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Recall Application 2, "How Fast to Sail?" to answer the following questions:
Based on the Application, the marginal benefit of sailing a ship faster is:
A) more cargo delivered per year.
B) more fuel cost incurred.
C) less fuel costs incurred.
D) less cargo delivered per year.
Assume that C = 150 + 0.9Y and I = 50. The tax multiplier is:
A) -9.
B) 0.9.
C) -10.
D) 10.
Which of the following is the tool most used by the Fed to control the money supply in
the US?
A) open market operations
B) the reserve requirement
C) the discount rate
D) All of these are used equally often.
If net national product is $250 billion and indirect taxes are $5 billion, then national
income is:
A) $405 billion.
B) $255 billion.
C) $245 billion.
D) $285 billion.
Suppose that a price index in Paraguay was 131 in 2011 and 152 in 2012. The inflation
rate between those two years was approximately
A) 10.5 percent.
B) 11.6 percent.
C) 16 percent.
D) 21 percent.
If a firm decreases its capital stock, real wages will likely ________ and the equilibrium
quantity of labor will likely ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
When you keep your savings in a savings account, you are using money as a(n):
A) investment good.
B) store of value.
C) medium of exchange.
D) unit of account.
Recall the Application about the increase in purchases of hybrid vehicles to answer
the following question(s).
According to the Application, the average cost of abating one ton of CO2 emissions
through the hybrid subsidy is $177, but a switch from coal to natural gas in power
plants would reduce CO2 emissions at less than one-third the cost of the hybrid subsidy.
The increase in cost associated with the reduction of one ton of CO2 emissions
(assuming that each unit of CO2 emissions is measured in tons) describes the economic
concept of
A) using assumptions to simplify.
B) ceteris paribus.
C) marginal thinking.
D) rational self interest.
Table 3.1
Based on the data in Table 3.1
A) Jesse should specialize in painting kites and trade for snowboards.
B) Jesse should specialize in painting snowboards and trade for kites.
C) April should specialize in both goods.
D) Jesse should specialize in both goods.
Additional Application AN UNFORTUNATE GAMBLE What explained the
decision by the Japanese government to increase taxes in the 1990s when the economy
was still suffering from a recession? The Japanese government sharply increased taxes
on consumption in 1997---just as Japan was in the midst of its prolonged recession.
Why did the government do this? The reasons were clear. As the economy slumped,
fiscal deficits were increasing, as taxes fell and government spending rose. Policy
makers understood that their society was aging rapidly and that this would mean even
more demands on the public sector in the near future. They became convinced that the
current fiscal deficits plus the inevitable future demands on the government would lead
to long-run increases in government spending. To avoid crowding out of investment in
the future, they decided to tax consumption in order to reduce it. Their goal was to
match the increases in government spending with decreases in consumption spending
and therefore not experience crowding out of investment. Although policy makers were
right to consider the long-run consequences of increases in government spending, they
made the unfortunate gamble that the short-run effects of the tax increase would not
hinder the economy's recovery. They were wrong, because the tax increase prolonged
the recession. Although it is important to consider the long-run consequences of policy,
it is important to understand the short-run consequences as well. According to the
application, what was the reason why the Japanese government increased consumption
taxes in the 1990s?
A) They wanted to decrease consumption spending because they expected government
spending to increase in the future.
B) They wanted to decrease consumption spending as they expected government
spending will decrease.
C) They wanted to make the economy to spiral into a depression.
D) They wanted to decrease net exports.
The real exchange rate is the:
A) rate at which domestic goods are traded for foreign goods.
B) rate at which an individual can trade the currency of one country for another.
C) price of another currency minus the inflation rate.
D) the price of another currency.
