Changes in the federal funds rate usually result in
A) changes in both short-term and long-term interest rates with more of an effect on
short-term interest rates.
B) changes in both short-term and long-term interest rates with more of an effect on
long-term interest rates.
C) changes in both short-term and long-term interest rates with equal effect on both.
D) no change in both short-term and long-term interest rates.
A successful compensation scheme
A) must pay workers with comparable skills a comparable wage.
B) must induce effort from workers and ensure that both employer and employees
benefit.
C) must enable workers to enjoy a certain standard of living and must enable employers
to earn a normal rate of return.
D) must allow employees to participate in a firm’s profits.
Table 4-10
Table 4-10 above contains information about the wheat market. Answer the following
questions based on this table.
An agricultural price floor is a price that the government guarantees farmers will
receive for a particular crop. Suppose the federal government sets a price floor for
wheat at $21 per bushel.
a. What is the amount of shortage or surplus in the wheat market as result of the price
floor?
b. If the government agrees to purchase any surplus output at $21, how much will it
cost the government?
c. If the government buys all of the farmers’ output at the floor price, how many bushels
of wheat will it have to purchase and how much will it cost the government?
d. Suppose the government buys up all of the farmers’ output at the floor price and then
sells the output to consumers at whatever price it can get. Under this scheme, what is
the price at which the government will be able to sell off all of the output it had
purchased from farmers? What is the revenue received from the government’s sale?
e. In this problem we have considered two government schemes: (1) a price floor is
established and the government purchases any excess output and (2) the government
buys all the farmers’ output at the floor price and resells at whatever price it can get.
Which scheme will taxpayers prefer?
f. Consider again the two schemes. Which scheme will the farmers prefer?
g. Consider again the two schemes. Which scheme will wheat buyers prefer?
You lend $5,000 to a friend for one year at a nominal interest rate of 10%. The CPI over
that year rises from 180 to 190. What is the real rate of interest you will earn?
A) 0%
B) 4.4%
C) 5.5%
D) 5.8%
It is difficult to determine if foreign companies are selling their products for prices
below their costs of production because
A) the true costs of production are difficult to calculate.
B) the firms have no legal obligation to reveal this information.
C) costs are calculated in the firms’ local currencies.
D) domestic taxes increase the firms’ costs but it is difficult to determine the incidence
of these taxes.
Article Summary. Although growing at only half the average rate following the
seven previous recessions, consumer spending has increased 9 percent since the
end of the 2007-2009 recession, and consumer confidence has been on the rise as
household finances, the job market, and the housing market continue to improve.
The Federal Reserve projects a 3% – 3.5% growth rate for the economy in 2014,
up from the recent average of 2%. Debt payments have fallen to an average of
15.69% of after-tax income for households, the lowest level in 30 years, and lower
debt payments leave households with more to spend on consumer goods.
Source: Neil Shah, “Pocketbooks Begin to Open As Household Wealth Grows,”
Wall Street Journal, June 25, 2013.
The increase in consumer spending discussed in the article summary was due in part to
an improving housing market. This reason for the increase in consumer spending is
most closely related to which of the following variables that determine the level of
consumption?
A) the interest rate
B) current disposable income
C) household wealth
D) the price level
Table 6-7
The town of Bloomfield is well known for its basketball team. The price of basketball
game tickets is determined by market forces. Table 6-7 above shows the demand and
supply schedules for basketball games tickets.
What is the numerical value of the price elasticity of supply?
A) 1
B) greater than 0 but less than 1
C) 0
D) greater than 1
The public choice model
A) examines the degree of market power that the public exerts in a market economy.
B) examines the public’s role in appointing politicians and ensuring that elected officials
act in ways to reflect the public’s preferences.
C) applies economic analysis to government decision making.
D) applies economic analysis to the collective decision making of consumers.
How does a decrease in government spending affect the aggregate expenditure line?
A) It shifts the aggregate expenditure line upward.
B) It shifts the aggregate expenditure line downward.
C) It increases the slope of the aggregate expenditure line.
D) It decreases the slope of the aggregate expenditure line.
If the GDP deflator is 142, by how much have prices changed since the base year?
A) Prices have increased by 42%.
B) Prices have increased by 142%.
C) Prices have decreased by 4.2%.
D) Prices have increased by 58%.