Table 3.1
Table 3.1 illustrates Willy and Blythe’s hourly production for apples and carrots. Based
on the table, Willy’s opportunity cost of 1 apple is:
A) 1 carrot.
B) 2/3 carrot.
C) 4 carrots.
D) 6 carrots.
If the nominal interest rate is 2 percent and the inflation rate is 4 percent, then the real
rate of interest is
A) -2 percent.
B) 2 percent.
C) 3 percent.
D) 6 percent.
In an attempt to maintain the peso exchange rate in 1994, the Mexican central bank
A) purchased dollars and sold pesos.
B) purchased both dollars and pesos.
C) sold both dollars and pesos.
D) sold dollars and purchased pesos.
A decrease in the demand for labor will ________ real wages and ________
employment.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
In an open economy including the government, planned expenditures equals
A) C + I + G.
B) C + I + G + X – M.
C) C + I + G + X + M.
D) C + I + G – X + M.
According to the international effect explanation of the downward slope of the AD
curve, a lower price level in the U.S. economy causes:
A) U.S. imports to increase and U.S. exports to decrease.
B) U.S. imports and U.S. exports to decrease.
C) U.S. imports to decrease and U.S. exports to increase.
D) U.S. imports and U.S. exports to increase.
Allocating more hours toward studying for your economics exam gives you a higher
grade. Based on this observation, hours and your economics grade exhibit:
A) a positive relationship.
B) a negative relationship.
C) no relationship.
D) an unpredictable relationship.
Figur
e 15.3
Refer to Figure 15.3 and explain what happens in each graph when an economy is
moving from a recession (point a) back to full employment.
Table 13.1
According to the information in Table 13.1, M2 is equal to
A) $840 billion.
B) $1,062 billion.
C) $1,692 billion.
D) $1,862 billion.
The debt burden in the United States was highest during
A) World War I.
B) World War II.
C) the 1960s.
D) the 1980s.
An Italian citizen buys a U.S. bond. This transaction will be entered as:
A) a positive in the U.S. current account.
B) a positive in the U.S. financial account.
C) a negative in the U.S. current account.
D) a positive in the U.S. capital account.
If the banking system has a required reserve ratio of 40 percent, then the money
multiplier is
A) 2.
B) 2.5.
C) 4.
D) 8.
Additional Application AN UNFORTUNATE GAMBLE What explained the
decision by the Japanese government to increase taxes in the 1990s when the economy
was still suffering from a recession? The Japanese government sharply increased taxes
on consumption in 1997—just as Japan was in the midst of its prolonged recession.
Why did the government do this? The reasons were clear. As the economy slumped,
fiscal deficits were increasing, as taxes fell and government spending rose. Policy
makers understood that their society was aging rapidly and that this would mean even
more demands on the public sector in the near future. They became convinced that the
current fiscal deficits plus the inevitable future demands on the government would lead
to long-run increases in government spending. To avoid crowding out of investment in
the future, they decided to tax consumption in order to reduce it. Their goal was to
match the increases in government spending with decreases in consumption spending
and therefore not experience crowding out of investment. Although policy makers were
right to consider the long-run consequences of increases in government spending, they
made the unfortunate gamble that the short-run effects of the tax increase would not
hinder the economy’s recovery. They were wrong, because the tax increase prolonged
the recession. Although it is important to consider the long-run consequences of policy,
it is important to understand the short-run consequences as well. According to the
application, what was the Japanese government’s gamble?
A) They imposed a tax on consumption, but hoped that it did not interfere with the
economy’s recovery.
B) They imposed a tax on investment, but hoped that it did not interfere with the
economy’s recovery.
C) They imposed a tax on consumption, but hoped that it did not interfere with the
economy’s inflation rate.
D) They imposed a tax on consumption, but hoped that it did not interfere with the
economy’s net import sector.
Under a fixed exchange rate system, if the inflation rate in the United States is 5 percent
a year and the inflation rate in Australia is 0 percent a year, then the U.S. real exchange
rate will
A) remain constant.
B) increase 5 percent a year.
C) decrease 5 percent a year.
D) possibly increase or decrease.