If the money market is in the liquidity trap, it is operating in the __________ segment
of the __________ demand curve.
a. vertical; investment
b. vertical; money
c. horizontal; investment
d. horizontal; money
The price of X was $10 in year 1 and $14 in year 2. Which of the following could be
the correct reason for the rise in price?
a. The demand for X was higher in year 2 than in year 1, ceteris paribus.
b. The supply of X was lower in year 2 than in year 1, ceteris paribus.
c. The demand was higher, and the supply was lower, in year 2 than in year 1.
d. a and b
e. a, b, and c
According to new growth theory, technological advances can be promoted
a. from within the economy.
b. if only the right fiscal and monetary policies are in place.
c. in a few rare cases.
d. through industrial policy.
e. none of the above
Exhibit 2-5
The opportunity cost of moving from point A to point
B is approximately
a. 5,000 televisions.
b. 5,000 fax machines.
c. 10,000 televisions.
d. 10,000 fax machines.
The quantity demanded of money is
a. inversely related to the interest rate.
b. directly related to the interest rate.
c. inversely related to the general price level.
d. inversely related to GDP.
e. a, c, and d
As the price of good X rises, the demand for good Y falls. Therefore, goods X and Y are
a. substitutes.
b. normal goods.
c. complements.
d. inferior goods.
e. none of the above
Under a constant growth rate of money rule of 5 percent in an economy in which Real
GDP grows at an average rate of 5 percent and velocity is constant, the inflation rate is
a. 5 percent.
b. -5 percent.
c. 25 percent.
d. -25 percent.
e. constant at zero.
Simple majority voting sometimes leads to projects being undertaken whose costs are
greater than the benefits. How is this possible?
a. It is not possible, unless the voting results are rigged.
b. Because voters have no way to express the intensity of their preferences.
c. Because many voters choose to be rationally ignorant.
d. Because free riding is pervasive.
If Real GDP is $8,000, the money supply is $4,000, and the price level is 3, then
velocity is
a. 2.00.
b. 3.33.
c. 6.00.
d. 7.50.
e. none of the above
Suppose the economy goes from a point on its production possibilities frontier (PPF) to
a point below that PPF. Assuming that the PPF has not shifted, this could be due to
a. a gain of resources.
b. a loss of resources.
c. technological improvement in the production of both goods.
d. an increase in unemployment of some resources.
To know whether the dollar is overvalued, we need to know
a. what foreign currency the dollar is being compared with.
b. the real interest rate in the United States and the real interest rate in whatever
country’s currency the dollar is being compared with.
c. the equilibrium exchange rate between the dollar and the foreign currency the dollar
is being compared with.
d. whether Federal Reserve monetary policy is expansionary or contractionary.
e. There is not enough information to answer the question.
Exhibit 5-2
If the tuition is set at $50 there will be
a. a shortage at 10 a.m. and a surplus at 8 a.m.
b. a surplus at 10 a.m. and a shortage at 8 a.m.
c. equilibrium at 8 a.m. and a surplus of seats at 10 a.m.
d. equilibrium at 8 a.m. and a shortage of seats at 10 a.m.
Which of the following best describes the agricultural sector for much of the 20th
century and today?
a. high productivity, price elasticity of demand less than 1, income elasticity of demand
greater than 1
b. low productivity, price elasticity of demand greater than 1, income elasticity of
demand less than 1
c. high productivity, price elasticity of demand less than 1, income elasticity of demand
less than 1
d. low productivity, price elasticity of demand less than 1, income elasticity of demand
greater than 1
Jamaal lost his job when a mechanical device replaced people with his skills. If Jamaal’s
skills are non-transferable, he would be considered to be structurally unemployed.
a. True
b. False
A “flat tax” is another term for __________ tax.
a. a progressive
b. a proportional
c. a regressive
d. the inflation
The liquidity effect is the
a. increase in the interest rate brought on by an increase in GDP.
b. increase in the interest rate due to a higher expected inflation rate.
c. decrease in the interest rate due to an increase in the supply of loanable funds.
d. response, in terms of rate of flow, of the money supply to a change in government
spending.
e. rate of change in the price level caused by a change in the supply of money.
In a foreign exchange market diagram with dollars per peso on the vertical axis, the
quantity of __________ would be on the horizontal axis, and the U.S. demand for
Mexican goods would help to determine the __________ curve.
a. dollars; demand
b. dollars; supply
c. pesos; demand
d. pesos; supply
One-shot inflation can result from an increase in aggregate demand or an increase in
aggregate supply.
a. True
b. False