With the Troubled Asset Relief Program (TARP), the Treasury provided funds to banks
in exchange for stock.
The natural rate of unemployment is the rate that exists when the economy is producing
at potential GDP.
Under current U.S. tax laws individuals do not pay taxes on health insurance benefits
they receive from their employers.
The values of real GDP and real GNP are almost the same for the United States.
Purchasing a firm’s stock in an IPO can be risky because financial information may not
be fully disclosed.
Economic growth depends more on technological change than on increases on capital
per hour worked.
When net exports equal zero, the economy is in macroeconomic equilibrium.
In an open economy, the relationship between GDP (Y) and expenditures is Y = C + I +
G.
Aggregate expenditure includes consumption spending, planned investment spending,
government purchases, and net exports.
Macroeconomic equilibrium can occur at any point on the 45-degree line.
Fiscal policy has a greater impact in a closed economy than it does in an open economy.
When potential GDP increases, long-run aggregate supply also increases.
Autarky is a situation where one country does not trade with other countries.
Indirect finance includes the sale by a corporation of stocks or bonds, but does not
include borrowing money from a bank.
Figure 17-5
Refer to Figure 17-5. Consider the Phillips curves shown in the above graph. We can
conclude from this graph that
A) the natural rate of unemployment in this economy is 5.5 percent.
B) the expected rate of inflation in this economy is 10 percent.
C) ceteris paribus, a fall in the rate of inflation to 5 percent will increase unemployment
to 7.5 percent in the short run.
D) All of the above are correct.
Changes in the federal funds rate usually result in
A) changes in both short-term and long-term interest rates with more of an effect on
short-term interest rates.
B) changes in both short-term and long-term interest rates with more of an effect on
long-term interest rates.
C) changes in both short-term and long-term interest rates with equal effect on both.
D) no change in both short-term and long-term interest rates.
Figure 1-4
Refer to Figure 1-4. Which of the following statements is true?
A) The slope of the tangent at E is positive and the slope of the tangent at F is negative.
B) The slope of the tangent at E is negative and the slope of the tangent at F is positive.
C) The slope of the tangent at E and the slope of the tangent at F are negative.
D) The slope of the tangent at E and the slope of the tangent at F are positive.
Assume that both the demand curve and the supply curve for DVD players shift to the
left but the demand curve shifts more than the supply curve. As a result
A) both the equilibrium price and quantity of DVD players will decrease.
B) the equilibrium price of DVD players will decrease; the equilibrium quantity may
increase or decrease.
C) the equilibrium price of DVD players may increase or decrease; the equilibrium
quantity will decrease.
D) the equilibrium price of DVD players will increase; the equilibrium quantity may
increase or decrease.
All of the following represent differences between stocks and bonds except
A) a stock can possibly pay dividends forever, but bonds have a fixed number of
payments.
B) differences of opinion about a stock’s future may vary considerably but there is less
difference about a bond’s future.
C) the future growth of a stock is more uncertain than the payments of a bond.
D) bonds represent partial ownership in a firm but stocks do not.
The Bretton Woods system confronted severe problems in the 1960s, problems which
included
A) some countries with overvalued currencies refused to devalue their currencies.
B) dollars held by foreign central banks exceeded gold reserves held by the United
States.
C) the increased demand for gold brought about by lifting the prohibition against U.S.
citizens owning gold.
D) all of the above
If you invest $10,000 in a bond that earns 8% interest per year, how many years will it
take to double your money?
A) 1 year and 3 months
B) 2 years and 6 months
C) 8 years
D) 8 years and 9 months
“The price of digital cameras fell because of improvements in production technology.
As a result, the demand for non-digital cameras decreased. This caused the price of
non-digital cameras to fall; as the price of non-digital cameras fell the demand for
non-digital cameras decreased even further.” Evaluate this statement.
A) The statement is false because the demand for non-digital cameras would increase as
the price of digital cameras fell.
B) The statement is false. A decrease in the price of digital cameras would decrease the
demand for non-digital cameras, but a decrease in the price of non-digital cameras
would not cause the demand for non-digital cameras to decrease.
C) The statement is false because it confuses the law of demand with the law of supply.
D) The statement is false because digital camera producers would not reduce their
prices as a result of improvements in technology; doing so would reduce their profits.
Last week, 13 Mexican pesos could purchase one U.S. dollar. This week, it takes 11
Mexican pesos to purchase one U.S. dollar. This change in the value of the dollar will
________ exports from the United States to Mexico and ________ U.S. aggregate
demand.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
A reduction in the rate of inflation is referred to as
A) unemployment.
B) recession.
C) disinflation.
D) deflation.
Which of the following would explain why economic profit might be less than
accounting profit?
A) A firm’s net income is less than its accounting profit.
B) A firm has only explicit costs.
C) A firm’s net income is greater than its accounting profit.
D) A firm has implicit costs as well as explicit costs.
Explain why the tax multiplier is different from the government purchases multiplier, in
both sign and relative magnitude.
What determined the exchange rates among currencies under the gold standard, and
what caused the gold standard to collapse?
Explain how both renters and landlords could be either winners or losers with the
imposition of rent control.
How effective is discount policy as compared to open market operations in managing
the money supply? Explain how The Federal Reserve uses discount policy today.
A central concept in macroeconomics is the idea of the natural rate of unemployment.
Why does it make sense to define full employment to occur when the unemployment
rate equals the natural rate of unemployment, instead of when the unemployment rate
equals zero? Elaborate and explain carefully.
How is accounting profit found?
What type of consumer goods are most affected by the business cycle: durable goods or
nondurable goods? Why?
Use a 45-degree diagram to illustrate macroeconomic equilibrium. Make sure your
diagram shows the aggregate expenditure function. Include in your diagram a point
where aggregate expenditure is greater than GDP and a point where aggregate
expenditure is less than GDP.
