The CPI differs from the GDP deflator in that
a. the CPI is an inflation index, while the GDP deflator is a price index.
b. substitution bias is not a problem with the CPI, but it is a problem with the GDP
deflator.
c. increases in the prices of foreign produced goods that are sold to U.S. consumers
show up in the GDP deflator but not in the CPI.
d. increases in the prices of domestically produced goods that are sold to the U.S.
government show up in the GDP deflator but not in the CPI.
An increase in the money supply
a. and an investment tax credit both cause aggregate demand to shift right.
b. and an investment tax credit both cause aggregate demand to shift left.
c. causes aggregate demand to shift right, while an investment tax credit causes
aggregate demand to shift left.
d. causes aggregate demand to shift left, while an investment tax credit causes
aggregate demand to shift right.
If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the
inflation rate is
a. -3 percent.
b. 0.75 percent.
c. 3 percent.
d. 11 percent.
Other things the same, according to purchasing-power parity, if over the next few years
Mexico has a higher money supply growth rate than the U.S., then
a. prices in Mexico will rise by a larger percentage than in the U.S. So, the dollar will
appreciate against the Mexican peso.
b. prices in Mexico will rise by larger percentage than in the U.S. So, the dollar will
depreciate against the Mexican peso.
c. prices in Mexico will rise by a smaller percentage than in the U.S. So, the dollar will
appreciate against the Mexican peso.
d. prices in Mexico will rise by a smaller percentage than in the U.S. So, the dollar will
depreciate against the Mexican peso.
There is no easy way for policymakers to reduce the economy’s natural rate of
unemployment.
a. True
b. False
The goal of the consumer price index is to gauge how much incomes must rise to
maintain a constant standard of living.
a. True
b. False
Efficiency is illustrated by
a. both the production possibilities frontier and the circular-flow diagram.
b. neither the production possibilities frontier nor the circular-flow diagram.
c. the production possibilities frontier only.
d. the circular-flow diagram only.
According to the circular-flow diagram GDP
a. can be computed as the total income paid by firms or as expenditures on final goods
and services.
b. can be computed as the total income paid by firms, but not as expenditures on final
goods and services.
c. can be computed as expenditures on final goods and services, but not as the total
income paid by firms.
d. cannot be computed as either total income paid by firms or expenditures on final
goods and services.
U.S- based Dell sells computers to an Irish company that pays with previously obtained
U.S. currency. This exchange
a. increases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
b. decreases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
c. increases U.S. net capital outflow because the U.S. sells capital goods.
d. decreases U.S. net capital outflow because the U.S. sells capital goods.
During World War II government expenditures increased almost five-fold and output
almost doubled.
a. True
b. False
If people anticipate higher inflation, but inflation remains the same then
a. the short-run Phillips curve would shift right and unemployment would rise.
b. the short-run Phillips curve would shift right and unemployment would fall.
c. the short-run Phillips curve would shift left and unemployment would rise.
d. the short-run Phillips curve would shift left and unemployment would fall.
Currency includes
a. paper bills and coins.
b. demand deposits.
c. credit cards.
d. Both (a) and (b) are correct.
Which of the following is a lesson concerning shifts in aggregate demand?
a. they contribute to fluctuations in output.
b. in the long-run they change real output, but not the price level.
c. policymakers are unable to mitigate the severity of economic fluctuations.
d. All of the above are correct.
If a country has net exports of $8 billion and sold $40 billion of goods and services
abroad, then it has
a. $48 billion of imports and $40 billion of exports.
b. $48 billion of exports and $40 billion of imports.
c. $40 billion of imports and $32 billion of exports.
d. $40 billion of exports and $32 billion of imports.
RefertoFigure2-10,Panel(a).The movement from point W to point Y could be caused
by
a. economic growth.
b. unemployment.
c. an improvement in efficiency.
d. an advance in production technology.
When a union raises the wage above the equilibrium level,
a. both the quantity of labor supplied and unemployment rise.
b. both the quantity of labor supplied and unemployment fall.
c. the quantity of labor supplied rises and unemployment falls.
d. the quantity of labor supplied falls and unemployment rises.
Expenditures by households on education are included in the investment component of
GDP.
a. True
b. False
The “invisible hand” refers to
a. the government.
b. the free market.
c. central planners.
d. large businesses.
Wholesome Wheat Bakery buys $10.00 worth of flour from Mikes’ Mill and uses the
flour to make bread. Wholesome Wheat sells the bread to the public for $22.00. Taking
these two transactions into account, what is the effect on GDP?
a. GDP increases by $10.00
b. GDP increases by $12.00
c. GDP increases by $22.00
d. GDP increases by $32.00
During recessions, taxes tend to
a. rise and thereby increase aggregate demand.
b. rise and thereby decrease aggregate demand.
c. fall and thereby increase aggregate demand.
d. fall and thereby decrease aggregate demand.
If a country has positive net capital outflows, then its net exports are
a. positive, and its saving is larger than its domestic investment.
b. positive, and its saving is smaller than its domestic investment.
c. negative, and its saving is larger than its domestic investment.
d. negative, and its saving is smaller than its domestic investment.
A country purchases more goods and services from residents of foreign countries than
residents of foreign countries purchase from it. This country has
a. a trade surplus and positive net exports.
b. a trade surplus and negative net exports.
c. a trade deficit and positive net exports.
d. a trade deficit and negative net exports.
If the budget deficit increases, then
a. U.S. residents will want to purchase more foreign assets and foreign residents will
want to purchase more U.S. assets
b. U.S. residents will want to purchase more foreign assets and foreign residents will
want to purchase fewer U.S. assets
c. U.S. residents will want to purchase fewer foreign assets and foreign residents will
want to purchase more U.S. assets
d. U.S. residents will want to purchase fewer foreign assets and foreign residents will
want to purchase fewer U.S. assets
Which of the following are human capital and physical capital, respectively?
a. for an accounting firm: the accountants’ knowledge of tax laws and computer
software
b. for a grocery store: grocery carts and shelving
c. for a school: chalkboard and desks
d. for a library: the building and the reference librarians’ knowledge of the Internet
An asset market is said to experience a speculativebubblewhen
a. the price of the asset rises above what appears to be its fundamental value.
b. the price of the asset appears to follow a random walk.
c. the market cannot establish an equilibrium price for the asset.
d. the asset is a natural resource and its supply is manipulated by foreign nations and
foreign firms.
In an imaginary economy, consumers buy only sandwiches and magazines. The fixed
basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a
magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation
rate in 2007 was 16 percent, then how much did a magazine cost in 2007?
a. $1.87
b. $2.08
c. $2.32
d. $3.00
Which of the following is the most accurate statement?
a. Trade policy has neither microeconomic nor macroeconomic effects.
b. Trade policy has similar microeconomic and macroeconomic effects.
c. The effects of trade policy are more macroeconomic than microeconomic.
d. The effects of trade policy are more microeconomic than macroeconomic.
The Fed can directly protect a bank during a bank run by
a. increasing reserve requirements.
b. selling government bonds to the bank.
c. lending reserves to the bank.
d. doing any of the above.
A favorable supply shock will cause the price level
a. and output to rise.
b. and output to fall.
c. to rise and output to fall.
d. to fall and output to rise.
It costs a furniture company $8,750 to produce 25 tables. The company’s total cost will
be $9,125 if it produces a 26thtable. If the company produces 26 tables, then
a. its average cost is greater than its marginal cost.
b. its average cost and its marginal cost are equal.
c. its average cost is less than its marginal cost.
d. This cannot be determined from the information given.
If people believe that the central bank is going to reduce inflation, then
a. the short-run Phillips curve shifts right and the sacrifice ratio will rise.
b. the short-run Phillips curve shifts right and the sacrifice ratio will fall.
c. the short-run Phillips curve shifts left and the sacrifice ratio will rise.
d. the short-run Phillips curve shifts left and the sacrifice ratio will fall.