Increasing a fixed exchange rate is called a revaluation.
There will be no deadweight loss if the marginal benefit to consumers is equal to the
marginal cost of production and the sum of consumer surplus and producer surplus is
maximized.
Japan has a single-payer health care systemin which the government provides national
health insuranceto all Japanese residents.
In the United States in 2011, over 50 percent of people without health insurance were
below the age of 34.
The GDP deflator is the best measure that reflects the prices of goods and services
purchased by the typical household.
Policies based on normative economic ideas tend to increase economic efficiency and
improve equity.
The U.S. economy has been more stable since 1950.
U.S. dollars can currently be exchanged for gold by foreign central banks, but not by
U.S. citizens.
The rate of growth of productivity in the United States was positive during the 20th
century.
The real-world money multiplier is greater than the simple money multiplier (1/RR).
Consumers and make all economic decisions in a mixed economy.
Efficiency wage is another name for the minimum wage.
An increase in expected inflation will shift the short-run Phillips Curve.
The Fed can use expansionary monetary policy to lower interest rates to stimulate
aggregate demand.
A decrease in liabilities will reduce a firm’s net worth.
Which of the following advances contributed to the “new economy” of the mid-1990s?
A) the increased use of the Internet in selling products and services
B) expanded cell phone use
C) the lower cost and increased availability of laptop computers
D) all of the above
On the 45-degree line diagram, for points that lie above the 45-degree line,
A) planned aggregate expenditure is greater than GDP.
B) planned aggregate expenditure is less than GDP.
C) planned aggregate expenditure is equal to GDP.
D) planned aggregate expenditure is less than aggregate income.
You explain to your friend Haslina, who runs a catering service called “Meals in a Zip,”
about an economic theory which asserts that consumers will purchase less of a product
at higher prices than they will at lower prices. She contends that the theory is incorrect
because over the past two years she has raised the price of her catered meals and yet has
seen a brisk increase in sales. How would you respond to Haslina?
A) Haslina is right; she has evidence to back her claim. The theory must be erroneous.
B) I will explain to her that she is making the error of reverse causality: it is the
increase in demand that has enabled her to raise her prices.
C) I will explain to her that there are some omitted variables that have contributed to an
increase in her sales such as changes in income.
D) Haslina is making the mistake of assuming that correlation implies causation.
Table 2-2
Production choices for Nadia’s Neckware
Refer to Table 2-2. Assume Nadia’s Neckware only produces ascots and bowties. A
combination of 24 ascots and 12 bowties would appear
A) along Nadia’s production possibilities frontier.
B) inside Nadia’s production possibilities frontier.
C) outside Nadia’s production possibilities frontier.
D) at the horizontal intercept of Nadia’s production possibilities frontier.
The quantity equation states that
A) the money supply (M) divided by the velocity of money (V) equals the price level
(P) divided by real output (Y), i.e., M/V = P/Y.
B) M x V = P x Y.
C) M + V = P + Y.
D) M – V = P – Y.
Table 8-18
A very simple economy produces three goods: cameras, legal services, and books. The
quantities produced and their corresponding prices for 2008 and 2013 are shown in the
table above.
Refer to Table 8-18. What is the GDP deflator in 2008 if 2013 is the base year?
A) 187
B) 87
C) 8.7
D) 0.87
Suppose you deposit $4,000 in currency into your checking account at Bank of
America. Assume that Bank of America has no excess reserves at the time you make
your deposit and that the required reserve ratio is 10 percent.
a. Use a T-account to show the initial effect of this transaction on Bank of America’s
balance sheet.
b. Suppose that Bank of America makes the maximum loan they can from the funds you
deposited. Use a T-account to show the initial effect on Bank of America’s balance sheet
from granting the loan. Also include in this T-account the transaction from question (a.).
c. Now suppose that whoever took out the loan in question (b) writes a check for this
amount and that the person receiving the check deposits it in Bank of Boston. Show the
effect of these transactions on the balance sheet of Bank of America and Bank of
Boston, after the check has been cleared. On the T-account for Bank of America,
include the transactions from questions (a) and (b).
d. What is the maximum increase in checking account deposits that can result from your
$4,000 deposit? What is the maximum increase in the money supply? Explain.
In economics, the practical application of an invention is known as
A) technology.
B) entrepreneurship.
C) physical capital.
D) innovation.
When we graph consumption as a function of ________ rather than as a function of
disposable income, the slope of this consumption function is ________.
A) national income; the MPC
B) personal income; (MPC – MPS)
C) national income; the MPS
D) personal income; the MPS
Suppose that homemakers are included as employed in the labor force statistics, rather
than being counted as out of the labor force. This would
A) increase the measured unemployment rate.
B) increase the measured labor force participation rate.
C) decrease the number of persons in the labor force.
D) decrease the number of persons in the working-age population.
The federal budget deficit can be reduced by
A) raising taxes.
B) raising government spending.
C) raising transfer payments.
D) higher interest rates.
What are the five main determinants of consumption spending? Which of these is the
most important?
What is the relationship between the short-run Phillips curve and the long-run Phillips
curve?
What is the difference between the nominal interest rate and the real interest rate?
In the dynamic aggregate demand and aggregate supply model, what is the result of
aggregate demand increasing faster than potential real GDP?
Table 8-26
Refer to Table 8-26. Given the information above, calculate the GDP deflator for both
2012 and 2013. What does the value of the deflator in the year 2012 tell you about that
year with respect to the base year? What happened to prices in 2013 as compared to
2012?
Using aggregate demand and aggregate supply, explain what happens in the short run if
the Federal Reserve raises interest rates in the economy. Be sure to detail what happens
to aggregate demand, the price level, the level of GDP, and unemployment. Assume that
the economy is at full employment before the interest rate increase.
What area on a supply and demand graph represents producer surplus?
Why are foreign investors more likely to invest in U.S. government bonds than in U.S.
corporate stocks and bonds?
Why is the real-world deposit multiplier smaller than 1/RR, where RR is the required
reserve ratio?
Why would a firm pay efficiency wages?