Figure 3-5
Refer to Figure3-5. If the production possibilities frontier shown for Merve is for 8
hours of work, then how long does it take Merve to make one purse?
a. 1/2 hour
b. 2 hours
c. 4 hours
d. 8 hours
If Congress increased the tax rate on interest income, investment
a. would increase and saving would decrease.
b. would decrease and saving would increase.
c. and saving would increase.
d. and saving would decrease.
Printing money to finance government expenditures
a. causes the value of money to rise.
b. imposes a tax on everyone who holds money.
c. is the principal method by which the U.S. government finances its expenditures.
d. causes prices to fall.
Institutions that help to match one person’s saving with another person’s investment are
collectively called the
a. Federal Reserve system.
b. banking system.
c. monetary system.
d. financial system.
The CPI and the GDP deflator
a. generally move together.
b. generally show different patterns of movement.
c. always show identical changes.
d. always show different patterns of movement.
Yoyo’s Frozen Yogurt, Inc. is thinking of building a new warehouse. They believe that
this will give them $50,000 of additional revenue at the end of one year, $60,000
additional revenue at the end of two years, and $70,000 in additional revenue at the end
of three years. If the interest rate is 5 percent, Yoyo would be willing to pay
a. $140,000, but not $150,000.
b. $150,000, but not $160,000.
c. $160,000, but not $170,000.
d. $170,000, but not $180,000.
The consumer price index tires to measure how much consumer incomes must rise in
order to maintain a constant
a. level of real GDP.
b. ratio of consumption to GDP.
c. ratio of net exports to GDP.
d. standard of living.
Which of the following is true?
a. Efficiency refers to the size of the economic pie; equality refers to how the pie is
divided.
b. Government policies usually improve upon both equality and efficiency.
c. As long as the economic pie continually gets larger, no one will have to go hungry.
d. Efficiency and equality can both be achieved if the economic pie is cut into equal
pieces.
When the Federal Reserve increases the Federal Funds target rate, it achieves this target
by
a. purchasing government bonds. This action will reduce investment and shift aggregate
demand to the right.
b. purchasing government bonds. This action will increase investment and shift
aggregate demand to the right.
c. selling government bonds. This action will reduce investment and shift aggregate
demand to the left.
d. selling government bonds. This action will increase investment and shift aggregate
demand to the left.
Which of the following is correct?
a. Union membership in the United States peaked in the 1940s and 1950s.
b. Unions play a larger role in the United States than in European countries such as
Belgium, France, and Germany.
c. Because of the popularity of unions, most workers in the United States discuss their
wages, benefits, and working conditions with their employers as a group.
d. Collective bargaining is the process by which unions negotiate membership dues
with the National Labor Relations Board.
The Fed is concerned about stock market booms because the booms
a. increase consumption spending.
b. increase investment spending.
c. increase both consumption and investment spending.
d. None of the above is correct.
Which of the following equations is correct?
a. S= I+ C
b. S= I– NX
c. S= I+ NCO
d. S= NX– NCO.
Which of the following should be kept in mind when policymakers consider efforts to
stabilize the economy?
a. The economy responds very quickly to changes in the interest rate and changes in
economic conditions are easy to predict.
b. The economy responds very quickly to changes in the interest rate and changes in
economic conditions are nearly impossible to predict.
c. The economy responds to changes in the interest rate with a lag and changes in
economic conditions are easy to predict.
d. The economy responds to changes in the interest rate with a lag and changes in
economic conditions are nearly impossible to predict.
The performance of index funds
a. usually falls short of the performance of actively-managed funds.
b. provides evidence in support of the notion that stock prices do not depend upon
supply and demand.
c. provides evidence in support of the efficient markets hypothesis.
d. provides evidence in support of the notion that stock-market participants are
irrational.
What will happen in the market for shotgun-shell ammunition now if buyers expect
higher shotgun-shell prices in the near future?
a. The demand for shotgun-shell ammunition will increase.
b. The demand for shotgun-shell ammunition will decrease.
c. The demand for shotgun-shell ammunition will be unaffected.
d. The supply of shotgun-shell ammunition will increase.
Which of the following is notcorrect?
a. Gross domestic product is both total income in an economy and total expenditures on
the economy’s output of goods and services.
b. In a closed economy net exports are zero.
c. National saving is the sum of private saving and public saving.
d. Purchases of capital goods are excluded from GDP.
The equilibrium price is the same as the market-clearing price.
a. True
b. False
In the open-economy macroeconomic model, if investment demand increases, then
a. net exports and the real exchange rate rise.
b. net exports rise and the real exchange rate falls.
c. net exports fall and the real exchange rate rises.
d. net exports and the real exchange rate fall.
Which of the following is notcorrect?
a. The president of the New York Federal Reserve bank is the only Federal Reserve
Regional Bank President who gets to vote at every meeting of the Federal Open Market
Committee.
b. The Fed’s policy decisions influence the economy’s rate of inflation in the short run
and the economy’s employment and production in the long run.
c. The Fed’s primary monetary policy tool is openmarket operations.
d. All of the above are correct.
Figure 3-10
Refer to Figure3-10. If point A represents Alice’s current production and point B
represents Betty’s current production, under what circumstances can both Alice and
Betty benefit from specialization and trade?
a. Alice produces more pizzas and Betty produces more lemonade.
b. Alice produces more lemonade and Betty produces more pizzas.
c. Both Alice and Betty produce only pizzas.
d. There are no circumstances under which both Alice and Betty can benefit from
specialization and trade.
Which of the following would cause investment spending to decrease and aggregate
demand to shift left?
a. a decrease in the money supply and an investment tax credit.
b. the repeal of an investment tax credit and an increase in the money supply.
c. a decrease in the money supply and the repeal of an investment tax credit.
d. an investment tax credit and an increase in the money supply.
Which of the following demonstrates the law of supply?
a. When the price of leather belts rose, leather belt sellers increase their quantity
supplied of leather belts.
b. When car production technology improved, car producers increased their supply of
cars.
c. When sweater producers expected sweater prices to rise in the near future, they
decreased their current supply of sweaters.
d. When ketchup prices rose, ketchup sellers decreased their quantity supplied of
ketchup.
Small time deposits are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
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.Assume that banks desire to continue holding the same ratio of
excess reserves to deposits. What is the reserve requirement and the reserve ratio for
Tazian Banks?
a. 5 percent, 8 percent
b. 4 percent, 8 percent
c. 4 percent, 5 percent
d. None of the above is correct.
Which of the following is notan explanation for the existence of unemployment in the
long run?
a. it takes time for workers to search for the jobs that are best suited for them
b. minimum-wage laws
c. unions
d. the business cycle
The lag problem associated with monetary policy is due mostly to
a. the fact that business firms make investment plans far in advance.
b. the political system of checks and balances that slows down the process of
determining monetary policy.
c. the time it takes for changes in government spending to affect the interest rate.
d. All of the above are correct.
When the United States trades with China,
a. both countries will likely benefit.
b. only United States will benefit.
c. only China will benefit.
d. neither country will benefit.
Figure 3-20
RefertoFigure3-20.Canada has an absolute advantage in the production of
a. Good X and Mexico has an absolute advantage in the production of Good Y.
b. Good Y and Mexico has an absolute advantage in the production of Good X.
c. both goods and Mexico has an absolute advantage in the production of neither good.
d. neither good and Mexico has an absolute advantage in the production of both goods.
In most of the 1970s, the Fed’s policy created expectations of high inflation.
a. True
b. False
When money is neutral, which of the following increases when the money supply
growth rate increases?
a. real output growth
b. real interest rates
c. nominal interest rates
d. the money supply divided by the price level
The supply curve for a good is a line that relates
a. profit and quantity supplied.
b. quantity supplied and quantity demanded.
c. price and quantity supplied.
d. price and profit.
If policymakers increase aggregate demand, then in the short run the price level
a. falls and unemployment rises.
b. and unemployment fall.
c. and unemployment rise.
d. rises and unemployment falls.
A company in Panama pays for a U.S. architect to design a factory building. By itself
this transaction
a. increases U.S. exports and so increases the U.S. trade balance.
b. increases U.S. exports and so decreases the U.S. trade balance.
c. increases U.S. imports and so increases the U.S. trade balance.
d. increases U.S. imports and so decreases the U.S. trade balance.