on the long-run Phillips curve?
A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their
inflation expectations to 10%, but the central bank only reduces inflation to 15%. What
happens to the unemployment rate?
Foreign countries buy $1.2 trillion of U.S. goods and services. U.S. residents purchase
$1.8 trillion of foreign goods and services. What is net exports?
Some data that at first might seem puzzling: The share of GDP devoted to investment
was similar for the United States and South Korea from 1960-1991. However, during
these same years South Korea had a 6 percent growth rate of average annual income per
person, while the United States had only a 2 percent growth rate. If the saving rates
were the same, why were the growth rates so different?
Why is it desirable, if possible, to use policy to offset the effects of a decrease in
aggregate demand?