If speculators believe a currency is soon going to be revalued, they will increase their
demand for that currency.
The division of the burden of a tax between buyers and sellers in a market is called tax
incidence.
The unemployment rate in the United States is typically lower than in Western Europe
because the United States has tougher requirements for the unemployed to receive
government payments.
If a country has a comparative advantage in producing a product, it must also have an
absolute advantage in producing that product.
In order to reduce or eliminate a chronic shortage in the market for a currency under a
fixed exchange rate system, we must devalue the currency.
A depreciation of a country’s currency always lowers the domestic firm’s profits.
Disposable personal income is equal to personal income minus personal tax payments.
When Jack’s income increases by $5,000, he spends an additional $4,000 dollars. This
implies that his marginal propensity to consume is 1.25.
A doctor pursuing the interests of his patients rather than his own interests is an
example of the principal-agent problem.
The household survey asks adults about their employment status and is used to compile
the monthly unemployment rate.
Ceteris paribus, in the short run following a decrease in the rate of growth in Aggregate
Demand, we would expect to see an increase in the rate of unemployment and a
decrease in the rate of inflation.
Which component of consumption spending is the greatest in a typical economy?
A) services
B) durable goods
C) nondurable goods
D) new housing
Figure 5-1
Figure 5-1 represents the market for vaccinations. Vaccinations are considered a benefit
to society, and the figure shows both the marginal private benefit and the marginal
social benefit from vaccinations.
Refer to Figure 5-1. Marginal private benefit is represented by which curve?
A) D1
B) D2
C) Supply
D) All of the above represent marginal private benefit.
Because firms can free ride on the research and development of other firms,
A) firms choose a level of research and development where the marginal cost of
research is equal to the economy’s marginal return of research.
B) firms choose a level of research and development where the marginal cost of
research is above the economy’s marginal return of research.
C) firms choose a level of research and development where the marginal cost of
research is below the economy’s marginal return of research.
D) firms choose a level of research and development where the marginal cost of
research is below the individual firm’s marginal return of research.
Table 4-6
Refer to Table 4-6. The equations above describe the demand and supply for Aunt
Maud’s Premium Hand Lotion. The equilibrium price and quantity for Aunt Maud’s
lotion are $20 and 30 thousand units. What is the value of producer surplus?
A) $600 thousand
B) $300 thousand
C) $150 thousand
D) $30 thousand
Table 2-5
Table 2-5 shows the number of labor hours required to produce a cell phone and a board
foot of lumber in Estonia and Finland.
Refer to Table 2-5. If the two countries specialize and trade, who should export cell
phones?
A) There is no basis for trade between the two countries.
B) Estonia
C) Finland
D) They should both be importing cell phones.
What is the formula you should use to determine a bank account’s future value in one
year?
A) Future value equals the present value plus the rate of interest.
B) Future value equals the present value minus the rate of interest.
C) Future value equals the present value multiplied by one plus the rate of interest in
decimals.
D) Future value equals the present value divided by one plus the rate of interest in
decimals.
Which of the following does not describe governmental policy actions that are helpful
in supporting growth in an economy? Governmental policies that
A) avoid playing any role in developing communication systems.
B) provide secure rights to private property.
C) establish an independent court system that enforces contracts.
D) facilitate the development of an efficient financial system.
Figure 15-11
Refer to Figure 15-11. In the dynamic model of AD–AS in the figure above, if the
economy is at point A in year 1 and is expected to go to point B in year 2, the Federal
Reserve would most likely
A) increase interest rates.
B) decrease interest rates.
C) not change interest rates.
D) decrease the inflation rate.
Table 3-2
Refer to Table 3-2. The table above shows the demand schedules for cashews of two
individuals (Jordy and Amy) and the rest of the market. At a price of $6, the quantity
demanded in the market would be
A) 87 lbs.
B) 95 lbs.
C) 103 lbs
D) 215 lbs.
Which of the following is not a component of aggregate expenditure?
A) consumption spending
B) planned investment spending
C) actual investment spending
D) government spending
An increase in individual income taxes ________ disposable income, which ________
consumption spending.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
By offering less generous unemployment insurance programs, the United States can
expect
A) citizens to pay more in taxes than citizens pay in Europe.
B) workers to be slow in gaining new skills in response to fluctuations in the labor
market.
C) shorter periods of unemployment for their workers.
D) longer periods of unemployment for their workers.
Figure 4-1
Figure 4-1 shows Kendra’s demand curve for ice-cream cones.
Refer to Figure 4-1. If the market price is $4.00, what is the maximum number of ice
cream cones that Kendra will buy?
A) 0
B) 2
C) 3
D) 4
Explain the relationship between net exports and net foreign investment.
Assuming a fixed amount of taxes and a closed economy, calculate the value of the
government purchases multiplier, the tax multiplier, and the balanced budget multiplier
if the marginal propensity to consume equals 0.75.
Suppose the United States experiences a long period of relatively stable prices while
other countries experience long periods of inflation. How will this affect U.S. net
exports?
Draw a graph of “catch-up” that shows where you would expect to see a country with
low saving rates and low levels of health and education. How would you expect real
GDP per capita to grow in a country like this? Explain.
Why do countries peg their currencies, and what problems can result from pegging?
What is the difference between a devaluation and a revaluation of a currency?
Adam Smith, the father of modern economics wrote in his book, An Inquiry into the
Nature and Causes of the Wealth of Nations, “It is not from the benevolence of the
butcher, the brewer, or the baker, that we expect our dinner but from their regard to their
own interest.” Explain what he meant by that statement and how such behavior
promotes the wealth of a nation.