Estate and gift taxes account for a very small portion of total tax revenues collected by
the federal government because taxes are levied only on large estates.
The only way governments can finance a deficit is by printing new money.
Compensation of employees is the largest component of national income.
An increase in the velocity of money can cause inflation.
Wages paid to teachers, police personnel, and postal workers are not transfer payments
because they are payments for services and not simply “transfers” of money.
For most firms, wage is the largest cost incurred when doing business in the U.S.
If the natural rate of unemployment was 5 percent and inflation was 3 percent, the
inflation rate will rise if the unemployment rate for the next two years rose to 8 percent.
If one variable falls the other variable falls, the two variables are positively related.
Anticipated inflation does not distort the tax system because taxes are typically based
on real income, not nominal income.
Economic advisers who fear that the economy is growing too rapidly would
recommend that the government decrease spending and/or increase taxes.
When the U.S. banned tuna from Mexico because Mexico used nets that killed
dolphins, they acted in concordance with WTO rules.
When Bob has to give up lunch in order to have a fancy dinner, the economic principle
that is highlighted by his situation is the:
A) marginal principle.
B) spillover principle.
C) principle of opportunity cost.
D) reality principle.
Figure 8.1
Refer to Figure 8.1. If the saving rate were s1 and the economy’s level of K is at K1,
then:
A) investment exceeds depreciation.
B) investment equals depreciation.
C) investment is less than depreciation.
D) investment equals output.
Suppose that during the last year growth in output due to growth in labor and capital
was 4%. If output grew at a rate of 6%, it must be the case that:
A) capital grew faster than labor.
B) the ratio of capital to labor increased by 2%.
C) technological progress increased by 2%.
D) labor grew faster than capital.
Increased investments in infrastructure or public capital would:
A) cause a decrease in the economic growth rate, because they would require a
reduction in private investment.
B) have no impact on economic growth, because they do not affect the private sector.
C) most likely increase economic growth.
D) increase economic growth in a developing country, but have no impact on economic
growth in a developed country.
The Consumer Price Index (CPI) relies on the calculation of
A) prices of a fixed basket of goods that does not change often.
B) prices of a variable basket of goods that changes frequently.
C) the components of GDP that change annually.
D) the components of GDP that do not change frequently.
Table 11.1
Refer to Table 11.1. What is the value of the tax multiplier?
A) -0.67
B) -1.875
C) 2.33
D) 3
The additional cost resulting from a small increase in some activity is called the:
A) opportunity cost.
B) marginal benefit.
C) marginal cost.
D) diminishing returns of the activity.
Which of the following sequence of events would follow a decrease in the reserve
requirement?
A) interest rate investment aggregate demand real GDP
B) interest rate investment aggregate demand real GDP
C) interest rate investment aggregate demand real GDP
D) interest rate investment aggregate demand real GDP
An increase in the supply of labor will ________ real wages and ________
employment.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Suppose an economy consists of 500,000 individuals 16 years and older, 260,000 are
employed, and 21,000 are unemployed but actively seeking work. In this example the
unemployment rate is approximately
A) 4.2 percent.
B) 6.1 percent.
C) 7.5 percent.
D) 8.0 percent.
Studies that look into the effects of state education spending cuts on the poverty rates of
minorities use:
A) microeconomics to evaluate the merits of public policies.
B) microeconomics to understand markets and predict changes.
C) microeconomics to understand marginal changes in the macroeconomy.
D) microeconomics to make managerial and personal decisions.
Recall the Application about the possibilities of transformative economic growth in
authoritarian and participatory political institutions to answer the following
question(s).According to this Application, economist Daron Acemoglu categorizes
which of the following as participatory institutions?
A) democracies, monarchies, and dictatorships
B) constitutionally limited monarchies and democracies
C) monarchies, dictatorships, and tightly controlled oligarchies
D) tightly controlled oligarchies, democracies, and constitutionally limited monarchies
A checking deposit in a bank is considered ________ of that bank.
A) an asset
B) a liability
C) owners’ equity
D) capital
If prices are sticky
A) economic activity will be coordinated efficiently.
B) economic activity will not be coordinated efficiently.
C) prices will quickly adjust to changes in demand.
D) quantity supplied will always equal quantity demand.
Figure 19.1
Referring to Figure 19.1, the dollar is likely to appreciate if the exchange rate is either
________ or ________ pesos to the dollar.
A) 10; 11
B) 11; 12
C) 12; 13
D) 13; 14
Recall Application 4, “The Argentine Financial Crisis,” to answer the question below:
The Argentine financial crisis of 2002 occurred because:
A) the U.S. dollar continued to depreciate against other currencies.
B) the country experienced increasingly larger trade surpluses.
C) the Argentine peso was pegged to the sharply appreciating U.S. dollar.
D) the Argentine peso was in a flexible exchange rate regime.
Explain how the Mexican central bank used up $50 billion in its attempt to
unsuccessfully defend its currency.
Explain the two approaches that can be used to compute GDP. Why do these two
approaches lead to the same value for GDP?
Suppose that the free market exchange rate for the dollar is 115 yen, but the U.S. and
Japanese governments want it to be 120 yen/dollar. What can the governments do?
Illustrate your answer with a graph.
Suppose policy makers want to increase GDP by $450 billion. If the marginal
propensity to consume is 0.9, by how much must government spending increase to
achieve this target?
What are consumption taxes, and what is an example of a consumption tax?
You have just been appointed to a special Presidential Task Force on Economic Growth.
You are responsible for proposing three policies that the government can enact to
increase the growth rate. What policies would you recommend and why?
Define the marginal propensity to consume (MPC) and the marginal propensity to save
(MPS), and explain why MPC + MPS always equals 1.
What is the accelerator theory of investment spending?
What is hyperinflation?