An economy’s capital stock is increased when individuals and institutions use savings to
increase capital investment in stocks and bonds.
The notion of opportunity cost allows the measurement of tradeoffs.
The interest rate quoted in financial markets is the nominal interest rate, and the
nominal interest rate adjusted for inflation is the real interest rate.
All else equal, expectations of higher inflation will affect the amount of money people
are holding because they will need more cash to pay for goods and services.
The only way individuals can cope with scarcity is by being self-sufficient.
The discount rate is the interest rate on loans that commercial banks make to the Fed.
The point of diminishing returns means that output will decrease at an increasing rate.
At the beginning of the Vietnam War, increased military spending in the United States
decreased unemployment.
Which of the following events is expected to worsen the budget deficit in the years
following 2008?
A) the increased government spending to deal with the financial crisis in 2008
B) the expected improvement in the economy once the financial crisis is in order
C) the expiration of some of George Bush’s tax cuts in 2010
D) All of the above are correct.
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) the level of capital K in the economy will increase.
B) the level of capital K in the economy will decrease.
C) the saving rate in the economy will increase.
D) the saving rate in the economy will decrease.
Suppose the economy is in equilibrium. Now, suppose there is an increase in
investment. As the economy adjusts to this increase in investment, we know that:
A) consumption will fall.
B) saving will fall.
C) the multiplier will increase.
D) none of the above
An open market sale by the Fed causes the value of the dollar to
A) rise, increasing net exports.
B) rise, reducing net exports.
C) fall, increasing net exports.
D) fall, reducing net exports.
If the U.S. real exchange rate decreases, U.S. imports will fall and U.S. exports will
rise.
A) fall; rise
B) fall; fall
C) rise; rise
D) rise; fall
If the Japanese government enters the foreign exchange market and sells yen to
maintain a specific exchange rate with the dollar, the dollar will ________ and the yen
will ________.
A) depreciate; depreciate
B) depreciate; appreciate
C) appreciate; depreciate
D) appreciate; appreciate
The effort used to coordinate the factors of production is a description of
A) physical capital.
B) human capital.
C) labor.
D) entrepreneurship.
What are the two critical measures of a nation’s economic health?
A) income and spending
B) sales and taxes
C) wages and raises
D) production and income
All other things being equal, when the level of the stock market is ________,
investment spending ________.
A) high; tends to be high
B) high; tends to be low
C) low; tends to be high
D) high or low; does not seem to change
Explain why each of the following items is excluded from GDP:
(a) profits from the stock and bond market
(b) transfer payments
(c) sale of used goods
(d) goods and services produced in the home
Recall Application 1, “Measuring Price Stickiness in Consumer Markets,” to answer the
following questions:
Based on what you learned from the application, coin-operated laundry prices behave
as:
A) custom prices.
B) auction prices.
C) flexible prices
D) custom auction prices.
A depression is
A) a severe recession.
B) a sustained economic upturn.
C) another word for a bull market.
D) the period of time following a peak in the business cycle.
A small change in a relevant variable is:
A) an average change.
B) a ceteris paribus change.
C) an efficient change.
D) a marginal change.
When the government filed a lawsuit against Microsoft in 1998 alleging that Microsoft
illegally bundled Internet Explorer in its operating software, the government’s objective
was to:
A) foster competition.
B) reduce uncertainty.
C) combat pollution.
D) reduce imperfect information.
Figure 1.1
Refer to Figure 1.1. The relationship between hours worked and income, as shown by
the graph in Figure 1.1 is:
A) negative.
B) positive.
C) nonlinear.
D) exponential.
In 2006, the U.S. net international investment position was $2.5 trillion. This means that
in 2006:
A) the U.S. was a net lender.
B) the U.S. was a net borrower.
C) the U.S. government made $2.5 trillion billion in investments abroad.
D) foreign governments made $2.5 trillion billion in investments in the U.S.
Which of the following trade agreements provides for the development of a single
market among its members?
A) North American Free Trade Agreement
B) World Trade Organization
C) European Union
D) Asian Pacific Economic Cooperation
What is the difference between inflation targeting and the alternative developed by John
Taylor of Stanford University?
Recall Application 2, “What Have Been the Local Effects of Chinese Imports?” to
answer the following questions:
What are the rationales for protectionist policies?
Briefly explain what a steeper consumption function implies.
List four protectionist policies.
Recall Application 2, “What Have Been the Local Effects of Chinese Imports?” to
answer the following questions:
Why would a country want to shield domestic workers from foreign competition?
In order to have reliable information about commercial enterprises and to encourage
other people to invest their time and money ________ have been established to ensure
universal understanding.
Identify markets in which there is an exchange.