The opportunity cost of something is the gain you receive as a result of your sacrifice.
When the federal government runs a budget deficit, it is possible for current taxpayers
to pass the tax burden to future generations.
An increase in the money supply will increase aggregate demand.
The level of GDP is determined by the same factors in the long run as in the short run.
Financial intermediaries reduce individual risk because they pool the funds of savers.
The fiscal multiplier magnifies the impact of a change in government spending on the
economy’s short run aggregate supply.
Inflation is, by definition, a larger problem than deflation.
The federal budget runs a deficit if tax revenues exceed government spending.
The budget deficit increases during economic booms and decreases during recessions.
Table 3.2
Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and
Sharon’s hourly productivity are shown in Table 3.2. Which of the following is true?
A) Rose has both an absolute and comparative advantage in coconut production.
B) Rose has both an absolute and comparative advantage in fish production.
C) Rose has neither an absolute nor comparative advantage in coconut production.
D) Rose has neither an absolute nor a comparative advantage in fish production.
Assuming an upward-sloping short-run aggregate supply curve, ________ in aggregate
demand will result in a new equilibrium at a greater level of output and ________ price
level.
A) an increase; a higher
B) an increase; a lower
C) a decrease; a lower
D) a decrease; no change in the
If you take out a bank loan prior to unanticipated inflation
A) it will be harder for you to repay the loan because of the inflated dollar.
B) you will gain at the expense of your bank.
C) your bank will gain at your expense.
D) neither you nor your bank will be affected, because the loan was made prior to the
inflation.
The natural rate of unemployment is generally thought of as the:
A) ratio of the frictional unemployment rate to the cyclical unemployment rate.
B) sum of the structural unemployment and cyclical unemployment rates.
C) sum of the frictional unemployment and cyclical unemployment rates.
D) sum of the frictional unemployment and structural unemployment rates.
A government sometimes creates an excess supply of a product by setting a minimum
price at which the product may be sold to consumers. This is sometimes called a:
A) price ceiling.
B) price floor.
C) tax.
D) none of the above
Because a tax on labor makes labor more expensive and raises the marginal cost of
hiring workers, it follows that:
A) unemployment rises.
B) real wages rise.
C) nominal wages rise.
D) all of the above.
If the marginal propensity to consume is 0.8 and marginal propensity to import is 0.3,
then the multiplier in an open economy is:
A) 2.
B) 5.
C) 3.3.
D) .9.
Which of the following situations will arise in the domestic market following the
removal of an import quota?
A) imports increase, domestic production increases, prices increase
B) imports increase, domestic production decreases, prices decrease
C) imports decrease, domestic production increases, prices decrease
D) imports decrease, domestic production decreases, prices increase
Recall the Application about the price of Big Macs in China and around the world to
answer the following question(s).
The following table is taken from the Application. For several years, The Economist has
measured the prices of Big Macs throughout the world and compared the price
differences to exchange rates.
According to the table, the price of Big Macs converted to U.S. dollars varies widely
around the world. This shows that Big Macs do NOT follow the
A) law of demand.
B) law of exchange rate parity.
C) law of one price.
D) law of opportunity cost.
Marginally attached workers are workers who leave the labor force because of:
A) their inability to find jobs.
B) the difficulty of finding transportation.
C) difficulty of finding appropriate childcare.
D) All of the above are correct.
The reason why individuals have more money demand when their inflation expectations
increase is because:
A) they need more money in their pockets when prices go up so that they could buy the
same goods and services.
B) they need a higher wage when prices go up so that they could buy the same goods
and services.
C) they need less money in their pockets when prices go up so that they could buy the
same goods and services.
D) they need to find another job when prices go up so that they could buy the same
goods and services.
The sum of the frictional and structural unemployment rates is thought of as the:
A) natural rate of unemployment.
B) normal rate of unemployment.
C) cyclical rate of unemployment.
D) seasonal rate of unemployment.
In an open economy, which of the following will be crowded out when government
purchases increase?
A) consumption expenditures
B) investment expenditures
C) net exports
D) All of the above will be crowded out.
An increase in the price level will:
A) increase consumption and increase output demanded.
B) decrease consumption and decrease output demanded.
C) increase consumption and increase output demand.
D) decrease consumption and increase output demand.
Recall Application 4, “The Argentine Financial Crisis,” to answer the question below:
Which of the following contributed to the collapse of the Argentine peso in 2002?
A) Argentina’s large current account deficits with its trading partners
B) the appreciation of the Argentine peso
C) the belief by investors that Argentina would not be able to keep the current fixed
exchange rate
D) All of the above are correct.
Figure 19.2
Referring to Figure 19.2, the effect of a decrease in Japanese interest rates is
represented by a movement from point
A) to a.
B) a to .
C) to c.
D) a to d.
Why is the long-run aggregate supply curve vertical?
Classical economists believed that recessions were self correcting. In their view, how
did the economy self correct?
Explain three ways we can use microeconomic analysis.
What are the rationales for protectionist policies?
Explain the political business cycle.
What must a government do to end hyperinflation in its economy?
Comment on the following statement: “Economists who believe that the economy
adjusts rapidly to full employment generally oppose using monetary or fiscal policy to
stabilize the economy.”
List four of the Federal Reserve’s key functions.
Explain the two basic mechanisms that increase GDP per capita over the long term.
Explain why we must take into account changes in business inventories when
calculating GDP.