High-income countries such as the United States spend a greater amount on services as
compared to goods.
In reality, the Fed is unable to use monetary policy to keep real GDP exactly at its
potential level.
Marginal benefit is the benefit that your activity provides to someone else.
When the Federal Reserve increases the money supply, people spend more because
interest rates fall.
It is not possible to have an absolute advantage in producing a good or service without
having a comparative advantage.
Counting part-time workers who are looking for full-time work as employed overstates
the degree of joblessness in the economy.
The idea underlying Adam Smith’s “invisible hand” is that people tend to behave in
ways that go unnoticed in society.
One of the monetary policy goals of the Federal Reserve is price stability.
Declines in spending on residential construction are often due to increases in interest
rates. The collapse in residential construction prior to and during the recession of
2007-2009 was due more to ________ than to higher interest rates.
A) the financial crisis that began in 2007
B) the rapid inflation of the early 2000s
C) increases in the price of lumber
D) rising wages in the construction industry
Table 14-3
Refer to Table 14-3. Consider the following simplified balance sheet for a bank: If the
required reserve ratio is 10 percent, the bank can make a maximum loan of
A) $2,000.
B) $5,000.
C) $6,300.
D) $45,000.
What are the three main kinds of unemployment?
A) frictional, seasonal, and cyclical
B) temporary, permanent, and volunteer
C) cyclical, structural, and temporary
D) structural, frictional, and cyclical
Table 4-4
Table 4-4 shows the demand and supply schedules for the low-skilled labor market in
the city of Westover.
Refer to Table 4-4. Suppose that the quantity of labor supplied decreases by 40,000 at
each wage level. What are the new free market equilibrium hourly wage and the new
equilibrium quantity of labor?
A) W = $9.00; Q = 330,000
B) W = $9.50; Q = 370,000
C) W = $10.00; Q = 350,000
D) W = $8.00; Q = 390,000
Two actions by the Fed during Alan Greenspan’s term as chairman have been identified
as possibly contributing to the financial crisis in 2008. Which of the following was one
of those actions?
A) decreasing the money supply to fight the possibility of disinflation
B) the decision during 1998 to help save the hedge fund Long Term Capital
Management
C) working in concert with the European Central Bank to stabilize the dollar / euro
exchange rate
D) financing the war in Afghanistan by printing money and generating rapid inflation
Figure 1-2
Refer to Figure 1-2. Calculate the area of the triangle A.
A) $8.4 million
B) $6.3 million
C) $3.15 million
D) $2.1 million
A negative supply shock in the short run causes
A) the aggregate supply curve to shift to the left.
B) the price level to fall.
C) unemployment to fall.
D) equilibrium real GDP to rise.
If the balance on the current account in the United States is $750 billion, which of the
following is most likely to be true?
A) The balance on the financial account is negative.
B) The trade balance is negative.
C) Net foreign investment is negative.
D) The balance on the capital account is positive.
If a person withdraws $500 from his/her checking account and holds it as currency, then
M1 will ________ and M2 will ________.
A) increase; decrease
B) not change; not change
C) not change; increase
D) decrease; increase
E) decrease: decrease
Health insurance plans which typically reimburse doctors and hospitals with payment
for each service they provide are known as
A) fee-for-service plans.
B) preferred provider organizations.
C) single-health-payer systems.
D) health maintenance organizations.
A monetary growth rule means that
A) the Fed will lower interest rates if it thinks a recession is on the horizon.
B) the Fed will raise interest rates if it thinks the economy is growing faster than
potential.
C) the money supply should grow at a constant rate.
D) the money supply should grow in response to economic conditions.
Net worth is
A) a measure of a firm’s profits.
B) part of stockholders’ equity.
C) the difference between a firm’s assets and liabilities.
D) listed on the asset side of a firm’s balance sheet.
________ are financial securities that represent promises to repay a fixed amount of
funds.
A) Stocks
B) Bonds
C) Interest rates
D) Mutual funds
The top policy goal for Paul Volcker when he became chairman of the Federal Reserve’s
Board of Governors in 1979 was
A) fighting inflation.
B) increasing employment.
C) increasing economic growth.
D) increasing regulation of commercial banks.
E) a low current account deficit.
Which of the following transactions would take place in the “underground economy”?
A) Elizabeth tells her mother she’s going to work but really goes to see a movie.
B) Paul buys 15 gallons of gasoline for $3.29 a gallon, not realizing that $1.50 per
gallon of that price goes to the government as tax revenue.
C) John makes chain-link belts and necklaces and sells them at a local flea market for
cash to avoid paying taxes.
D) Matt bought an iPad for $499 but decided to sell it on eBay instead of keeping it.
The increase in the amount that the government collects in taxes when the economy
expands and the decrease in the amount that the government collects in taxes when the
economy goes into a recession is an example of
A) automatic stabilizers.
B) discretionary fiscal policy.
C) discretionary monetary policy.
D) automatic monetary policy.
Briefly describe how the Bretton Woods system operated.
Given Table 12-7 below, fill in the values of the marginal propensity to save (MPS) and
the marginal propensity to consume (MPC). Show that MPC + MPS = 1.
Table 12-7
Who is the seller in a primary market and who is the seller in a secondary market?
Suppose a presidential candidate makes a statement in a debate whereby he promises
that he would encourage the Fed to permanently lower the unemployment rate to 3%.
His opponent claims that this type of policy idea is mired in the 1960s and would only
cause inflation. Explain what the opponent means.
Protectionism is usually justified on the basis of one of four arguments. What are those
four arguments?
Explain why the long-run aggregate supply curve is vertical.
Table 16-6
Refer to Table 16-6. Suppose the economy is in the state described by the table above.
What problem will occur in the economy if no policy is pursued? What fiscal policy
tools could be used to combat the problem? Draw a dynamic aggregate demand and
aggregate supply diagram to illustrate the appropriate fiscal policy to use in this
situation.
