The average income in a rich country, such as the United States or Japan, is more than
a. 3 times, but less than 5 times, the average income in a poor country, such as
Indonesia or Nigeria.
b. 5 times, but less than 10 times, the average income in a poor country, such as
Indonesia or Nigeria.
c. 10 times, but less than 20 times, the average income in a poor country, such as
Indonesia or Nigeria.
d. more than 20 times the average income in a poor country, such as Indonesia or
Nigeria.
Figure 4-7
RefertoFigure4-7. The movement from Da to Db could be caused by
a. a decrease in price.
b. a decrease in income, assuming the good is inferior.
c. buyers expecting the price of the good to fall in the near future.
d. an increase in the price of a complement.
Assume a farmer has the ability to produce corn and/or beans. Whenever the farmer
spends 1 hour less producing corn and 1 hour more producing beans, he reduces his
output of corn by 2 bushels and raises his output of beans by 3 bushels. In view of these
assumptions, the farmer’s production possibilities frontier is bowed out.
a. True
b. False
The nominal exchange rate is the
a. nominal interest rate in one country divided by the nominal interest rate in the other
country.
b. the ratio of a foreign country’s interest rate to the domestic interest rate.
c. rate at which a person can trade the currency of one country for another.
d. the real exchange rate minus the inflation rate.
Which of the following is an example of a normative, as opposed to positive,
statement?
a. If the price of a product decreases, people’s willingness to buy that product will
increase.
b. Reducing tax rates on the wealthy would benefit the nation.
c. If the national saving rate were to increase, so would the rate of economic growth.
d. The elimination of trade restrictions would increase an economy’s standard of living.
In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10
percent. Other things the same this should have
a. increased both the money multiplier and the money supply.
b. decreased both the money multiplier and the money supply.
c. increased the money multiplier and decreased the money supply.
d. decreased the money multiplier and increased the money supply.
Table 3-25
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
RefertoTable3-25.Maya has an absolute advantage in the production of
a. both goods and a comparative advantage in the production of mixers.
b. both goods and a comparative advantage in the production of toasters.
c. neither good and a comparative advantage in the production of mixers.
d. neither good and a comparative advantage in the production of toasters.
In the long run, fiscal policy primarily affects
a. aggregate demand. In the short run, it affects primarily aggregate supply.
b. aggregate supply. In the short run, it affects primarily saving, investment, and
growth.
c. saving, investment, and growth. In the short run, it affects primarily aggregate
demand.
d. saving, investment, and growth. In the short run, it affects primarily aggregate
supply.
Which of the following is an example of U.S. foreign portfolio investment?
a. A U.S. legal office opens a branch office in Holland.
b. Erica, a U.S. resident, buys bonds issued by the Swiss government.
c. Both A and B are examples of U.S. portfolio investment.
d. Neither A nor B are examples of U.S. portfolio investment.
Factors of production are
a. used to produce goods and services.
b. also called output.
c. abundant in most economies.
d. assumed to be owned by firms in the circular-flow diagram.
In the mid-1970s the price of oil rose dramatically. This
a. shifted aggregate supply left, the price level rose, and real GDP fell.
b. caused U.S. prices to fall, and real GDP rose.
c. caused an increase in U.S. prices and real GDP.
d. caused a decrease in U.S. prices and real GDP.
A favorable supply shock
a. raises unemployment and the inflation rate.
b. raises unemployment and reduces the inflation rate.
c. reduces unemployment and raises the inflation rate.
d. reduces unemployment and the inflation rate.
Cyclical unemployment
a. has a different explanation than does the natural rate of unemployment.
b. refers to the yeartoyear fluctuation in unemployment around an economy’s natural
rate of unemployment.
c. is closely associated with short-run ups and downs of economic activity.
d. All of the above are correct.
Which of the following products would be considered scarce?
a. bread
b. baseballs autographed by Babe Ruth
c. motorcycles
d. All of the above are correct.
Some economists, called supply-siders, argue that changes in the money supply exert a
strong influence on aggregate supply.
a. True
b. False
Other things the same, if a country has a trade deficit and saving rises,
a. net capital outflow rises, so the trade deficit increases.
b. net capital outflow rises, so the trade deficit decreases.
c. net capital outflow falls, so the trade deficit increases.
d. net capital outflow falls, so the trade deficit decreases.
If a country has a lower opportunity cost than its potential trading partner, the country
should decide to be self- sufficient.
a. True
b. False
Congress relies on economists at the Congressional Budget Office to
a. enforce the nation’s antitrust laws.
b. set the nation’s monetary policy.
c. provide evidence that incumbent members of Congress are performing well in their
jobs.
d. provide independent evaluations of policy proposals.
Which of the following is most commonly used to monitor short-run changes in
economic activity?
a. the inflation rate.
b. real GDP.
c. interest rates.
d. value of the U.S. dollar in the foreign exchange market.
Coal is considered to be a non-renewable energy source. Which of the following
statements is correct?
a. Coal is an unlimited resource.
b. Coal is a scarce resource.
c. Coal is a non-productive resource.
d. Coal is not a resource.
A country reported nominal GDP of $115 billion in 2010 and $125 billion in 2009. It
also reported a GDP deflator of 85 in 2010 and 100 in 2009. Between 2009 and 2010,
a. real output and the price level both rose.
b. real output rose and the price level fell.
c. real output fell and the price level rose.
d. real output and the price level both fell.
Which of the following combinations of real interest rates and inflation implies a
nominal interest rate of 6 percent?
a. a real interest rate of 3 percent and an inflation rate of 2 percent.
b. a real interest rate of 7 percent and an inflation rate of 1 percent.
c. a real interest rate of 5 percent and an inflation rate of 1 percent.
d. a real interest rate of 6 percent and an inflation rate of 1 percent.
Table 28-7
Below is data about the labor market in the city of Productionville.
RefetoTable28-7.If the local government imposed a minimum wage of $4 in
Productionville, how many people would be unemployed?
a. 0
b. 2,000
c. 3,000
d. 10,000
An increase in the budget deficit
a. raises net exports and domestic investment.
b. raises net exports and reduces domestic investment.
c. reduces net exports and raises domestic investment.
d. reduces net exports and domestic investment.
In the short-run an increase in the costs of production makes
a. output and prices rise.
b. output rise and prices fall.
c. output fall and prices rise.
d. output and prices fall.
Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to
take the $100 today if the interest rate is
a. 4 percent.
b. 6 percent.
c. 8 percent.
d. All of the above are correct.
For economists, substitutes for laboratory experiments often come in the form of
a. natural experiments offered by history.
b. untested theories.
c. “rules of thumb” and other such conveniences.
d. reliance upon the wisdom of elders in the economics profession.
Recessions occur at irregular intervals and are almost impossible to predict with much
accuracy.
a. True
b. False
When the interest rate is below the equilibrium level,
a. the quantity of money that the Federal Reserve has supplied exceeds the quantity of
money that people want to hold.
b. people respond by selling interest-bearing bonds or by withdrawing money from
interest-bearing bank accounts.
c. bond issuers and banks respond by lowering the interest rates they offer.
d. All of the above are correct.
Studies find that mutual fund managers who do well in one year are likely to do well
the next year.
a. True
b. False
In equilibrium which of the following happens if the U.S. imposes tariffs on power
tools?
a. U.S. net exports rise
b. the exchange rate falls
c. U.S. production of power tools rises
d. All of the above are correct.
Which of the following is correct?
a. The short-run, but not the long-run, aggregate supply curve is consistent with the idea
that nominal variables do not affect real variables.
b. The long-run, but not the short-run, aggregate supply curve is consistent with the idea
that nominal variables do not affect real variables.
c. The long-run and short-run supply curves are both consistent with the idea that
nominal variables affect real variables.
d. Neither the long-run nor the short-run aggregate supply curve is consistent with the
idea that nominal variables affect real variables.
In the long run an increase in the money supply growth rate affects
a. the inflation rate and the natural rate of unemployment.
b. the inflation rate, but not the natural rate of unemployment.
c. neither the inflation rate nor the natural rate of unemployment.
d. the natural rate of unemployment, but not the inflation rate.
It takes Anne 3 hours to make a pie and 4 hours to make a shirt. It takes Mary 2 hours to
make a pie and 5 hours to make a shirt. Anne should specialize in making shirts and
Mary should specialize in making pies, and they should trade.
a. True
b. False
If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the
inflation rate is
a. -2 percent.
b. 0.4 percent.
c. 2 percent.
d. 12 percent.