Recall Application 4, “Coping with the Financial Chaos Caused by the Mortgage
Crisis,” to answer the following questions:
According to Application 4, the purchase of short term commercial paper from
nonfinancial corporations is a function of the Fed that was outlined in the Federal
Reserve Act of 1913.
A country that is experiencing a trade deficit is a country that is experiencing capital
deepening.
Japan experienced a liquidity trap in the last decade of the 20th century.
Government policies concerning the money supply and the control of inflation are topic
of concern in microeconomics.
Figure 12.2 Refer to Figure 12.2 to answer the question. Series A is a variable that
increases when the economy is growing.
If Tom can produce 20 multiple choice questions or 30 true/false questions in an hour,
and Mary can produce 15 multiple choice questions or 15 true/false questions in an
hour, then Mary has a comparative advantage in writing multiple choice questions.
Ignoring income effects, an increase in the wage rate will cause an increase in the
quantity of labor supplied.
For developed countries like the United States, GDP will always exceed GNP.
People will buy more of an inferior good when their income decreases.
If an increase in income results in a decrease in the demand for Honda Civics, then
Honda Civics are considered:
A) normal goods.
B) inferior goods.
C) substitute goods.
D) complementary goods.
Suppose that a firm can invest $100 today in a project and receive $105 a year from
today. There is no inflation, and the annual interest rate in the economy is 4%. The firm
should
A) invest in the project because the opportunity cost is less than the return on the
investment.
B) invest in the project because the opportunity cost is greater than the return on the
investment.
C) invest in the project because the opportunity cost is the same as the return on the
investment.
D) not invest in the project because the opportunity cost is less than the return on the
investment.
The formula for the tax multiplier is:
A) –MPS/MPC.
B) MPS/MPC.
C) –MPC/MPS.
D) –1/MPS.
In 2012, the U.S. population 16 years old or older was 242.6 million, the number
employed was 142.0 million, the number unemployed was 12.7 million, and the labor
force was 154.7 million. The unemployment rate in 1999 was ________ %.
A) 8.2
B) 8.9
C) 5.2
D) 9.3
Real business cycle theory emphasizes the role of ________ in causing economic
fluctuations.
A) agriculture
B) wars
C) natural disasters
D) technological change
Suppose that the reserve requirement is 10 percent and Bob writes a check to you for
$100. If you deposit the check to your checking account, then:
A) the money supply can decrease by as much as $1000.
B) the money supply can increase by as much as $1000.
C) the money supply will not change.
D) the money supply will decrease by exactly $100.
Recall Application 1, “The Chinese Yuan and Big Macs,” to answer the following
questions:
According to the Application, the dollar price of a Big Mac in the US is higher than the
dollar price of the Big Mac in:
A) Switzerland.
B) China.
C) Mexico.
D) both B and C are correct.
Table 6.10
Refer to Table 6.10. If 1999 is the base year, the price index in 2001 is:
A) 109.8.
B) 112.7.
C) 120.5.
D) 115.2.
According to classical economists, which of the following would cause an increase in
output?
A) an increase in physical capital
B) an increase in the price level
C) a reduction in labor supply
D) a decrease in the price level
According to the text, ________ is perhaps the most critical aspect of a country’s
economic performance.
A) growth in GDP
B) the inflation rate
C) the unemployment rate
D) the living standard
A demand curve is defined as the relationship between
A) the price of a good and the quantity of that good that consumers are willing to buy.
B) the price of a good and the quantity of that good that producers are willing to sell.
C) the income of consumers and the quantity of a good that consumers are willing to
buy.
D) the income of consumers and the quantity of a good that producers are willing to
sell.
Recall the Application about the role of government in promoting civil liberties to
answer the following question(s).
According to the Application, there is a ________ relationship between the strength of
civil liberties and the economic rate of return on government investment projects, which
tends to lead to ________ government projects.
A) positive; less efficient
B) negative; less efficient
C) positive; more efficient
D) negative; more efficient
Although it declined in the first quarter of 2009, the United States was still running a
trade deficit., which means that the United States would have to
A) devalue the dollar.
B) increase the money supply.
C) decrease the value of its financial account.
D) sell some of its assets to foreigners.
Recall Application 3, “Debt Forgiveness?” to answer the following questions:
According to the Application, what is wrong with forgiving some of the debt of those
homeowners who miss some of their payments?
A) It would encourage homeowners who are current in their mortgages to also
strategically miss monthly payments.
B) It would decrease the earnings of banks.
C) It would decrease government tax revenues from the taxes that banks pay to the
government.
D) It would encourage people who are behind on their mortgages to start making
payments on the debt that they owe.
Recall the Application about the study by Thomas J. Sargent of hyperinflations after
World War I in Germany, Austria, Hungary, and Poland, and how those hyperinflations
ended, to answer the following question(s).
According to this Application, Sargent found that in each of the four cases studied,
hyperinflation ended
A) when the governments were overthrown and the central banks were dissolved.
B) with the creation of a central bank and change in the way that governments were
financed.
C) when the central banks were given less independence and the governments required
the central banks to stop printing money.
D) by increases in government spending to stimulate the economy and boost the private
sector.
What role do expectations play in determining inflation? Explain.
Suppose that a U.S. dollar buys more gold in Mexico than it buys in Japan. What does
the law of one price imply will happen?
Describe briefly the relationship between unanticipated inflation and unemployment.
Explain how the financial market crisis in 2008 affected the speculative demand for
money.
Explain the theory of purchasing power parity.