Monetary Policy in Highland
Highland has had inflation of 15% for many years. Highland establishes a new central
bank, the Bank of Highland, with the hopes of reducing the inflation rate.
Refer to Monetary Policy in Highland. The Bank of Highland publicizes that it
intends to reduce the inflation rate to 5%. If it is successful in doing so but people had
expected inflation to fall only to 10%, then
a. unemployment rises but it would have risen by more if people had expected inflation
to be 6%.
b. unemployment rises but it would have risen by less if people had expected inflation
to be 6%.
c. unemployment falls but it would have fallen by more if people had expected inflation
to be 6%.
d. unemployment falls but it would have fallen by less if people had expected inflation
to be 6%.
In recent decades Americans have increased their purchase of stocks of foreign-based
companies. The Americans who have bought these stocks were engaged in
a. foreign portfolio investment.
b. indirect domestic investment.
c. foreign direct investment.
d. foreign indirect investment.
If an economy’s GDP falls, then it must be the case that the economy’s
a. income falls and saving rises.
b. income and saving both fall.
c. income falls and expenditure rises.
d. income and expenditure both fall.
The signals that guide the allocation of resources in a market economy are
a. surpluses and shortages.
b. quantities.
c. government policies.
d. prices.
Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price
index was 160 in 1996 and 266 in 2006. Janelle’s 1996 salary in 2006 dollars is
a. $24,060.15.
b. $42,400.00.
c. $43,655.17.
d. $66,500.00.
Figure 6-10
Refer to Figure 6-10. A price floor set at
a. $6 will be binding and will result in a surplus of 8 units.
b. $6 will be binding and will result in a surplus of 4 units.
c. $16 will be binding and will result in a surplus of 12 units.
d. $16 will be binding and will result in a surplus of 6 units.
The regional Federal Reserve Banks
a. are not allowed to make loans to banks in their region.
b. regulate banks in their regions.
c. have more voting members on the FOMC than does the Board of Governors.
d. are each headed by a member of the Board of Governors.
Which, if any, of the present values below are correctly computed?
a. A payment of $1,000 to be received one year from today, with a 8 percent interest
rate, has a present value of $945.45.
b. A payment of $1,000 to be received one year from today, with a 9 percent interest
rate, has a present value of $911.11.
c. A payment of $1,000 to be received one year from today, with a 10 percent interest
rate, has a present value of $905.06.
d. None of the above are correct to the nearest cent.
A tax on an imported good is called a
a. quota.
b. tariff.
c. supply tax.
d. trade tax.
In the early 1970s, the short-run Phillips curve shifted
a. right as inflation expectations rose.
b. right as inflation expectations fell.
c. left as inflation expectations rose.
d. left as inflation expectations fell.
If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would
a. rise from 10 to 20.
b. rise from 5 to 10.
c. fall from 10 to 5.
d. not change.
Which of the following statements generates the greatest amount of disagreement
among economists?
a. Increases in the money supply shift aggregate demand to the right.
b. In the long run, increases in the money supply increase prices, but not output.
c. Recessions are associated with decreases in consumption, investment, and
employment.
d. Government should use fiscal policy to try to stabilize the economy.
Which of the following might cause the supply curve for an inferior good to shift to the
right?
a. an increase in input prices
b. a decrease in consumer income
c. an improvement in production technology that makes production of the good more
profitable
d. a decrease in the number of sellers in the market
Which of the following both shift aggregate demand left?
a. a decrease in taxes and at a given price level consumers feel more wealthy
b. a decrease in taxes and at a given price level consumers feel less wealthy
c. an increase in taxes and at a given price level consumers feel more wealthy
d. an increase in taxes and at a given price level consumers feel less wealthy
Shoeleather cost refers to
a. the cost of more frequent price changes induced by higher inflation.
b. the distortion in resource allocation created by distortions in relative prices due to
inflation.
c. resources used to maintain lower money holdings when inflation is high.
d. the tendency to expend more effort searching for the lowest price when inflation is
high.
Opponents of the minimum wage point out that the minimum wage
a. encourages teenagers to drop out of school.
b. prevents some workers from getting needed on-the-job training.
c. contributes to the problem of unemployment.
d. All of the above are correct.
At which interest rate is the present value of $260.10 two years from today equal to
$250 today?
a. 2 percent
b. 3 percent
c. 4 percent
d. 5 percent
You hold currency from a foreign country. If that country has a higher rate of inflation
than the United States, then over time the foreign currency will buy
a. more goods in that country and buy more dollars.
b. more goods in that country but buy fewer dollars.
c. fewer goods in that country but buy more dollars.
d. fewer goods in that country and buy fewer dollars.
In the long run, which of the following would shift the long-run Phillips curve to the
right?
a. an increase in the minimum wage
b. an increase in government spending
c. an increase in the money supply
d. a decrease in the money supply
The nation of Aquilonia has decided to end its policy of not trading with the rest of the
world. When it ends its trade restrictions, it discovers that it is importing incense,
exporting steel, and neither importing nor exporting rugs. We can conclude that
Aquilonia’s new free-trade policy has
a. increased consumer surplus and producer surplus in the incense market.
b. increased consumer surplus in the steel market and left producer surplus in the rug
market unchanged.
c. decreased consumer surplus in both the steel and rug markets.
d. decreased consumer surplus in the steel market and increased total surplus in the
incense market.
When a country’s government budget deficit increases,
a. the real exchange rate of its currency and its net exports increase.
b. the real exchange rate of its currency and its net exports decrease.
c. the real exchange rate of its currency increases and its net exports decrease.
d. the real exchange rate of its currency decreases and its net exports increase.
According to the Phillips curve, policymakers could reduce both inflation and
unemployment by
a. increasing the money supply.
b. increasing government expenditures.
c. raising taxes.
d. None of the above is correct.
Figure 5-14
Refer to Figure 5-14. Using the midpoint method, what is the price elasticity of supply
between points C and D?
a. 0.21
b. 0.29
c. 0.73
d. 1.36
The open-economy macroeconomic model takes
a. GDP, but not the price level as given.
b. the price level, but not GDP as given.
c. both the price level and GDP as given.
d. the price level and GDP as variables to be determined by the model.
The Fed can reduce the federal funds rate by
a. decreasing the money supply. To decrease the money supply it could sell bonds.
b. decreasing the money supply. To decrease the money supply it could buy bonds.
c. increasing the money supply. To increase the money supply it could sell bonds.
d. increasing the money supply. To increase the money supply it could buy bonds.
Transfer payments
a. are payments that flow from government to households.
b. are not made in exchange for currently produced goods or services.
c. alter household income, but they do not reflect the economy’s production.
d. All of the above are correct.
The benefit to sellers of participating in a market is measured by the
a. amount of taxes collected on sales of the good.
b. producer surplus.
c. amount sellers receive for their product.
d. sellers’ willingness to sell.
Table 3-8
Assume that Huang and Min can switch between producing parasols and producing
porcelain plates at a constant rate.
Labor Hours Needed
to Make 1 Quantity Produced
in 36 Hours
Refer to Table 3-8. Huang has an absolute advantage in the production of
a. parasols and a comparative advantage in the production of parasols.
b. parasols and a comparative advantage in the production of plates.
c. neither good and a comparative advantage in the production of parasols.
d. neither good and a comparative advantage in the production of plates.
A good is produced by a firm in 2009, added to the firm’s inventory in 2010, and sold to
a household in 2010. As a result, on net,
a. 2009 GDP increased and 2010 GDP decreased.
b. 2009 GDP decreased and 2010 GDP increased.
c. 2009 GDP did not change and 2010 GDP increased.
d. 2009 GDP increased and 2010 GDP did not change.
Table 7-6
Refer to Table 7-6. You have an extra ticket to the Midwest Regional Sweet 16 game in
the men’s NCAA basketball tournament. The table shows the willingness to pay of the
four potential buyers in the market for a ticket to the game. You hold an auction to sell
the ticket. Michael bids $410 for the ticket, and you sell him the ticket. What is his
consumer surplus?
a. $410
b. $90
c. $10
d. $0
If there were no factors keeping wages from reaching equilibrium then there would be
no
a. cyclical unemployment.
b. frictional unemployment.
c. structural unemployment.
d. natural rate of unemployment.
Which entity within the U.S. government is responsible for computing and reporting the
CPI?
a. the Department of Commerce
b. the Department of Labor
c. the General Accounting Office
d. the Council of Economic Advisers