Investments are actions that incur costs in the future but provide expected benefits
today.
Real business cycle theory emphasizes that shocks to technology can play a big part in
causing economic fluctuations.
The rate of interest that a bank states as its interest rate is the real rate of interest.
If firms are producing an output greater than planned expenditures, these firms will cut
back on production, which decreases GDP.
The real interest rate is the nominal interest rate plus the expected inflation rate.
If a person has an absolute advantage in some activity, she must have a comparative
advantage in that activity as well.
The crowding in effect explains how a decrease in government expenditures can
increase consumption.
Since 1982, the United States has run a current account surplus every year.
The long-run aggregate supply curve is horizontal.
Among developed countries during 1955-1988, the central banks of Germany and
Switzerland experienced the most independence from the government.
A bank’s required reserves are the fraction of deposits they are required by law to hold
as reserves.
The U.S. experienced a recession that ended in November 2001. In December 2001, the
U.S. was in a:
A) period of expansion.
B) peak.
C) trough.
D) recession.
Figure 19.2
Referring to Figure 19.2, the effect of an increase in Japanese prices is represented by a
movement from point
A) d to c.
B) c to d.
C) a to .
D) a to d.
The gold standard is an example of which type of a monetary system?
A) commodity money system
B) barter system
C) fiat money system
D) All of the above are correct.
The present value of a given payment in the future ________ as the interest rate
________.
A) remains the same; increases
B) decreases; decreases
C) increases; increases
D) increases; decreases
Differences in innate skills and the benefits associated with the division of labor result
in
A) differences in productivity.
B) absolute advantage.
C) self-sufficiency.
D) diminishing returns.
Recall Application 1, “Measuring Price Stickiness in Consumer Markets,” to answer the
following questions:
According to the application, during periods of high inflation, catalog prices tend to
show:
A) more stickiness.
B) no change in stickiness.
C) less stickiness.
D) stickiness equal to the level of inflation.
Which of the following would cause a decrease in aggregate demand?
A) a rise in wages
B) an increase in the price level
C) an increase in the money supply
D) a fall in investor confidence
The terms of trade is the:
A) exchange rate for two nations.
B) the end point of a consumption possibilities curve.
C) opportunity costs of production.
D) rate at which two goods will be exchanged.
Real GDP was 120 in year 1 and 140 in year 2. In this case, the growth rate of real GDP
would be:
A) 86 percent.
B) 14 percent.
C) 117 percent.
D) 17 percent.
Refer to Figure 8A.1. When the economy reaches K,
A) depreciation equals saving.
B) depreciation is zero.
C) capital stock increases.
D) economic growth through capital deepening continues to increase.
The length of time that the U.S. Treasury Department takes to print and mail tax rebate
checks to help the economy out of a recession is part of the:
A) inside lag.
B) outside lag.
C) identification lag.
D) inside-outside lag.
Recall the Application about opting for a lump sum of $500,000 for your retirement or
$35,000 per year for the rest of your life to answer the following question(s).Assume
the retiree had a third option: receive a lump sum of $750,000 five years from now. If
the interest rate is 4 percent, approximately how much is the future $750,000 to be
received in 5 years worth today?
A) $586,445
B) $616,445
C) $630,000
D) $646,555
Recall the Application about how the collapse of the housing boom and the worldwide
recession of 2007 led to problems for some countries in the Euro-zone to answer the
following question(s). When the euro was launched in 1999, the vision of its founders
was to use the monetary union to further unify Europe economically and politically.
They envisioned a large economic market, comparable to the United States with
integrated goods and financial markets. They believed that by moving to a single
currency with agreements on a number of fiscal rules that they could achieve economic
stability and growth.
Recall the Application. Greece faced a major financial crisis in 2010 as its budgetary
imbalance became quite severe. Since Greece is a member of the Euro-zone, it could no
longer ________ as a potential solution to its financial problems.
A) depreciate its currency
B) cut spending
C) raise taxes
D) reduce wages and prices
Purchasing additional equipment for more people to use or share in a production
environment usually results in a
A) more expensive level of output.
B) higher level of output.
C) backlog of production.
D) worker sharing his or her load.
Janie graduated from college a month ago and is now without work. She accepted a job
that will start next month. Today, Janie is:
A) not in the labor force.
B) in the labor force.
C) employed.
D) a discouraged worker.
Which of the following statements is FALSE?
A) The production possibilities curve shows the combinations of goods that can be
consumed by a nation before trade begins.
B) The production possibilities curve shows the combinations of goods that can be
consumed by a nation after trade and specialization begins.
C) The production possibilities curve shows the combinations of goods that can be
produced by a nation before trading begins.
D) The production possibilities curve shows the combinations of goods that can be
produced by a nation after trade and specialization begins.
From 1997 to 2003, stock prices based on the Standard and Poor’s index and the share
of investment spending as a component of GDP tended to
A) move in opposite directions.
B) move in the same direction.
C) both remain relatively unchanged.
D) be unrelated to each other.
Recall Application 3, “Shrinking Wine Lakes,” to answer the following questions:
From the Application, we can infer that the presence of wine lakes indicate that the
market is experiencing:
A) an equilibrium.
B) a shortage.
C) a surplus.
D) All of the above are correct.
Between 2009 and 2012, a country’s nominal GDP grew by 18 percent and its inflation
rate (based on the chain-weighted price index for GDP) was 11 percent. How fast did
real GDP grow over this period?
Explain why the flexibility of wages and prices tend to favor the Keynesian economic
view in the short run and the classical economic view in the long run.
Suppose that an economy is currently producing a level of output that is greater than
potential output. What impact will this situation have on the demand for money?
Explain.
Provide an example of how the lack of clear property rights can impede economic
growth.
Give an example of an automatic stabilizer. Explain how automatic stabilizers operate
within the economy during a recession and during an expansion.
Many economists have argued that oil prices have a big impact on the performance of
the economy. Since 2004, oil prices world wide rose dramatically. Explain the effects of
this rise in oil prices in the aggregate demand-aggregate supply model.
Explain what the aggregate demand curve shows.
Why do our political leaders favor exports of U.S. goods and “buy American” policies?
Describe the channels through which open market purchases by the Fed affects output
in an open economy.
Explain the money creation process.