The rule of 70 can be stated as follows: A variable with a growth rate of Xpercent per
year
a. doubles every 70/Xyears.
b. doubles every 70(1 – 1/X) years.
c. doubles every 70/X2 years.
d. doubles every 70/(1 – X) years.
The purpose of measuring the overall level of prices in the economy is to permit
comparison between dollar figures from different times.
a. True
b. False
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 Flosserland has had the same inflation
rate for a long time. Which, if either, of the following ideas imply that the
unemployment rate in Flosserland would be abovethe natural rate.
a. both the Classical dichotomy and the long-run Phillips curve
b. the Classical dichotomy, but not the long run Phillips curve
c. the long-run Phillips curve, but not the Classical dichotomy
d. neither the long-run Phillips curve nor the Classical dichotomy
Figure 3-3
Refer to Figure3-3. If Arturo and Dina both spend all of their time producing tacos,
then total production is
a. 400 tacos and 0 burritos.
b. 400 tacos and 250 burritos.
c. 800 tacos and 0 burritos.
d. 800 tacos and 500 burritos.
For some racquet sports, there have been increases in the size of the racquets; also, the
methods and materials used for making racquets have improved. To which problem in
the construction of the CPI is this situation most relevant?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. income bias
If people decide to hold more currency relative to deposits, the money supply
a. falls. The Fed could lessen the impact of this by buying Treasury bonds.
b. falls. The Fed could lessen the impact of this by selling Treasury bonds.
c. rises. The Fed could lessen the impact of this by buying Treasury bonds.
d. rises. The Fed could lessen the impact of the by selling Treasury bonds.
What is the present value of a payment of $200 to be made one year from today if the
interest rate is 10 percent?
a. $180
b. $181.82
c. $220
d. $222.22
Other things the same, if the price level rises, people
a. increase foreign bond purchases, so the dollar appreciates.
b. increase foreign bond purchases, so the dollar depreciates.
c. increase domestic bond purchases, so the dollar appreciates.
d. increase domestic bond purchases, so the dollar depreciates.
In the U.S., it is illegal for employers to interfere when workers try to organize unions.
a. True
b. False
The sacrifice ratio is the
a. sum of the inflation and unemployment rates.
b. inflation rate divided by the unemployment rate.
c. number of percentage points annual output falls for each percentage point reduction
in inflation.
d. number of percentage points unemployment rises for each percentage point reduction
in inflation.
Of the following theories, which is consistent with a vertical long-run aggregate supply
curve?
a. the sticky-wage theory
b. misperceptions theory
c. both the sticky-wage and misperceptions theories.
d. neither the sticky-wage nor the misperceptions theory.
Figure 2-1
RefertoFigure2-1. Which arrow represents the flow of spending by households?
a. A
b. B
c. C
d. D
The Bureau of Labor Statistics’ U5 measure of joblessness includes marginally attached
workers.
a. True
b. False
Real GDP will increase
a. only when prices increase.
b. only when output increases.
c. when prices increase or output increases.
d. All of the above are correct.
If the risk of buying U.S. assets rises because it is discovered that lending institutions
had not carefully evaluated borrowers prior to lending them funds, then
a. the real exchange rate and the interest rate will rise.
b. the real exchange rate will rise and the interest rate will fall.
c. the real exchange rate will fall and the interest rate will rise.
d. the real exchange rate and the interest rate will fall.
Because of the multiple tools at its disposal, the Fed can control the money supply very
precisely.
a. True
b. False
Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase
in government purchases of $20 billion will shift the aggregate-demand curve to the
a. right by $130 billion.
b. right by $70 billion.
c. right by $50 billion.
d. right by $10 billion.
In the open-economy macroeconomic model, which of the following increases net
capital outflow?
a. a fall in the real exchange rate, but not a fall in the real interest rate
b. a fall in the real interest rate, but not a fall in the real exchange rate
c. both a fall in the real exchange rate and a fall in the real interest rate
d. neither a fall in the real exchange rate nor a fall in the real interest rate
Accumulated over a long span of time, the tax rate on interest income
a. removes all benefits from saving.
b. reduces the benefits from saving by a small amount.
c. reduces the benefits from saving by a large amount.
d. does nor reduce any of the benefits from saving.
Which of the following is downward-sloping?
a. both the long-run Phillips curve and the long-run aggregate-supply curve
b. neither the long-run Phillips curve nor the long-run aggregate-supply curve
c. the long-run Phillips curve, but not the long-run aggregate-supply curve
d. the short-run Phillips curve, but not the long-run aggregate-supply curve
The proliferation of Internet usage serves as an example of a favorable supply shock.
a. True
b. False
Inflation can be measured by the
a. change in the consumer price index. Inflation in the U.S. has averaged about 2.5%
over the last 80 years.
b. change in the consumer price index. Inflation in the U.S. has averaged about 4% over
the last 80 years.
c. percentage change in the consumer price index. Inflation in the U.S. has averaged
about 3.6% over the last 80 years.
d. percentage change in the consumer price index. Inflation in the U.S. has averaged
about 4% over the last 80 years.
Economists who are skeptical about the relevance of “liquidity traps” argue that
a. a central bank continues to have tools to stimulate the economy, even after its interest
rate target hits its lower bound of zero.
b. a central bank continues to have the option of committing itself to future monetary
contraction, even after its interest rate target hits its lower bound of zero.
c. a central bank can greatly reduce the likelihood of a liquidity trap by setting the target
rate of inflation at zero.
d. while the concept of a liquidity trap is theoretically possible, nothing resembling a
liquidity trap ever has been observed in the real world.
If speculators bid up the value of the dollar in the market for foreign-currency
exchange, U.S. aggregate demand would shift to the left.
a. True
b. False
The position of the long-run Phillips curve and the long-run aggregate supply curve
both depend on
a. the natural rate of unemployment and monetary growth.
b. the natural rate of unemployment, but not monetary growth.
c. monetary growth, but not the natural rate of unemployment.
d. neither monetary growth nor the natural rate of unemployment.
When the price level falls
a. the interest rate rises, so the quantity of goods and services demand rises.
b. the interest rate rises, so the quantity of goods and services demand falls.
c. the interest rate falls, so the quantity of goods and services demand rises.
d. the interest rate falls, so the quantity of goods and services demand falls.
What will happen to the equilibrium price of new textbooks if more students attend
college, paper becomes cheaper, textbook authors accept lower royalties, and fewer
used textbooks are sold?
a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.
A barber currently cuts hair for 50 clients per week and earns a profit. He is considering
expanding his operation in order to serve more clients. Should he expand?
a. Yes, because cutting hair is profitable.
b. No, because he may not be able to sell more services.
c. It depends on the marginal cost of serving more clients and the marginal revenue he
will earn from serving more clients.
d. It depends on the average cost of serving more clients and the average revenue he
will earn from serving more clients.
Which of the following statements concerning the aggregate demand and aggregate
supply model is correct?
a. The aggregate demand and aggregate supply model is nothing more than a large
version of the model of market demand and supply.
b. The price level and quantity of output adjust to bring aggregate demand and supply
into balance.
c. The aggregate supply curve shows the quantity of goods and services that
households, firms, and the government want to buy at each price.
d. All of the above are correct.
Inflation is defined as
a. a period of rising productivity in the economy.
b. a period of rising income in the economy.
c. an increase in the overall level of output in the economy.
d. an increase in the overall level of prices in the economy.
The Bureau of Labor Statistics divides the adult population into two categories: those
who are employed and those who are unemployed.
a. True
b. False