Figure26-5.Figure 26-5 shows the loanable funds market for a closed economy.
RefertoFigure26-5.Starting at point A, the enactment of an investment tax credit would
likely cause
a. the quantity of loanable funds traded to increase to $125 and the interest rate to rise
to 7% (point C).
b. the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to
5% (point B).
c. the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to
7% (point E).
d. the quantity of loanable funds traded to increase to $125 and the interest rate to fall to
5% (point D).
The forces that make market economies work are
a. work and leisure.
b. politics and religion.
c. supply and demand.
d. taxes and government spending.
Figure30-2. On the graph, MS represents the money supply and MD represents money
demand. The usual quantities are measured along the axes.
RefetoFigure30-2. If the relevant money-demand curve is the one labeled MD1, then
a. when the money market is in equilibrium, one dollar purchases one-half of a basket
of goods and services.
b. when the money market is in equilibrium, one unit of goods and services sells for 2
dollars.
c. there is an excess demand for money if the value of money in terms of goods and
services is 0.375.
d. All of the above are correct.
Figure 33-4
RefertoFigure33-4. If the economy is in long-run equilibrium, then an adverse shift in
aggregate supply would move the economy from
a. A to B.
b. C to D.
c. B to A.
d. D to C.
Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price
index was 177 in 2001 and 266 in 2006. Dewey’s 2001 salary in 2006 dollars is
a. $37,711.86.
b. $49,906.02.
c. $66,750.00.
d. $112,711.86.
Figure 3-1
RefertoFigure3-1.The rate of tradeoff between producing chairs and producing
couches is constant in
a. Panel (a).
b. Panel (b).
c. both Panel (a) and Panel (b).
d. neither Panel (a) nor Panel (b).
Figure35-1.The left-hand graph shows a short-run aggregate-supply (SRAS) curve and
two aggregate-demand (AD) curves. On the right-hand diagram, U represents the
unemployment rate.
RefertoFigure35-1.Assuming the price level in the previous year was 100, point G on
the right-hand graph corresponds to
a. point A on the left-hand graph.
b. point B on the left-hand graph.
c. point C on the left-hand graph.
d. point D on the left-hand graph.
The term “invisible hand” was coined by
a. Adam Smith.
b. David Ricardo.
c. Karl Marx.
d. Benjamin Franklin.
Other things the same, if the price level rises by 2% and people were expecting it to rise
by 5%, then some firms have
a. higher than desired prices, which increases their sales.
b. higher than desired prices, which depresses their sales.
c. lower than desired prices, which increases their sales.
d. lower than desired prices, which depresses their sales.
If P= domestic prices, P* = foreign prices, and eis the nominal exchange rate, which of
the following is implied by purchasing-power parity?
a. P= e/P*
b. 1 = e/P*
c. e= P*/P
d. None of the above is correct.
The banking system currently has $50 billion of reserves, none of which are excess.
People hold only deposits and no currency, and the reserve requirement is 10 percent. If
the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10
billion worth of bonds, then by how much does the money supply change?
a. It falls by $20 billion.
b. It falls by $110 billion.
c. It falls by $180 billion.
d. None of the above is correct.
Which of the following is correct?
a. U.S. exports as a percentage of GDP have about tripled since 1950. The U.S.
currently has a trade deficit.
b. U.S. exports as a percentage of GDP have about tripled since 1950. The U.S.
currently has a trade surplus.
c. U.S. exports as a percentage of GDP have about doubled since 1950. The U.S.
currently has a trade deficit.
d. U.S. exports as a percentage of GDP have about doubled since 1950. The U.S.
currently has a trade surplus.
Which of the following is correct?
a. Economic forecasts are precise and aggregate spending responds almost immediately
to interest rate changes.
b. Economic forecast are precise and aggregate spending responds to interest rate
changes with a lag.
c. Economic forecasts are imprecise and aggregate spending responds almost
immediately to interest rate changes.
d. Economic forecast are imprecise and aggregate spending responds to interest rate
changes with a lag.
Which of the following provide benefits to society at large and not just to the person(s)
who pursues it?
a. both technological knowledge that is a public good and education
b. technological knowledge that is a public good, but not education
c. education, but not technological knowledge that is a public good
d. neither education, nor technological knowledge that is a public good
Jen and Alica are both U.S. citizens. Jen opens a cafe in France. Alicia buys equipment
from a company in Canada to use in her factory. Whose action is an example of U.S.
foreign direct investment?
a. Jen’s and Alica’s
b. Jen’s but not Alicia’s
c. Alicia’s but not Jen’s
d. Neither Anthony’s nor Tom’s.
Rachel babysits for her sister for no pay. When she babysits for someone else she
charges $8 an hour. When is Rachel’s babysitting included in GDP?
a. When she babysits for her sister and when she babysits for someone else.
b. When she babysits for her sister, but not when she babysits for someone else.
c. When she babysits for someone else, but not when she babysits for her sister.
d. Neither when she babysits for her sister nor for someone else.
Figure 3-15
RefertoFigure3-15.Which of the following is notcorrect?
a. Perry and Jordan could each consume 2 novels and 6 poems without trade.
b. Jordan could consume 2 novels and 6 poems both with and without trade.
c. Perry and Jordan could each consume 2 novels and 6 poems with trade.
d. Perry and Jordan could each consume 12 poems without trade.
In computing the consumer price index, a base year is chosen. Which of the following
statements about the base year is correct?
a. The base year is always the first year among the years for which computations are
being made.
b. It is necessary to designate a base year only in the simplest case of two goods; in
more realistic cases, it is not necessary to designate a base year.
c. The value of the consumer price index is always 100 in the base year.
d. The base year is always the year in which the cost of the basket was highest among
the years for which computations are being made.
Table 24-3
The table below pertains to Iowan, an economy in which the typical consumer’s basket
consists of 4 pounds of pork and 3 bushels of corn.
RefertoTable24-3. The cost of the basket in 2013 was
a. $150.50.
b. $147.
c. $154.
d. $301.
Suppose the economy is in long-run equilibrium. If there is an increase in the supply of
labor as well as an increase in the money supply, then we would expect that in the
short-run,
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.
When the price level falls
a. The interest rate falls because people will want to hold more money and so sell
bonds.
b. Firms will want to spend more on new business buildings and business equipment
and households will want to spend more building new homes.
c. Both A and B are correct.
d. None of the above are correct.
If aggregate demand shifts right and the President and Congress want to use fiscal
policy to reverse the change in output, they could
a. increase government expenditures. If by the time policy has been implemented the
economy has moved back to long-run equilibrium, then this policy will raise output
above its long-run level.
b. increase government expenditures. If by the time policy has been implemented the
economy has moved back to long-run equilibrium, then this policy will reduce output to
below its long-run level.
c. decrease government expenditures. If by the time policy has been implemented the
economy has moved back to long-run equilibrium, then this policy will raise output
above its long-run level.
d. decrease government expenditures. If by the time policy has been implemented the
economy has moved back to long-run equilibrium, then this policy will reduce output to
below its long-run level.
Suppose that the central bank must follow a rule that requires it to increase the money
supply when the price level falls and decrease the money supply when the price level
rises. If the economy starts from long-run equilibrium and aggregate supply shifts left,
the central bank must
a. decrease the money supply so interest rates rise.
b. decrease the money supply so interest rates fall.
c. increase the money supply so interest rates rise.
d. increase the money supply so interest rates fall.
Gary and Diane must prepare a presentation for their marketing class. As part of their
presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It
would take Gary 10 hours to do the required calculation and 10 hours to prepare the
slides. It would take Diane 12 hours to do the calculations and 20 hours to prepare the
slides.
a. How much time would it take the two to complete the project if they divide the
calculations equally and the slides equally?
b. How much time would it take the two to complete the project if they use comparative
advantage and specialize in calculating or preparing slides?
c. If Diane and Gary have the same opportunity cost of $5 per hour, is there a better
solution than for each to specialize in calculating or preparing slides?
With respect to how economists study the economy, which of the following statements
is most accurate?
a. Economists study the past, but they do not try to predict the future.
b. Economists use “rules of thumb” to predict the future.
c. Economists devise theories, collect data, and analyze the data to test the theories.
d. Economists use controlled experiments in much the same way that biologists and
physicists do.
Which of the following actions best illustrates adverse selection?
a. A person adds risky stock to his portfolio.
b. A person who has narrowly avoided many accidents applies for automobile
insurance.
c. A person is unwilling to buy a stock when she believes its price has an equal chance
of rising or falling $10.
d. A person purchases homeowners insurance and then checks his smoke detector
batteries less frequently.
If 2010 is the base year, then the inflation rate in 2015 equals
a.
b.
c.
d.
If a central bank attempts to lower the inflation rate but the public doesn”t believe the
inflation rate will fall as far as the central bank says, then in the short run
unemployment
a. rises. As inflation expectations adjust, the short-run Phillips curve shifts right.
b. rises. As inflation expectations adjust, the short-run Phillips curve shifts left.
c. falls. As inflation expectations adjust, the short-run Phillips curve shifts right.
d. falls. As inflation expectations adjust, the short-run Phillips curve shifts left.
According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and
the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?
a. 8 pesos per dollar
b. 1 peso per dollar
c. 1/8 peso per dollar
d. none of the above is correct
Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had
earnings of $5 a share and a dividend yield of 5 percent. The dividend is
a. $0.25 and the price-earnings ratio is 5.
b. $.25 and the price-earnings ratio is 6.7.
c. $1.25 and the price-earnings ratio is 5.
d. $1.25 and the price-earnings ratio is 6.7.
A university’s football stadium is always sold out, and students who wait in line for
hours may be turned away. This indicates
a. the ticket price is above the equilibrium price.
b. the ticket price is below the equilibrium price.
c. the ticket price is at the equilibrium price.
d. nothing about the equilibrium price.
Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the
money supply
a. increases the price level by more than 4 percent.
b. increases the price level by 4 percent.
c. increases the price level by less than 4 percent.
d. increases real GDP by 4 percent.