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The absolute value of the tax multiplier is equal to the absolute value of the government
spending multiplier.
The market demand curve shows the relationship between the price and the quantity
demanded by all consumers, everything else being equal.
A consumption possibilities curve shows the combinations of two goods that can be
consumed when a nation specializes in producing a particular good and trades with
another nation.
The opportunity cost of something is what you sacrifice to get it.
Using assumptions to make things simpler and focus attention on what really matters is
like using a road map to plan a trip.
Among the problems associated with subsidizing an industry in the hope of establishing
a worldwide monopoly is that if two nations subsidize firms in the same industry, each
could lose money.
The multiplier for a change in taxes is not the same as the multiplier for a change in
government spending.
The neoclassical theory of investment says both real interest rates and taxes are
important determinants of investment.
The speculative demand for money states that in the long run, people hold on to money
because the return to holding bonds and stocks can be negative.
Depreciation is included in Gross National Product (GNP), but is excluded from Net
National Product (NNP).
A 100% increase in the price of salt changes the CPI more than a 10% increase in rent.
The dollar and the yen appreciate against each other simultaneously.
One of the key economic questions is "who consumes the products?"
Suppose the nation of Arcadia produces only two goods, teapots and surfboards. If
Arcadia produces only teapots, it can make 40 per day. If Arcadia produces only
surfboards, it can make 60 per day. What is the opportunity cost of 1 teapot in Arcadia?
A) 2/3 of a surfboard
B) 1.5 surfboards
C) 40 surfboards
D) 60 surfboards
Recall Application 2, "Elections, Political Parties, and Voter Expectations," to answer
the following questions:
According to the application, which political party puts more emphasis on fighting
inflation?
A) Republicans
B) Democrats
C) Green
D) Libertarians
Suppose Bob can produce more jeans than Joe in a day. Bob has ________ advantage
over Joe in sewing jeans.
A) an absolute
B) an absolute and a comparative
C) a comparative
D) neither an absolute nor a comparative
The voting members of the Federal Open Market Committee are
A) all of the members of the Board of Governors and all of the presidents of the 12
Federal Reserve banks.
B) all of the members of the Board of Governors and five of the presidents of the 12
Federal Reserve banks.
C) the presidents of the 12 Federal Reserve banks and three members of the Board of
Governors.
D) only the members of the Board of Governors.
The reason why raw fish is not used as money is because it would perform which
property of money most unsatisfactorily?
A) store of value
B) medium of exchange
C) unit of account
D) unit of bartering
From time to time, the Federal Reserve buys back government bonds from the private
sector through a process called
A) bond recall procedures.
B) open market purchases.
C) backflip bond investments.
D) voluntary redemption procedures.
According to the classical economists, the economy:
A) requires fine-tuning to reach full employment.
B) can never deviate from full employment.
C) is self-correcting.
D) will never be at full employment.
If a policymaker wants to stimulate the economy, a ________ would be preferable to a
________.
A) low MPC; high MPC
B) high MPC; low MPC
C) high MPS; low MPS
D) lower-valued multiplier; higher valued multiplier
Who sets the rules for entitlements when spending is authorized under this category?
A) the President
B) the agency involved
C) the Congress when it appropriates the spending
D) each individual state
Recall Application 4, "Coping with the Financial Chaos Caused by the Mortgage
Crisis," to answer the following questions:
According to Application 4, which investment company was in danger of collapse in
March 2008 because the market believed that the company made a lot of investment
mistakes?
A) AIG
B) Bank of America
C) Geico
D) Bear Stearns
In the income-expenditure model, equilibrium output is the level of output at which the
45-degree line intersects the planned expenditures line. Explain why this output level is
an equilibrium level. Illustrate your answer with a diagram of the income-expenditure
model.
Explain why insurance has been beneficial to markets.
Define human capital. Also explain how it can affect economic growth.
What is structural unemployment?
What is Ricardian equivalence?
Explain the logic behind Ricardian equivalence.
