Inflation redistributes income to a greater extent when the inflation is unanticipated
compared to when the inflation is anticipated.
When Jack’s income increases by $1,000, he spends an additional $850 dollars. This
implies that his marginal propensity to save is 0.85.
Increases in capital per hour worked cannot sustain high rates of economic growth
unless accompanied by technological change.
On a diagram of a production possibility frontier, economic decline (negative growth) is
represented by the production possibility frontier shifting inward.
The inflation rate measures the percentage increase in the price level from one year to
the next.
The key to sustained economic growth is increasing labor productivity.
The sales revenue a seller receives from the sale of an additional unit of goods is called
the marginal cost.
If you purchase a share of stock from your friend who initially purchased the stock
three years ago, your purchase of the stock represents a transaction in the primary
financial market.
An increase in the government budget deficit will not lead to a current account deficit if
domestic investment declines.
The double taxation problem occurs because households pay taxes on dividends and
capital gains from stock and corporations pay taxes on corporate profits.
Long lags associated with the legislative process in implementing fiscal policy make it
more difficult to use than monetary policy.
Liquidity increases as we move from the M1 to the M2 definition of the money supply.
Holding all else constant, a rise in interest rates in the United States will cause the
dollar to appreciate in international exchange markets.
It is possible for a market for a good to experience a surplus and a shortage at the same
time.
Monetarists think that the Fed should use ________ as a target when conducting
monetary policy.
A) the money supply
B) the federal funds rate
C) the Treasury bill rate
D) the inflation rate
E) the unemployment rate
Figure 15-7
Refer to Figure 15-7. Suppose the economy is in a recession and no policy is pursued.
Using the static AD–AS model in the figure above, this situation would be depicted as a
movement from
A) A to B.
B) B to A.
C) C to B.
D) A to E.
E) C to D.
There has been a decrease in investment. As a result, real GDP will ________ in the
short run, and ________ in the long run.
A) increase; increase further
B) increase; decrease to its initial value
C) decrease; decrease further
D) decrease; increase to its initial level
The labor force equals the number of people
A) employed.
B) unemployed.
C) employed plus unemployed.
D) in the working-age population.
An increase in U.S. federal government budget deficits that raises U.S. interest rates
relative to the rest of the world should
A) raise the trade balance.
B) increase net exports.
C) cause the dollar to depreciate.
D) lead to a current account deficit.
E) decrease foreign portfolio investment.
Disposable personal income is defined as
A) personal income less personal taxes plus indirect sales taxes.
B) personal income less transfer payments plus personal taxes.
C) personal income less personal taxes.
D) personal income less depreciation.
According to real business cycle models,
A) the long-run Phillips curve is negatively sloped.
B) the economy is normally operating below the natural rate of unemployment.
C) unexpected changes in monetary policy are the major source of fluctuations in real
GDP.
D) the economy is normally at potential GDP.
Figure 17-8
Refer to Figure 17-8. A typical long-run Phillips curve would have the appearance of a
curve running through points
A) A and B.
B) A and C.
C) B and C.
D) A, B and C.
If you can produce more of something than others with the same resources, you have
A) a comparative advantage.
B) an absolute advantage.
C) an efficient production system.
D) a free-market economy.
If cyclical unemployment is eliminated in the economy, then
A) the economy is considered to be at full employment.
B) the unemployment rate is below the natural rate of unemployment.
C) the unemployment rate is above the natural rate of unemployment.
D) the economy is at less than full employment.
If real GDP in a closed economy is $40 billion, consumption is $20 billion, and
government purchases are $10 billion, what is investment?
A) $10 billion
B) $30 billion
C) $40 billion
D) $70 billion
German luxury car exports were hurt in 2009 as a result of the recession. How would
this decrease in exports have affected Germany’s aggregate demand curve?
A) The aggregate demand curve would have shifted to the right.
B) The aggregate demand curve would not have shifted, but there would have been a
movement up the aggregate demand curve.
C) The aggregate demand curve would not have shifted, but there would have been a
movement down the aggregate demand curve.
D) The aggregate demand curve would have shifted to the left.
If a corporation goes bankrupt, which of the following has first claim on the firm’s
assets?
A) stockholders
B) the state where chartered
C) employees
D) bondholders
Figure 19-5
Refer to Figure 19-5. Suppose the Chinese government decides to abandon pegging the
yuan to the dollar at a rate which undervalues the yuan. Using the figure above, the
equilibrium exchange rate would be ________ and Chinese exports to the United States
would ________ in price.
A) $0.11/yuan; decrease
B) $0.11/yuan; increase
C) $0.14/yuan; increase
D) $0.13/yuan; increase
E) $0.13/yuan; decrease
What is the natural rate of unemployment, and what types of unemployment constitute
the natural rate of unemployment?
What’s the difference between the nominal exchange rate and the real exchange rate?
Given Table 12-9 below, fill in the values of the marginal propensity to save (MPS) and
the marginal propensity to consume (MPC). Show that MPC + MPS = 1.
Table 12-9
Why does continued foreign investment in U.S. stocks and bonds and foreign
companies continuing to build factories in the United States result in a current account
deficit in the United States?
Carefully define the two categories of saving in the economy.
Why do banks create money? Do they create money to help the Federal Reserve control
the money supply or is there a more basic reason?
How does a decrease in the tax rate on income earned on saving affect saving,
investment, the interest rate, and economic growth?
Explain how advances in technology are critical to sustaining economic growth, even if
capital per hour worked is consistently increasing. Provide a graph of a per-worker
production function to support your answer.
Explain what economists mean by full employment and why this rate of unemployment
is not zero.
In Year 1 suppose the economy is at potential GDP and that the federal budget deficit
equals $100 billion. In Year 2 the federal budget deficit rises to $150 billion, but the
cyclically adjusted budget deficit falls to $75 billion. How can the actual budget deficit
rise and the cyclically adjusted budget deficit fall?