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Which of the following would be considered a resource cost of inflation?
a. A cost of living adjustment
b. Loss of purchasing power
c. Additional trips to the bank
d. Adjusting nominal interest rate to get real rates
e. Creeping inflation
If the price of leather (an input for leather shoes) increases, the equilibrium price of
leather shoes will increase and the equilibrium quantity of leather shoes will decrease.
A debt that rises faster than nominal GDP will impose the following opportunity costs
in the future:
a. A permanently higher tax burden.
b. A period of inflation.
c. Reduced government outlays relative to GDP
d. Higher taxes relative to GDP.
e. All of the above.
Refer to Figure 5-1 above. If the economy moves from point B to C on the graph, it is
going through a(n)
a. peak
b. trough
c. expansion
d. slump
e. recession
If the Consumer Price Index was 102.2 in 2007 and 104.9 in 2008, we can conclude that
a. the prices of all consumer goods were higher in 2008 than in 2007
b. the prices of all consumer goods were lower in 2008 than in 2007
c. the price level fell from 2007 to 2008
d. the price level rose from 2007 to 2008
e. the base year was 2001
Of the recessions and expansions from 1950 to 1990, the common events were
a. reactions to war and oil prices
b. tax increases and tax cuts
c. changes in exports
d. Decreases in welfare spending
e. Increases and decreases in health care spending
Use the table below to find the inflation rate from 2007 to 2008.
a. 1.4%
b. 0.6%
c. 0%
d. -0.6%
e. -1.4%
Output per person rises when
a. the population increases faster than real GDP
b. real GDP rises faster than the number of employed workers
c. real GDP increases at the same rate as the population
d. real GDP rises slower than the population
e. real GDP rises faster than the population
Over time the full-employment level of output in the United States has risen steadily.
In the supply and demand for socks schedules in Figure 3-10, a price of $4 per pair
results in
a. equilibrium
b. excess supply of 10 pairs
c. excess demand of 5 pairs
d. excess demand of 13 pairs
e. excess demand of 10 pairs
The order of Soviet dictator Joseph Stalin to farmers in the 1930s to produce capital
equipment rather than food
a. was based on government support payments for agriculture.
b. relied on foreign assistance.
c. was an illustration of the capital formation method.
d. was an illustration of the brute force method of breaking the poverty cycle, and it was
a very successful policy.
e. was an illustration of the brute force method of breaking the poverty cycle, and it
meant starvation for millions of farmers.
Assuming the economy was in equilibrium, use the following information to calculate
the total value of leakages.
Total leakages are
a. $2.5 trillion
b. $2.7 trillion
c. $3.0 trillion
d. $5.2 trillion
e. $5.7 trillion
Ricardian equivalence refers to
a. the equivalence of taxes and revenues in fiscal policy.
b. the fact the households incorporate inflationary expectations in calculating interest
payments.
c. the equivalence of imports and exports in an open economy.
d. the possibility that households may say save now so that they can pay the higher
taxes later if there is a tax cut at the present time which drives up future interest
payments.
e. none of the above.
Why is it unlikely that expansions could be explained by a decrease in labor demand in
the classical model?
a. It would be hard to say why productivity decreases.
b. Productivity increases are too fast and variable to explain expansions.
c. Productivity tends to improve at a constant and steady rate.
d. Only unexplained spending changes can lead to changes in output and employment,
not the other way around.
e. Productivity improvements are rather slow.
Suppose a woman has an exterminator treat her house every month but she then marries
the exterminator who now performs the service for free. As a result, GDP would
a. increase
b. decrease
c. not change, because services are not counted in the first place
d. not change, as the activity occurred monthly
e. not change, because the activity is an intermediate good or service
If the marginal propensity to consume is 0.75, net taxes are fixed at $2,000 and real
income rises by $12,000, by how much will real consumption spending increase?
a. $9,000
b. $8,000
c. $7,500
d. $7,000
e. $10,000
