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Production inputs such as steel rods have prices that adjust very quickly.
People acting in their own self interest try to gain at the expense of others in exchange
leads to someone necessarily losing in a voluntary exchange.
Another term for the total demand for goods and services is "planned expenditures."
According to the book, the general consensus is that our policy-makers do not know
what they are doing and are managing our economy ineffectively.
As capital deepening occurs, there will be increased real wages and economic growth.
Assuming full employment, if the private sector saves 8 percent of its income and the
government raises taxes by $500 to finance public investments, total investment will
increase by $460.
If actual output exceeds potential output, the short-run aggregate supply curve shifts
downward over time.
Risk can often be reduced by investing in a large number of projects.
The higher your income, the lower your consumption is likely to be.
Over short time periods, deficits can help the economy cope with shocks.
If the cost of producing a good goes down, this will cause the equilibrium price of the
good to go down and the equilibrium quantity of the good to go up.
The length of time from when households receive tax rebate checks to the time they
spend the checks is part of the:
A) inside lag.
B) outside lag.
C) identification lag.
D) inside-outside lag.
The present value of a payment to be received in the future is lower than the nominal
value of that payment in the future as long as:
A) the interest rate is positive.
B) the real GDP growth rate is positive.
C) inflation is negative.
D) banks are losing money on investments.
(a) Explain how the Federal Reserve might carry out contractionary monetary policy.
(b) Explain how the Federal Reserve might carry out expansionary monetary policy.
(c) How would each of the policies affect the equilibrium interest rate?
If the Fed wanted to reduce the market interest rate, it could:
A) raise the discount rate.
B) decrease the required reserve ratio.
C) contract the money supply.
D) sell U.S. government securities in the open market.
The governors of the Board of Governors of the Federal Reserve have terms of what
length?
A) 16 years
B) 14 years
C) 10 years
D) 4 years
When the price of one product decreases, what does it do to the demand of its
complementary product?
A) It decreases.
B) It increases.
C) They balance each other.
D) none of the above
When interest rates are lower, consumers and companies are able to borrow money
cheaply in order to make major purchases. As a result, the demand for goods in an
economy will generally
A) decrease.
B) increase.
C) remain the same.
D) be minimally affected.
Which of the following assets is easiest to make transactions with?
A) individual retirement accounts
B) checking deposits
C) money market mutual funds
D) time deposits
In the long run, an increase in the money supply will cause output:
A) to remain the same.
B) to decrease.
C) to increase.
D) to fluctuate up and down.
The market supply curve for a particular good:
A) shows the relationship between the price of the good and the quantity that all
producers together are willing to sell.
B) is drawn assuming that the other variables besides product price that affect supply
are fixed.
C) is drawn assuming that the number of producers is fixed.
D) all of the above
Using Figure 16.1, describe the two choices the fed has with respect to changing the
money supply if unions negotiate higher industry wages for its members, and as a
result, higher rates of inflation emerge. Assume before the wage increase, the economy
is at point c.
Those who favor smaller government tend to do what in order to make it more difficult
for politicians to increase government spending? List at least two methods.
Explain why real and nominal rates of interest will differ when the public expects
inflation.
Draw a graph illustrating a labor market in equilibrium. Illustrate and explain the effect
of a decrease in the preference for leisure by workers.
Suppose that the economy is at a short-run equilibrium below the potential output.
Explain the adjustments that the economy experiences as it moves back to potential
output.
Suppose that one country has a GDP that is ten percent of its richer neighbor, but the
poorer country is growing at a rate of eight percent per year while the richer country is
growing at a rate of two percent per year. Which country will be richer in 60 years?
Suppose that planned expenditure is less than aggregate output. Explain the process by
which the economy moves toward equilibrium.
