Suppose that over the past year, the real interest rate was 3 percent and the inflation rate
was 1 percent. It follows that
a. the dollar value of savings increased at 2 percent, and the purchasing power of
savings increased at 3 percent.
b. the dollar value of savings increased at 2 percent, and the purchasing power of
savings increased at 4 percent.
c. the dollar value of savings increased at 4 percent, and the purchasing power of
savings increased at 2 percent.
d. the dollar value of savings increased at 4 percent, and the purchasing power of
savings increased at 3 percent.
Which of the following is correct concerning the FOMC?
a. the members of the Board of Governors have the majority of the votes
b. the New York Federal Reserve Bank District President is always a voting member
c. all Federal Reserve Bank presidents attend the meetings
d. All of the above are correct.
Other things the same, if the money supply 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.
The members of the Federal Reserve’s Board of Governors
a. are elected to office by the public every fourteen years.
b. are nominated by the U.S. Senate banking committee and confirmed by the U.S.
house of representatives.
c. are elected by bankers in each Federal Reserve Region.
d. are appointed by the president of the U.S. and confirmed by the U.S. Senate.
Figure 3-16
Refer to Figure3-16. At which of the following prices would both Hosne and Merve
gain from trade with each other?
a. 5 wallets for 1.25 purses
b. 5 wallets for 2.5 purses
c. 5 wallets for 3.75 purses
d. Hosne and Merve could not both gain from trade with each other at any price.
Economists sometimes give conflicting advice because
a. graduate students in economics are encouraged to argue with each other.
b. economists have different values and scientific judgment.
c. economists acting as scientists do not like to agree with economists acting as policy
advisers.
d. economics is more of a belief system than a science.
If, for an imaginary closed economy, investment amounts to $10,000 and the
government is running a $2,500 deficit, then private saving must amount to $12,500.
a. True
b. False
If the risk of holding assets in foreign countries rises relative to the risk of holding U.S
assets, then
a. U.S. net capital outflow rises which increases the U.S. exchange rate.
b. U.S. net capital outflow rises which decreases the U.S. exchange rate.
c. U.S. net capital outflow falls which increases the U.S. exchange rate.
d. U.S. net capital outflow falls which decreases the U.S. exchange rate.
Figure 3-20
RefertoFigure3-20.Canada’s opportunity cost of one unit of Good X is
a. 1/2 unit of Good Y and Mexico’s opportunity cost of one unit of Good X is 1/2 unit of
Good Y.
b. 1/2 unit of Good Y and Mexico’s opportunity cost of one unit of Good X is 2 units of
Good Y.
c. 2 units of Good Y and Mexico’s opportunity cost of one unit of Good X is 1/2 unit of
Good Y.
d. 2 units of Good Y and Mexico’s opportunity cost of one unit of Good X is 2 units of
Good Y.
In his famous article published in an economics journal in 1958, A.W. Phillips
a. used data for the United States to show a negative relationship between the rate of
change of the U.S. consumer price index and the U.S. unemployment rate.
b. used data for the United States to show a negative relationship between the rate of
change of wages in the U.S. and the U.S. unemployment rate.
c. used data for the United Kingdom to show a negative relationship between the rate of
change of the U.K. consumer price index and the U.K. unemployment rate.
d. used data for the United Kingdom to show a negative relationship between the rate of
change of wages in the U.K. and the U.K. unemployment rate.
If purchasing-power parity holds, the price level in the U.S. is 250, and the price level
in Japan is 260, which of the following is true?
a. the real exchange rate is 250/260
b. the real exchange rate is 260/250
c. the nominal exchange rate is 250/260
d. the nominal exchange rate is 260/250
Table 23-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2013.
RefertoTable23-6. In 2010, this country’s real GDP was
a. $620.
b. $260.
c. $400.
d. $630.
A decrease in income will shift the demand curve for an inferior good to the right.
a. True
b. False
If purchasing-power parity holds, when a country’s central bank increases the money
supply, a unit of money
a. gains value both in terms of the domestic goods and services it can buy and in terms
of the foreign currency it can buy.
b. gains value in terms of the domestic goods and services it can buy, but loses value in
terms of the foreign currency it can buy.
c. loses value in terms of the domestic goods and services it can buy, but gains value in
terms of the foreign currency it can buy.
d. loses value both in terms of the domestic goods and services it can buy and in terms
of the foreign currency it can buy.
The use of theory and observation is more difficult in economics than in sciences such
as physics due to the difficulty in
a. performing an experiment in an economic system.
b. applying mathematical methods to economic analysis.
c. analyzing available data.
d. formulating theories about economic events.
Which of the following statements is correct?
a. In 1870, real income per person was higher in the United States than in any other
country at that time.
b. Over about the last 100 years India experienced significantly higher growth of real
income per person than did the United States.
c. Over about the last 100 years the United States experienced significantly higher
growth of real income per person than did Japan.
d. None of the above are correct.
If it could increase its growth rates slightly, a country with low income would catch up
with rich countries in about ten years.
a. True
b. False
When economists are trying to explain the world, they are
a. scientists.
b. policy advisers.
c. in the realm of microeconomics rather than macroeconomics.
d. in the realm of normative economics rather than positive economics.
Scenario 26-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private
saving = $225; and national saving = $150.
RefertoScenario26-3.For this economy, government purchases amount to
a. $330.
b. $280.
c. $305.
d. $310.
In a system of 100-percent-reserve banking,
a. banks do not accept deposits.
b. banks do not influence the supply of money.
c. loans are the only asset item for banks.
d. All of the above are correct.
Proponents of rational expectations theory argued that, in the most extreme case, if
policymakers are credibly committed to reducing inflation and rational people
understand that commitment and quickly lower their inflation expectations, the sacrifice
ratio could be as small as
a. 0.
b. 1.
c. 4.
d. 5.
Which country has had a higher growth rate than the US over about the last 120 years?
a. Argentina
b. Germany
c. the United Kingdom
d. None of the above is correct.
Suppose the MPCis 0.60. Assume there are no crowding out or investment accelerator
effects. If the government increases expenditures by $200 billion, then by how much
does aggregate demand shift to the right? If the government decreases taxes by $200
billion, then by how much does aggregate demand shift to the right?
a. $300 billion and $180 billion
b. $300 billion and $300 billion
c. $500 billion and $300 billion
d. $500 billion and $500 billion
Which of the following is most likely to increase the exports of a country?
a. The government gives subsidies to firms that export goods or services.
b. The government reduces the size of the budget surplus.
c. Political instability within the country increases modestly.
d. None of the above will increase exports.
Table 24-4
The table below pertains to Studious, an economy in which the typical consumer’s
basket consists of 5 books and 10 calculators.
RefertoTable24-4.If 2013 is the base year, then the consumer price index was
a. 80.8 in 2012, 100 in 2013, and 107.7 in 2014.
b. 80.5 in 2012, 100 in 2013, and 107.3 in 2014.
c. 247.5 in 2012, 307.5 in 2013, and 330 in 2014.
d. 210 in 2012, 260 in 2013, and 280 in 2014.
In calculating the CPI, a fixed basket of goods and services is used. The quantities of
the goods and services in the fixed basket are determined by
a. surveying consumers.
b. surveying sellers of the goods and services.
c. working backward from the rate of inflation to arrive at imputed values for those
quantities.
d. arbitrary choices made by federal government employees.
At which interest rate is the present value of $196.85 three years from today equal to
$175 today?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
Disposable personal income is the income that
a. households have left after paying taxes and non-tax payments to the government.
b. businesses have left after paying taxes and non-tax payments to the government.
c. households and noncorporate businesses have left after paying taxes and non-tax
payments to the government.
d. households and businesses have left after paying taxes and non-tax payments to the
government.
Which of the following items is counted as part of government purchases?
a. The federal government pays the salary of a Navy officer.
b. The state of Nevada pays a private firm to repair a Nevada state highway.
c. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.
d. All of the above are correct.
Suppose the American Medical Association announces that men who shave their heads
are less likely to die of heart failure. We could expect the current demand for
a. hair gel to increase.
b. razors to increase.
c. combs to increase.
d. shampoo to increase.
Figure 3-15
Refer to Figure3-15. If Perry and Jordan switch from each person dividing their time
equally between the production of novels and poems to each person spending all of
their time producing the good in which they have a comparative advantage, then total
production of novels will increase by
a. 1.
b. 2.
c. 3.
d. 4.
If the multiplier is 5.25, then the MPCis
a. 0.19.
b. 0.68.
c. 0.81.
d. 0.84.
Open-market purchases cause a(n) in interest rates and a(n) in real GDP in the short run.
Table 24-14
The table below lists the per pound prices of meat and potatoes for the months of
January, February, and March. Assume that the typical consumer buys 25 pounds of
meat and 15 pounds of potatoes each month, and that January is the base period.
RefertoTable24-14. Calculate the cost of a basket of goods for each month.
GDP excludes most of two types of production. List one.
If the government were to run a budget deficit and wanted to finance it by printing
money, would it have the central bank conduct open market purchases or open market
sales?
Identify the variables that could cause shifts in both the short-run and long-run
aggregate-supply curves.
Scenario 1-3
It costs a company $35,000 to produce 700 graphing calculators. The company’s cost
will be $35,070 if it produces an additional graphing calculator. The company is
currently producing 700 graphing calculators.
RefertoScenario1-3.What is the company’s marginal cost?
If the government budget deficit increases, which curve in the market for loanable
funds shifts, which direction does it shift, and what happens to the interest rate?
When the Fed purchases government bonds the money supplyand the federal funds rate.
Who would be more likely to study the effects of foreign competition on the accounting
industry, a macroeconomist or a microeconomist?
The Fed began paying interest on reserves in October 2008. Holding all else constant,
what effect would this have on the money supply?
Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris,
France. Explain why this is inconsistent with purchasing-power parity and explain why
the inconsistency may exist.
In a closed economy taxes are $750 billion, government transfers are $400 billion,
government expenditures are $500 billion, and investment is $400 billion. What are
private saving, public saving and national saving?
In the circular flow diagram, who owns the factors of production and consumes all of
the goods and services produced?
Define absolute advantage.
Table 3-41
RefertoTable3-41.Which country has an absolute advantage in producing radios?
Depositors Move Funds out of Greek Banks.
In 2011 Greek citizens were concerned about the size of government debt. Fearful that
the government might be unable to fulfill its promise to insure depositors in Greek
banks against losses created by bank failures, depositors moved funds out of Greek
banks.
RefertoDepositorsMoveFunds outofGreekBanks.What happened to the domestic
equilibrium interest rate and quantity of loanable funds supplied?
One concern of those who oppose the central bank targeting inflation at zero is that
reducing inflation is costly. What is the cost of reducing the inflation rate?
Table 23-11
The country of Batavia produces only chocolates and watches. Below is a table with
recent information on Batavia production and prices. The base year is 2009.
Prices and Quantities
Refer to Table 23-11.
What was nominal GDP, real GDP, and the GDP deflator for 2010? Show your work.
If a country’s exports were 500 billion pesos and its imports were 300 billion pesos,
what would its trade balance be?