Because one person’s spending is another person’s income:
A) if one group in the economy spends more, the incomes of other groups will decrease.
B) if one group in the economy spends less, the incomes of other groups will increase.
C) if one group in the economy spends more, the incomes of other groups will increase.
D) spending by one group does not influence the income of any other group.
A recent news story reported that the Organization of Petroleum Exporting Countries is
expected to decrease the supply of oil next summer. Summer is traditionally a time of
increased demand for oil because of vacation travel. What would be the combined
effect of these two events on the summer market for gasoline?
A) an increase in the price and the quantity
B) an increase in the price and an unpredictable change in the quantity
C) an unpredictable change in both the price and the quantity
D) an unpredictable change in the price and a decrease in the quantity
Economists believe that the best way to stimulate investment in physical capital is to
encourage:
A) higher rates of investment in human capital.
B) more spending on infrastructure.
C) the conservation of natural resources.
D) higher rates of national saving.
The start of an expansion is determined by the:
A) Treasury Department.
B) Federal Reserve.
C) president.
D) National Bureau of Economic Research.
Look at the table Production Possibilities for the United States and Canada. Both
nations can produce cars and lumber. In _____, the opportunity cost of _____ cars is
_____ board feet of lumber.
A) the United States; 1 million; 10 million
B) the United States; 10 million; 1 million
C) Canada; 1 million; 6 million
D) Canada; 1 million; 166,000
Which of the following would be the IMMEDIATE effect if an individual made a
$9,000 cash deposit in a bank?
A) The money supply would rise by $9,000.
B) The money supply would fall by $9,000.
C) The money supply would not be affected.
D) The money supply would fall but by less than the $9,000 deposit.
A country’s balance of payments accounts:
A) measure only a country’s exports and imports of goods and services.
B) summarize a country’s transactions with other countries.
C) are always positive.
D) measure only the sales of assets to foreigners and the purchases of assets by
foreigners.
Growth accounting estimates the contribution of each major factor in the aggregate
production function to economic growth.
A) True
B) False
If the demand for tires goes down when the price of gas goes up, then tires and gas are:
A) substitutes.
B) complements.
C) both expensive.
D) both inexpensive.
Figure: The Production Possibility Frontiers for Jackson and Tahoe
Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. In
autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat,
while Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. With
complete specialization according to comparative advantage, the two nations’ combined
production of wheat will:
A) remain constant.
B) increase by 120 bushels.
C) increase by 60 bushels.
D) decrease by 60 bushels.
The Great Moderation consensus among macroeconomists is that fiscal policy should
be used sparingly because:
A) it cannot be effective.
B) of policy lags.
C) it always destabilizes the economy.
D) of the risk of government waste.
A reduction in the value of a currency that is determined under a floating exchange rate
regime is a(n):
A) depreciation.
B) devaluation.
C) appreciation.
D) revaluation.
Investment spending:
A) fluctuates more than consumption.
B) fluctuates less than consumption.
C) fluctuates by the same amount as consumption.
D) is less volatile than consumption.
Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges,
and this figure shows each nation’s production possibility frontier for the two goods.
Look at the figure Comparative Advantage. Westland has an absolute advantage in
producing:
A) oranges only.
B) peaches only.
C) both oranges and peaches.
D) neither oranges or peaches.
Look at the table Income and Consumption. When disposable personal income is $200,
the marginal propensity to consume is:
A) 0.00.
B) 0.20.
C) 0.80.
D) 1.40.
The aggregate production function measures productivity as:
A) real GDP per worker.
B) nominal GDP per worker.
C) median income per worker.
D) average disposable income.
Unit-of-account costs arise when inflation makes it necessary to change listed prices
very often.
A) True
B) False
Look at the table Competitive Market for Good Z. If the demand curve for good Z is
linear, it can be expressed as:
A) Qd = 3P.
B) Qd = 50 ” 2P.
C) Qd = Q.
D) Qd = 100 ” 2P.
Aggregate output is the total quantity of intermediate goods and services produced in a
year.
A) True
B) False
When the price level increases, firms in imperfectly competitive markets usually have a
decrease in profit per unit and decrease output.
A) True
B) False
The nominal exchange rate is:
I. the evaluation and ranking of different global stock exchanges.
II. the price of a country’s money in terms of another country’s money.
A) I only
B) II only
C) I and II
D) neither I nor II
Which of the following was a justification for breaking with the normal presumption
against using discretionary fiscal policy during the Great Recession?
A) Monetary policy would not be effective because interest rates were so high.
B) Crowding-out was not likely to be a problem in a very depressed economy with
interest rates near zero.
C) The economy was so depressed that a political business cycle was not likely to be a
problem.
D) Ricardian equivalence was likely if monetary policy was used alone.
Included in GDP is the dollar value of:
A) a used car sold during the period.
B) a new car imported during the period.
C) a new car exported during the period.
D) 100 shares of General Motors stock bought by a retiree.
The initial impact of an unexpected decrease in consumer spending will be a(n) _____
investment spending.
A) decrease in planned
B) decrease in unplanned
C) increase in planned
D) increase in unplanned
The Social Security trust fund is the:
A) cash held in a savings account by the government.
B) government bonds held by the Social Security system.
C) money held by the government from the Medicare tax.
D) interest earned over time by the money from Social Security taxes.
The Bureau of Labor Services calculates U-6. This measures the:
A) underuse of labor that includes discouraged workers, marginally attached workers,
and underemployed workers.
B) use of labor based on various demographics.
C) labor force participation rate in a comprehensive way.
D) rate of overuse of labor when workers hold multiple jobs.
It is cheaper to produce corn in Kansas than in Death Valley, California, because corn
needs a lot of water and moderate temperatures. This statement best represents this
economic concept:
A) Resources are scarce.
B) Markets move toward equilibrium.
C) Resources should be used as efficiently as possible to achieve society’s goals.
D) Markets usually lead to efficiency.
If Japan levies tariffs on U.S. goods entering Japan, this will tend in the short run to
_____ U.S. producers and _____ Japanese producers.
A) benefit; benefit
B) damage; benefit
C) benefit; damage
D) damage; damage
Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges,
and this figure shows each nation’s production possibility frontier for the two goods.
Look at the figure Comparative Advantage. Eastland has a comparative advantage in
producing:
A) oranges only.
B) peaches only.
C) both oranges and peaches.
D) neither oranges nor peaches.
During the 1990s:
A) high oil prices encouraged consumers to buy small, fuel-efficient cars.
B) low oil prices encouraged consumers to buy large cars and SUVs that were generally
not fuel-efficient.
C) high oil prices encouraged the development of alternative energy sources.
D) low oil prices led to decreases in real GDP.
An economy is said to have a comparative advantage in the production of one good if
it:
A) can produce more of all goods than another economy.
B) can produce less of all goods than another economy.
C) has the highest opportunity cost of producing a particular good.
D) has the lowest opportunity cost of producing a particular good.
The stability pact signed in 1999 by the European nations that adopted the euro required
each country to:
A) balance its budget annually.
B) keep its actual budget deficit below 3% of its GDP.
C) keep its cyclically balanced budget below 3% of its GDP.
D) supply a certain amount of euros each year.
Milton Friedman’s argument was that the Fed should follow a monetary policy rule so
that the money supply would:
A) grow at a slow and steady rate.
B) remain constant.
C) grow proportionally with the price level.
D) grow at the same rate as the GDP growth rate.
Long-term interest rates and short-term interest rates:
A) usually move in lockstep.
B) always move closely together.
C) don’t always move closely together.
D) are independent of one another.
Explain how money adds to welfare although it does not directly produce anything.
A college student waits in line for hours to purchase a ticket to the Rose Bowl, but an
attorney does not. Rather than spend hours in line, he purchases a much more expensive
ticket through a ticket broker. Why?
If the world price of good X is lower than the domestic (autarky) price of that good,
will a nation be an exporter or importer of good X? How will the domestic market
adjust the price? Explain.
Explain how an increase in the reserve requirement by the Federal Reserve can lead to a
decrease in real GDP.
What will happen to the money supply if Jamie withdraws $400 from her checking
account and the required reserve ratio is 5%?
What is meant by the term social insurance? Give an example of a social insurance
program.
You have contracted to borrow $2,000 from the bank for one year. The nominal rate of
interest is 8.5% and the real interest rate is 6%. At the end of the year, inflation was 1%.
How does this affect the borrower (you) and the lender (the bank)? Who is better off?
How does a nation’s savings rate, as measured by the marginal propensity to save, affect
the size of the spending multiplier?
Suppose the supply curve for soap bubbles has a slope of +1 and intersects the vertical
axis at a price of $2 per bottle. Interpret the meaning of both the y-intercept and the
slope.
By early 2008 the U.S. economy was in a significant downturn. The unemployment rate
began to increase, and home prices began to fall. Congress passed a stimulus package
that gave tax rebates to virtually every person who paid taxes in 2007. Which of the 12
principles is described by this package?
Suppose that on January 1 the exchange rate was 15 Mexican pesos per U.S. dollar. On
December 31 of that year, a person needed 11 pesos to buy a dollar. Over the course of
that year, did the dollar appreciate or depreciate against the peso? Did the change in the
exchange rate make U.S. goods and services more or less attractive to Mexican
consumers? Explain.
Table: Consumption for Four Consumers
Disposable Income Brandy’s Consumption Mandy’s Consumption Sandy’s
Consumption Candi’s Consumption
$ 0 $ 500 $1,000 $ 800 $1,200
1,000 1,000 1,900 1,600 1,800
2,000 1,500 2,800 2,400 2,400
3,000 2,000 3,700 3,200 3,000
4,000 2,500 4,600 4,000 3,600
Look at the table Consumption for Four Consumers. Construct the aggregate
consumption function.
How is it possible for the unemployment rate to overstate the true level of
unemployment?
Why are banking-crisis recessions so bad?
If professional basketball superstar LeBron James signed his jersey and gave it to you,
it would certainly be a valuable asset. Why would this valuable asset not serve as a very
good form of money if you took it to a shopping mall, looking to purchase a pair of
shoes? Use the three roles of money in your explanation.
How does an open-market sale of Treasury bills affect the economy?