Rational people make decisions at the margin by
a. following marginal traditions.
b. behaving in a random fashion.
c. thinking in black-and-white terms.
d. comparing marginal costs and marginal benefits.
According to purchasing-power parity, if the Federal Reserve increased the money
supply
a. U.S. prices would rise and the nominal exchange rate would rise.
b. U.S. prices would rise and the nominal exchange rate would fall.
c. U.S. prices would fall and the nominal exchange rate would rise.
d. U.S. prices and the nominal exchange rate would fall.
If, at the current price, there is a shortage of a good, then
a. sellers are producing more than buyers wish to buy.
b. the market must be in equilibrium.
c. the price is below the equilibrium price.
d. quantity demanded equals quantity supplied.
If nominal GDP is $8 trillion and real GDP is $10 trillion, then the GDP deflator is
a. 80, and this indicates that the price level has decreased by 20 percent since the base
year.
b. 80, and this indicates that the price level has increased by 80 percent since the base
year.
c. 125, and this indicates that the price level has increased by 25 percent since the base
year.
d. 125, and this indicates that the price level has increased by 125 percent since the base
year.
If the short-run Phillips curve were stable, which of the following would be unusual?
a. an increase in government spending and a fall in unemployment
b. an increase in inflation and a decrease in output
c. a decrease in the inflation rate and a rise in the unemployment rate
d. a decrease in the money supply and a rise in the unemployment rate.
The natural unemployment rate includes
a. both frictional and structural unemployment.
b. neither frictional nor structural unemployment.
c. structural but not frictional unemployment.
d. frictional but not structural unemployment.
Given a nominal interest rate of 5 percent, in which of the following cases would you
earn the highest after-tax real rate of interest?
a. Inflation is 3 percent; the tax rate is 15 percent.
b. Inflation is 2 percent; the tax rate is 40 percent.
c. Inflation is 1 percent; the tax rate is 50 percent.
d. The after-tax real interest rate is the same for all of the above.
Which of the following could explain an increase in the equilibrium interest rate and a
decrease in the equilibrium quantity of loanable funds?
a. The demand for loanable funds shifted right.
b. The demand for loanable funds shifted left.
c. The supply of loanable funds shifted right.
d. The supply of loanable funds shifted left.
Table3-34
Assume that Indonesia and India can switch between producing rice and bananas at a
constant rate.
RefertoTable3-34.India’s opportunity cost of producing rice is
a. 1/2 units of bananas. This is higher than Indonesia’s opportunity cost of producing
rice.
b. 1/2 units of bananas. This is lower than Indonesia’s opportunity cost of producing
rice.
c. 2 units of bananas. This is higher than Indonesia’s opportunity cost of producing rice.
d. 2 units of bananas. This is lower than Indonesia’s opportunity cost of producing rice.
Figure 2-1
Refer to Figure2-1. Harvey receives his first paycheck for working as an ice cream
vendor. To which of the arrows does this transaction directly contribute?
a. B only
b. A and B
c. C only
d. C and D
Table 3-25
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
RefertoTable3-25. The opportunity cost of 1 mixer for Miguel is
a. 1/2 toaster.
b. 1/2 hour of labor.
c. 2 toasters.
d. 8 hours of labor.
In countries where women are discriminated against, policies that increase the
likelihood of career success and educational opportunities for women are likely to
decrease the birth rate.
a. True
b. False
The imposition of an import quota shifts
a. the supply of currency right, so the exchange rate falls.
b. the supply of currency left, so the exchange rate rises.
c. the demand for currency right, so the exchange rate rises.
d. the demand for currency left, so the exchange rate falls.
Which of the following statements is correct?
a. By definition, all natural resources are nonrenewable.
b. Market prices give us reason to believe that natural resources are a limit to economic
growth.
c. An economy must be blessed with ample quantities of natural resources if it is to be a
highly productive economy.
d. Differences in natural resources can explain some of the differences in standards of
living around the world.
Suppose the Federal Reserve increases bank reserves and banks lend out some of these
reserves, but at some point banks still have $5 million more they wish to lend out. If the
reserve requirement is 10 percent, how much more money can banks create if they lend
out the remaining amount?
a. $55 million
b. $50 million
c. $45 million
d. $40 million
Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer
price index was 220 for 2009 and 231 for 2014. Harry’s 2014 spending in 2009 dollars
is about
a. $40,000.
b. $44,100.
c. $37,838.
d. $40,091.
Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A
year later, Bob withdraws his $105. If inflation was 5 percent during the year the money
was deposited, then Bob’s purchasing power has not changed.
a. True
b. False
If purchases of French assets by foreigners are less than French purchases of foreign
assets, then France has a
a. positive net capital outflow and a trade surplus.
b. positive net capital outflow and a trade deficit.
c. negative net capital outflow and a trade surplus.
d. negative net capital outflow and a trade deficit.
Which of the following statements about GDP is correct?
a. Nominal GDP values production at current prices, whereas real GDP values
production at constant prices.
b. Nominal GDP values production at constant prices, whereas real GDP values
production at current prices.
c. Nominal GDP values production at market prices, whereas real GDP values
production at the cost of the resources used in the production process.
d. Nominal GDP values production at the cost of the resources used in the production
process, whereas real GDP values production at market prices.
The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million.
In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2
percent. If the priceearnings ratio is 20, then Biggie’s total earnings in 2013 amounted
to
a. $15.6 million.
b. $250 million.
c. $160 million.
d. $625 million.
Table 3-24
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Refer to Table3-24. If England and Spain each spends all its time producing the good
in which it has a comparative advantage and the countries agree to trade 2 units of
bread for 6 units of cheese, then England will consume
a. 34 units of cheese and 2 units of bread and Spain will consume 6 units of cheese and
3 units of bread.
b. 34 units of cheese and 2 units of bread and Spain will consume 16 units of cheese
and 3 units of bread.
c. 34 units of cheese and 12 units of bread and Spain will consume 6 units of cheese and
3 units of bread.
d. 34 units of cheese and 12 units of bread and Spain will consume 16 units of cheese
and 3 units of bread.
A country’s standard of living depends on its ability to produce goods and services.
a. True
b. False
Suppose that roofers are not unionized. If roofers unionize, then the supply of labor in
other sectors of the economy will
a. decrease, raising wages in industries that are not unionized.
b. decrease, reducing wages in industries that are not unionized.
c. increase, raising wages in industries that are not unionized.
d. increase, reducing wages in industries that are not unionized.
Refer to Figure3-4. If Bryce must work 4 months to produce each sweater, then his
production possibilities frontier is based on how many months of work?
a. 4 months
b. 8 months
c. 12 months
d. 16 months
If the wage is kept above the equilibrium wage for any reason, the result is structural
unemployment.
a. True
b. False
Figure 3-9
Refer to Figure3-9. If Uzbekistan and Azerbaijan each divides its time equally between
making bolts and making nails, then total production is
a. 15 bolts and 40 nails.
b. 25 bolts and 70 nails.
c. 30 bolts and 80 nails.
d. 50 bolts and 140 nails.
The model of aggregate demand and aggregate supply
a. is different from the model of supply and demand for a particular market, in that we
cannot focus on the substitution of resources between markets to explain aggregate
relationships.
b. is different from the model of supply and demand for a particular market, in that we
have to separate real and nominal variables in the aggregate model.
c. is a straightforward extension of the model of supply and demand for a particular
market, in which substitution of resources between markets is highlighted.
d. is a straightforward extension of the model of supply and demand for a particular
market, in which the interaction between real and nominal variables is highlighted.
If the price of domestically produced power tools increases, then
a. the consumer price index and the GDP deflator will both increase.
b. the consumer price index will increase, and the GDP deflator will be unaffected.
c. the consumer price index will be unaffected, and the GDP deflator will increase.
d. the consumer price index and the GDP deflator will both be unaffected.
Figure 34-1
RefertoFigure34-1. At an interest rate of 4 percent, there is an excess
a. demand for money equal to the distance between points a and b.
b. demand for money equal to the distance between points b and c.
c. supply of money equal to the distance between points a and b.
d. supply of money equal to the distance between points b and c.
If people thought that many banks in a certain country were at or near the point of
bankruptcy, then that country’s interest rate
a. and net exports would rise.
b. would rise and its net exports would fall.
c. would fall and its net exports would rise.
d. and its net exports would fall.
Suppose the United States had a short-term shortage of farmers. Which mechanisms
would adjust to remove the shortage?
a. The government would provide tax incentives to encourage people to become
farmers.
b. The government would subsidize the production of food.
c. The prices of food and the wages of farmers would adjust.
d. There are no mechanisms to remove the shortage.
Figure 4-18
RefertoFigure4-18. At a price of $35, there would be a
a. shortage of 400 units.
b. surplus of 200 units.
c. surplus of 400 units.
d. surplus of 600 units.