Do economists believe that the budget should be balanced each fiscal year?
A) Yes, a budget should be balanced annually; otherwise persistent budget deficits can
cause havoc in the economy.
B) Yes, as the law states that both the federal and state budgets should always be
balanced.
C) Yes, since the balanced budget multiplier is larger, so it makes the economy grow
faster.
D) No, a budget should be balanced only on average; it can be in a deficit during a
recession and offset by surpluses when the economy is doing well.
Look at the table GDP II. Calculate the GDP deflator for 2010.
A) 111
B) 104
C) 90
D) 96
The three main reasons that the average U.S. worker today produces far more than his
or her counterpart a century ago are more physical capital, more human capital, and a
great deal of technological progress.
A) True
B) False
Table: Balance Sheet
Look at the table Balance Sheet. If the reserve ratio is 25%, loans are:
A) $5,000.
B) $15,000.
C) $60,000.
D) $80,000.
The current account responds to changes in:
A) the nominal exchange rate.
B) the real exchange rate.
C) the interest rate.
D) both the nominal and real exchange rates.
Between 1980 and 2014, inflation wiped out most of the wage gains of the typical
worker.
A) True
B) False
A country’s balance of payments is made up of:
A) the current account and merchandise trade account.
B) the current account and financial account.
C) the financial account and the services account.
D) the financial account alone.
Total factor productivity is the amount of output that can be achieved with a given
amount of factor inputs.
A) True
B) False
According to the Bureau of Labor Statistics, the actual unemployment rate was 8.3% in
February 2012 and the natural rate of unemployment was 5.2%. The _____
unemployment rate was _____.
A) frictional; 4%
B) cyclical; 3.1%
C) structural; 4%
D) cyclical; 14%
Table: The Economy of Albernia
Real GDP
(in billions) Disposable Income
(in billions) Consumption
(in billions) Planned Investment
(in billions)
$ 0 $ 0 $ 400 $600
500 500 700 600
1,000 1,000 1,000 600
1,500 1,500 1,300 600
2,000 2,000 1,600 600
2,500 2,500 1,900 600
3,000 3,000 2,200 600
Look at the table The Economy of Albernia. What is the income”expenditure
equilibrium real GDP?
A) $1,000 billion
B) $1,500 billion
C) $2,000 billion
D) $2,500 billion
Suppose that Mr. Green Jeans sells $5,000 of wheat to Big Ben Bakery. Big Ben uses
the wheat to make flour and then hamburger buns, which it sells to Hamburger Heaven
for $11,000. Hamburger Heaven also buys $20,000 of beef from a rancher. Hamburger
Heaven uses the beef and buns to make 10,000 hamburgers, which are sold for $5 each.
How much do these transactions add to GDP?
A) $86,000
B) $36,000
C) $31,000
D) $50,000
Which of the following methods of discouraging speeding is likely to be MOST
effective because people usually exploit opportunities to make themselves better off?
A) increasing the number of signs stating the speed limit
B) increasing the fine associated with speeding tickets
C) public service announcements reminding drivers of the dangers of speeding
D) All three methods are equally effective.
A fixed rate system eliminates uncertainty about the future value of a currency.
A) True
B) False
The relationship between a country’s balance of payments on current account (CA) and
its balance of payments on financial account (FA) is described by all of the following
EXCEPT:
A) CA + FA = 0.
B) CA = FA.
C) CA = “FA.
D) FA = “CA.
The marginal propensity to consume is _____ of the consumption function.
A) the slope
B) the intercept
C) the inverse
D) independent
When the Fed buys $100 billion of Treasury bills from commercial banks, the monetary
base increases by $100 billion.
A) True
B) False
Scenario: Countries A and B
Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear
production possibility frontier in both goods. If country A spends all of its available
resources to produce wheat, it can produce 500 tons of wheat and no steel. If it uses all
of its resources to produce steel, it can produce 250 tons of steel and no wheat. If
country B spends all of its available resources producing wheat, it can produce 400 tons
of wheat, and if it spends all of its resources on the production of steel, it can produce
400 tons of steel.
Look at the scenario Countries A and B. If countries A and B both specialize and trade:
A) only country A will gain.
B) only country B will gain.
C) country A and country B will gain if they both specialize in the good in which they
have a comparative advantage.
D) neither country will gain.
One of the lags associated with fiscal policy is the time it takes to recognize that the
economy has developed a recessionary or inflationary gap.
A) True
B) False
An argument in favor of Britain’s adopting the euro was that using the same currency as
many other European countries would expand trade and increase productivity.
A) True
B) False
Since 1960 in the United States, the price level has:
A) fluctuated randomly by large amounts.
B) remained the same.
C) decreased.
D) increased.
Your boss asks you to graph company profits for the past 10 years. The best way to
show this information is with:
A) a scatter diagram.
B) a pie chart.
C) a time-series graph.
D) an independent graph.
According to the Taylor rule, the target federal funds rate should be positively related to
the inflation rate and inversely related to the unemployment rate.
A) True
B) False
According to the savings”investment spending identity, savings and investment
spending are always equal for the economy as a whole.
A) True
B) False
Figure: Classical Versus Keynesian Macroeconomics
Look at the figure Classical Versus Keynesian Macroeconomics. According to the
Keynesian view, if this economy shifts from AD1 to AD2 because of a large decline in
investment spending by businesses, the price level will _____, but real GDP will _____.
A) increase; decrease
B) not change; increase
C) increase; not change
D) decrease; decrease
Human capital is:
A) the improvement in labor made possible by education and knowledge that is
embodied in the workforce.
B) the machinery and tools that each worker owns.
C) robots that can perform tasks that only humans could do in the past.
D) not as important as physical capital.
A new fast-food restaurant offered a free meal (valued at $5) a week for a year to its
first 100 customers. Ramona camped out for 48 hours before the opening to be one of
the first 100 customers. The cost of the free meal a week for a year for Ramona was:
A) zero.
B) $260.
C) whatever else she would have done with the 48 hours.
D) The cost is impossible to determine.
John Maynard Keynes believed that the government should:
A) actively try to mitigate the effects of recessions by using fiscal and monetary
policies.
B) not interfere with the economy but let the economy self-correct.
C) intervene only when there is a boom but let the recession run its course.
D) not use fiscal and monetary policies, as these policies have long-term adverse
effects.
If a country has a working-age population of 200 million, 135 million people with jobs,
10 million people who were looking for a job but have given up, and 5 million people
unemployed and seeking employment, then its labor force is:
A) 150 million.
B) 145 million.
C) 140 million.
D) 135 million.
The primary reason for Lehman Brothers’ bankruptcy in September 2008 was its
investment in:
A) subprime mortgages.
B) bonds of foreign governments.
C) U.S. government bonds.
D) risky stocks.
The aggregate demand curve would shift to the left for all the following reasons
EXCEPT:
A) a fall in consumers’ wealth.
B) a decrease in the amount of money in circulation.
C) more pessimistic consumer expectations.
D) lower labor productivity.
If they spend all night writing computer programs, Laurence can write 10 programs,
and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can
make 6 pairs, and Carrie Anne can make 4. We know that _____ has a comparative
advantage in _____.
A) Laurence; programs
B) Laurence; both programs and sunglasses
C) Carrie Anne; programs
D) Carrie Anne; both programs and sunglasses
Scenario: Capital
An economy initially has 200 units of physical capital per worker. Each year it
increases the amount of physical capital by 10%. According to the aggregate production
function for this economy, each 1% increase in physical capital per worker, holding
human capital and technology constant, increases output per worker by 0.25%.
Look at the scenario Capital. If there is no inflation and output per worker is initially
$1,000, what does the estimated output per worker equal after one year?
A) $1,250
B) $2,500
C) $1,225
D) $1,025
Table: Price and Output Data
Look at the table Price and Output Data.
The price index for year 4 is:
A) 80.
B) 120.
C) 0.
D) 6.
Janet Yellen is the chair of the Board of Governors of the Federal Reserve.
A) True
B) False
Apple and Samsung are large corporations that produce smart phones, the iPhone and
the Galaxy, respectively. They are constantly trying through expensive advertising and
product innovations to persuade customers to buy their brand. Is the smart phone
market a competitive in the economic sense defined in Chapter 3? Why or why not?
What is stagflation? How would stagflation show in the AD”AS model?