The multiplier for investment represents the ratio of the change in income to the change
in investment spending.
According to Keynesian economics, prices and wages determine the level of output in
the economy.
Inflation distorts the operation of our tax and financial system.
From the perspective of consumers, a quota is preferred to a tariff.
If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can
produce 30 milk shakes or 16 banana splits in an hour, then Tina has a comparative
advantage in producing banana splits.
Microeconomics is the study of aggregate behavior in the economy.
The opportunity cost of funds is the interest that can be earned by lending the funds.
Under current WTO rules a country can make imports be more environmentally
friendly than domestic goods.
The velocity of money is equal to nominal GDP divided by the money supply.
An increase in the real GDP can cause inflation.
In the short run, demand and not prices, determine the production of inputs such as
steel.
Keynes advocated the use of taxation and government spending to influence the level of
GDP in the short run.
Technological progress can be another mechanism which affects economic growth.
In a fixed exchange rate system, a decrease in the exchange rate at which a currency is
pegged is called a(n)
A) appreciation.
B) devaluation.
C) revaluation.
D) depreciation.
The best measure of the purchasing power of one currency relative to another is:
A) the nominal exchange rate.
B) the real interest rate.
C) the nominal interest rate.
D) the real exchange rate.
Juanita quit her job to move to Santa Fe to be closer to her family. She is actively
looking for a new job in Santa Fe. Juanita is considered
A) structurally unemployed.
B) cyclically unemployed.
C) frictionally unemployed.
D) not to be unemployed.
Depreciation is:
A) the decrease in the overall price level.
B) the additional capital stock in a year.
C) the wear and tear of capital as it is used in production.
D) the amount of decline in business inventories.
Suppose that consumers expect that the price of a product will increase in the future.
The result is that
A) the current demand for the product increases.
B) the current demand for the product decreases.
C) the current supply of the product increases.
D) the current supply of the product decreases.
As a general rule, goods that are perishable tend to have:
A) auction prices.
B) custom prices.
C) prices that never change in the long run.
D) prices that never change in the short run.
What impact does the Fed’s raising the interest rate have on the money supply and on
the price level?
A) An increase in interest rates raises the money supply and eventually reduces prices.
B) An increase in interest rates reduces the money demand which will slow the growth
in prices.
C) An increase in interest rates lowers the money supply and raises the money demand,
which will neutralize price increases.
D) An increase in interest rates will increase investment spending and GDP, which will
lower prices.
If Bob withdraws $100 from his checking account and the reserve requirement is 10
percent, then:
A) the money supply can decrease by as much as $1000, if banks hold no excess
reserves.
B) the money supply can increase by as much as $1000, if banks hold no excess
reserves.
C) the money supply can decrease by as much as $1000, if banks hold some excess
reserves.
D) the money supply can decrease by as much as $100, if banks hold some excess
reserves.
Suppose that in October the price of a cup of cafe latte was $2.50 and 400 lattes were
consumed. In November the price of a latte was $2.00 and 300 lattes were consumed.
What might have caused this change?
A) The price of tea (a substitute for cafe lattes) fell.
B) The price of tea (a substitute for cafe lattes) rose.
C) The price of coffee beans (an input of production of cafe lattes) rose.
D) The price of coffee beans (an input of production of cafe lattes) fell.
The price of one country’s currency in terms of another country’s currency is called the:
A) balance of trade.
B) exchange rate.
C) terms of trade.
D) currency valuation.
As the result of an increase in the price of capital, the demand for labor would
________, the supply of labor would ________, and the quantity of labor hired would
________.
A) decrease; decrease; decrease
B) decrease; remain the same; decrease
C) increase; remain the same; decrease
D) decrease; increase; remain the same
Explain why depositing cash into a checking account does not change the money
supply.
What are the three functions of money?
Many economists have argued that oil prices have a big impact on the performance of
the economy. During the late 1990s, oil prices fell dramatically. Explain the effects of
this drop in oil prices in the aggregate demand-aggregate supply model.
Using aggregate supply and aggregate demand curves, indicate the impact of an
increase in government spending on the price level and on the equilibrium level of real
GDP in the short run.
Explain the relationship among gross investment, net investment, and depreciation.