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.
When voluntary exchange takes place, neither party usually gains from the exchange.
If inflationary expectations are increasing, we would expect that the nominal interest
rate would also be increasing, holding all else constant.
An increase in the price level in the United States will reduce imports and increase
exports.
The supply of money is easier to control with commodity money than it is with fiat
money.
In recent years, economists have come to rely more on the establishment survey rather
than the household survey to analyze current labor market statistics.
If a country’s currency is “pegged” to the dollar, its exchange rate is
A) floating.
B) flexible.
C) fixed.
D) undervalued.
The invention of the cotton gin ushered in the Industrial Revolution and began a long
period of technological innovation. What did this technological change do the short-run
supply curve?
A) It shifted the short-run aggregate supply curve to the left.
B) It shifted the short-run aggregate supply curve to the right.
C) It moved the economy up along a stationary short-run aggregate supply curve.
D) It moved the economy down along a stationary short-run aggregate supply curve.
You’re traveling in Ireland and are thinking about buying a new digital camera. You’ve
decided you’d be willing to pay $125 for a new camera, but cameras in Ireland are all
priced in euros. If the exchange rate is 0.85 euros per dollar, what’s the highest price in
euros you’d be willing to pay for a camera?
A) 105 euros
B) 106.25 euros
C) 110.15 euros
D) 147 euros
Suppose you withdraw $500 from your checking account deposit and bury it in a jar in
your back yard. If the required reserve ratio is 10 percent, checking account deposits in
the banking system as a whole could drop up to a maximum of
A) $0.
B) $50.
C) $500.
D) $5,000.
Article Summary
Starting as a Chicago antique store that sold sandwiches on the side, Potbelly has
grown from this 1977 beginning into a company which today operates
approximately 300 sandwich shops in the United States. In October 2013, Potbelly
sold stock for the first time through an initial public offering (IPO), with shares
jumping in price from the initial offering price of $14 to more than $32 on the
same day. Since 2011, Potbelly has seen an increase in both sales and revenue, and
earned a profit of $2.8 million in the first half of 2013.
Source: Matt Krantz, “Potbelly IPO shares more than double on open,” USA
Today, October 4, 2013.
When Potbelly sold stock to the public in its IPO, it did so through the NASDAQ
market. This was an example of Potbelly raising funds through
A) reinvesting retained earnings.
B) a financial intermediary.
C) dividend reinvestment.
D) a financial market.
As a business type, corporations ________ in the United States.
A) earn the majority of profits
B) are the most common
C) are the least common
D) are subject to the least amount of taxes
U.S. net export spending falls when
A) the price level in the United States falls relative to the price level in other countries.
B) the growth rate of U.S. GDP is faster than the growth rate of GDP in other countries.
C) the value of the U.S. dollar decreases relative to other currencies.
D) the inflation rate is lower in the United States relative to other countries.
The total amount of physical capital available in a country is know as the country’s
A) labor productivity.
B) savings.
C) investment.
D) capital stock.
If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can
support an increase in checking account deposits (including the original deposit) in the
banking system as a whole of up to
A) $100.
B) $1,000.
C) $10,000.
D) $100,000.
What can be done to deal with the principal-agent problem?
A) threaten to liquidate the firm
B) link top manager salaries to the profits of the firm or the price of the firm’s stock
C) have the CEO be a rotating position
D) forbid managers from owning any company stock
In the 1973 movie Save the Tiger, Jack Lemmon plays Harry Stoner, the CEO of a
clothing manufacturer whose business has fallen on hard times. At one point in the
movie, Stoner convinces his partner to hire someone to burn one of their buildings to
collect on their insurance policy. What term refers to the information problem that led
the insurance company to sell a policy for this building to Stoner and his partner?
A) rational ignorance
B) the principal-agent problem
C) adverse selection
D) moral hazard
Consumption spending is $5 million, planned investment spending is $8 million,
unplanned investment spending is $2 million, government purchases are $10 million,
and net export spending is $2 million. What is aggregate expenditure?
A) $15 million
B) $23 million
C) $25 million
D) $27 million
Even though it is generally true that the more goods and services people have, the better
off they are, GDP provides only a rough measure of well-being. Assuming language is
not an issue, what other factors besides GDP might you consider when deciding where
to live and work?
During the 1990s, Japan experienced periods of deflation and very low nominal interest
rates, approaching zero percent. Why would lenders of money agree to a nominal
interest rate of almost zero?
Suppose you buy a house for $250,000. One year later, the market price for the house
has fallen to $200,000. What is the return on your investment in the house if you made
a down payment of 10 percent and took out a mortgage loan for the other 90 percent?
What is a corporate bond and what does it specify?
What is a firm’s balance sheet?
Health care is generally considered a normal good. Briefly explain what you would
expect to see happen to spending on health care over time, with health care being
considered as a normal good.