Changes in demand will often be met with changes in output rather than changes in
prices because of formal and informal contracts.
Taxes are the only mechanism by which the federal government earns money.
Unemployment occurs even during periods when the economy is growing.
Outside lags in fiscal policy tend to take a long time, usually longer than the inside lags.
Recall Application 2, “Do European Soccer Stars Change Clubs to Reduce Their
Taxes?” to answer the following questions:
According to the Application, soccer stars change clubs because of immigration issues.
In a balance of payments statement, the current account plus the financial account must
equal the capital account.
The tax multiplier is negative because increases in taxes lead to decreases in consumer
spending.
An increase in government spending will decrease the real interest rate.
If the supply of money increases, the long-run aggregate supply curve suggests that
output will not change but price level will.
If the reserve ratio is 4 percent, the money multiplier is equal to 25.
Table 5.3
Refer to Table 5.3. Assume that this economy produces only two goods: Good X and
Good Y. If year 1 is the base year, the value for this economy’s GDP Deflator in year 1
is:
A) 88.0.
B) 100.0.
C) 125.0.
D) 139.3.
The idea that wages and prices adjust freely and quickly to changes in the demand and
supply is adopted and defended by:
A) Keynesian economists.
B) classical economists.
C) fine-tuning economists.
D) demand-side economists.
What was the mistake that the governments the U.K. and France make when they
subsidized the Concorde, a supersonic aircraft manufacturer?
A) The market was not worth capturing.
B) The market was too big to capture alone.
C) They should have invited the United States in their partnership.
D) The governments of each country tried to take the whole company for themselves.
Financial monetary assets which often cannot be readily used in commercial exchanges
are included in
A) M1.
B) M2.
C) credit cards.
D) prepaid accounts.
Recall Application 1, “The Chinese Yuan and Big Macs,” to answer the following
questions:
According to the Application, because the actual dollar-yuan exchange rate was 6.8
yuan per U.S. dollar and the predicted purchasing power exchange rate (using the Big
Mac) in China is 3.49 yuan, then:
A) the yuan is undervalued.
B) the dollar is undervalued.
C) the dollar is undervalued and the Big Mac is overvalued.
D) the Big Mac is overvalued.
Recall the Application about the impact of the federal Disability Insurance
program on the unemployment rate to answer the following question. According to
this Application, the federal Disability Insurance Program has had ________ on the
measured unemployment rate.
A) a very large effect
B) no effect
C) a negligible
D) an inconsequential effect
Recall Application 2, “The Market for Meteorites,” to answer the following questions:
According to the Application, a chunk of space debris that enters our atmosphere is
called a:
A) meteor.
B) meteorite.
C) meteoroid.
D) All of the above are correct.
The money multiplier tends to be greater when
A) individuals hold less cash.
B) individuals hold more cash.
C) banks hold more excess reserves.
D) the reserve ratio increases.
Once the Fed decides on the interest rate it wants in the federal funds market, its most
common method of achieving this rate is by
A) conducting open market operations.
B) changing reserve requirements.
C) changing tax rates.
D) altering exchange rates.
During 1989, prices were increasing by approximately 302,200% a year in Argentina.
This is an example of a:
A) hyperinflation.
B) deflation.
C) disinflation.
D) moderate inflation.