A decrease in government spending
a. increases the interest rate and so investment spending increases.
b. increases the interest rate and so decreases investment spending decreases.
c. decreases the interest rate and so investment spending increases.
d. decreases the interest rate and so investment spending decreases.
The CPI is more commonly used as a gauge of inflation than the GDP deflator is
because
a. the CPI is easier to measure.
b. the CPI is calculated more often than the GDP deflator is.
c. the CPI better reflects the goods and services bought by consumers.
d. the GDP deflator cannot be used to gauge inflation.
Given the following information, what are the values of M1 and M2?
a. M1 = $650 billion, M2 = $2,830 billion.
b. M1 = $400 billion, M2 = $3,080 billion.
c. M1 = $680 billion, M2 = $2,800 billion.
d. M1 = $680 billion, M2 = $3,200 billion.
The value of goods added to a firm’s inventory in a certain year is treated as
a. consumption, since the goods will be sold to consumers in another period.
b. intermediate goods, and so is not included in that year’s GDP.
c. investment, since GDP aims to measure the value of the economy’s production that
year.
d. spending on durable goods, since the goods could not be inventoried unless they
were durable.
Table 3-23
Assume that the farmer and the rancher can switch between producing pork and
producing tomatoes at a constant rate.
RefertoTable3-23. The opportunity cost of 1 pound of pork for the rancher is
a. 1 pound of tomatoes.
b. 1 hour of labor.
c. 1.5 pounds of tomatoes.
d. 1.5 hours of labor.
In competitive markets, which of the following is notcorrect?
a. Firms produce identical products.
b. No individual buyer can influence the market price.
c. Some sellers can set prices.
d. Buyers are price takers.
When the government runs a budget deficit,
a. interest rates are lower than they would be if the budget were balanced.
b. national saving is higher than it would be if the budget were balanced.
c. investment is lower than it would be if the budget were balanced.
d. All of the above are correct.
Ramona decides to spend two hours taking a nap rather than attending her classes. Her
opportunity cost of napping is
a. the value of the knowledge she would have received had she attended class.
b. the $24 she could have earned if she had worked at her job for those two hours.
c. the value of her nap minus the value of attending class.
d. nothing, since she valued sleep more than attendance at class.
Other things the same, an increase in the interest rate makes the quantity of loanable
funds supplied
a. rise, and investment spending rise.
b. rise, and investment spending fall.
c. fall, and investment spending rise.
d. fall, and investment spending fall.
All else equal, which of the following would tend to cause real GDP per person to rise?
a. a change from outward-oriented policies to inward-oriented policies
b. an increase in investment in human capital
c. a weakening of property rights
d. All of the above are correct.
Other things the same if reserve requirements are decreased, the reserve ratio
a. decreases, the money multiplier increases, and the money supply decreases.
b. increases, the money multiplier increases, and the money supply increases.
c. decreases, the money multiplier increases, and the money supply increases.
d. increases, the money multiplier increases, and the money supply decreases.
Figure 3-15
RefertoFigure3-15.Perry has a comparative advantage in the production of
a. novels and Jordan has a comparative advantage in the production of poems.
b. poems and Jordan has a comparative advantage in the production of novels.
c. novels and Jordan has a comparative advantage in the production of neither good.
d. neither good and Jordan has a comparative advantage in the production of novels.
Table 3-31
Refer to Table3-31. Relative to the rancher, the farmer has a comparative advantage in
the production of
a. meat, but not in the production of potatoes.
b. potatoes, but not in the production of meat.
c. both meat and potatoes.
d. neither meat nor potatoes.
Suppose that the adult population in the town of Springfield is 225 million. If 40
million are unemployed and 100 million are employed, then the unemployment rate is
approximately
a. 29%.
b. 18%.
c. 24%.
d. 6%.
Two variables that have a negative correlation move in opposite directions.
a. True
b. False
Abby buys health insurance because she knows that she has health risks that wouldn”t
be obvious to an insurance company. Brad buys home owners insurance and then is less
careful to make sure he’s put out his cigarettes. The example with Abby
a. and the example with Brad illustrate adverse selection.
b. and the example with Brad illustrate moral hazard.
c. illustrates adverse selection; the example with Brad illustrates moral hazard.
d. illustrates moral hazard; the example with Brad illustrates adverse selection.
Braden says that $400 saved for one year at 4 percent interest has a smaller future value
than $400 saved for two years at 2 percent interest. Lefty says that the present value of
$400 to be received one year from today if the interest rate is 4 percent exceeds the
present value of $400 to be received two years from today if the interest rate is 2
percent.
a. Braden and Lefty are both correct.
b. Braden and Lefty are both incorrect.
c. Only Braden is correct.
d. Only Lefty is correct.
Unions
a. do not affect the natural rate of unemployment.
b. lower the wages of unionized workers.
c. raise the profits of unionized firms.
d. lower the wages of workers in industries without unions.
The financial system
a. involves bank accounts, mortgages, stock prices, and many other items.
b. involves decisions and actions undertaken by people at a point in time that affect
their lives in the future.
c. coordinates the economy’s saving and investment.
d. All of the above are correct.
A recession has no benefit to society-it represents a sheer waste of resources.
a. True
b. False
Table29-5.
RefetoTable29-5. If the bank faces a reserve requirement of 6 percent, then the bank
a. is in a position to make a new loan of $12,000.
b. is in a position to make a new loan of $18,000.
c. has excess reserves of $12,000.
d. None of the above is correct.
Which of the following is an example of a less-than-highly-organized market?
a. the market for U.S. Treasury bonds
b. the market for corn
c. the market for soybeans
d. the market for ice cream
The K-Nine dog food company is considering the purchase of additional canning
equipment. They expect that adding the equipment will yield $200,000 at the end of the
first year and $250,000 at the end of the second year and then nothing after that. At
which of the following prices and interest rates would K-Nine buy the equipment?
a. $415,000 if the interest rate is 5%
b. $419,000 if the interest rate is 4%
c. K-Nine would buy the equipment in both cases.
d. K-Nine would not buy the equipment in either case.
An event that directly affects firms’ costs of production and thus the prices they charge
is called
a. a Phillips contraction.
b. an inflationary spiral.
c. a demand shock.
d. a supply shock.
In the long run, an increase in the saving rate
a. doesn”t change the level of productivity or income.
b. raises the levels of both productivity and income.
c. raises the level of productivity but not the level of income.
d. raises the level of income but not the level of productivity.
At the equilibrium price, buyers have bought all they want to buy, but sellers have not
sold all they want to sell.
a. True
b. False
Which of the following defer payments?
a. credit cards and debit cards
b. neither credit cards nor debit cards
c. credit cards but not debit cards
d. debit cards but not credit cards
If a country’s imports exceed its exports it has a trade surplus.
a. True
b. False
Table 3-22
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
RefertoTable3-22.Zimbabwe’s opportunity cost of one hairbrush is
a. 3/10 toothbrush and Portugal’s opportunity cost of one hairbrush is 5/6 toothbrush.
b. 3/10 toothbrush and Portugal’s opportunity cost of one hairbrush is 6/5 toothbrushes.
c. 10/3 toothbrushes and Portugal’s opportunity cost of one hairbrush is 5/6 toothbrush.
d. 10/3 toothbrushes and Portugal’s opportunity cost of one hairbrush is 6/5
toothbrushes.
Suppose Congress institutes an investment tax credit. What would happen in the market
for loanable funds?
a. The interest rate and investment would fall.
b. The interest rate and investment would rise.
c. The interest rate would rise and investment would fall.
d. None of the above is necessarily correct.
Figure 3-14
Refer to Figure3-14. Arturo would incur an opportunity cost of 36 burritos if he
increased his production of tacos by
a. 27.
b. 48.
c. 108.
d. 144.
Proponents of zero inflation argue that reducing inflation has
a. permanent costs and temporary benefits.
b. temporary costs and permanent benefits.
c. permanent costs and benefits.
d. temporary costs and benefits.
In the ordered pair (10,30), 10 is the y-coordinate and 30 is the z-coordinate.
a. True
b. False
The data on hyperinflation show a clear link between the quantity of money and
a. the price level.
b. growth rate of GDP.
c. unemployment rate.
d. velocity.
How are the identities S= NCO+ Iand NCO= NXrelated to the foreign currency
exchange market and the loanable funds market?
Table 3-41
RefertoTable3-41.Which country has a comparative advantage in producing radios?
Why might policymakers attempts to stabilize the economy do more harm than good?
The long-run trend in real GDP is upward. How is this possible given business cycles?
What explains the upward trend?
Approximately how often does the Federal Open Market Committee meet?
Suppose the interest rate is 3% and that you are to receive three annual payments of
$1,000, with the first payment today, the second payment one year from now, and the
third payment two years from now. What is the present value of this stream of
payments?
Some economists argue that policymakers can use monetary and fiscal policy to reduce
the severity of economic fluctuations. What are some things policymakers can do to
boost the economy when aggregate demand is inadequate to ensure full employment?
Those who believe the central bank should aim for zero inflation argue that reducing
inflation is a policy with temporary costs and permanent benefits. What are the primary
costs and benefits they are referring to?
A company has an investment project that will cost $2 million today and yield a payoff
of $3 million in 5 years. If the interest rate is 7%, should the firm undertake the project?
Show evidence to support your answer.
Table 3-41
RefertoTable3-41.What is Russia’s opportunity cost of one radio?
In 2012 a country had a real GDP $15.4 trillion and GDP deflator of 125. If that
country’s GDP deflator equals 115 in 2013, what is the rate of inflation in 2013?
The term refers to a small incremental adjustment to an existing plan of action.
Suppose the rate of inflation rate is two percent and the nominal interest rate is five
percent. According to the Fisher Effect, an increase in the inflation rate to six percent
should cause the nominal interest rate to increase from five percent toin the long run.
Write the formula to find the present value of $x to be paid in n years.
Figure 28-7
RefetoFigure28-7. If the minimum wage is set at $100, how many will be
unemployed?
Suppose that velocity and output are constant and that the quantity theory and the
Fisher effect both hold. What happens to inflation, real interest rates, and nominal
interest rates when the money supply growth rate increases from 5 percent to 10
percent?
Explain the difference between absolute advantage and comparative advantage. Which
is more important in determining trade patterns, absolute advantage or comparative
advantage? Why?
Name three actions the Fed can take to increase the money supply.