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 2006 salary in 1996 dollars is
a. $39,097.74.
b. $43,062.50.
c. $68,900.00.
d. $108,062.50.
For a given real interest rate, an increase in inflation makes the after-tax real interest
rate
a. decrease, which encourages savings.
b. decrease, which discourages savings.
c. increase, which encourages savings.
d. increase, which discourages savings.
Which of the following does the U.S. president appoint and the U.S. Senate confirm?
a. members of the Board of Governors and regional Federal Reserve Bank Presidents.
b. members of the Board of Governors but not the regional Federal Reserve Bank
Presidents.
c. the regional Federal Reserve Bank Presidents, but not members of the Board of
Governors.
d. neither members of the Board of Governors nor regional Federal Reserve Bank
Presidents.
Figure 4-4
Refer to Figure 4-4. Which of the following would cause the demand curve to shift
from Demand B to Demand C in the market for DVDs in the United States?
a. a decrease in the price of DVDs
b. a decrease in the price of DVD players
c. a change in consumer preferences toward watching movies in movie theaters rather
than at home
d. a decrease in the number of people in the United States
When a supply curve is relatively flat,
a. sellers are not very responsive to changes in price.
b. supply is relatively inelastic.
c. supply is relatively elastic.
d. Both a and b are correct.
If there is a surplus of loanable funds, then
a. the quantity of loanable funds demanded is greater than the quantity of loanable
funds supplied and the interest rate is above equilibrium.
b. the quantity of loanable funds demanded is greater than the quantity of loanable
funds supplied and the interest rate is below equilibrium.
c. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is above equilibrium.
d. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is below equilibrium.
If an increase in government expenditures makes taxpayers believe that taxes and the
distortion then
a. consumption and investment both rise.
b. consumption will rise and investment will fall.
c. investment will fall and consumption will rise.
d. consumption and investment will both fall.
According to the classical dichotomy, which of the following is not influenced by
monetary factors?
a. nominal GDP and nominal interest rates
b. real wages and real GDP
c. the price level and nominal GDP
d. None of the above is correct.
Table 4-8
A country club usually only allows members to purchase tickets for its celebrity golf
tournament, but the club is considering allowing non-members to purchase tickets this
year. The demand and supply schedules are as follows:
Refer to Table 4-8. If both members and non-members are allowed to purchase tickets
to this year’s celebrity golf tournament and the country club sets the ticket price at $30,
then there will be
a. a shortage of 300 tickets.
b. a surplus of 300 tickets.
c. 600 tickets sold.
d. 600 tickets unsold.
You find that to attract a sufficient number of workers you have to pay them more
dollars. Given the price of your output you determine you are paying your workers
more in goods than before. Which of the following has risen?
a. The real and nominal value of the wages you pay.
b. The real but not the nominal value of wages you pay.
c. The nominal but not the real value of the wages you pay.
d. Neither the real nor the nominal value of the wages you pay.
The country of Cedarland does not trade with any other country. Its GDP is $17 billion.
Its government purchases $4 billion worth of goods and services each year, collects $6
billion in taxes, and provides $1 billion in transfer payments to households. Private
saving in Cedarland is $4 billion. For Cedarland,
a. investment is $6 billion and consumption is $9 billion.
b. investment is $6 billion and consumption is $8 billion.
c. investment is $5 billion and consumption is $8 billion.
d. investment is $5 billion and consumption is $7 billion.
Sectoral shifts in demand for output
a. create structural unemployment.
b. immediately reduce unemployment.
c. increase unemployment due to job search.
d. do not affect demand for labor.
Figure 2-1
Refer to Figure 2-1. Ali buys a new pair of shoes at a shoe store. To which of the
arrows does this transaction directly contribute?
a. A only
b. A and B
c. C only
d. C and D
On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.
a. The $750 is a nominal variable. The 300 cups of coffee is a real variable.
b. The $750 is a real variable. The 300 cups of coffee is a nominal variable.
c. Both the $750 and the 300 cups of coffee are nominal variables.
d. Both the $750 and the 300 cups of coffee are real variables.
Table 16-5.
Bank of Pleasantville
Refer to Table 16-5. From the table it follows that the Bank of Pleasantville operates in
a
a. fractional-reserve banking system, since its reserves are less than its deposits.
b. fractional-reserve banking system, since its reserves are less than its loans.
c. 100-percent-reserve banking system, since its assets are equal to its liabilities.
d. 100-percent-reserve banking system if the Fed’s reserve requirement is 10 percent;
otherwise, it operates in a fractional-reserve banking system.
The theory of liquidity preference illustrates the principle that
a. monetary policy can be described either in terms of the money supply or in terms of
the interest rate.
b. monetary policy can be described either in terms of the exchange rate or the interest
rate.
c. monetary policy must be described in terms of the money supply.
d. monetary policy must be described in terms of the interest rate.
Suppose the federal government doubles the gasoline tax. The deadweight loss
associated with the tax
a. also doubles.
b. triples.
c. quadruples.
d. rises by a factor of 8.
If the Federal Reserve accommodates an adverse supply shock,
a. inflation expectations may rise which shifts the short-run Phillips curve shifts right.
b. inflation expectations may rise which shifts the short-run Phillips curve shifts left.
c. inflation expectations may fall which shifts the short-run Phillips curve shifts right.
d. inflation expectations may fall which shifts the short-run Phillips curve shifts left
Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on
to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an
alternative, he can spend an additional $3,000 replacing the engine. With a new engine
the car would sell for $13,000. Rick should
a. complete the repairs and sell the car for $13,000.
b. sell the car now for $10,000.
c. never try such an expensive project again.
d. be indifferent between (i) selling the car now and (ii) replacing the engine and then
selling it.
If U.S. residents purchase $500 billion of foreign assets and foreigners purchase $1300
billion of U.S. assets,
a. U.S. net capital outflow is $800 billion; capital is flowing into the U.S.
b. U.S. net capital outflow is $800 billion; capital is flowing out of the U.S.
c. U.S. net capital outflow is -$800 billion; capital is flowing into the U.S.
d. U.S. net capital outflow is -$800 billion; capital is flowing out of the U.S.
During the financial crisis Congress and President Obama authorized tax cuts and
increases in government spending. According to the Phillips curve, in the short run
these policies should have
a. reduced inflation and unemployment.
b. raised inflation and unemployment.
c. reduced inflation and raised unemployment.
d. raised inflation and reduced unemployment.
Suppose that a country imports $75 million of goods and services and exports $100
million of goods and services. What is the value of net exports?
a. $175 million
b. $75 million
c. $25 million
d. -$25 million
In the United States, the overall level of prices more than doubled during the
a. 1950s.
b. 1960s.
c. 1970s.
d. 1980s.
If a bank desires to hold no excess reserves, the reserve requirement is 5 percent, and it
receives a new deposit of $1,000
a. its required reserves increase by $50.
b. its total reserves initially increase by $1,000.
c. it will be able to make a new loan of up to $950.
d. All of the above are correct.
Table 3-4
Assume that the farmer and the rancher can switch between producing meat and
producing potatoes at a constant rate.
Labor Hours Needed
to Make 1 Pound of Pounds Produced
in 24 Hours
Refer to Table 3-4. The rancher has an absolute advantage in the production of
a. meat.
b. potatoes.
c. both goods.
d. neither good.
When making investment decisions, investors
a. compare the real interest rates offered on different bonds.
b. compare the nominal, but not the real, interest rates offered on different bonds.
c. purchase the highest-priced bond available.
d. All of the above are correct.
Table 11-3
The table below pertains to Studious, an economy in which the typical consumer’s
basket consists of 5 books and 10 calculators.
Refer to Table 11-3. If 2006 is the base year, then the consumer price index was
a. 100 in 2006, 135 in 2007, and 155 in 2008.
b. 100 in 2006, 270 in 2007, and 310 in 2008.
c. 200 in 2006, 135 in 2007, and 155 in 2008.
d. 200 in 2006, 270 in 2007, and 310 in 2008.
Which of the following is likely to have the most price inelastic demand?
a. camcorders
b. insulin
c. apples
d. devices that remove cores from apples
Figure 2-15
Relationship between Price and Cups of Coffee
Refer to Figure 2-15. A movement from point A to point Z is called
a. a shift in demand.
b. a movement along the demand curve.
c. a shift in supply.
d. a movement along the supply curve.
Suppose the interest rate is 8 percent. Consider three payment options:
1) $200 today.
2) $220 one year from today.
3) $240 two years from today.
Which of the following is correct?
a. Option 1 has the highest present value and Option 2 has the lowest.
b. Option 2 has the highest present value and Option 3 has the lowest.
c. Option 3 has the highest present value and Option 1 has the lowest.
d. None of the above is correct.