If Congress instituted an investment tax credit, the interest rate would
a. rise and saving would rise.
b. fall and saving would fall.
c. rise and saving would fall.
d. fall and saving would rise.
A car salesperson gives you four alternative ways to pay for your car. The first is to pay
$18,000 today. The second is to pay $19,000 one year from today. The third is to pay
$20,300 two years from today. The fourth is to pay $21,500 three years from today. If
the interest rate is 6 percent, which payment option has the lowest present value and
which has the highest?
a. The first is lowest; the second is highest.
b. The second is lowest; the third is highest.
c. The third is lowest; the fourth is highest.
d. The fourth is lowest; the first is highest.
The introduction of the video cassette recorder in the 1970s exemplified a problem in
measuring the cost of living; that problem is the problem of
a. substitution bias.
b. product-improvement bias.
c. introduction of new goods.
d. unmeasured quality change.
When the money market is drawn with the value of money on the vertical axis, a
decrease in the money supply leads people to
a. spend more so the value of a dollar rises.
b. spend more so the value of a dollar falls.
c. spend less so the value of a dollar rises.
d. spend less so the value of a dollar falls.
Rita puts $10,000 into each of two different assets. The first asset pays 10 percent
interest and the second pays 5 percent. According to the rule of 70,what is the
approximate difference in the value of the two assets after 14 years?
a. $12,000
b. $14,000
c. $15,500
d. $20,000
XDF Corporation had a P/E ratio of 25, earnings per share of $4, and retained earnings
per share of $3. What was its dividend yield?
a. 4%
b. 3%
c. 1%
d. None of the above is correct.
“Other things equal, when the price of a good rises, the quantity supplied of the good
also rises, and when the price falls, the quantity supplied falls as well.” This relationship
between price and quantity supplied
a. is referred to as the law of supply.
b. applies only to a few goods in the economy.
c. is represented by a downward-sloping supply curve.
d. All of the above are correct.
Table 24-5
The table below pertains to Wrexington, an economy in which the typical consumer’s
basket consists of 20 pounds of meat and 10 toys.
RefertoTable24-5.The inflation rate was
a. negative in 2005 and negative in 2006.
b. negative in 2005 and positive in 2006.
c. positive in 2005 and negative in 2006.
d. positive in 2005 and positive in 2006.
There is a
a. short-run tradeoff between inflation and unemployment.
b. short-run tradeoff between an increase in the money supply and inflation.
c. long-run tradeoff between inflation and unemployment.
d. long-run tradeoff between an increase in the money supply and inflation.
Compared to bondholders, stockholders
a. face higher risk and have the potential for higher returns.
b. face higher risk but receive a fixed payment.
c. face lower risk and have the potential for higher returns.
d. face lower risk but receive a fixed payment.
Figure 2-21
RefertoFigure2-21.According to the graph, snowstorms
a. and snowblowers sold are positively correlated.
b. and snowblowers sold are negatively correlated
c. and snowblowers sold are uncorrelated.
d. are caused by more snowblowers being sold.
Which of the following is the most likely response to an increase in the U.S. real
interest rate?
a. a London bank purchases a U.S. bond instead of a Japanese bond it had considered
purchasing
b. U.S. firms decide to buy more capital goods
c. a U.S. citizen decides to put less money in his savings account than he had planned.
d. All of the above are consistent.
Table 23-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2013.
RefertoTable23-6.This country’s inflation rate from 2012 to 2013 was
a. 35.6%.
b. 25.8%.
c. 34.8%.
d. 100.0%.
Table 3-26
Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
RefertoTable3-26.Korea has an absolute advantage in the production of
a. cars and a comparative advantage in the production of cars.
b. cars and a comparative advantage in the production of airplanes.
c. neither good and a comparative advantage in the production of cars.
d. neither good and a comparative advantage in the production of airplanes.
People who report being not in the labor force but who, in fact, want to work but have
given up trying to find a job after an unsuccessful search cause the reported
unemployment rate to be lower than it would otherwise be.
a. True
b. False
If your firm’s production function has constant returns to scale, then if you double all
your inputs, your firm’s output will
a. double and productivity will rise.
b. double but productivity will not change.
c. more than double and productivity will rise.
d. more then double but productivity will not change.
The decision of which assumptions to make is
a. an easy decision for an economist, but a difficult decision for a physicist or a chemist.
b. not a particularly important decision for an economist.
c. usually regarded as an art in scientific thinking.
d. usually regarded as the easiest part of the scientific method.
Other things the same,as the price level rises, the real value of a dollar
a. rises, and interest rates rise.
b. rises, and interest rates fall.
c. falls, and interest rates rise.
d. falls, and interest rates fall.
When it comes to people’s tastes, economists generally believe that
a. tastes are based on forces that are well within the realm of economics.
b. tastes are based on historical and psychological forces that are beyond the realm of
economics.
c. tastes can only be studied through well-constructed, real-life models.
d. because tastes do not directly affect demand, there is little need to explain people’s
tastes.
Money is the most liquid asset available because
a. it is a store of value.
b. it is a medium of exchange.
c. it is a unit of account.
d. it has intrinsic value.
A U.S.-imposed quota on automobiles would shift
a. both the demand and supply curves in the market for foreign-currency exchange
right.
b. both the demand and supply curves in the market for foreign-currency exchange
right.
c. only the demand curve in the market for foreign-currency exchange right.
d. only the supply curve in the market for foreign-currency exchange right.
Suppose that a worker in Agland can produce either 10 units of organic grain or 2 units
of incense per year, and a worker in Zenland can produce either 5 units of organic grain
or 15 units of incense per year. There are 20 workers in Agland and 10 workers in
Zenland. Currently the two countries do not trade. Agland produces and consumes 100
units of grain and 20 units of incense per year. Zenland produces and consumes 50 units
of grain and no incense per year. If each country made the decision to specialize in
producing the good in which it has a comparative advantage, then the combined yearly
output of the two countries would increase by
a. 30 units of grain and 100 units of incense.
b. 30 units of grain and 150 units of incense.
c. 50 units of grain and 90 units of incense.
d. 50 units of grain and 130 units of incense.
Based on past experience, if a country is experiencing hyperinflation, then which of the
following would be a reasonable guess?
a. The country has high money supply growth.
b. Inflation is acting like a tax on everyone who holds money.
c. The government is printing money to finance its expenditures.
d. All of the above are correct.
If speculators gained greater confidence in foreign economies so that they wanted to
buy more assets of foreign countries and fewer U.S. bonds,
a. the dollar would appreciate which would cause aggregate demand to shift right.
b. the dollar would appreciate which would cause aggregate demand to shift left.
c. the dollar would depreciate which would cause aggregate demand to shift right.
d. the dollar would depreciate which would cause aggregate demand to shift left.
The inflation tax falls mostly heavily on
a. those who hold a lot of currency and accounts for a large share of U.S. government
revenue.
b. those who hold a lot of currency but accounts for a small share of U.S. government
revenue.
c. those who hold little currency and accounts for a large share of U.S. government
revenue.
d. those who hold little currency but accounts for a small share of U.S. government
revenue.
Figure 4-1
RefertoFigure4-1. The movement from point A to point B on the graph shows a(n)
a. decrease in demand.
b. increase in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
Banks
a. play a role in creating an asset that people can use as a medium of exchange.
b. are financial intermediaries, but mutual funds are not financial intermediaries.
c. are financial markets, as are bond markets.
d. All of the above are correct.
The future value of a deposit in a savings account will be smaller
a. the longer a person waits to withdraw the funds.
b. the lower the interest rate is.
c. the larger the initial deposit is.
d. All of the above are correct.
Table 3-31
RefertoTable3-31. Relative to the rancher, the farmer has
a. a comparative advantage in the production of meat, because the farmer’s opportunity
cost of a pound of meat is lower than the rancher’s opportunity cost of a pound of meat.
b. a comparative advantage in the production of potatoes, because the rancher requires
less time than the farmer to produce a pound of potatoes.
c. a comparative advantage in the production of potatoes; relative to the farmer, the
rancher has a comparative advantage in the production of meat.
d. an absolute advantage in the production of both meat and potatoes.
Other things the same, people in the U.S. would want to save more if the real interest
rate in the U.S.
a. fell. The increased saving would increase the quantity of loanable funds demanded.
b. fell. The increased saving would increase the quantity of loanable funds supplied.
c. rose. The increased saving would increase the quantity of loanable funds demanded.
d. rose. The increased saving would increase the quantity of loanable funds supplied.
Scenario34-2.The following facts apply to a small, imaginary economy.
Consumption spending is $6,720 when income is $8,000.
Consumption spending is $7,040 when income is $8,500.
RefertoScenario34-2.The marginal propensity to consume for this economy is
a. 0.64.
b. 0.83.
c. 0.56.
d. 0.840.
If corn is an input into the production of ethanol, will a decrease in the price of corn
increase the supply of ethanol or decrease the supply of ethanol?
Shoe Quota
Concerns raised about the declining U.S. shoe industry and unfair labor practices in
foreign shoe factories lead the Congress and President to impose a quota on shoe
imports.
RefertoShoeQuota. Overall as a result of this change in policy, what happens to
exports, imports, and net exports?
Budget in Recession
During a recession government revenues from the income tax fall and government
transfers rise as the reduction in income and the rise in unemployment raise the number
of people who qualify for benefits.
RefertoBudgetinRecessio. This change in the deficit causes the exchange rate to
change. What does the change in the exchange rate do to net exports?
Minimum wage laws, labor unions, and efficiency wages all generate unemployment by
what common mechanism?
What do we mean when we say that some technological knowledge is not proprietary?
Figure 4-30
RefertoFigure4-30.In this market for tablet computers, more suppliers enter the market
and the price of laptops, a substitute good, increases, while all other factors remain
constant. Explain the change(s) in the equilibrium price and quantity.
Scenario 3-2
In country A a worker who works 40 hours can produce 200 pounds of rice or 100
pounds of broccoli. In country B a worker who works 40 hours can produce 160 pounds
of rice or 120 pounds of broccoli.
Refer to Scenario3-2. Which country, if either, has an absolute advantage producing
rice? Defend your answer.
What do most economists believe concerning the relation between the price level and
real output?
Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and
128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period
of disinflation?
If the supply of tennis balls, a complement to tennis racquets, decreases, what will
happen to the equilibrium price of tennis balls and to the equilibrium price of tennis
racquets?
Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the
amounts shown in the table below. Assume that the market basket for the CPI is defined
in the base year.
RefertoScenario24-6.Using 2011 as the base year, what is the CPI in each year?
Give a few examples of how sectoral shifts temporarily cause unemployment.
What is the value of the multiplier if the marginal propensity to consume is 0.5?
Budget in Recession
During a recession government revenues from the income tax fall and government
transfers rise as the reduction in income and the rise in unemployment raise the number
of people who qualify for benefits.
RefertoBudgetinRecessio. What does this change in the deficit do to net capital
outflows? Defend your answer.
Scenario 3-1
The production possibilities frontiers below show how much Greg and Catherine can
each produce in 8 hours of time.
RefertoScenario3-1. Is it possible for Greg and Catherine to gain from trade? Defend
your answer.
If inflation is less than expected, who is wealth redistributed to?
Does a country have to be blessed with large quantities of natural resources in order to
enjoy a high standard of living? Briefly explain.