What are the two shortrun effects of increasing the quantity of nation’s money?
Write the formula for calculating a GDP deflator using only nominal and real GDP.
If the inflation rate decreased from 3.33% to 2.90% between October and November,
while the nominal interest rate increased from 4.75% to 4.80%, what is the real interest
rate in November?
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.Suppose points F and G on the right-hand graph represent two
possible outcomes for an imaginary economy in the year 2012, and those two points
correspond to points B and C, respectively, on the left- hand graph. Then it is apparent
that the price index equaled
a. 130 in 2011.
b. 115 in 2011.
c. 110 in 2011.
d. 100 in 2011.
A favorable supply shock will cause
a. unemployment to rise and the short-run Phillips curve to shift right.
b. unemployment to rise and the short-run Phillips curve to shift left.
c. unemployment to fall and the short-run Phillips curve to shift right.
d. unemployment to fall and the short-run Phillips curve to shift left.
Transfer payments are
a. included in GDP because they represent income to individuals.
b. included in GDP because they eventually will be spent on consumption.
c. not included in GDP because they are not payments for currently produced goods or
services.
d. not included in GDP because taxes will have to be raised to pay for them.
A professor spends 10 hours per day giving lectures and writing papers. For the
professor, a graph that shows his various possible mixes of output (lectures given per
day and papers written per day) is called his
a. line of tastes.
b. trade-off curve.
c. production possibilities frontier.
d. consumption possibilities frontier.
If speculators bid up the value of the U.S. dollar in the market for foreign exchange,
then
a. U.S. goods become more expensive relative to foreign goods so aggregate demand
shifts right.
b. U.S. goods become less expensive relative to foreign goods so aggregate demand
shifts right.
c. U.S. goods become more expensive relative to foreign goods so aggregate demand
shifts left.
d. U.S. goods become less expensive relative to foreign goods so aggregate demand
shifts left.
Every adult who was not employed during the previous four weeks is included in the
Bureau of Labor Statistics’ “unemployed” category.
a. True
b. False
In which of the following situations mustnational saving rise?
a. Both domestic investment and net capital outflow increase.
b. Domestic investment increases and net capital outflow decreases.
c. Domestic investment decreases and net capital outflow increases.
d. Both domestic investment and net capital outflow decrease.
During the mid and last part of the 1990’s both inflation and unemployment were low.
In general this could have been the result of
a. adverse supply shocks that shifted the short-run Phillips curve left.
b. adverse supply shocks that shifted the short-run Phillips curve right.
c. favorable supply shocks that shifted the short-run Phillips curve left.
d. favorable supply shocks that shifted the short-run Phillips curve right.
According to the Phillips curve, policymakers would reduce inflation but raise
unemployment if they
a. decreased the money supply.
b. increased government expenditures.
c. decreased taxes.
d. None of the above is correct.
If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the
real interest rate?
a. .5 percent
b. 1.25 percent
c. 4.5 percent
d. None of the above is correct.
In 1979 and 1980,
a. the U.S. inflation rate as measured by the GDP deflator was higher than that
measured by the CPI, and the difference was explained by rapidly rising prices of goods
exported by the U.S.
b. the U.S. inflation rate as measured by the CPI was higher than that measured by the
GDP deflator, and the difference was explained by rapidly rising prices of goods
exported by the U.S.
c. the U.S. inflation rate as measured by the GDP deflator was higher than that
measured by the CPI, and the difference was explained by rapidly rising oil prices.
d. the U.S. inflation rate as measured by the CPI was higher than that measured by the
GDP deflator, and the difference was explained by rapidly rising oil prices.
The Council of Economic Advisers
a. was created in 1776 and consists of three members and a staff of several dozen
economists.
b. was created in 1776 and consists of thirty members and a staff of a dozen economists.
c. was created in 1946 and consists of three members and a staff of several dozen
economists.
d. was created in 1946 and consists of thirty members and a staff of a dozen economists.
Figure 28-4
RefetoFigure28-4.If 4,000 workers are unemployed, then the minimum wage must be
a. $2.
b. $4.
c. $5.
d. $6.
Figure 2-20
RelationshipBetweenYearsofEducationandAnnualIncome
Refer to Figure2-20. Senator Smith observes the graph and concludes that people who
earn higher incomes attend school for more years. Senator Jones observes the graph and
concludes that people who attend school for more years earn higher incomes. Who is
correct?
a. Senator Smith is correct.
b. Senator Jones is correct.
c. It is difficult to say which senator might be correct due to the reverse causality
problem.
d. It is difficult to say which senator might be correct due to omitted variable bias.
If the quality of a good deteriorates from one year to the next while its price remains the
same, then the value of a dollar falls.
a. True
b. False
Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000
final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to
make 270,000 final goods.
a. Country A has higher productivity and higher real GDP per person than country B.
b. Country A has lower productivity and lower real GDP per person than country B.
c. Country A has higher productivity, but lower real GDP per person than country B.
d. Country B has lower productivity, but higher real GDP per person than country B.
Table 3-27
Assume that Huang and Min can switch between producing parasols and producing
porcelain plates at a constant rate.
RefertoTable3-27.Huang has an absolute advantage in the production of
a. parasols and a comparative advantage in the production of parasols.
b. parasols and a comparative advantage in the production of plates.
c. neither good and a comparative advantage in the production of parasols.
d. neither good and a comparative advantage in the production of plates.
After 1980 in the United States,
a. national saving fell below investment and net capital outflow was a large positive
number.
b. national saving fell below investment and net capital outflow was a large negative
number.
c. investment fell below saving and net capital outflow was a large positive number.
d. investment fell below saving, so net capital outflow was a large negative number.
The amount of unemployment varies little over time and across countries.
a. True
b. False
The inflation rate in year 2 equals
Other things the same, as the price level falls, the exchange rate rises. A rise in the
exchange rate leads to a decrease in net exports.
a. True
b. False
Efficiency means everyone in the economy should receive an equal share of the goods
and services produced.
a. True
b. False
The government can potentially improve market outcomes if market inequalities or
market failure exists.
a. True
b. False
Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of
oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels
of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of
the following statements is true?
a. Both countries could gain from trade with each other.
b. Neither country could gain from trade with each other because Cornland has an
absolute advantage in both goods.
c. Neither country could gain from trade with each other because neither one has a
comparative advantage.
d. Oatland could gain from trade between the two countries, but Cornland definitively
would lose.
If a savings account pays 5 percent annual interest, then the rule of 70 tells us that the
account value will double in approximately 14 years.
a. True
b. False
The market for insurance is one example of reducing risk by using diversification.
a. True
b. False
Suppose the government eliminates all environmental regulations and, as a result, the
production of goods and services increases, but there is considerably more pollution.
Based on this scenario, which of the following statements is correct?
a. GDP would definitely increase, despite the fact that GDP includes environmental
quality.
b. GDP would definitely decrease because GDP includes environmental quality.
c. GDP would definitely increase because GDP excludes environmental quality.
d. GDP could either increase or decrease because GDP excludes environmental quality.
Which of the following is notheld constant in a demand schedule?
a. income
b. tastes
c. price
d. expectations
The catch-up effect refers to the idea that poor countries, despite their best efforts, are
not likely ever to experience the economic growth rates of wealthier countries.
a. True
b. False
Suppose the economy is in long-run equilibrium and the government decreases its
expenditures. Which of the following helps explain the logic of why the economy
moves back to long-run equilibrium?
a. as people revise their price-level expectations upward, firms and workers strike
bargains for higher nominal wages.
b. as people revise their price-level expectations upward, firms and workers strike
bargains for lower nominal wages.
c. as people revise their price-level expectations downward, firms and workers strike
bargains for higher nominal wages.
d. as people revise their price-level expectations downward, firms and workers strike
bargains for lower nominal wages.
The Fed can decrease the money supply by conducting open-market
a. sales or by raising the discount rate.
b. sales or by lowering the discount rate.
c. purchases or by raising the discount rate.
d. purchases or by lowering the discount rate.
Which of the following is included in the investment component of GDP?
a. households’ purchases of newly constructed homes
b. net additions to firms’ inventories
c. firms’ purchases of capital equipment
d. All of the above are correct.
Which of the following is notheld constant in a supply schedule?
a. production technology
b. the price of the good
c. the prices of inputs
d. expectations
If a increase in income decreases the demand for a good, then the good is a(n)
a. substitute good.
b. complementary good.
c. normal good.
d. inferior good.
When the government increases spending (holding taxes constant), the budget balance
_____. This causes the interest rate in the market for loanable funds to _____ and
investment to _____.
Table 24-16
The table below lists annual consumer price index and inflation rates for a country over
the period 2010-2013. Assume the year 2010 is used as the base year.
RefertoTable24-16. Calculate the missing value that belongs in space B.
At first patents might seem like a deterrent to growth because in effect they restrict the
use of new technology. Yet many economists believe that patents generate growth.
Explain why.
Bill gets medical insurance and then exercises less. Lilly has health concerns and so
applies for medical insurance. Identify each of these as moral hazard or adverse
selection.
How do we find the real exchange rate from the nominal exchange rate?
What is bank insolvancy?
A decrease in the domestic _____ causes domestic goods to become less expensive
relative to foreign goods and increases net exports. The increase in net exports causes
a(n) _____ in the quantity of domestic aggregate goods and services demanded and is
known as the _____ effect.
List the four types of efficiency-wage theory.
The ease with which an asset can be converted into the medium of exchange is known
as _____.
Unemployment insurancethe amount of unemployment.
If there is a favorable supply shock which direction does the short-run Phillips curve
shift? What initially happens to unemployment and inflation as a result of this shock?
Figure 25-1
RefertoFigure21-1. Does the figure represent the idea that the amount of capital per
worker influences the amount of output per worker, or does the figure represent the idea
that the amount of output per worker influences the amount of capital per worker?
List two examples of commodity money.
If federal tax rates increased, what would happen to the interest rate on municipal
bonds?
Figure 2-14
Consider the production possibilities curve for a country that can produce sweaters,
apples (in bushels), or a combination of the two.
RefertoFigure2-14.What is the opportunity cost of moving from point R to point Q?
Suppose that in Germany total annual output is worth $600 million and people work 40
million hours. In France total annual output is worth $700 million and people work 50
million hours. In which country do people enjoy a higher standard of living?
Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company’s cost will
be $30,070 if it produces an additional heart rate monitor. The company is currently
producing 600 heart rate monitors.
RefertoScenario1-6.What is the minimum price that would induce this company to
produce the 601stheart rate monitor?