The federal budget acts as an automatic economic stabilizer because the President has
the power to authorize additional discretionary spending.
Governments occasionally get involved in creating a market equilibrium by setting a
maximum price that is less than the equilibrium price, resulting in a permanent excess
demand for the products.
Regional agreements help GATT reach agreements faster.
If a country like China experiences large increases in investment, then the country will
inevitably experience hyperinflation.
In all economies, investment spending fluctuates.
The data for the U.S. shows that the velocity of money is constant.
If the growth of the money supply is 8 percent per year, velocity decreases by 5 percent,
and there is no growth in real GDP, the inflation rate is 3 percent.
Rapid inflation results when governments print money to finance large portions of their
budget deficits.
Human capital includes investments in education and skills.
Potential output in an economy decreases as the supply of labor decreases or the capital
stock increases.
Recall the Application about the impact inflation has on your potential future
salary and the repayment of student loans to answer the following question(s).
According to this Application, if you earn a salary of $40,000 in the first year and all
prices triple in the next 10 years, what will your nominal annual salary be in 10 years?
A) $20,000
B) $60,000
C) $120,000
D) $180,000
An increase in the British interest rate relative to the U.S. interest rate will cause a(n):
A) appreciation of the dollar and an appreciation of the British pound.
B) appreciation of the dollar and a depreciation of the British pound.
C) depreciation of the dollar and an appreciation of the British pound.
D) depreciation of the dollar and a depreciation of the British pound.
What does the U.S. Treasury issue to finance the deficit?
A) tax increase notices
B) government bonds
C) new regulations on spending
D) directives to lower unemployment
If Nation A can produce shirts at a lower opportunity cost than any other nation, Nation
A is said to have a(n) ________ in the production of shirts.
A) autarky
B) comparative advantage
C) absolute advantage
D) comparative disadvantage
Figure 14.2
Refer to Figure 14.2. At an interest rate of 8%, there is:
A) excess demand for money and the interest rate will decline.
B) excess demand for money and the interest rate will rise.
C) excess supply of money and the interest rate will decline.
D) excess supply of money and the interest rate will rise.
If there is an advance in the technology used to produce a product, what is the likely
effect it may have on the supply?
A) The company would not change its manufacturing.
B) More people would be needed to produce the product.
C) It would decrease the supply.
D) It would increase the supply.
Both the CPI and the chain index for GDP overstate actual changes in cost of living due
to:
A) the difficulty of keeping track of changing consumer preferences.
B) the income effect.
C) the difficulty of keeping track of the price of imports.
D) the difficulty of measuring quality improvements.
Which of the following assets is the largest component of M1?
A) currency
B) checking deposits
C) money market mutual funds
D) small time deposits
Using data from the 2011 fiscal year, federal income tax and social insurance tax
revenues comprise ________ of total federal government revenues.
A) over 80 percent
B) less than 30 percent
C) less than 75 percent
D) over 60 percent
Figure 16.1 If the Fed is strongly committed to fighting inflation, it will be reluctant to:
A) focus solely on price stabilization.
B) become too independent from Congress.
C) increase unemployment.
D) increase the money supply.
Which of the following is a category of national income?
A) net interest
B) corporate profits
C) rental income
D) all of the above
Figure 4.1
Refer to Figure 4.1 that shows Mary and Tom’s individual demand curves for meals per
week at Fratelli’s Italian Restaurant. Assuming Mary and Tom are the only consumers in
the market, if the market quantity demanded is 9 the price must be:
A) $5.
B) $10.
C) $15.
D) $20.
Which of the following situations will arise in the domestic market following the
imposition of a voluntary export restraint?
A) imports increase, domestic production increases, prices increase
B) imports decrease, domestic production increases, prices increase
C) imports increase, domestic production decreases, prices decrease
D) imports decrease, domestic production increases, prices decrease
Suppose the nation of Arcadia produces only two goods, teapots and surfboards. If
Arcadia produces only teapots, it can make 80 per day. If Arcadia produces only
surfboards, it can make 30 per day. What is the opportunity cost of 1 teapot in Arcadia?
A) 3/8 of a surfboard
B) 8/3 surfboards
C) 30 surfboards
D) 80 surfboards
Recall the Application about Austrian economist Henry Hazlitt and the Broken Window
Fallacy to answer the following question(s). Hazlitt questioned whether a hoodlum
breaking a store window was actually good for society.According to the Application,
Hazlitt’s argument that the broken window is NOT good for society
A) works in the Keynesian world when the economy is operating below full
employment.
B) works in the classical world when the economy is operating at full employment.
C) works in both the Keynesian and classical worlds regardless of where the economy
is operating relative to full employment.
D) never works in the Keynesian or classical worlds regardless of where the economy is
operating relative to full employment.
If a firm increases its capital stock per person while holding constant the number of
workers employed, the firm is said to experience
A) capital augmentation.
B) investment deepening.
C) labor intensity.
D) capital deepening.
Describe the changes in the variables that will cause supply for a product to decrease,
shifting the supply curve up and to the left.
Suppose that during a given year the nominal interest rate remains at 5% and the CPI
rises from 147 to 154. What is the real rate of interest?
Describe the recession phase of a business cycle, including when it begins and when it
ends.
What is the relationship between interest rates or yields on bonds and their price or
market value?