The income-expenditure model assumes that the aggregate supply curve is horizontal at
a given price level.
An inside lag is the time period it takes for the stabilization policies to take effect after
they have been implemented.
The tax cuts of 2008 were valued at approximately one percent of GDP.
Recall Application 4, “Securitization: the Good, the Bad, and the Ugly,” to answer the
following questions:
According to the Application, the reason why households were willing to take loans
they could not afford was that households expected their incomes would increase in the
near future.
Bank runs are not common today because of deposit insurance.
In the study of macroeconomics, production leads to income, and income leads to
production in a continuing cycle.
Slope is calculated as a change in the variable on the horizontal axis divided by a
change in the variable on the vertical axis.
GDP is the value of all goods purchased each year by the citizens of a country.
The manner in which a nation’s economy reacts when the measured factors are changed
affects almost every individual.
Table 5.4
Refer to Table 5.4. Suppose this economy produces only the two goods X and Y. If year
2 is the base year, then the percentage growth rate in Real GDP between year 2 and year
3 is approximately:
A) 27 percent.
B) 96 percent.
C) 32 percent.
D) 1.3 percent.
While one benefit of unemployment insurance is that it can temporarily offset some of
the financial costs of losing a job, its downside is that it:
A) increases the length of time a worker remains unemployed.
B) increases the incentive for a worker to find a job immediately.
C) decreases the length of time a worker remains unemployed.
D) increases the incentive for the worker to have a second job.
Recall Application 3, “Are They Really Dumping?” to answer the following questions:
According to the application, how many cases of dumping in 1995-1998 used the actual
price in the foreign market to make a determination if a dumping occurred?
A) 4 out of 141
B) 137 out of 141
C) all 141 out of 141
D) none of the 141
During the 1930s, politicians did not use fiscal policy to counter the Great Depression
because:
A) the adherence to the gold standard prevented the necessary increase in the money
supply.
B) the Federal Reserve System opposed the idea.
C) they feared the consequences of government budget deficits.
D) they were concerned about the ensuing increase in interest rates.
The theory of international exchange that holds that exchange rates are set so that the
price of similar goods in different countries is the same as:
A) purchasing power parity.
B) price-feedback.
C) trade-feedback.
D) the J-curve theory.
Figure 18.4
Refer to Figure 18.4. With an import ban, how many artichokes are produced
domestically in Duckland?
A) 85
B) 75
C) 65
D) 30
Recall the Application about European soccer stars choosing to play for clubs in
countries with lower tax rates to reduce their taxes to answer the following question(s).
A study conducted by economists Henrik Jacobsen Kleven, Camille Landais,and
Emmanuel Saez found that top tax rates and tax breaks do matter when soccer stars
choose where to locate.
According to this Application, many economists believe that the increase in
“globalization” in the last 30 years has ________ the ability of countries to levy taxes at
rates that differ substantially from other countries.
A) limited
B) slightly increased
C) eliminated
D) greatly increased
Recall Application 4, “Fertilizer and Crop Yields” to answer the following
questions:
As bags of nitrogen applied went from 0 to 1 to 2 to 3 to 4, crop yield went from 85 to
120 to 135 to 144 to 147 bushels per acre. The results show that as more bags of
nitrogen were added, holding all other inputs constant, output:
A) fell.
B) rose but at a declining rate.
C) rose but at an increasing rate.
D) stayed the same.
When the economy is in a recession and the stock market plunges, the interest rates
________ and the bond prices ________.
A) increase; decrease
B) decrease; decrease
C) increase; increase
D) decrease; increase
Figure 4.3 illustrates the demand for tacos. Assume that tacos and beer are
complements. An increase in the price of beer would bring about a movement from
A) point a to point .
B) point c to point .
C) D2 to D1.
D) D0 to D2.
If interest rates increase, the present value of a given payment in the future will
A) remain the same.
B) increase.
C) decrease.
D) cause an inflation.
If the equilibrium price of a good decreases and the equilibrium quantity of the good
decreases, we can conclude that:
A) demand increased.
B) demand decreased.
C) supply increased.
D) supply decreased.
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.
The principle of opportunity cost:
A) is more relevant for firms than for individuals.
B) only refers to monetary payments.
C) is only relevant in economics.
D) is applicable to all decision-making.
Figure 11.4 Refer to Figure 11.4. Between expenditure lines C + I + G0 and C + I +
G1, the multiplier for government spending is:
A) 3.
B) 2.
C) 1/3.
D) 1/2.
The Latin phrase ceteris paribus means that when a relationship between two variables
is being studied,
A) both are treated as unpredictable.
B) neither of those two variables is allowed to change.
C) all other variables are held fixed.
D) we recognize that some factors are unknown.
Assume there is no government or foreign sector. If the multiplier is 4, a $10 billion
increase in planned investment will cause equilibrium output to increase by:
A) $2.5 billion.
B) $10 billion.
C) $40 billion.
D) $60 billion.
A Major League Baseball player signs a contract that pays $27 million over 5 years.
The $27 million is the contract’s ________ value.
A) real
B) implicit
C) external
D) nominal
Mary wants to trade piano lessons for ice-skating lessons. Sarah wants to trade
ice-skating lessons for piano lessons. Mary and Sarah have:
A) the basis for a liquidity exchange.
B) a double incidence of demand.
C) the basis for a double fiat exchange.
D) a double coincidence of wants.
Explain how a budget deficit can lead to inflation.
What are some of the sources of market failure?
Suppose the economy is producing above the potential output. Explain how money
demand and investments will change to bring the economy back to potential output.
Identify the four main categories of expenditures used in calculating GDP.
Distinguish between movement along a curve and shifting a curve.