According to the theory of liquidity preference, a decrease in the price level causes the
a. interest rate and investment to rise.
b. interest rate and investment to fall.
c. interest rate to rise and investment to fall.
d. interest rate to fall and investment to rise.
If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will
purchase 14 pesos, then the forecast is given in
a. real terms and implies the dollar will appreciate.
b. real terms and implies the dollar will depreciate.
c. nominal terms and implies the dollar will appreciate.
d. nominal terms and implies the dollar will depreciate.
Higher education subsidies in the form of the federal government’s student loan
program
a. induce more people to attend colleges and universities.
b. keep interest rates low on student loans.
c. cause lenders to take on more risk.
d. All of the above are correct.
If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees
in India and $3 in the U.S., then the real exchange rate is
a. greater than one and arbitrageurs could profit by buying rice in the U.S. and selling it
in India.
b. greater than one and arbitrageurs could profit by buying rice in India and selling it in
the U.S..
c. less than one and arbitrageurs could profit by buying rice in the U.S. and selling it in
India.
d. less than one and arbitrageurs could profit by buying rice in India and selling it in the
U.S..
Which of the following demonstrates the law of supply?
a. When leather became more expensive, belt producers decreased their supply of belts.
b. When car production technology improved, car producers increased their supply of
cars.
c. When sweater producers expected sweater prices to rise in the near future, they
decreased their current supply of sweaters.
d. When ketchup prices rose, ketchup sellers increased their quantity supplied of
ketchup.
When the Fed decreases the money supply, we expect
a. interest rates and stock prices to rise.
b. interest rates and stock prices to fall.
c. interest rates to rise and stock prices to fall.
d. interest rates to fall and stock prices to rise.
The Bureau of Labor Statistics classifies people who would like to work but have given
up looking for a job as
a. unemployed. If they were classified as out of the labor force, the reported
unemployment rate would be larger.
b. unemployed. If they were classified as out of the labor force, the reported
unemployment rate would be smaller.
c. out of the labor force. If they were classified as unemployed, the reported
unemployment rate would be larger.
d. out of the labor force. If they were classified as unemployed, the reported
unemployment rate would be smaller.
Which of the following leads to a lower level of unemployment in the long run?
a. both an increase in the size of the money supply and an increase in the money supply
growth rate
b. an increase in the size of the money supply but not an increase in the money supply
growth rate
c. an increase in the money supply growth rate, but not an increase in the size of the
money supply
d. neither an increase in the size of the money supply nor an increase in the money
supply growth rate
Figure 4-6
RefertoFigure4-6.Suppose that the federal government is concerned about obesity in
the United States. Congress is considering two plans. One would require “junk food”
producers to include warning labels on all junk food. The other would impose a tax on
all products considered to be junk food. We could illustrate the tax as producing a
movement from
a. Point A to Point B in Panel 1.
b. Point B to Point A in Panel 1.
c. Point A to Point C in Panel 2.
d. Point C to Point A in Panel 2.
Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively
a. low, indicating that buyers may expect earnings to rise.
b. low, indicating that buyers may expect earnings to fall.
c. high, indicating that buyers may expect earnings to rise.
d. high, indicating that buyers may expect earnings to fall.
If there is shortage of loanable funds, then
a. the supply for loanable funds shifts right and the demand shifts left.
b. the supply for loanable funds shifts left and the demand shifts right.
c. neither curve shifts, but the quantity of loanable funds supplied increases and the
quantity demanded decreases as the interest rate rises to equilibrium.
d. neither curve shifts, but the quantity of loanable funds supplied decreases and the
quantity demanded increases as the interest rate falls to equilibrium.
If the federal funds rate were below the level the Federal Reserve had targeted, the Fed
could move the rate back towards its target by
a. buying bonds. This buying would reduce reserves.
b. buying bonds. This buying would increase reserves.
c. selling bonds. This selling would reduce reserves.
d. selling bonds. This selling would increase reserves.
Industrial machinery is an example of
a. a factor of production that in the past was an output from the production process.
b. technological knowledge.
c. a production function.
d. an item which always has the property called constantreturntoscale.
Most macroeconomic variables that measure some type of income, spending, or
production fluctuate closely together.
a. True
b. False
An increase in government expenditures may lead people to expect that in the future
taxes will rise and create greater distortions. By themselves these changes in
expectations lead people to
a. raise both consumption and investment.
b. raise consumption but reduce investment.
c. raise investment but reduce consumption.
d. reduce both consumption and investment.
In the 1970s, in response to recessions caused by an increase in the price of oil, the
central banks in many countries increased their money supplies. The central banks
might have done this by
a. selling bonds on the open market, which would have raised the value of money.
b. purchasing bonds on the open market, which would have raised the value of money.
c. selling bonds on the open market, which would have raised the value of money.
d. purchasing bonds on the open market, which would have lowered the value of
money.
Greg’s Ice Cream produces 1120 gallons of ice cream per day. Each employed works
seven hours and has productivity of 20 gallons an hour. How many employees does
Greg’s employ?
a. 160
b. 56
c. 8
d. None of the above is correct.
In the last part of the 1800’s
a. deflation made it harder for farmers to pay off their debt.
b. deflation made it easier for farmers to pay off their debt.
c. inflation made it harder for farmers to pay off their debt.
d. inflation made it easier for farmers to pay off their debt.
If the U.S. government went from a budget deficit to a budget surplus then
a. the interest rate and the real exchange rate would increase.
b. the interest rate and the real exchange rate would decrease.
c. the interest rate would increase and the real exchange rate would decrease.
d. the interest rate would decrease and the real exchange rate would increase.
Which of the following policies would be advocated by someone who wants the
government to follow an active stabilization policy when the economy is experiencing
severe unemployment?
a. decrease the money supply
b. increase government expenditures
c. increase taxes
d. All of the above are correct.
In response to the financial crisis of 2007-2008, policymakers used
a. expansionary monetary policy and expansionary fiscal policy.
b. expansionary monetary policy and contractionary fiscal policy.
c. contractionary monetary policy and expansionary fiscal policy.
d. contractionary monetary policy and contractionary fiscal policy.
Suppose the Federal Reserve announces that it will be making a change to a key interest
rate to decrease the money supply. This is likely because the Federal Reserve is
a. worried about inflation.
b. worried about unemployment.
c. hoping to increase the demand for goods and services.
d. worried that the economy is growing too slowly.
Critics of unions argue that unions cause the allocation of labor to be inefficient and
inequitable.
a. True
b. False
If the central bank increases the money supply, then in the short run prices
a. rise and unemployment falls.
b. fall and unemployment rises.
c. and unemployment rise.
d. and unemployment fall.
In an open economy, national saving equals
a. domestic investment plus net capital outflow.
b. domestic investment minus net capital outflow.
c. domestic investment.
d. net capital outflow.
If people expect future earnings of Galt Corporation to be high relative to current
earnings, then
a. the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively high.
b. the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively low.
c. the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively high.
d. the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively low.
Which of the following words and phrases best captures the notion of equality?
a. minimum waste
b. maximum benefit
c. sameness
d. efficiency
Which of the following is an example of depreciation?
a. falling stock prices
b. the retirement of several employees
c. computers becoming obsolete
d. All of the above are examples of depreciation.
Both TheWealthofNationsand the Declaration of Independence share the point of view
that
a. every person is entitled to life, liberty, and the pursuit of happiness.
b. individuals are best left to their own devices without the government guiding their
actions.
c. the government plays a central role in organizing a market economy.
d. because of human nature a strong legal system is necessary for a market system to
survive.
Which of the following can be measured by the level of real GDP per person?
a. productivity and the standard of living
b. productivity but not the standard of living
c. the standard of living but not productivity
d. neither the standard of living nor productivity