Opportunity cost is the difference between the nominal and real cost of some action.
In a closed economy, when the government runs a budget deficit, national saving is
reduced, interest rates rise, and investment falls, holding all else constant.
The exchange rate between currencies of different countries is controlled primarily by
supply and demand in currency markets.
All else equal, nominal wages would not likely increase if there is no inflation.
It takes longer to set up a business in Canada than in Mozambique.
Technological progress is one of the mechanisms by which economies can grow.
A product produced in the home country and sold in another country is an export.
People who stopped looking for work because they could not find jobs are called
discouraged workers.
The law of supply states that there is a positive relationship between price and quantity
supplied, ceteris paribus.
Some costs associated with anticipated inflation are:
A) transaction and settlement costs.
B) menu and shoe-leather costs.
C) opportunity and marginal costs.
D) outsourcing and a larger trade deficit.
A country undertakes a revaluation in order to
A) increase its net exports.
B) decrease its net exports.
C) lower the value at which its currency is pegged.
D) move to a flexible exchange rate system.
Recall Application 2, “The Value of an Annuity,” to answer the following questions:
Based on the Application, your choice of getting the annuity over the one-time is more
optimal if:
A) you expect to live very long.
B) your monthly benefits are higher.
C) the interest rate suddenly decreases.
D) All of the above are correct.
If the price of hotdogs are expected to decrease in the future, then:
A) the current demand for hotdogs will increase.
B) the current demand for hotdogs will decrease.
C) the current quantity demanded for hotdogs will decrease.
D) the current quantity demanded for hotdogs will increase.
During the 1970s homeowners in California borrowed money at 10 percent interest
rates per year. If housing prices were growing at 12 percent per year, then their real
investments would grow by:
A) 2 percent per year.
B) 22 percent per year.
C) 12 percent per year.
D) -22 percent per year.
Any transaction that involves exchanging one good for another without using money is
considered a:
A) liquidity transaction.
B) barter transaction.
C) deferred payment.
D) token exchange.
If the MPC is 0.75, then the tax multiplier is:
A) 4.
B) 3.
C) -3.
D) 0.75.
The existence of automatic stabilizers causes:
A) the size of any budget deficit to increase as the economy enters a recession.
B) the size of any budget deficit to decrease as the economy enters a recession.
C) the size of the budget deficit to remain constant as the economy enters a recession.
D) the size of the budget surplus to increase as the economy enters a recession.
What happens to your purchasing power if inflation is less than you anticipated?
A) It decreases.
B) It increases.
C) It devalues your net worth.
D) It won’t change much.
Table 6.10
Refer to Table 6.10. If 1999 is the base year, the price index in 1998 is:
A) 84.5.
B) 96.7.
C) 113.8.
D) 103.9.
Suppose consumers save 17 percent of their incomes. If the government collects 10
dollar in taxes from each taxpayer and invested it in infrastructure, total social
investment will ________ per taxpayer.
A) increase by $10.17
B) increase by $8.30
C) decrease by $1.70
D) decrease by $8.30
An increase in Swiss interest rates will cause
A) an increase in the demand for U.S. dollars and an increase in the exchange rate of
Swiss francs per dollar.
B) a decrease in the demand for U.S. dollars and a decrease in the exchange rate of
Swiss francs per dollar.
C) an increase in the supply of U.S. dollars and a decrease in the exchange rate of Swiss
francs per dollar.
D) a decrease in the supply of U.S. dollars and an increase in the exchange rate of Swiss
francs per dollar.
Mike has just graduated from college and is now looking for a job, but has not yet
found one. This causes the unemployment rate to ________ and the labor-force
participation rate to ________.
A) increase; decrease
B) stay the same; stay the same
C) increase; increase
D) increase; stay the same
The Phillips curve depicts the relationship between:
A) output and the price level.
B) aggregate demand and aggregate expenditures.
C) inflation and unemployment.
D) money supply and interest rate.
What is the federal government’s largest source of revenue?
Explain what would happen to the equilibrium price and quantity of oranges if the
supply of oranges increased while the demand for oranges decreased.
Explain menu costs and shoe leather costs as they relate to inflation.
Why is the money multiplier in the United States smaller than the inverse of the
required reserve ratio?
Why do both the chain-weighted index for GDP and the CPI overstate actual price
increases?
Comment on the following statement: “If the firm owns the funds it uses to purchase
investment goods, then the annual cost of investing is zero and we should invest in any
project where the annual return net of inflation is greater than zero.”
Explain the three different types of money demand.
Explain the supply and demand of products, factors of production, and the payments for
the products and factors of production as described in the circular flow diagram.
Increase the level of an activity if its marginal benefit exceeds its marginal cost; reduce
the level of an activity if its marginal cost exceeds its marginal benefit. This is known as
the ________.