Economists build economic models by
a. generating data.
b. conducting controlled experiments in a lab.
c. making assumptions.
d. reviewing statistical forecasts.
Which of the following events would shift money demand to the left?
a. an increase in the price level
b. a decrease in the price level
c. an increase in the interest rate
d. a decrease in the interest rate
You have a contract with someone who has agreed to pay you $20,000 in four years.
She offers to pay you now instead. For which of the following interest rates and
payments would you take the money today?.
a. 8 percent, $15,000
b. 7 percent, $16,000
c. 6 percent, $17,000
d. All of the above are correct.
Which of the following changes would increase the present value of a future payment?
a. an increase in the size of the payment
b. an increase in the time until the payment is made
c. an increase in the interest rate
d. All of the above are correct.
Which of the following correctly describes actions of the U.S. government during the
recession of 2008-2009?
a. It refused to provide banks funding and made no significant changes in government
spending.
b. It refused to provide banks funding but made a large increase in government
spending.
c. It became part owner of some banks but made no significant change in government
spending
d. It became part owner of some banks and made a large increase in government
spending.
The process of the investment accelerator involves
a. positive feedback from aggregate demand to investment.
b. negative feedback from aggregate demand to investment.
c. positive feedback from aggregate supply to investment.
d. negative feedback from aggregate supply to investment.
What must be given up to obtain an item is called
a. out-of-pocket cost.
b. comparative worth.
c. opportunity cost.
d. absolute value.
Other things the same, if workers and firms expected inflation to be 2%, but it is only
1% then
a. employment and production rise.
b. employment rises and production falls.
c. employment falls and production rises.
d. employment and production fall.
A U.S. firm opens a factory that produces camping equipment in Estonia.
a. This increases U.S. net capital outflow and decreases Estonian net capital outflow.
b. This decreases U.S. net capital outflow and increases Estonian net capital outflow.
c. This increases only U.S. net capital outflow.
d. This increases only Estonian net capital outflow.
In the basket of goods that is used to compute the consumer price index, which of the
following categories of consumer spending is the largest?
a. education & communication
b. food & beverages
c. medical care
d. recreation
Other things the same, if a country has a trade deficit and saving rises,
a. net capital outflow rises, so the trade deficit increases.
b. net capital outflow rises, so the trade deficit decreases.
c. net capital outflow falls, so the trade deficit increases.
d. net capital outflow falls, so the trade deficit decreases.
Figure 2-15
Relationship between Price and Cups of Coffee
Refer to Figure 2-15. The slope of the line containing points Y and Z is
a. -0.5.
b. -1.
c. -2.
d. -4.
The price of a basket of goods and services in the U.S. is $600. In Canada the same
basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2
Canadian dollars per U.S. dollar, what would be the real exchange rate?
a. 700/600
b. 600/700
c. 700/720
d. None of the above is correct.
For a risk averse person,
a. the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet.
b. the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet.
c. the utility function exhibits the property of increasing marginal utility.
d. the utility function gets steeper as wealth increases.
The curve that shows the quantity of goods and services that firms produce and sell
a. as it relates to the quantity of goods and services that buyers want to buy is called the
aggregate-demand curve.
b. as it relates to the quantity of goods and services that buyers want to buy is called the
aggregate-supply curve.
c. as it relates to the overall price level is called the aggregate-demand curve.
d. as it relates to the overall price level is called the aggregate-supply curve.
In 2010 the U.S. government was running a large deficit. Some were concerned that
pressures might be put on the Federal Reserve to purchase government bonds to help
the government finance this deficit. If the Fed were to buy government bonds to help
the government finance its expenditures, then
a. the price level would fall, so the value of money would fall.
b. the price level would fall, so the value of money would rise.
c. the price level would rise, so the value of money would fall.
d. the price level would rise, so the value of money would rise.
If an economy with constant returns to scale were to double its physical capital stock,
its available natural resources, and its human capital, but leave the size of the labor
force the same,
a. its output would stay the same and so would its productivity.
b. its output and productivity would increase, but less than double.
c. its output and productivity would increase by more than double.
d. None of the above is correct.
If the unit of foreign currency is the peso, in which case is the real exchange rate 1.2?
a. the U.S. price is $2, the foreign price is 5 pesos, and the exchange rate is 3 pesos per
dollar.
b. the U.S. price is $3, the foreign price is 18 pesos, and the exchange rate is 5 pesos per
dollar.
c. the U.S. price is $5, the foreign price 12 pesos, and the exchange rate is 2 pesos per
dollar.
d. the U.S. price is $10, the foreign price is 3 pesos, and the exchange rate is 4 pesos per
dollar.
A $2.00 tax levied on the sellers of birdhouses will shift the supply curve
a. upward by exactly $2.00.
b. upward by less than $2.00.
c. downward by exactly $2.00.
d. downward by less than $2.00.
The Federal Open Market Committee
a. operates with almost complete discretion over monetary policy.
b. is required to increase the money supply by a given growth rate each year.
c. is required to keep the interest rate within a range set by Congress.
d. is required by its charter to change the money supply using a complex formula that
concerns the tradeoff between inflation and unemployment.
When the Fed buys government bonds, the reserves of the banking system
a. increase, so the money supply increases.
b. increase, so the money supply decreases.
c. decrease, so the money supply increases.
d. decrease, so the money supply decreases.
One determinant of the natural rate of unemployment is the
a. rate of growth of the money supply.
b. minimum wage rate.
c. expected inflation rate.
d. All of the above are correct.
An ordered pair is
a. the process of checking calculations twice before placing them on a graph.
b. two numbers that can be represented by a single point on a graph.
c. two numbers that are represented by two points on a graph.
d. two points on a graph that are of equal distance from the origin.
Figure 7-5
Refer to Figure 7-5. At the equilibrium price, consumer surplus is
a. $200.
b. $300.
c. $500.
d. $600.
Table 3-15
The following table contains some production possibilities for an economy for a given
month.
Refer to Table 3-15. If the production possibilities frontier is bowed outward, then “?”
could be
a. 50.
b. 75.
c. 100.
d. 125.
Which of the following is not a reason perfect competition is a useful simplification,
despite the diversity of market types we find in the world?
a. Perfectly competitive markets are the easiest to analyze because everyone
participating in the market takes the price as given by market conditions.
b. Some degree of competition is present in most markets.
c. There are many buyers and many sellers in all types of markets.
d. Many of the lessons that we learn by studying supply and demand under perfect
competition apply in more complicated markets as well.
Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports
a. increase and U.S. net capital outflow decreases.
b. decrease and U.S. net capital outflow increases.
c. and U.S. net capital outflow both increase.
d. and U.S. net capital outflow both decrease.
Suppose the Federal Reserve makes monetary policy more expansionary. In the long
run
a. both inflation and the unemployment rate are higher than they were prior to the
change in policy.
b. inflation is higher and the unemployment rate is the same as it was prior to the
change in policy.
c. inflation is lower and the unemployment rate is lower than it was prior to the change
in policy.
d. inflation is lower and unemployment is the same as it was prior to the change in
policy.
A University of Iowa basketball standout is offered a choice of contracts by the New
York Liberty. The first one gives her $100,000 one year from today and $100,000 two
years from today. The second one gives her $132,000 one year from today and $66,000
two years from today. As her agent, you must compute the present value of each
contract. Which of the following interest rates is the lowest one at which the present
value of the second contract exceeds that of the first?
a. 7 percent
b. 8 percent
c. 9 percent
d. 10 percent
Table 15-2
2009 Labor Data for Baltivia
Refer to Table 15-2. What was Baltivia’s unemployment rate in 2009?
a. 8.0 percent
b. 12.7 percent
c. 15.9 percent
d. 22.1 percent
“Leaning against the wind” is exemplified by a
a. tax increase when there is a recession.
b. decrease in the money supply when there is an expansion.
c. decrease in government expenditures when there is a recession.
d. All of the above are correct.
The BLS counts discouraged workers as
a. employed. Including them as employed makes the unemployment rate lower than
otherwise.
b. unemployed. Including them as unemployed makes the unemployment rate higher
than otherwise.
c. out of the labor force. If the were counted as unemployed the unemployment rate
would be higher.
d. None of the above is correct.
Table 10-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2009.
Prices and Quantities
Refer to Table 10-6. In 2009, this country’s nominal GDP was
a. $300.
b. $390.
c. $400.
d. $540.
In the national income accounting identity showing the equality between national
saving and investment, what are the algebraic expressions for private saving and public
saving?
Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will
happen to unemployment in the short run? What will happen to unemployment in the
long run? Justify your answer using the Phillips curves.
Studies find that mutual fund managers who do well in one year are likely to do well
the next year.
A tax on sellers shifts the supply curve to the left.
Economists view free trade as a way to raise living standards both at home and abroad.
John Maynard Keynes advocated policies that would increase aggregate demand as a
way to decrease unemployment caused by recessions.
According to purchasing-power parity, what is the relationship between changes in
price levels between two countries and changes in nominal exchange rates?
Production possibilities frontiers cannot be used to illustrate tradeoffs.
Other things the same, another unit of capital will increase output by more in a poor
country than in a rich country.
Monopolists are price takers.
Unless markets are perfectly competitive, they may fail to maximize the total benefits
to buyers and sellers.
Other things the same, domestic investment will increase a country’s real GDP by more
than foreign investment.
What did Friedman and Phelps predict would happen if policymakers tried to move the
economy upward along the Phillips curve? Did the behavior of the economy in the late
1960s and the 1970s prove them wrong?
Most spells of unemployment are long, and most unemployment observed at any given
time is long-term.
Adults who are waiting to be recalled to a job from which they had been laid off are
counted as unemployed.