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Figure 2-5 shows five different points along the production possibilities frontier for a
country that produces rockets and cruise ships. If the country is currently operating at
point C and decided to move to point B,
a. the opportunity cost would be four rockets
b. it could not do so, given the current state of technology and quantity of resources
c. the country would have to forego producing six cruise ships
d. the opportunity cost would be four cruise ships
e. the opportunity cost would be six rockets
Changes in the interest rate
a. change business spending, but not consumption spending
b. shift the consumption function
c. cause a movement along the consumption function
d. change consumption spending but not business spending
e. have no impact on autonomous consumption or business spending.
The classical model predicts the real GDP will always be
a. rising.
b. falling.
c. equal to its full-employment level.
d. constant.
e. equal to its full-taxation level.
If there is an increase in the interest rate,
a. there will be a rightward movement along a stationary money demand curve
b. there will be a leftward movement along a stationary money demand curve
c. the demand curve for money will shift rightward
d. the demand curve for money will shift leftward
e. there will be no movement of the demand curve for money and no movement along it
Which of the following is the best definition of potential output?
a. The output that could be produced if the economy were above full employment
b. The output that could be produced if the economy had no unemployment
c. The output that could be produced if the economy had no frictional unemployment
d. The output that could be produced if the economy were at full employment
e. The output that could be produced if the economy had no structural unemployment
If labor supply decreases, what will happen to the real wage rate, employment, and real
output, assuming no change in labor demand?
a. The real wage will increase, employment will decrease, and real output will increase.
b. The real wage will decrease, employment will decrease, and real output will increase.
c. The real wage will increase, employment will decrease, and real output will decrease.
d. The real wage will increase, employment will increase, and real output will increase.
e. The real wage will decrease, employment will increase, and real output will increase.
The phase of the business cycle characterized by rising employment is called
a. a recession
b. a low-tax phase
c. a high-inflation phase
d. an expansion
e. a depression
The law of supply states that the quantity supplied of a good and
a. the price of a key input are inversely related
b. its price are inversely related
c. the price of a key input are positively related
d. its price are positively related
e. the price of an alternate good are positively related
Income tax reductions can increase the profitability of human capital to households.
M1 and M2 are
a. usually equal
b. aggregates that, when added together, encompass all methods of payment
c. nonofficial measures of the U.S. money supply
d. both measures of the U.S. money supply
e. the best way to measure the U.S. money supply
In the classical model, the government needs to worry about total spending.
The Consumer Price Index excludes all of the following, except one. Which one is
included in the CPI?
a. Services purchased directly by consumers
b. Raw materials
c. Services purchased by the government
d. Machinery purchased by firms
e. Intermediate goods purchased by firms
Bill can cook dinner in 45 minutes and mow the lawn in 1.5 hours. Eileen can cook
dinner in 1.5 hours and mow the lawn in 2 hours. Which of the following statements is
correct?
a. Bill has both an absolute advantage and a comparative advantage in cooking dinner.
b. Bill has both an absolute advantage and a comparative advantage in mowing the
lawn.
c. Eileen has both an absolute advantage and a comparative advantage in cooking
dinner.
d. Eileen has both an absolute advantage and a comparative advantage in mowing the
lawn.
e. Bill has the comparative advantage in both cooking dinner and mowing the lawn.
If output grows faster than the population, the average standard of living will
a. rise
b. fall
c. remain the same
d. stagnate
e. rise and then fall
If the president of Chile commented that "the crime rate in Chile is currently too high,"
this would be an example of a normative statement.
Which of the following best describes the term deflation?
a. A falling inflation rate
b. A negative price level
c. A negative inflation rate
d. An increasing inflation rate
e. A positive inflation rate
A supply shock
a. is usually caused by a change in the money supply
b. is any event that causes the aggregate supply curve to shift
c. is any event caused by a change in the price level
d. is usually good news for the economy
e. always leads to an increase in the interest rate
Which of the following is a reason that the number of bank failures has generally
decreased over time?
a. Banks have been replaced by savings and loan associations.
b. The overall riskiness of bank loans has decreased.
c. The Federal Reserve stands ready to inject reserves into the banking system.
d. All banks have been in good financial health.
e. Banks hold most of their assets in the form of reserves.
