The sooner a payment is received and the higher the interest rate, the greater the present
value of a future payment.
a. True
b. False
Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of
fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units
of fish per year. There are 30 workers in each country. No trade occurs between the two
countries. Boatland produces and consumes 75 units of wheat and 375 units of fish per
year while Farmland produces and consumes 375 units of wheat and 75 units of fish per
year. If trade were to occur, Boatland would trade 90 units of fish to Farmland in
exchange for 80 units of wheat. If Boatland now completely specializes in fish
production, how many units of fish could it now consume along with the 80 units of
imported wheat?
a. 490 units
b. 500 units
c. 610 units
d. 660 units
Figure 4-8
RefertoFigure4-8.Suppose the figure shows the market demand for laptop computers.
Suppose the price of wireless keyboards, a complementary good, increases. Which of
the following changes would occur?
a. a movement along D2 from point A to point B
b. a movement along D2 from point B to point A
c. a shift from D1 to D2
d. a shift from D2 to D1
A person with diminishing marginal utility of wealth is risk averse.
a. True
b. False
Which of the following is an example of a normative, as opposed to positive,
statement?
a. Gasoline prices ought to be lower than they are now.
b. The federal government should raise taxes on wealthy people.
c. The social security system is a good system and it deserves to be preserved as it is.
d. All of the above are normative statements.
Which of the following would necessarily create a surplus at the original equilibrium
interest rate in the loanable funds market?
a. an increase in the supply of or a decrease in the demand for loanable funds
b. an increase in the supply of or an increase in the demand for loanable funds
c. a decrease in the supply of or a decrease in the demand for loanable funds
d. a decrease in the supply of or an increase in the demand for loanable funds
A department store chain in Japan uses yen to purchase 500,000 U.S. dollars from a
U.S. bank. It then uses these dollars to buy DVDs from a U.S. filmmaker. As a result of
these transactions:
A. By how much and in what direction did U.S. net exports change?
B. By how much and in which direction did U.S. net capital outflow change?
To stabilize interest rates, the Federal Reserve will respond to an increase in money
demand by
a. buying government bonds, which decreases the supply of money.
b. selling government bonds, which increases the supply of money.
c. buying government bonds, which increases the supply of money.
d. selling government bonds, which decreases the supply of money.
When a country experiences capital flight its currency
a. appreciates and net exports rise.
b. appreciates and net exports fall.
c. depreciates and net exports rise.
d. depreciates and net exports fall.
Which of the following equations is always correct in an open economy?
a. I= Y– C
b. I= S
c. I= S– NCO
d. I= S+ NX
According to Adam Smith, the success of decentralized market economies is primarily
due to
a. the basic benevolence of society.
b. society’s legal system.
c. individuals’ pursuit of self-interest.
d. partnerships that are forged between business and government.
In a market economy,
a. households decide which firms to work for and what to buy with their incomes.
b. firms decide whom to hire and what to make.
c. a central planner makes decisions about production and consumption.
d. Both a and b are correct.
Reserves are
a. the central bank of the U.S.
b. deposits that banks hold in excess of the required amount.
c. the purchase of bonds by the Federal Open Market Committee.
d. deposits that banks have received but have not yet loaned out.
When a variable that is named on an axis of a graph changes, the curve shifts.
a. True
b. False
Black Oil Company considered building a service station in a new location. The owners
and their accountants decided that this was the profitable thing to do. However, soon
after they made this decision, both the interest rate and the cost of building the station
changed. In which case do these changes bothmake it less likely that they will now
build the station?
a. Interest rates rise and the cost of building the station rises.
b. Interest rates rise and the cost of building the station falls.
c. Interest rates fall and the cost of building the station rises.
d. Interest rates fall and the cost of building the station falls.
Suppose a country imposes new restrictions on how many hours people can work. If
these restrictions reduce the total number of hours worked in the economy, but all other
factors that determine output are held fixed, then
a. productivity and output both rise.
b. productivity rises and output falls.
c. productivity falls and output rises.
d. productivity and output fall.
When the money market is drawn with the value of money on the vertical axis, if the
price level is above the equilibrium level, there is an
a. excess demand for money, so the price level will rise.
b. excess demand for money, so the price level will fall.
c. excess supply of money, so the price level will rise.
d. excess supply of money, so the price level will fall.
If the U.S. real exchange rate appreciates, U.S. exports
a. increase and U.S. imports decrease.
b. decrease and U.S. imports increase.
c. and U.S. imports both increase.
d. and U.S. imports both decrease.
Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust
economic growth.
a. True
b. False
Iggie took a university teaching job as an assistant professor in 1980 at a salary of
$15,000. By 2011, she had been promoted to full professor, with a salary of $70,000. If
the price index was 82 in 1980 and 225 in 2011, then what is Iggie’s 2011 salary in 1980
dollars?
a. $25,511
b. $52,073
c. $40,140
d. $41,159
Melinda buys new equipment for her dental office with funds she borrowed from a bank
that raised funds from depositors. Which of the following is correct?
a. Melinda is an investor.
b. The depositors are investors.
c. Both Melinda and the depositors are investors.
d. Neither Melinda nor the depositors are investors.
If the stock market booms, then
a. aggregate demand increases, which the Fed could offset by purchasing bonds.
b. aggregate supply increases, which the Fed could offset by selling bonds.
c. aggregate demand increases, which the Fed could offset by selling bonds.
d. aggregate supply increases, which the Fed could offset by purchasing the money
supply.
The CPI and GDP deflator usually tell two different stories about how quickly prices
are rising.
a. True
b. False
GDP is equal to
a. the market value of all final goods and services produced within a country in a given
period of time.
b. Y.
c. C+ I+ G+ NX.
d. All of the above are correct.
You have a contract with someone who has agreed to pay you $20,000 in four years.
She offers to pay you now instead. For which of the following interest rates and
payments would you take the money today?.
a. 8 percent, $15,000
b. 7 percent, $16,000
c. 6 percent, $17,000
d. All of the above are correct.
In which case(s) does(do) a country’s demand for loanable funds shift left?
a. both an increase in the budget deficit and capital flight
b. an increase in the budget deficit, but not capital flight
c. capital flight, but not an increase in the budget deficit
d. neither an increase in the budget deficit nor capital flight
Noah is an unpaid stay-at-home father who is not currently searching for paid work.
Pete is a full-time student who is not looking for a job. Who is included in the labor
force by the Bureau of Labor Statistics?
a. only Noah
b. only Pete
c. both Noah and Pete
d. neither Noah nor Pete
Figure 33-4
RefertoFigure33-4. The economy would be moving to long-run equilibrium if it started
at
a. A and moved to B.
b. C and moved to B.
c. D and moved to C.
d. None of the above is correct.
In the 1990’s Ireland made unemployment benefits less generous. This change would
likely have reduced
a. both structural unemployment and the natural rate of unemployment.
b. structural unemployment but not the natural rate of unemployment.
c. both frictional unemployment and the natural rate of unemployment.
d. frictional unemployment but not the natural rate of unemployment.
Figure 4-22
RefertoFigure4-22.What is the equilibrium price in this market?
a. $8
b. $12
c. $16
d. $20
International data on GDP and socioeconomic variables
a. are inconclusive about the relationship between GDP and the economic well-being of
citizens.
b. suggest that poor nations actually might enjoy a higher standard of living than do rich
nations.
c. leave no doubt that a nation’s GDP is closely associated with its citizens’ standard of
living.
d. indicate that there are few real differences in living standards around the world, in
spite of the large differences in GDP between nations.
Table 3-24
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Refer to Table3-24. Without trade, England produced and consumed 32 units of cheese
and 2 units of bread and Spain produced and consumed 6 units of cheese and 2 units of
bread. Then, each country agreed to specialize in the production of the good in which it
has a comparative advantage and trade 7 units of cheese for 2.5 units of bread. As a
result, England gained
a. 0 units of cheese and 0.5 unit of bread and Spain gained 1 unit of cheese and 0.5 unit
of bread.
b. 1 unit of cheese and 0.5 unit of bread and Spain gained 1 unit of cheese and 0.5 unit
of bread.
c. 7 units of cheese and 2.5 units of bread and Spain gained 7 units of cheese and 2.5
units of bread.
d. 33 units of cheese and 2.5 units of bread and Spain gained 7 units of cheese and 2.5
units of bread.
The Federal Open Market Committee meets approximately
a. every three weeks
b. every six weeks
c. every 3 months
d. every 6 months.