Which of the following statements is correct for the short run?
a. Output is determined by the amount of capital, labor, and technology; the interest rate
adjusts to balance the supply and demand for money; the price level adjusts to balance
the supply and demand for loanable funds.
b. Output is determined by the amount of capital, labor, and technology; the interest rate
adjusts to balance the supply and demand for loanable funds; the price level adjusts to
balance the supply and demand for money.
c. Output responds to the aggregate demand for goods and services; the interest rate
adjusts to balance the supply and demand for money; the price level is relatively slow to
adjust.
d. Output responds to the aggregate demand for goods and services; the interest rate
adjusts to balance the supply and demand for loanable funds; the price level adjusts to
balance the supply and demand for money.
You are better off choosing $400 in 4 years rather than $300 today if the interest rate is
a. lower than about 5.5 percent.
b. higher than about 5.5 percent.
c. lower than about 7.5 percent.
d. higher than about 7.5 percent.
Mary looks over reports on four of her workers. Jack made 25 baskets in 5 hours.
Walter made 36 baskets in 6 hours. Rudy made 40 baskets in 10 hours. Sam made 22
baskets in four hours. Who has the greatest productivity?
a. Jack
b. Walter
c. Rudy
d. Sam
Proponents of zero inflation argue that reducing inflation has
a. permanent costs and temporary benefits.
b. temporary costs and permanent benefits.
c. permanent costs and benefits.
d. temporary costs and benefits.
Diversification of a portfolio
a. can eliminate market risk, but it cannot eliminate firm-specific risk.
b. can eliminate firm-specific risk, but it cannot eliminate market risk.
c. increases the portfolio’s standard deviation.
d. is not necessary for a person who is risk averse.
Table 3-18
Chris and Tony’s Production Opportunities
Refer to Table 3-18 Chris and Tony both produce tomatoes and pasta sauce. The table
shows their possible production per month if both work the same number of 8 hour
days. If Chris and Tony both decide to specialize and produce only the good in which
they have a comparative advantage, then
a. Chris will produce only sauce and Tony will produce only tomatoes.
b. Chris will produce only tomatoes and Tony will produce only sauce.
c. Both Chris and Tony will produce only sauce.
d. Both Chris and Tony will produce only tomatoes.
A budget deficit
a. changes the supply of loanable funds.
b. changes the demand for loanable funds.
c. changes both the supply of and demand for loanable funds.
d. does not influence the supply of or the demand for loanable funds.
In an open economy, gross domestic product equals $1,650 billion, government
expenditure equals $250 billion, and savings equals $550 billion. What is consumption
expenditure?
a. $250 billion
b. $300 billion
c. $550 billion
d. $850 billion
Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new
mp3 player to listen to music while working out. Both the amplifier and the mp3 player
cost $100, so he can only buy one. This illustrates the basic concept that
a. trade can make everyone better off.
b. people face trade-offs
c. rational people think at the margin.
d. people respond to incentives.
In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on
the grounds that
a. it seemed to work for wages but not for inflation.
b. monetary policy was ineffective in combating inflation.
c. the Phillips curve did not apply in the long run.
d. Phillips had made errors in collecting his data.
The residents of country A earn $500 million of income from abroad. Residents of other
countries earn $200 million in country A. These earnings are accounted for in country
A’s
a. country A’s net factor payments from abroad are positive, and its GDP is larger than
its GNP.
b. country A’s net factor payments from abroad are positive, and its GNP is larger than
its GDP.
c. country A’s net factor payments from abroad are negative, and its GDP is larger than
its GNP.
d. country A’s net factor payments from abroad are negative, and its GNP is larger than
its GDP.
If U.S. consumers decrease their demand for cellphones from Finland, then other things
the same Finland’s
a. exports and net exports fall.
b. exports fall and net exports rise.
c. imports and net exports fall.
d. imports fall and net exports rise.
Which advantage(s) do mutual funds claim to provide?
a. diversification and access to the skills of professional money managers
b. diversification but not access to the skills of professional money managers
c. access to the skills of professional money managers but not diversification
d. neither diversification nor access to the skills of professional money managers.
Who said, “The whole of science is nothing more than the refinement of everyday
thinking”?
a. Isaac Newton
b. Albert Einstein
c. Adam Smith
d. Benjamin Franklin
Other things the same, as the price level rises,
a. the interest rate rises causing aggregate demand to shift.
b. the interest rate rises causing a movement along a given aggregate-demand curve.
c. the interest rate falls causing aggregate demand to shift.
d. the interest rate falls causing a movement along a given aggregate-demand curve.
An important factor in the decline of the U.S. textile industry over the past 100 or so
years is
a. foreign competitors that can produce quality textile goods at low cost.
b. lower prices of goods that are substitutes for clothing.
c. a decrease in Americans’ demand for clothing, due to increased incomes and the fact
that clothing is an inferior good.
d. the fact that the minimum wage in the U.S. has failed to keep pace with the cost of
living.
If total spending rises from one year to the next, then
a. the economy must be producing a larger output of goods and services.
b. goods and services must be selling at higher prices.
c. either the economy must be producing a larger output of goods and services, or goods
and services must be selling at higher prices, or both.
d. employment or productivity must be rising.
The economy of the former Soviet Union is best described as a
a. primitive economy.
b. market economy.
c. hybrid economy.
d. centrally-planned economy.
Camp Company had total earnings of $600 million in 2008, out of which it retained
$150 million for future investments. In 2008, its stock featured a dividend yield of 3
percent and 200 million shares were outstanding. The price-earnings ratio for Camp
Company stock was
a. 8.33.
b. 12.00.
c. 16.67.
d. 25.00.
Which of the following is not correct?
a. There is a greater reduction in risk by increasing the number of stocks in a portfolio
from 1 to 10, than by increasing it from 100 to 120 stocks.
b. The historical rate of return on stocks has been about 5 percentage points higher than
the historical rate of return on bonds.
c. Stock in an industry that is very sensitive to economic conditions is likely to have a
higher average return than stock in an industry that is not so sensitive to economic
conditions.
d. If you had information about a corporation that no one else had, you could earn a
very high rate of return. This contradicts the efficient market hypothesis.
In the circular-flow diagram,
a. firms own the factors of production.
b. the factors of production are labor, land, and capital.
c. the factors of production are also called “output.”
d. All of the above are correct.
The midpoint method for calculating elasticities is convenient in that it allows us to
a. ignore the percentage change in quantity demanded and instead focus entirely on the
percentage change in price.
b. calculate the same value for the elasticity, regardless of whether the price increases or
decreases.
c. assume that sellers’ total revenue stays constant when the price changes.
d. restrict all elasticity values to between 0 and 1.
The largest reduction in a portfolio’s risk is achieved when the number of stocks in the
portfolio is increased from
a. 80 to 100.
b. 40 to 80.
c. 10 to 20.
d. 1 to 10.
The Fed’s policy decisions have an important influence on
a. inflation in the long run and employment and production in the short run.
b. inflation in the long run and employment and production in the long run.
c. inflation in the short run and employment and production in the short run.
d. inflation in the short run and employment and production in the long run.
During World War II,
a. government purchases of goods and services increased fivefold.
b. the economy’s production increased about 25 percent.
c. unemployment fell to about 5%.
d. All of the above are correct.
If the nominal interest rate is 6 percent and the rate of inflation is 4 percent, then the
real interest rate is
a. -4 percent.
b. 2 percent.
c. 4 percent.
d. 8 percent.
Sheri, a U.S. citizen, works only in Germany. The value she adds to production in
Germany is included
a. in both German GDP and U.S. GDP.
b. in German GDP, but is not included in U.S. GDP.
c. in U.S. GDP, but is not included in German GDP.
d. in neither German GDP nor U.S. GDP.
Which of the following shifts both the short-run and long-run aggregate supply right?
a. an increase in the actual price level
b. an increase in the expected price level
c. an increase in the capital stock
d. None of the above is correct.
Productivity is defined as the
a. amount of goods and services produced from each unit of labor input.
b. number of workers required to produce a given amount of goods and services.
c. amount of labor that can be saved by replacing workers with machines.
d. actual amount of effort workers put into an hour of working time.
In the open-economy macroeconomic model, the quantity of dollars demanded in the
market for foreign-currency exchange
a. depends on the real exchange rate. The quantity of dollars supplied in the
foreign-exchange market depends on the real interest rate.
b. depends on the real interest rate. The quantity of dollars supplied in the
foreign-exchange market depends on the real exchange rate.
c. and the quantity of dollars supplied in the market for foreign-currency exchange
depend on the real exchange rate.
d. and the quantity of dollars supplied in the market for foreign-currency exchange
depend on the real interest rate.
Table 3-4
Assume that the farmer and the rancher can switch between producing meat and
producing potatoes at a constant rate.
Labor Hours Needed
to Make 1 Pound of Pounds Produced
in 24 Hours
Refer to Table 3-4. The opportunity cost of 1 pound of potatoes for the farmer is
a. 1/4 pound of meat.
b. 2 hours of labor.
c. 4 pounds of meat.
d. 8 hours of labor.
Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in
Louisville that pays $71,200. Which pair of CPIs would ensure that the two salaries
have the same purchasing power?
a. 90 in Minneapolis and 83 in Louisville
b. 90 in Minneapolis and 72 in Louisville
c. 100 in Minneapolis and 89 in Louisville
d. 105 in Minneapolis and 90 in Louisville
Table 13-2
Refer to Table 13-2. Which company had the highest dollar dividend?
a. Boeing Co.
b. Eli Lilly and Co.
c. H. J. Heinz and Co.
d. Kellog Co.
Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 5 million,
retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a
price-earnings ratio of
a. 50, which is high by historical standards.
b. 50, which is low by historical standards.
c. 25, which is high by historical standards.
d. 25, which is low by historical standards.
You love peanut butter. You hear on the news that 50 percent of the peanut crop in the
South has been wiped out by drought and that this will cause the price of peanuts to
double by the end of the year. As a result, your demand for peanut butter
a. will increase but not until the end of the year.
b. increases today.
c. decreases as you look for a substitute good.
d. shifts left today.