Which of the following is not correct?
a. The U.S. economy has never experienced deflation.
b. Since 1965, the U.S. nominal interest rate has exceeded the U.S. real interest rate.
c. Since 1965, the U.S. economy has experienced rising consumer prices in most years.
d. During deflation, the real interest rate exceeds the nominal interest rate.
Which of the following statements is not correct concerning government attempts to
reduce the flow of illegal drugs into the country? Drug interdiction
a. raises prices and total revenue in the drug market.
b. can increase drug-related crime.
c. shifts the demand curve for drugs to the left.
d. shifts the supply curve of drugs to the left.
Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The
loanable funds model would predict that, as a result of the increase in the surplus,
a. both the government debt and interest rates increased between 2010 and 2011.
b. both the government debt and interest rates decreased between 2010 and 2011.
c. the government debt increased and interest rates decreased between 2010 and 2011.
d. the government debt decreased and interest rates increased between 2010 and 2011.
The production possibilities frontier illustrates
a. the trade-off between efficiency and equality.
b. the combination of output that an economy should produce.
c. the combination of output that each member of society should consume.
d. None of the above is correct.
Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of
wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of
wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and
consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and
consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initiated
between the two countries, and Freedonia sends 30 units of corn to Sylvania in
exchange for 30 units of wheat. Sylvania will now be able to consume a maximum of
a. 30 units of corn and 30 units of wheat.
b. 40 units of corn and 30 units of wheat.
c. 40 units of corn and 20 units of wheat.
d. 10 units of corn and 40 units of wheat.
If in some year real GDP was $25 billion and the GDP deflator was 68, what was
nominal GDP?
a. $2.72 billion
b. $17 billion
c. $36.8 billion
d. $43 billion
Which of the effects listed below increases the quantity of goods and services
demanded when the price level falls and decreases the quantity of goods and services
demanded when the price level rises?
a. the wealth effect
b. the interest-rate effect
c. the exchange-rate effect
d. All of the above are correct.
Figure 7-17
Refer to Figure 7-17. When the price is P1, area C represents
a. total benefit.
b. producer surplus.
c. consumer surplus.
d. None of the above is correct.
If real output in an economy is 1,000 goods per year, the money supply is $300, and
each dollar is spent an average of 3 times per year, then according to the quantity
equation, the average price level is
a. $0.90.
b. $1.00.
c. $1.11.
d. $1.33.
The classical dichotomy refers to the separation of
a. variables that move with the business cycle and variables that do not.
b. changes in money and changes in government expenditures.
c. decisions made by the public and decisions made by the government.
d. real and nominal variables.
If the CPI was 125 this year and 120 last year, then
a. the cost of the CPI basket of goods and services increased by 4.2 percent this year.
b. the price level increased by 4.2 percent this year.
c. the inflation rate for this year was 4.2 percent.
d. All of the above are correct.
For which of the following types of goods would the income elasticity of demand be
positive and relatively large?
a. all inferior goods
b. all normal goods
c. goods for which there are many complements
d. luxuries
A price ceiling will be binding only if it is set
a. equal to the equilibrium price.
b. above the equilibrium price.
c. below the equilibrium price.
d. either above or below the equilibrium price.
The scientific method is
a. the use of modern technology to understand the way the world works.
b. the use of controlled laboratory experiments to understand the way the world works.
c. the dispassionate development and testing of theories about how the world works.
d. the search for evidence to support preconceived theories about how the world works.
Table 5-3
The following table shows the demand schedule for a particular good.
Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand
when price rises from $9 to $12?
a. 0.43
b. 0.67
c. 1.50
d. 2.33
Figure 4-11
Firm A Firm B
Refer to Figure 4-11. If these are the only two sellers in the market, then the market
quantity supplied at a price of $4 is
a. 6 units.
b. 7 units.
c. 8 units.
d. 14 units.
In the open-economy macroeconomic model, the key determinant of net capital outflow
is the
a. nominal exchange rate.
b. nominal interest rate.
c. real exchange rate.
d. real interest rate.
The Fed can increase the money supply by conducting open-market
a. sales or by raising the discount rate.
b. sales or by lowering the discount rate.
c. purchases or by raising the discount rate.
d. purchases or by lowering the discount rate.
You put money into an account that earns a 8 percent nominal interest rate. The
inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your
after-tax real rate of interest?
a. 3 percent
b. 3.75 percent
c. 5 percent
d. 6 percent
A result of welfare economics is that the equilibrium price of a product is considered to
be the best price because it
a. maximizes both the total revenue for firms and the quantity supplied of the product.
b. maximizes the combined welfare of buyers and sellers.
c. minimizes costs and maximizes output.
d. minimizes the level of welfare payments.
On behalf of your firm, you make frequent trips to Singapore. You notice that you
always have to pay more dollars to get enough local currency to get your nails
manicured than you have to pay to get manicured in the United States. This is
a. inconsistent with purchasing-power parity, but might be explained by limited
opportunities for arbitrage in manicuring across international borders.
b. consistent with purchasing-power parity if prices in Hong Kong are rising more
rapidly than prices in the United States.
c. consistent with purchasing-power parity if prices in Hong Kong are rising less
rapidly than prices in the United States.
d. None of the above is correct.
Figure 8-9
The vertical distance between points A and C represent a tax in the market.
Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is
a. $4,000.
b. $5,000.
c. $6,000.
d. $10,000.
In 2008, the typical Bangladeshi had about
a. 1/5 the real income of a typical American a century ago.
b. 1/3 the real income of a typical American a century ago.
c. 2 times as much real income as that of a typical American a century ago.
d. 4 times as much real income as that of a typical American a century ago.
The following table contains a demand schedule for a good.
If the law of demand applies to this good, then Q1 could be
a. 0.
b. 100.
c. 200.
d. 400.
Figure 22-5
Use the graph below to answer the following questions.
Refer to Figure 22-5. If the economy starts at C and the money supply growth rate
decreases, in the short run the economy moves to
a. B.
b. C.
c. F.
d. None of the above is consistent with a decrease in the money supply growth rate.
As the interest rate falls,
a. the quantity of money demanded falls, which would reduce a shortage.
b. the quantity of money demanded falls, which would reduce a surplus.
c. the quantity of money demanded rises, which would reduce a shortage.
d. the quantity of money demanded rises, which would reduce a surplus.
Suppose that interest rates unexpectedly rise and that Carter Corporation announces that
revenues from last quarter were down but not as much as the public had anticipated
they would be down. According to the efficient markets hypothesis, which of the these
things make the price of Carter Corporation Stock fall?
a. both the interest rate rising and the revenue announcement
b. neither the interest rate rising nor the revenue announcement
c. only the interest rate rising
d. only the revenue announcement
What is the future value of $750 one year from today if the interest rate is 2.5 percent?
a. $766.50
b. $768.75
c. $770.23
d. None of the above are correct to the nearest cent.
In the long run,
a. the natural rate of unemployment depends primarily on the level of aggregate
demand.
b. inflation depends primarily upon the money supply growth rate.
c. there is a tradeoff between the inflation rate and the natural rate of unemployment.
d. All of the above are correct.
A seller is willing to sell a product only if the seller receives a price that is at least as
great as the
a. seller’s producer surplus.
b. seller’s cost of production.
c. seller’s profit.
d. average willingness to pay of buyers of the product.
Other things the same, when the government spends more, the initial effect is that
a. aggregate demand shifts right.
b. aggregate demand shifts left.
c. aggregate supply shifts right.
d. aggregate supply shifts left.
The nominal interest rate is the
a. interest rate corrected for inflation.
b. interest rate as usually reported by banks.
c. real rate of return to the lender.
d. real cost of borrowing to the borrower.
To obtain the market demand curve for a product, sum the individual demand curves
a. vertically.
b. diagonally.
c. horizontally.
d. and then average them.
Other things the same, an increase in population growth
a. increases capital per worker. Further, there is some evidence that a higher population
growth rate may increase the pace of technological progress.
b. increases capital per worker. However, there is some evidence that a higher
population growth rate may decrease the pace of technological progress.
c. decreases capital per worker. Further, there is some evidence that a higher population
growth rate may decrease the pace of technological progress.
d. decreases capital per worker. However, there is some evidence that a higher
population growth rate may increase the pace of technological progress.
If nominal GDP is $12,000 and the GDP deflator is 80, then real GDP is $15,000.
For an economy as a whole, income must exceed expenditure.
The Federal Reserve is a privately operated commercial bank.
Under what circumstances does purchasing-power parity explain how exchange rates
are determined, and why is it not completely accurate?
The Council of Economic Advisers consists of thirty members and a staff of several
dozen economists.
Capital flight increases a country’s interest rate. This increase in the interest rate makes
net capital outflow lower than it would be had the interest rate stayed the same.
Corporations receive no proceeds from the resale of their stock.
A market is a group of buyers and sellers of a particular good or service.
Why have labor-force participation rates for women in the United States increased since
World War II while labor-force participation rates for men have decreased?
If a small country imposes a tariff on an imported good, domestic sellers will gain
producer surplus, the government will gain tariff revenue, and domestic consumers will
gain consumer surplus.
Data show that at least 10 percent of U.S. manufacturing jobs are destroyed every year.
Economists devise theories, collect data, and then analyze these data in an attempt to
verify or refute their theories.
Many economists believe that the theory of purchasing-power parity describes the
forces that determine exchange rates in the long run.
A tax of $1 on sellers shifts the supply curve upward by exactly $1.
Other things the same, as the price level falls, the exchange rate rises. A rise in the
exchange rate leads to a decrease in net exports.
In a closed economy, each unit of output is either consumed or invested.
When a minimum-wage law forces the wage to remain above the level that balances
supply and demand, there are more workers willing to work than there are jobs, so some
workers are unemployed.
The Bureau of Labor Statistics’ “unemployed” category includes those who were not
employed, were available for work, and had tried to find employment during the
previous 4 weeks.