In an economy with money, as opposed to barter, people are more likely to specialize in
the production of goods and services.
If gold is used as money in an economy, the money supply is easy to control.
Eliminating structural unemployment would be good for the economy.
If the actual rate of inflation exceeds the expected rate of inflation, the actual real wage
is greater than the expected real wage and unemployment falls.
Hyperinflations occur because governments want to spend more than they raise in
taxes, and they pay for the extra purchases by printing money.
If additional units of a good are produced at an increasing opportunity cost, the
production possibility frontier would be bowed outward (concave).
The purchase of stocks and bonds issued in another country is known as foreign direct
investment.
Foreign portfolio investment in the United States has continually declined since 1995.
An increase in interest rates
A) decreases investment spending on machinery, equipment and factories, but increases
consumption spending on durable goods and net exports.
B) decreases investment spending on machinery, equipment and factories, and
consumption spending on durable goods, but increases net exports.
C) decreases investment spending on machinery, equipment and factories, consumption
spending on durable goods, and net exports.
D) increases investment spending on machinery, equipment and factories, consumption
spending on durable goods, and net exports.
Figure 7-2
Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports.
Figure 7-2 shows the impact of this tariff.
Refer to Figure 7-2. As a result of the tariff, domestic producers increase their quantity
supplied by
A) 6 million pounds of coffee.
B) 18 million pounds of coffee.
C) 26 million pounds or coffee.
D) 38 million pounds of coffee.
As foreign investors began to sell off investments they had made in Thailand, they
traded in their baht for dollars. The result of this was
A) pressure for the value of the baht to decline.
B) pressure for the value of the baht to rise.
C) an increase in the equilibrium value of the baht.
D) a decrease in the supply of the baht in foreign exchange markets.
If inflation in Russia is higher than it is in the United States,
A) the purchasing power of the ruble in buying Russian goods will rise relative to the
dollar.
B) the value of the dollar will rise in the long run.
C) the value of the ruble will rise in the long run.
D) Both A and C are correct.
Figure 4-5
Figure 4-5 shows the market for apartments in Bay City. Recently, the government
imposed a rent ceiling at R0.
Refer to Figure 4-5. What is the area that represents the producer surplus after the
imposition of the ceiling?
A) F + G
B) F
C) D + F + G
D) A + B + D + F + G
Figure 2-8
Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala.
Each country produces two goods, pineapples and coconuts.
Refer to Figure 2-8. Which country has a comparative advantage in the production of
coconuts?
A) Guatemala
B) They have equal productive abilities.
C) Costa Rica
D) neither country
According to a study by economists Raymond Fisman and Edward Miguel, as the level
of corruption in a country increases,
A) so does the number of parking violations by the country’s United Nations delegates.
B) so does the size of the country’s population.
C) the levels of foreign direct investment and foreign portfolio investment decrease.
D) the levels of real GDP per capita and real income per capita increase.
Which of the following would result in a trade surplus for the United States?
A) Exports of goods = $450 billion
Imports of goods = $400 billion
Exports of services = $200 billion
Imports of services = $250 billion
B) Exports of goods = $450 billion
Imports of goods = $450 billion
Exports of services = $200 billion
Imports of services = $250 billion
C) Exports of goods = $450 billion
Imports of goods = $460 billion
Exports of services = $200 billion
Imports of services = $100 billion
D) Exports of goods = $450 billion
Imports of goods = $490 billion
Exports of services = $200 billion
Imports of services = $100 billion
An increase in aggregate demand results in a(n) ________ in the ________.
A) recession; long run
B) expansion; long run
C) expansion; short run
D) recession; short run
Which of the following correctly describes what the Fed used as monetary targets in the
past?
A) The Fed used M1 and M2 as targets after 1993.
B) The Fed focused on M1 as a target after deregulation of the financial markets.
C) The Fed increased its reliance on interest rate targets since the mid-1990s.
D) After 1980 and before the 1990s, the Fed focused on interest rate targets.
Which of the following would cause an increase in the equilibrium price and decrease
in the equilibrium quantity of watermelon?
A) a decrease in demand and an increase in supply
B) a decrease in supply
C) an increase in demand and an increase in supply greater than the increase in demand
D) an increase in demand and an increase in supply
Mrs. Lovejoy decides to invest in companies which she believes are producing its
goods based on the preferences of consumers. Mrs. Lovejoy is investing in companies
that are
A) productively efficient.
B) allocatively efficient.
C) both productively and allocatively efficient.
D) always going to be profitable.
Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the
Gulf coast states. In the market for gasoline,
A) the supply curve shifted to the left resulting in an increase in the equilibrium price.
B) the supply curve shifted to the right resulting in an increase in the equilibrium price.
C) the demand curve shifted to the left resulting in a decrease in the equilibrium price.
D) the demand curve shifted to the right resulting in an increase in the equilibrium
price.
As the economy nears the end of an expansion, interest rates usually ________ and
wages raise more ________ than prices.
A) rise; rapidly
B) rise; slowly
C) fall; rapidly
D) fall; slowly
Which of the following is the largest category of federal government expenditures?
A) defense spending
B) transfer payments
C) interest on the debt
D) grants to state and local governments
If the economy is producing ________, unemployment is at its natural rate.
A) at potential GDP
B) above potential GDP
C) at an inflation rate of zero
D) at an unemployment rate of zero
Double taxation refers to
A) corporations paying taxes on profits and individuals paying taxes on wage income.
B) individuals paying taxes on wage income and individuals paying taxes on dividends.
C) corporations paying taxes on profits and individuals paying taxes on dividends.
D) corporations paying taxes on capital gains and individuals paying taxes on wage
income.
Using a supply and demand graph, illustrate the market for rent-controlled apartments
with the following data:
Equilibrium rent without rent control: $1,500
Rent with rent control: $700
Quantity of apartments demanded with rent control: 50,000
Quantity of apartments supplied with rent control: 20,000
What is the value of the initial shortage of apartments with rent control?
Now assume rent control leads to a reduction in the supply of apartments, and the new
quantity supplied is now 15,000. Illustrate this on your graph.
What is the value of the shortage of apartments following the decrease in supply?
Use the money demand and money supply model to show graphically and explain the
effect on interest rates of the Federal Reserve’s open market sale of Treasury securities.
Consider the following statement, “The Federal Reserve fights recessions by increasing
the money supply so people will have more money to spend.” What is wrong with the
statement and how can it be corrected?
In the term “real GDP,” what does “GDP” stand for and what does it measure? What
does “real” indicate?
Table 11-7
Refer to Table 11-7. Consider the statistics in the table above in describing the
following industrialized and developing countries. Are these consistent with the
economic growth model? Briefly explain.
Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion. If the
president and the Congress increased government purchases by $500 billion, what
would be the result on the economy?
Explain and show graphically how an increase in household saving affects the
equilibrium interest rate and the equilibrium quantity of loanable funds.
What is the difference between a fixed exchange rate system and a managed float
exchange rate system?