Suppose a government that taxed all interest income changed its tax law so that the first
$5,000 of a taxpayer’s interest income was tax free. This would shift the
a. supply of loanable funds to the right, causing interest rates to fall.
b. supply of loanable funds to the left, causing interest rates to rise.
c. demand for loanable funds to the right, causing interest rates to rise.
d. demand for loanable funds to the left, causing interest rates to fall.
Figure 9-3. The domestic country is China.
Refer to Figure 9-3. With no international trade,
a. the equilibrium price is $12 and the equilibrium quantity is 300.
b. the equilibrium price is $16 and the equilibrium quantity is 200.
c. the equilibrium price is $16 and the equilibrium quantity is 300.
d. the equilibrium price is $16 and the equilibrium quantity is 450.
Suppose some country had an adult population of about 25 million, a labor-force
participation rate of 60 percent, and an unemployment rate of 6 percent. How many
people were employed?
a. 0.9 million
b. 14.1 million
c. 15 million
d. 23.5 million
Reta’s income elasticity of demand for steak dinners is 1.50. All else equal, this means
that if her income increases by 20 percent, she will buy
a. 150 percent more steak dinners.
b. 50 percent more steak dinners.
c. 30 percent more steak dinners.
d. 20 percent more steak dinners.
If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will
want to hold
a. fewer reserves, so the reserve ratio will fall.
b. fewer reserves, so the reserve ratio will rise.
c. more reserves, so the reserve ratio will fall.
d. more reserves, so the reserve ratio will rise.
If we were to change the interpretation of the term “loanable funds” in such a way that
government budget deficits would affect the demand for loanable funds, rather than the
supply of loanable funds, then
a. crowding out would not be a consequence of an increase in the budget deficit.
b. higher interest rates would not be a consequence of an increase in the budget deficit.
c. an increase in the budget deficit would cause the demand for loanable funds to
decrease.
d. we would be making only a semantic change in how we analyze the effects of
government budget deficits.
If there is excess money supply, people will
a. deposit more into interest-bearing accounts, and the interest rate will fall.
b. deposit more into interest-bearing accounts, and the interest rate will rise.
c. withdraw money from interest-bearing accounts, and the interest rate will fall.
d. withdraw money from interest-bearing accounts, and the interest rate will rise.
Figure 19-3
Refer to this diagram to answer the questions below.
Refer to Figure 19-3. The curve in panel b shows that as the interest rate rises,
a. domestic investment declines.
b. net capital outflow declines.
c. net capital outflow and domestic investment decline.
d. None of the above is correct.
Belarus has a comparative advantage in the production of linen, but Russia has an
absolute advantage in the production of linen. If these two countries decide to trade,
a. Belarus should export linen to Russia.
b. Russia should export linen to Belarus.
c. trading linen would provide no net advantage to either country.
d. Without additional information about opportunity costs, this question cannot be
answered.
Given a nominal interest rate of 5 percent, in which of the following cases would you
earn the highest after-tax real rate of interest?
a. Inflation is 3 percent; the tax rate is 20 percent.
b. Inflation is 2 percent; the tax rate is 40 percent.
c. Inflation is 1 percent; the tax rate is 60 percent.
d. The after-tax real interest rate is the same for all of the above.
Monetary Policy in Southland
In Southland the Department of Finance is responsible for monetary policy. Southland
has had an inflation rate of 25% for many years.
Refer to Monetary Policy in Southland. Suppose that the Southland Department of
Finance undertakes a public relations campaign to convince people that it will soon
change monetary policy to reduce inflation to 12.5%. If Southlanders believe their
government then which, if any, curve(s) shift left?
a. the short-run and the long-run Phillips curve
b. the short-run but not the long run Phillips curve
c. the long-run but not the short-run Phillips curve
d. neither the short-run nor the long-run Phillips curve
The English word that comes from the Greek word for “one who manages a household”
is
a. market.
b. consumer.
c. producer.
d. economy.
The increase in international trade in the United States is partly due to
a. improvements in transportation.
b. advances in telecommunications.
c. increased trade of goods with a high value per pound.
d. All of the above are correct.
Which of the following statements about GDP is correct?
a. GDP measures two things at once: the total income of everyone in the economy and
the total expenditure on the economy’s output of goods and services.
b. Money continuously flows from households to firms and then back to households,
and GDP measures this flow of money.
c. GDP is generally regarded as the best single measure of a society’s economic
well-being.
d. All of the above are correct.
In most societies, resources are allocated by
a. a single central planner.
b. a small number of central planners.
c. those firms that use resources to provide goods and services.
d. the combined actions of millions of households and firms.
Table 3-5
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Labor Hours Needed
to Make 1 Unit of Number of Units
Produced in 40 Hours
Refer to Table 3-5. Which of the following combinations of cheese and bread could
England not produce in 40 hours?
a. 5 units of cheese and 9 units of bread.
b. 10 units of cheese and 7.5 units of bread.
c. 20 units of cheese and 5 units of bread.
d. 30 units of cheese and 2.5 units of bread.
Figure 6-21
Refer to Figure 6-22. Suppose the same supply and demand curves apply, and a tax of
the same amount per unit as shown here is imposed. Now, however, the sellers of the
good, rather than the buyers, are required to pay the tax to the government. After the
sellers are required to pay the tax, relative to the case depicted in the graph, the burden
on buyers will be
a. larger, and the burden on sellers will be smaller.
b. smaller, and the burden on sellers will be larger.
c. the same, and the burden on sellers will be the same.
d. The relative burdens in the two cases cannot be determined without further
information.
Which of the following is both a financial institution and a financial intermediary?
a. banks
b. stock exchanges
c. the bond market
d. All of the above are correct.
Monetary Policy in Southland
In Southland the Department of Finance is responsible for monetary policy. Southland
has had an inflation rate of 25% for many years.
Refer to Monetary Policy in Southland. Suppose that the Southland Department of
Finance has run a public relations campaign claiming it will reduce inflation to 12.5%
and that it actually reduces inflation to that level. Suppose that the public had expected
that the Department of Finance would reduce inflation but only to 22%. Then
a. unemployment falls, but it would have fallen more if people had been expecting 5%
inflation.
b. unemployment falls, but it would have fallen more if people had been expecting 25%
inflation.
c. unemployment rises, but it would have risen more if people had been expecting 5%
inflation.
d. unemployment rises, but it would have risen more if people had been expecting 25%
inflation.
In the open-economy macroeconomic model, equilibrium in the market for
foreign-currency exchange is determined by the equality between the supply of dollars
which comes from
a. U.S. national saving and the demand for dollars for U.S. net exports.
b. U.S. net capital outflow and the demand for dollars for U.S. net exports.
c. domestic investment and the demand for U.S. net exports.
d. foreign demand for U.S. goods and services and U.S. demand for foreign goods and
services.
In which of these instances is demand said to be perfectly inelastic?
a. An increase in price of 2% causes a decrease in quantity demanded of 2%.
b. A decrease in price of 2% causes an increase in quantity demanded of 0%.
c. A decrease in price of 2% causes a decrease in total revenue of 0%.
d. An increase in price of 2% causes a decrease in quantity demanded of 1/2%.
Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to
72 Algerian dinar per dollar, the dollar has
a. appreciated and so buys more Algerian goods.
b. appreciated and so buys fewer Algerian goods.
c. depreciated and so buys more Algerian goods.
d. depreciated and so buys fewer Algerian goods.
The flatter the demand curve through a given point, the
a. greater the price elasticity of demand at that point.
b. smaller the price elasticity of demand at that point.
c. closer the price elasticity of demand will be to the slope of the curve.
d. greater the absolute value of the change in total revenue when there is a movement
from that point upward and to the left along the demand curve.
In the United States in 2009, purchases of capital equipment, inventories, and structures
represented approximately
a. 3 percent of GDP.
b. 7 percent of GDP.
c. 11 percent of GDP.
d. 15 percent of GDP.
Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M =
a. $4,000.
b. $2,250.
c. $250.
d. $36,000.
Nate collected Social Security payments of $220 a month in 1985. If the price index
rose from 90 to 108 between 1985 and 1986, then his Social Security payments for
1986 should have been
a. $228.
b. $238.
c. $257.
d. $264.
Figure 7-13
Refer to Figure 7-13. If the price of the good is $600, then producer surplus amounts to
a. $650.
b. $800.
c. $900.
d. $1,000.
Which of the following would cause prices and real GDP to rise in the short run?
a. an increase in the expected price level
b. an increase in the money supply
c. a decrease in the capital stock
d. None of the above is correct.
Figure 7-8
Refer to Figure 7-8. Which area represents the increase in producer surplus when the
price rises from P1 to P2 due to new producers entering the market?
a. BCG
b. ACH
c. DGH
d. AHGB
Figure 9-12
Refer to Figure 9-12. Producer surplus after trade is
a. $7,000.
b. $7,500.
c. $8,800.
d. $9,600.
If there is a surplus of loanable funds, then
a. the quantity demanded is greater than the quantity supplied and the interest rate will
rise.
b. the quantity demanded is greater than the quantity supplied and the interest rate will
fall.
c. the quantity supplied is greater than the quantity demanded and the interest rate will
rise.
d. the quantity supplied is greater than the quantity demanded and the interest rate will
fall.
Figure 6-18
Refer to Figure 6-18. The effective price sellers receive after the tax is imposed is
a. $2.50.
b. $3.50.
c. $5.00.
d. $6.00.
According to liquidity preference theory, if the price level increases, then the
equilibrium interest rate
a. rises and the aggregate quantity of goods demanded rises.
b. rises and the aggregate quantity of goods demanded falls.
c. falls and the aggregate quantity of goods demanded rises.
d. falls and the aggregate quantity of goods demanded falls.