25.
A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the
United States can
earn $85 per day making cotton cloth with a mechanical loom. What is the
likely explanation for the difference in
wages?
a.
U.S. textile workers belong to a union, whereas Vietnamese textile workers do not belong to a
union.
b.
There is little demand for cotton cloth in Vietnam and great demand in the U.S.
c.
Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.
d.
Vietnam has a low–wage policy to make its textile industry more competitive in world markets.
26.
To promote good economic outcomes, policymakers should strive to enact policies that
a.
enhance productivity.
b.
enhance individuals’ market power.
c.
result in a rapidly-growing quantity of money.
d.
All of the above are correct.
27.
To raise productivity, policymakers could
a.
increase spending on education.
b.
provide tax credits to firms for capital improvements.
c.
fund research and development.
d.
All of the above are correct.
28.
What is the most important factor that explains differences in living standards among countries?
a.
labor unions
b.
minimum wage laws
c.
productivity
d.
efficiency
29.
To increase living standards, public policy should
a.
ensure that workers are well educated and have the necessary tools and technology.
b.
make unemployment benefits more generous.
c.
move workers into jobs directly from high school.
d.
ensure a greater degree of equality, taking all income-earners into account.
30.
The increase in living standards of American workers over the past century is primarily due to
a.
the success of labor unions.
b.
minimum-wage laws.
c.
improvements in productivity.
d.
None of the above are correct.
31.
To improve living standards, policymakers should
a.
impose restrictions on foreign competition.
b.
formulate policies designed to increase productivity.
c.
impose tougher immigration policies.
d.
provide tax breaks for the middle class.
32.
Incomes of U.S. households in the 1970s and 1980s
a.
grew rapidly, due to the widespread success of labor unions in pushing up wages during those
decades.
b.
grew rapidly, due to several increases in the minimum wage during those decades.
c.
grew rapidly, due to government policies that discouraged the importation of foreign products
during those
decades.
d.
grew slowly, due to slow growth of the output of goods and services per hour of U.S. workers’
time during
those decades.
33.
An increase in the overall level of prices in an economy is referred to as
a.
the income effect.
b.
inflation.
c.
deflation.
d.
the substitution effect.
34.
Inflation is defined as
a.
a period of rising productivity in the economy.
b.
a period of rising income in the economy.
c.
an increase in the overall level of output in the economy.
d.
an increase in the overall level of prices in the economy.
35.
In the early 1920s,
a.
Germany experienced a very high rate of inflation.
b.
the quantity of German money was declining rapidly.
c.
the value of German money remained almost constant.
d.
All of the above are correct.
36.
During the early 1920s in Germany, prices
a.
doubled annually.
b.
doubled monthly.
c.
tripled monthly.
d.
tripled annually.
37.
In less than two years in the early 1920s, the cost of a German newspaper rose from 0.30 marks
to 70,000,000
marks. This is a spectacular example of
a.
market power caused by a change in the country’s standard of living.
b.
market power caused by a single firm controlling the newspaper production.
c.
inflation caused by increased productivity in the economy.
d.
inflation caused by an increase in the quantity of money in the economy.
38.
One of the 20th century’s worst episodes of inflation occurred in
a.
the United States in the 1960s.
b.
Italy in the 1950s.
c.
Russia in the 1930s.
d.
Germany in the 1920s.
39.
In the United States, the overall level of prices more than doubled during the
a. 1950s.
b. 1960s.
c. 1970s.
d. 1980s.
40.
President Gerald Ford referred to inflation as
a.
a blight on our nation‘s economy.
b.
a necessary evil to combat high unemployment.
c.
public enemy number one.
d.
a fly in the ointment.
41.
The U.S. president who referred to inflation as “public enemy number one” was
a.
Richard Nixon.
b.
Gerald Ford.
c.
Jimmy Carter.
d.
Ronald Reagan.
42.
In which of the following decades was there both high inflation and rapid money supply growth in
the US?
a.
the 1970’s and the 1990’s
b.
the 1970’s but not the 1990’s
c.
the 1990’s but not the 1970’s
d.
neither the 1970’s nor the 1990’s
43.
In the 1990s, inflation in the United States was
a.
very close to zero.
b.
about 3 percent per year.
c.
about 6 percent per year.
d.
commonly referred to as “public enemy number one.”
44.
Large or persistent inflation is almost always caused by
a.
excessive government spending.
b.
excessive growth in the quantity of money.
c.
foreign competition.
d.
higher–than-normal levels of productivity.
45.
Which of the following would a permanent increase in the growth rate of the money supply
change permanently?
a.
inflation
b.
unemployment
c.
both inflation and unemployment
d.
neither inflation nor unemployment
46.
Most economists believe that an increase in the quantity of money results in
a.
an increase in the demand for goods and services.
b.
lower unemployment in the short run.
c.
higher inflation in the long run.
d.
All of the above are correct.
47.
In the short run, which of the following rates of growth in the money supply is likely to lead to the
lowest level of
unemployment in the economy?
a.
3 percent per year
b.
5 percent per year
c.
7 percent per year
d.
9 percent per year
48.
In the short run, which of the following rates of growth in the money supply is likely to lead to the
highest level of
unemployment in the economy?
a.
1 percent per year
b.
2 percent per year
c.
3 percent per year
d.
4 percent per year
49.
In the short run, an increase in the money supply is likely to lead to
a.
lower unemployment and lower inflation.
b.
lower unemployment and higher inflation.
c.
higher unemployment and lower inflation.
d.
higher unemployment and higher inflation.
50.
Suppose the Federal Reserve announces that it will be making a change to a key interest rate to
increase the money
supply. This is likely because
a.
the Federal Reserve is worried about inflation.
b.
the Federal Reserve is worried about unemployment.
c.
the Federal Reserve is hoping to reduce the demand for goods and services.
d.
the Federal Reserve is worried that the economy is growing too quickly.
51.
Suppose the Federal Reserve announces that it will be making a change to a key interest rate to
decrease the money
supply. This is likely because the Federal Reserve is
a.
worried about inflation.
b.
worried about unemployment.
c.
hoping to increase the demand for goods and services.
d.
worried that the economy is growing too slowly.
52.
Low rates of inflation are generally associated with
a.
low rates of government spending.
b.
small or nonexistent government budget deficits.
c.
low rates of productivity growth.
d.
low rates of growth of the quantity of money.
53.
Which of the following is the primary cause of inflation?
a.
an increase in the quantity of money
b.
an increase in government spending
c.
an increase in unemployment
d.
an increase in productivity
54.
Which of the following is the most correct statement about the relationship between inflation and
unemployment?
a.
In the short run, falling inflation is associated with falling unemployment.
b.
In the short run, falling inflation is associated with rising unemployment.
c.
In the long run, falling inflation is associated with falling unemployment.
d.
In the long run, falling inflation is associated with rising unemployment.
55.
Which of the following is an important cause of inflation in an economy?
a.
increases in productivity in the economy
b.
the influence of positive externalities on the economy
c.
lack of property rights in the economy
d.
growth in the quantity of money in the economy
56.
The mainstream view among economists is that
a.
society faces a tradeoff between unemployment and inflation, but only in the short run.
b.
society faces a tradeoff between unemployment and inflation, but only in the long run.
c.
society faces a tradeoff between unemployment and inflation, both in the short run and in the
long run.
d.
no tradeoff exists between unemployment and inflation, either in the short run or in the long run.
57.
Which of the following claims is consistent with the views of mainstream economists?
a.
If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment
will temporarily
fall.
b.
If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment
will temporarily
rise.
c.
If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment
will
permanently fall.
d.
If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment
will
permanently rise.
58.
For a very long time the country of Zeeland has had an inflation rate of 9%. Suddenly its inflation
rate drops to 3%. The drop in the inflation rate
a.
could be due to slower money supply growth. We would expect unemployment to be higher.
b.
could be due to slower money supply growth. We would expect unemployment to be lower.
c.
could be due to higher money supply growth. We would expect unemployment to be higher.
d.
could be due to higher money supply growth. We would expect unemployment to be lower.
59.
For a number of years country A had inflation of 3% but for the last five years has had inflation
of 6%. Country B
had inflation of 4% for many years, but very recently inflation unexpectedly
rose to 9%. Other things the same, in
which of the countries would the higher inflation rate be
more likely to reduce unemployment?
a.
both country A and country B
b.
neither country A nor country B
c.
country A but not country B
d.
country B but not country A
60.
In the early 1980s, U.S. economic policy was directed toward reducing inflation. What would you
have expected to
observe during this short period of time?
a.
Inflation fell and unemployment fell.
b.
Inflation and unemployment were both unaffected.
c.
Inflation fell and unemployment increased.
d.
Inflation fell and unemployment was unchanged.
61.
The relatively low inflation experienced in the United States in the 1990s is attributable to
a.
slow growth of U.S. productivity during the 1990s.
b.
slow growth of the quantity of money in the U.S. in the 1990s.
c.
low levels of government spending in the U.S. in the 1980s and 1990s.
d.
the eight–year presidency of William Jefferson Clinton during the 1990s.
62.
During the 1990s, the United Kingdom experienced low levels of inflation while Turkey
experienced high levels of
inflation. A likely explanation of these facts is that
a.
the United Kingdom has a better education system than Turkey.
b.
the rate of growth of the quantity of money was slower in the United Kingdom than in Turkey.
c.
workers in Turkey are more productive than workers in the United Kingdom.
d.
there are more instances of market power in Turkey than in the United Kingdom.
63.
The tradeoff between inflation and unemployment
a.
implies that policies designed to reduce unemployment also reduce inflation.
b.
was eliminated by improved economic policies in the 1900s.
c.
is a long-run tradeoff, persisting for decades, according to most economists.
d.
None of the above are correct.
64.
Germany could have avoided the high inflation that it experienced in the 1920s by
a.
not directing so many of its resources toward preparation for World War II.
b.
not increasing taxes so much on the German middle class.
c.
not allowing the quantity of money to increase so rapidly.
d.
using government policies to stimulate the economy more so than what was done.