When the real exchange rate for the dollar appreciates, U.S. goods become
a. less expensive relative to foreign goods, which makes exports rise and imports fall.
b. less expensive relative to foreign goods, which makes exports fall and imports rise.
c. more expensive relative to foreign goods, which makes exports rise and imports fall.
d. more expensive relative to foreign goods, which makes exports fall and imports rise.
For an imaginary economy, the value of the consumer price index was 140 in 2013, and
the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in
2014 was
a. 145.0.
b. 147.0.
c. 135.0.
d. 133.3.
The irregular and largely unpredictable fluctuations in economic activity are called
a. market failure.
b. business cycle.
c. inflation.
d. unemployment.
Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country’s central bank known as the
Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show
that collectively the banks of Tazi hold 300 million tazes of required reserves, 75
million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold
225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits
and so all money is on deposit at the bank.
RefetoScenario29-2.Suppose the Bank of Tazi purchased 50 million tazes of Tazian
Treasury Bonds from the banks. Suppose also that both the reserve requirement and the
percentage of deposits held as excess reserves stay the same. By how much does the
money supply change?
a. 625 million tazes
b. 1,000 million tazes
c. 1,250 million tazes
d. None of the above is correct.
Which of the following statements is correct?
a. A large, well-known corporation such as Intel generally would use financial
intermediation to finance expansion of its facilities.
b. On average, managed funds outperform indexed funds.
c. Unlike corporate bonds and stocks, checking accounts are a medium of exchange.
d. A mutual fund is a financial market.
Crowding out occurs when investment declines because
a. a budget deficit makes interest rates rise.
b. a budget deficit makes interest rates fall.
c. a budget surplus makes interest rates rise.
d. a budget surplus makes interest rates fall.
Suppose that an economy is currently experiencing 10 percent unemployment and 15
percent inflation. If in the process of bringing inflation down by 2 percentage points,
real GDP falls by 6 percent for a year, the sacrifice ratio is
a. 5.
b. 2.
c. 12.
d. None of the above is correct.
Which of the following could explain a decrease in the interest rate and an increase in
the equilibrium quantity of investment?
a. the supply of loanable funds shifted right.
b. the supply of loanable funds shifted left.
c. the demand for loanable funds shifted right.
d. the demand for loanable funds shifted left.
The future value of $1 saved today is $1/(1 + r).
a. True
b. False
International data on real GDP per person gives us a sense of how standards of living
vary across countries.
a. True
b. False
If in some year nominal GDP was $28 trillion and real GDP was $32 trillion, what was
the GDP deflator?
a. 87.5.
b. 114.3.
c. 400.
d. 896.
Data on unemployment indicate that most people who become unemployed will soon
find jobs.
a. True
b. False
Which of the following is correct?
a. Inflation impedes financial markets in their role of allocating savings to alternative
investments.
b. Inflation encourages savings through the tax treatment on capital gains.
c. Inflation encourages larger holdings of currency by the public.
d. Inflation reduces people’s real purchasing power.
Figure 4-19
RefertoFigure4-19. If price in this market is currently $14, then there would be a(n)
a. surplus of 20 units. The law of supply and demand predicts that the price will rise
from $14 to a higher price.
b. excess supply of 20 units. The law of supply and demand predicts that the price will
fall from $14 to a lower price.
c. surplus of 40 units. The law of supply and demand predicts that the price will rise
from $14 to a higher price.
d. excess supply of 40 units. The law of supply and demand predicts that the price will
fall from $14 to a lower price.
Figure 34-8
RefertoFigure34-8. An increase in taxes will
a. shift aggregate demand from AD1to AD2.
b. shift aggregate demand from AD1to AD3.
c. cause movement from point A to point B along AD1.
d. have no effect on aggregate demand.
If speculators lost confidence in foreign economies and so wanted to buy more U.S.
bonds
a. the dollar would appreciate which would cause aggregate demand to shift right.
b. the dollar would appreciate which would cause aggregate demand to shift left.
c. the dollar would depreciate which would cause aggregate demand to shift right.
d. the dollar would depreciate which would cause aggregate demand to shift left.
A reduction in the tax rate on income from saving would
a. most directly benefit the poor in the short run.
b. increase real wages over time.
c. decrease the capital stock over time.
d. decrease productivity over time.
Sticky nominal wages can result in
a. lower profits for firms when the price level is lower than expected.
b. a decrease in real wages when the price level is lower than expected.
c. a short-run aggregate-supply curve that is vertical.
d. a long-run aggregate-supply curve that is upward-sloping.
National saving
a. is the total income in the economy that remains after paying for consumption.
b. is the total income in the economy that remains after paying for consumption and
government purchases.
c. is always greater than investment for a closed economy.
d. is equal to private saving minus public saving.
Which of the following is correct?
a. Deficits always require people to consume at the expense of their children.
b. If the government uses funds to pay for investment programs, on net the debt need
not burden future generations.
c. If the government is in debt it must be running a deficit currently.
d. The current government debt is a large share of lifetime income.
In a fractional-reserve banking system, an increase in reserve requirements
a. increases both the money multiplier and the money supply.
b. decreases both the money multiplier and the money supply.
c. increases the money multiplier, but decreases the money supply.
d. decreases the money multiplier, but increases the money supply.
Economists study how people make decisions.
a. True
b. False
Suppose after graduating from college you get a job working at a bank earning $30,000
per year. After two years of working at the bank earning the same salary, you have an
opportunity to enroll in a one-year graduate program that would require you to quit
your job at the bank. Which of the following should not be included in a calculation of
your opportunity cost?
a. the cost of tuition and books to attend the graduate program
b. the $30,000 salary that you could have earned if you retained your job at the bank
c. the $45,000 salary that you will be able to earn after having completed your graduate
program
d. the value of insurance coverage and other employee benefits you would have
received if you retained your job at the bank
Opportunity cost measures the trade-off between two goods that each producer faces.
a. True
b. False
Economic models
a. cannot be useful if they are based on false assumptions.
b. were once thought to be useful, but that is no longer true.
c. must incorporate all aspects of the economy if they are to be useful.
d. can be useful, even if they are not particularly realistic.
The adult population must equal the sum of the employed, the unemployed, and those
not in the labor force.
a. True
b. False
Consider two items that might be included in GDP: (1) the estimated rental value of
owner-occupied housing and (2) purchases of newly-constructed homes. How are these
two items accounted for when GDP is calculated?
a. Both item (1) and item (2) are included in the consumption component of GDP.
b. Item (1) is included in the consumption component of GDP, while item (2) is
included in the investment component of GDP.
c. Item (1) is included in the investment component of GDP, while item (2) is included
in the consumption component of GDP.
d. Only item (2) is included in GDP, and it is included in the investment component.
After a corporation issues stock, the stock
a. cannot be resold.
b. can be resold only if the corporation wants to buy it back.
c. can be resold on exchanges; the resale will raise additional funds for the corporation.
d. None of the above are correct.
If there is a surplus in the U.S. loanable funds market, then the interest rate
a. rises, which increases quantity of loanable funds demanded.
b. rises, which decreases the quantity of loanable funds demanded.
c. falls, which increases the quantity of loanable funds demanded.
d. falls, which decreases the quantity of loanable funds demanded.
A professional gambler moves from a state where gambling is illegal to a state where
gambling is legal. Most of his income was, and continues to be, from gambling. His
move
a. raises GDP.
b. decreases GDP.
c. doesn’t change GDP because gambling is never included in GDP.
d. doesn’t change GDP because in either case his income is included.
The interest rate that the Fed charges banks that borrow reserves from it is the
a. federal funds rate.
b. discount rate.
c. reserve requirement.
d. prime rate.
Assume Diana buys computers in a competitive market. It follows that
a. Diana has a limited number of sellers to turn to when she buys a computer.
b. Diana will find herself negotiating with sellers whenever she buys a computer.
c. if Diana buys a large number of computers, the price of computers will rise
noticeably.
d. None of the above is correct.