In a business cycle, the period following a trough is called an expansion.
An economy is better off with an increase in the stock of capital.
A tax cut of $10 billion will have less effect on the economy than an increase in
government spending of $10 billion.
In the long run, the economy operates at full employment.
In larger markets, the quest for profit by firms motivates them to be innovative and
produce new and more appealing products.
A small, one-unit change in value is called a marginal change.
Ceteris paribus means “Let the buyer beware.”
Anticipated inflation is associated with cost increases which are fully expected.
As interest rates rise, there will be fewer profitable projects that firms will be willing to
invest in.
A role of government is to ensure firms bear the full costs of their production.
If an economy is producing a level of output which is higher than the equilibrium level,
planned expenditures ________ total output and ________ goods and services are being
produced than are being demanded.
A) exceed; more
B) exceed; fewer
C) are less than; more
D) are less than; fewer
All else constant, an excess supply of pounds will cause:
A) the dollar to appreciate against the pound.
B) the pound to appreciate against the dollar.
C) the dollar to depreciate against the pound.
D) the dollar and the pound to appreciate against each other.
If Italy can produce grapes at a lower opportunity cost than any other nation, Italy is
said to have a(n) ________ in the production of grapes.
A) autarky
B) absolute advantage
C) comparative disadvantage
D) comparative advantage
Table 5.1
Refer to Table 5.1. Assume that this economy produces only two goods: Good X and
Good Y. If year 1 is the base year, the value for this economy’s real GDP in year 2 is:
A) $120.
B) $146.
C) $176.
D) none of the above.
Recall Application 2, “Increased Political Independence for the Bank of England
Lowered Inflation Expectations,” to answer the following questions:
According to the application, if the bonds that were not adjusted for inflation and the
inflation adjusted bonds had the same yield, then:
A) people expect zero inflation.
B) people expect higher inflation.
C) people expect lower inflation.
D) people expect that bond yield equals zero.
The rise in value of the euro relative to the U.S. dollar is a(n):
A) depreciation of the euro.
B) appreciation of the euro.
C) appreciation of the U.S. dollar.
D) floating of the U.S. dollar.
Recall Application 1, “Beyond Purchasing Treasury Securities,” to answer the following
questions:
According to the application, the sharp change in the Fed’s policies started during:
A) the financial crisis in 2008.
B) the confirmation of Ben Bernanke as the new Fed chairman in 2006.
C) the start of the U.S. recession in 2007.
D) the start of the U.S. recession in 2001.
Recall Application 6, “Why Lower Drug Prices?” to answer the following questions:
In the Application, what should we observe before we can undoubtedly attribute the
lower drug prices to a decrease in demand?
A) an increase in the equilibrium quantity
B) a shortage
C) a decrease in the equilibrium quantity
D) a surplus
During the Carter administration, inflation increased from 6.5 percent to 9.4 percent
because
A) unemployment increased above the natural rate.
B) the economy experienced an oil price shock.
C) The United States was involved in a major war.
D) the Fed suspended the dollar’s convertibility into gold.
The tax multiplier is negative because
A) increases in taxes decrease disposable personal income and lead to a reduction in
consumption spending.
B) increases in consumption spending have a negative impact on tax revenues.
C) tax rates are inversely related to tax revenues.
D) taxes always have a negative impact on the economy.
Assuming there is no government or foreign sector, if the multiplier is 2.5, the marginal
propensity to consume must be:
A) 0.25.
B) 0.8.
C) 0.6.
D) 2.5.
In a market system, what provides individuals the information needed to make
decisions?
A) insurance
B) prices
C) patents
D) government
Recall Application 1, “Money with Faces of Rodents,” to answer the following
questions:
In the Application, what was the reason why merchants did not just give discounts in
order to entice more individuals to purchase their products?
A) They also wanted to entice local residents to make local purchases.
B) Merchants got a bonus from the local banks if they used capivaris.
C) They wanted to entice people from other towns to buy local products.
D) Discounts were illegal in Brazil.
Equilibrium in the money market occurs when
A) the quantity of money demanded equals the quantity of money supplied.
B) the quantity of money demanded is less than the quantity of money supplied.
C) the quantity of money demanded is more than the quantity of money supplied.
D) the interest rate equals the money supply.
The purchasing power of money decreases as the
A) production decreases.
B) price level increases.
C) employment increases.
D) demand increases.
Figure 18.3 Refer to Figure 18.3. In autarky, the maximum amount of pogo sticks that
Livonia can produce is
A) 120.
B) 100.
C) 80.
D) 40.
Which of the following is not a macroeconomic question?
A) Should we have a constitutional amendment to balance the federal budget?
B) Do employers discriminate against women by paying them lower wages?
C) How does a political candidate’s economic reform package affect the inflation rate?
D) All of the above are macroeconomic questions.
Bank of Sim City has $500 million in deposits. The required reserve ratio is 25%. Bank
of Sim City must keep ________ in reserves.
A) $125 million
B) $700 million
C) $140 million
D) $160 million
What is a market economy?
Distinguish the current account from the financial account.
What is the difference between a ‘shift in the demand curve” and a “movement along
the demand curve”?
What will happen to the exchange rate between the British pound and the U.S. dollar if
British prices increase?
Suppose that planned expenditure exceeds aggregate output. Explain the process by
which the economy moves toward equilibrium.
Suppose that the U.S. has comparative advantage on cars while Japan has comparative
advantage on TV’s. Assume that both countries produce both goods in autarky. If both
countries open their economies to trade, identify the workers in each country who will
be hurt by free trade.
Explain the Q-theory of investment.
Is the quantity equation a short-run concept or a long-run concept? Explain.