The inflation rate is the absolute change in the price level from the previous period.
a. True
b. False
Which of the following is included in the investment component of GDP?
a. spending to build new houses
b. spending to build new factories
c. spending on business equipment such as welding equipment
d. All of the above are included in the investment component of GDP.
Figure 2-21
Refer to Figure2-21. Your friend John created the graph above to illustrate that
snowstorms are caused by more snowblowers being sold. You inform him that his
interpretation is incorrect due to
a. omitted variable bias.
b. reverse causality.
c. slope mismatch.
d. shifting versus moving along a curve.
Figure 3-16
RefertoFigure3-16.Hosne has a comparative advantage in the production of
a. purses and Merve has a comparative advantage in the production of wallets.
b. wallets and Merve has a comparative advantage in the production of purses.
c. both goods and Merve has a comparative advantage in the production of neither
good.
d. neither good and Merve has a comparative advantage in the production of both
goods.
Table 28-11
2010 Labor Data for Tajnia
RefetoTable28-11.The total adult population of Tajnia in 2010 is 30,000.
a. True
b. False
In a closed economy, what does (Y– T– C) represent?
a. national saving
b. government tax revenue
c. public saving
d. private saving
If there is capital flight from the United States, then the demand for loanable funds
a. and the supply of dollars in the foreign-exchange market shift right.
b. and the supply of dollars in the foreign-exchange market shift left.
c. shifts left while the supply of dollars in the foreign-exchange market shifts right.
d. shifts right while the supply of dollars in the foreign-exchange market shifts left.
Suppose that in a closed economy GDP is equal to 20,000, consumption equal to
15,000, government purchases equal 4,000 and taxes equal 3,000. What are private
saving, public saving, and national saving?
a. -2,000, 1,000, and 2,000, respectively.
b. 1,000, 2,000, and 3,000, respectively.
c. 2,000, -1,000, and 1,000, respectively.
d. 2,000, 1,000, and 2,000, respectively.
Which of the following are costs incurred by people trying to protect themselves from
the effects of inflation?
a. menu costs and shoeleather costs
b. menu costs but not shoeleather costs
c. shoeleather costs but not menu costs
d. menu costs but not shoeleather costs
Figure 2-1
Refer to Figure2-1. Raymond buys a refrigerator for his new home. To which of the
arrows does this transaction directly contribute?
a. A only
b. A and B
c. C only
d. C and D
Irregular fluctuations in economic activity are known as the
a. business cycle.
b. broken window fallacy.
c. tradeoff between inflation and unemployment.
d. ten principles of economics.
Monetary Policy in Mokania
Mokania has had inflation of 15% for many years. Mokania establishes a new central
bank, the Bank of Mokania, with the hopes of reducing the inflation rate.
Refer to MonetaryPolicyinMokania. The Bank of Mokania publicizes that it intends to
reduce the inflation rate to 5%. If it actually reduces inflation to 3% and people were
expecting inflation to fall only to 8%, then
a. unemployment falls but it would have fallen by more if the Bank of Mokania had
reduced inflation to 5% rather than 3%.
b. unemployment falls but it would have fallen by less if the Bank of Mokania had
reduced inflation to 5% rather than 3%.
c. unemployment rises but it would have risen by more if the Bank of Mokania had
reduced inflation to 5% rather than 3%.
d. unemployment rises but it would have risen by less if the Bank of Mokania had
reduced inflation to 5% rather than 3%.
An assistant manager at a restaurant gets a $100 a month raise. He figures that with his
new monthly salary he cannot buy as many goods and services as he could buy last
year.
a. His real and nominal salary have risen.
b. His real and nominal salary have fallen.
c. His real salary has risen and his nominal salary has fallen.
d. His real salary has fallen and his nominal salary has risen.
Economics is the study of how society allocates its unlimited resources.
a. True
b. False
In an open economy, gross domestic product equals $2,450 billion, consumption
expenditure equals $1,390 billion, government expenditure equals $325 billion,
investment equals $510 and net capital outflow equals $225 billion. What is national
saving?
a. $225 billion
b. $510 billion
c. $735 billion
d. $1,390 billion
The statistical discrepancy that regularly arises in national income accounting refers to
the slight difference between
a. personal income and personal disposable income.
b. estimates of GDP and actual GDP.
c. the income and expenditure approaches to the calculation of GDP.
d. the quarterly and annual approaches to the calculation of GDP.
When two variables have a negative correlation,
a. they tend to move in opposite directions.
b. they tend to move in the same direction.
c. one variable will move while the other remains constant.
d. the variables’ values are never positive.
The model of aggregate demand and aggregate supply explains the relationship between
a. the price and quantity of a particular good.
b. unemployment and output.
c. wages and employment.
d. real GDP and the price level.
For teenagers, a 10 percent increase in the price of cigarettes leads to a
a. 1 percent reduction in the quantity demanded of cigarettes.
b. 4 percent reduction in the quantity demanded of cigarettes.
c. 10 percent reduction in the quantity demanded of cigarettes.
d. 12 percent reduction in the quantity demanded of cigarettes.
Figure 3-18
RefertoFigure3-18. The opportunity cost of 1 bowl for Bintu is
a. 1/4 cup.
b. 1/2 cup.
c. 2 cups.
d. 4 cups.
A tax cut shifts aggregate demand
a. by more than the amount of the tax cut.
b. by the same amount as the tax cut.
c. by less than the tax cut.
d. None of the above is necessarily correct.
Inflation distorts savings when real interest income, rather than nominal interest
income, is taxed.
a. True
b. False
Figure 3-16
RefertoFigure3-16.Merve should specialize in the production of
a. purses.
b. wallets.
c. both goods.
d. neither good.
Which of the following is nota question that macroeconomists address?
a. Why is average income high in some countries while it is low in others?
b. Why does the price of oil rise when war erupts in the Middle East?
c. Why do production and employment expand in some years and contract in others?
d. Why do prices rise rapidly in some periods of time while they are more stable in
other periods?
A construction company has built 30 houses so far this year at a total cost to the
company of $7.5 million. If the company builds a 31sthouse, its total cost will increase
to $7.76 million. Which of the following statements is correct?
a. For the first 30 houses, the average cost per house was $250,000.
b. The marginal cost of the 31sthouse, if it is built, will be $260,000.
c. If the company can experience a marginal benefit of $275,000 by building the
31sthouse, then the company should build it.
d. All of the above are correct.
Hyperinflations are associated with governments printing money to finance
expenditures.
a. True
b. False
Which of the following is indicated by the data on real income per person for various
countries over the past 100 or so years?
a. If, in a relatively poor country, real income per person had grown by 3.5 percent per
year for the last 100 years, it would be a relatively rich country today.
b. Rich countries became richer and poor countries became poorer.
c. In the United States, real income per person today is about four times as high as it
was 120 years ago.
d. All of the above are correct.
Which of the following is not correct?
a. Evaluating statements about how the world should be involves values as well as
facts.
b. Positive statements can, in principle, be confirmed or refuted by examining evidence.
c. Normative statements can be judged using data alone.
d. Deciding what is good or bad policy is not just a matter of science.
Monetary policy affects the economy with a long lag, in part because
a. proposals to change monetary policy must go through both the House and Senate
before being sent to the president.
b. monetary policy works through changes in interest rates, and the Fed does not have
the ability to change interest rates quickly.
c. changes in interest rates primarily influence consumption spending, and households
make consumption plans far in advance.
d. changes in interest rates primarily influence investment spending, and firms make
investment plans far in advance.
Which of the following is a certificate of indebtedness?
a. both stocks and bonds
b. stocks but not bonds
c. bonds but not stocks
d. neither stocks nor bonds
Scenario 3-2
In country A a worker who works 40 hours can produce 200 pounds of rice or 100
pounds of broccoli. In country B a worker who works 40 hours can produce 160 pounds
of rice or 120 pounds of broccoli.
Refer to Scenario3-2. Give a range of prices in terms of pounds of rice per pound of
broccoli at which the two countries would be both be willing to trade.
In the town of Gotham the adult population is 560 thousand, the number unemployed is
25 thousand, and 185 thousand are not in the labor force. Calculate the unemployment
rate.
Budget in Recession
During a recession government revenues from the income tax fall and government
transfers rise as the reduction in income and the rise in unemployment raise the number
of people who qualify for benefits.
RefertoBudgetinRecessio. In the market for loanable funds which curve(s) does this
change in the deficit shift? Which direction does it shift?
Consider the nations of China, Japan, and the United States. Over the past century,
which of these nations has progressed, in an economic sense, more rapidly than the
other two nations?
What are the two possible causes of market failure?
At about what number of companies does the reduction in risk from adding stocks of
more companies to a portfolio do little to reduce risk?
Scenario 3-2
In country A a worker who works 40 hours can produce 200 pounds of rice or 100
pounds of broccoli. In country B a worker who works 40 hours can produce 160 pounds
of rice or 120 pounds of broccoli.
Refer to Scenario3-2. Which country, if either, has a comparative advantage producing
rice? Defend your answer using the numbers given.
Define gross domestic product.
Suppose tax policies are changed to encourage saving. Explain how the income effect
and substitution effect influence the amount saved.
A country recently had GDP of $1,200 billion. Its consumption expenditures were $700
billion, its government spent $200 billion, and it had domestic investment of $175
billion. What was the value of this country’s net capital outflow?
Show your work.
Scenario 27-2
Suppose Dave has a utility function where Wis his wealth in millions of
dollars and Uis the utility he obtains.
RefetoScenario27-2.Suppose Dave is faced with a choice between two options. With
option A Dave receives a guaranteed $2 million. With option B Dave faces a lottery that
pays $0 with probability 0.8 and pays $10 million with probability 0.2. Given Dave’s
utility function, will he prefer option A or option B? Provide evidence to support your
answer.
Explain how the relation between the real exchange rate and net exports explains the
downward slope of the demand for foreign-currency exchange curve.
The government’s choices regarding the overall level of government purchases and
taxes is known as _____.
What is another word for “marginal”?
Suppose the nominal interest rate this year is 6.5% and that the economy experiences
2.3% deflation. What is the real interest rate?