An increase in imports increases aggregate demand.
Accumulating a greater number of inputs will ensure that an economy will experience
economic growth.
Suppose the extra cost to a doctor of keeping her office open on Saturdays is $800.
Then, the doctor should not stay open on Saturdays if keeping the office open can only
bring in additional revenue of $800.
The General Agreement on Tariffs and Trade (GATT) was formed to replace the World
Trade Organization (WTO) because the WTO was empowered only to reduce barriers
to trade in goods. The GATT is an agreement to reduce barriers to trade in goods,
services and intellectual property.
A law requiring the government to balance its budget in each year would serve as an
automatic destabilizer.
In recent decades the United States has incurred overall balance of payments deficits.
The Sarbanes-Oxley Act of 2002 requires that each member of the board of directors
personally certify the accuracy of financial reports.
Figure 13-2
Refer to Figure 13-2. Ceteris paribus, a decrease in the expected future price level
would be represented by a movement from
A) SRAS1 to SRAS2.
B) SRAS2 to SRAS1.
C) point A to point B.
D) point B to point A.
Assume the United States is the “domestic” country and China is the “foreign” country.
Which of the following might increase the real exchange rate between the United States
and China?
A) an appreciation of the yuan
B) a depreciation of the dollar
C) an increase in the price level in the United States.
D) an increase in the price level of China
The narrowest official definition of the money supply is
A) M1.
B) M2.
C) M3.
D) L.
The rule of 70 states that
A) it takes an economy 70 years to double its real GDP.
B) the number of years it takes an economy to double in size is 70 divided by the
growth rate.
C) the number of years it takes an economy to double in size is the growth rate times
70.
D) the number of years it takes an economy to double in size is the growth rate divided
by 70.
In comparing China to Canada, China’s relatively ________ growth rate in GDP would
make you more likely to take a job in China, and China’s relatively ________ level of
GDP would make you less likely to take a job in China.
A) high; low
B) high; high
C) low; low
D) low; high
If the implied exchange rate between Big Mac prices in the United States and Poland is
2.13 zlotys per dollar, but the actual exchange rate between the United States and
Poland is 3.16 zlotys per dollar, which of the following would you expect to see?
A) an appreciation of the dollar
B) an increase in the demand for zlotys
C) an increase in the demand for dollars
D) Both A and C are correct.
In periods when prices are falling, on average,
A) real GDP will grow slower than nominal GDP.
B) real GDP will grow faster than nominal GDP.
C) real GDP will grow as fast as nominal GDP.
D) one cannot calculate real GDP.
You’re traveling in Japan and are thinking about buying a new kimono. You’ve decided
you’d be willing to pay $175 for a new kimono, but kimonos in Japan are all priced in
yen. If the exchange rate is 89 yen per dollar, what is the highest price in yen you’d be
willing to pay for a kimono? (Assume no taxes or duties are associated with the
purchase.)
A) 1.97 yen
B) 330.75 yen
C) 15,575 yen
D) 19,425 yen
Electric car manufacturers want to sell more electric cars at a higher price. Which of the
following events would have this effect?
A) technological advancement in the production of electric car batteries.
B) an increase in the number of manufacturers of electric cars.
C) a decrease in the price of lithium, which is used in the electric car batteries.
D) an increase in the price of gasoline.
Select the phrase that correctly completes the following statement. “A decrease in the
expected future price caused an increase in the supply of smartphones. As a result,
A) the price of smartphones decreased and the demand for smartphones increased.”
B) the equilibrium quantity of smartphones decreased.”
C) the price of smartphones decreased and the quantity demanded of smartphones
increased.”
D) the price of smartphones decreased. The lower price caused the supply of
smartphones to decrease.”
The purchase by an individual or firm of stock or bonds issued in another country is
called
A) foreign exchange arbitrage.
B) foreign direct investment.
C) foreign portfolio investment.
D) global stock exchange.
The basic aggregate demand and aggregate supply curve model helps explain
A) short-term fluctuations in real GDP and the price level.
B) long-term growth.
C) price fluctuations in an individual market.
D) output fluctuations in an individual market.
By tying the salaries of top corporate managers to the price of the corporation’s stock,
corporations hope to avoid
A) corporate governance.
B) conflict between the CFO and the CEO.
C) the principal-agent problem.
D) paying high salaries to their managers.
Which of the following is an example of a “how much” decision?
A) The Pleasantville movie theatre is open only in the evenings. The theatre’s manager
is debating whether to add daily matinee shows.
B) The Zhous have demolished their old home and are debating whether to build a
ranch-style house or a Craftsman home.
C) You’re planning to hold a graduation party and must decide between having your
party catered or having a pot-luck.
D) Chelsea has withdrawn from the swim team to take up a full-time job.
A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil. If the exchange rate
is 2 reals per dollar, what is the dollar cost of a Big Mac in Brazil?
A) $0.89
B) $2.25
C) $4.50
D) $8.00
The aggregate expenditure model focuses on the relationship between ________ and
________ in the short run, assuming ________ is constant.
A) total production; total income; real GDP
B) total spending; real GDP; total income
C) total spending; real GDP; the price level
D) total income; real GDP; the price level
Suppose a drought resulted in a major reduction in the California lettuce crop. In the
market for lettuce,
A) the supply curve shifted to the left resulting in an increase in the equilibrium price.
B) the supply curve shifted to the left resulting in a decrease in the equilibrium price.
C) the demand curve shifted to the right resulting in an increase in the equilibrium
price.
D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.
Figure 12-2
Refer to Figure 12-2. Suppose that the level of GDP associated with point N is
potential GDP. If the U.S. economy is currently at point K,
A) firms are operating above capacity.
B) the economy is at full employment.
C) the economy is in recession.
D) the level of unemployment is equal to the natural rate.
You are an economic advisor to the president. You are asked to recommend a policy to
promote long-term economic growth in the economy. Which of the following policies
would you choose?
A) a reduction in sales taxes
B) an investment tax credit
C) a reduction in taxes on luxury yachts
D) all of the above
The present value of $300 received 5 years in the future would be calculated as which
of the following when the interest rate is 5%?
A) 300/(1.5)5
B) 300/(1.05)5
C) 300 1.5 5
D) 5.05/300
How do open market operations work?
C = 4,000 + 0.5Y
I = 1,500
G=2,250
NX = -150
Given the equations for C, I, G, and NX above, what is the equilibrium level of GDP
(Y)?
Is nominal GDP measured in terms of quantity or in terms of dollars? If dollars, the
value of the dollar from what period? Is real GDP measured in terms of quantity or in
terms of dollars? If dollars, the value of the dollar from what period?
Table 8-22
Refer to Table 8-22. Consider the data above for a simple economy: Using 2009 as the
base year, calculate nominal GDP, real GDP, and the GDP deflator for 2013. Show your
work.
Explain why expansionary monetary policy would not result in reduced unemployment
rates if workers and firms have rational expectations.
If you know that a country’s net foreign investment is positive, what does that tell you
about the relationship between the country’s national saving and private investment?
(Assume that the capital account is zero and net transfers are zero.)
Use the formula for the GDP deflator to explain how it is affected by an increase in
prices in the economy. If the value of the deflator equals 100, what does that tell you
about that year with respect to the base year?
Workers and firms are currently expecting the price level to increase from 110 to 114.
The Federal Reserve then announces that it will be reducing the growth rate of the
money supply. If the Fed’s announcement is credible, and firms and workers have
rational expectations, describe how the expectations of firms and workers will be
affected and how the change in expectations will affect the unemployment rate.
Starting from long-run equilibrium, use the basic aggregate demand and aggregate
supply diagram to show what happens in both the long run and the short run when there
is a decline in wealth.
Using a supply and demand graph, illustrate the effect of an increase in the federal
cigarette tax of $1.00 per pack, where the entire tax burden falls on the consumer.
Assume the equilibrium price before the tax is $5.00 per pack and the equilibrium
quantity is 30 million packs.
After the implementation of the tax, what are the equilibrium price and equilibrium
quantity?