Long-run money neutrality means that an increase in the money supply has no effect on
real interest rates, investment, or output in the long run.
When decisions are made regarding inflation using the rule-of-thumb, decision makers
assume that inflation next year will be the same as the current year.
Increases in the rate of return on saving will increase the level of saving in the
economy.
According to the Solow Model, a country with a higher level of income always has a
higher consumption level.
Technological progress directly raises output, but also slows capital deepening.
The Federal Reserve is a branch of the Treasury Department, and is therefore subject to
significant government control.
On the ‘supply side” of a market, producers indicate to consumers what they are willing
to sell, in what quantity and at what price.
The wage-price spiral occurs when:
A) the economy is producing a level of output above full employment.
B) the economy is producing a level of output below full employment.
C) the economy is producing a level of output exactly at full employment.
D) the economy is producing a level of output above or below full employment.
Recall Application 6, “Why Lower Drug Prices?” to answer the following questions:
In the Application, what should we observe before we can undoubtedly attribute the
lower drug prices to an increase in supply?
A) an increase in the equilibrium quantity
B) a shortage
C) a decrease in the equilibrium quantity
D) a surplus
Table 3.3
Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel’s
and Mia’s hourly productivity are shown in Table 3.3. Nigel’s opportunity cost of
producing one bandana is
A) 1/4 of a hair pin.
B) 2/5 of a hair pin.
C) 2.5 hair pins.
D) 4 hair pins.
If the value of the U.S. dollar changes from 1.2 euros to 1.4 euros, we would expect that
the United States would experience a ________ in exports and a ________ in imports.
A) rise; rise
B) fall; fall
C) rise; fall
D) fall; rise
Disposable income:
A) increases when net taxes increase.
B) increases when income increases.
C) decreases when saving increases.
D) all of the above
According to the marginal principle, a rational firm will introduce a movie sequel as
long as:
A) marginal benefit exceeds marginal cost.
B) marginal benefit is less than marginal cost.
C) marginal benefit equals marginal cost.
D) total benefit equals total cost.
Larger markets are likely to promote faster technological innovation because:
A) the larger the market, the harder it is to break a monopoly.
B) the larger the market, the larger the profits that can be made.
C) larger markets generate diseconomies of scale.
D) the larger the market, the less likely unauthorized copying would be.
The formula for the tax multiplier is
A) (1 + ) / (1 – ).
B) / (1 – ).
C) 1 / (1 – ).
D) – / (1 – ).
Recall Application 5, “Honeybees and the Price of Ice Cream,” to answer the following
questions:
Using supply and demand analysis, the increase in the price of ice cream can be
illustrated as:
A) a leftward shift in the supply curve for ice cream caused by more expensive
ingredients.
B) a rightward shift in the supply curve for ice cream caused by more expensive
ingredients.
C) a leftward shift in the demand curve for ice cream caused by more expensive
ingredients.
D) a rightward shift in the demand curve for ice cream caused by more expensive
ingredients.
At an interest rate of 4 percent, what would be the present value of receiving $4,000
four years from now?
A) $3,420
B) $3,637
C) $3,704
D) $3,847
Figure 14.1
Refer to Figure 14.1. Which demand for money decreases when income decreases and
causes a movement from Point A to Point E?
A) transactions demand for money
B) speculative demand for money
C) liquidity demand for money
D) inflationary demand for money
When the GDP is measured using “adjustments for price changes” it is known as the
A) real GDP.
B) nominal GDP.
C) real GNP.
D) nominal GNP.
If the government ________ taxes to pay for spending on infrastructure, the result will
most likely be a(n) ________ in capital deepening.
A) increases; increase
B) decreases; increase
C) increases; decrease
D) eliminates; elimination
Suppose that consumers expect the price of a product to decrease in the future. The
result is that:
A) the current demand for the product increases.
B) the current demand for the product decreases.
C) the current supply of the product increases.
D) the current supply of the product decreases.
Recall Application 3, “The Ends of Hyperinflations,” to answer the following questions:
According to the Application, which of the following are common characteristics of
countries with hyperinflation during World War I?
A) Hyperinflation ended when central banks were established and there was a change in
the way government expenditures were financed.
B) Hyperinflation ended when central banks were abolished.
C) Hyperinflation persisted long after the end of the war.
D) Hyperinflation ended when tax rates were raised.
A deterioration in consumer confidence will:
A) shift the consumption function upwards.
B) shift the consumption function downwards.
C) cause the consumption function to be flatter.
D) cause the consumption function to be steeper.
Table 2.4
Refer to Table 2.4. What can be observed about the given resources?
A) Land is variable but fertilizer is fixed.
B) Land and fertilizer are both fixed.
C) Land and fertilizer are both variable.
D) Land is fixed but fertilizer is variable.
Recall the Application about the possibility that the Federal Reserve’s loose monetary
policy was responsible for the housing boom during the 2000s to answer the following
question(s).
Recall the Application. When applying the Taylor Rule to the decade of 2000,
economist John Taylor found that compared to past experience, the Fed
A) should have lowered interest rates at a much faster pace.
B) was much too aggressive in lowering interest rates.
C) should have maintained interest rates instead of raising them slowly.
D) raised interest rates much too high and much too quickly.
Daily Output of Japan and U.S.
Table 18.2 Refer to Table 18.2. The U.S. has a
comparative advantage in the production of:
A) stereos.
B) tractors.
C) both stereos and tractors.
D) neither stereos nor tractors.
Suppose you have 2 goods, X and Y. If the price of X increases and you buy more Y,
then X and Y are:
A) substitutes.
B) normal goods.
C) complements.
D) inferior goods.
Suppose that the economy is at a short-run equilibrium above the potential output.
Explain the adjustments that the economy experiences as it moves back to potential
output.
Suppose the economy is experiencing rapid growth and the unemployment rate is below
the natural rate. Using aggregate supply and aggregate demand, explain how the
economy adjusts back to potential GDP (full employment).
Explain why a sustained inflation must be a purely monetary phenomenon and cannot
exist without the cooperation of the central bank.
What is the difference between an “individual demand curve” and a “market demand
curve”?
Why is it difficult to implement fiscal policies?
Explain what would happen to the equilibrium price and quantity of iPhones if the
supply of iPhones increased while the demand for iPhones also increased.
Explain the multiplier-accelerator model.