The Federal Reserve
a. does not have an inflation target; if it did it would likely be 1% or less.
b. does not have an inflation target; if it did it would likely be in the range of 2%.
c. does have an inflation target; it is 1%.
d. does have an inflation target; it is a range from 1-3%.
The interest rate the Fed charges on loans it makes to banks is called
a. the prime rate.
b. the federal funds rate.
c. the discount rate.
d. the LIBOR.
The slope of a line is equal to the change in the x-variable divided by the change in the
y-variable.
a. True
b. False
“Monetary policy can be described either in terms of the money supply or in terms of
the interest rate.” This statement amounts to the assertion that
a. shifts of the money-supply curve cannot occur if the Federal Reserve decides to
target an interest rate.
b. the aggregate-demand curve will not shift in response to Federal Reserve actions if
the Fed decides to target an interest rate.
c. changes in monetary policy aimed at contracting aggregate demand can be described
either as decreasing the money supply or as raising the interest rate.
d. the activities of the Federal Reserve’s bond traders are irrelevant if the Federal
Reserve decides to target an
interest rate.
The Bureau of Labor Statistics places people in the “employed” category if they
a. are without a job, but are available for work and have tried to find a job during the
previous four weeks.
b. work without pay in a family member’s business.
c. are waiting to be recalled to a job from which they had been laid off.
d. All of the above are correct.
Figure 2-7
RefertoFigure2-7.What is the opportunity cost of moving from point L to point M?
a. zero
b. 15 tvs
c. 20 engines and 15 tvs
d. 20 engines
Table 26-2
RefertoTable26-2.For which stock(s) is(are) the P/E ratio less than what is historically
typical?
a. Boeing Co.
b. Eli Lilly and Co.
c. Boeing Co. and Eli Lilly and Co.
d. All are higher than what is historically typical.
Economists use one standard set of assumptions to answer all economic questions.
a. True
b. False
Because depreciation of the real exchange rate of the dollar increases U.S. net exports,
the demand curve for dollars in the foreign-currency exchange market is downward
sloping.
a. True
b. False
Good X and good Y are substitutes. If the price of good Y increases, then the
a. demand for good X will decrease.
b. quantity demanded of good X will decrease.
c. demand for good X will increase.
d. quantity demanded of good X will increase.
If a firm’s priceearnings ratio is relatively low, then it might be an indication that
a. the demand for the stock is relatively high.
b. the supply of the stock is relatively low.
c. people expect the firm’s earnings to rise.
d. people expect the firm’s earnings to fall.
Figure 3-17
Refer to Figure3-17. Suppose Daisy is willing to trade 3/4 tart to Maxine for each pie
that Maxine makes and sends to Daisy. Which of the following combinations of pies
and tarts could Maxine notthen consume, assuming Maxine specializes in making pies
and Daisy specializes in making tarts?
a. 4 pies and 6 tarts
b. 6 pies and 5 tarts
c. 8 pies and 3 tarts
d. 10 pies and 1.5 tarts
Which of the following would cause the price level to rise and output to fall in the short
run?
a. an increase in the money supply
b. a decrease in the money supply
c. an adverse supply shock
d. a favorable supply shock
Which of the following describes the Volcker disinflation most accurately?
a. Almost all of the public believed that the Fed would keep money growth low, so
unemployment rose less than it would have otherwise.
b. Almost all of the public believed that the Fed would keep money growth low, so
unemployment rose more than it would have otherwise.
c. Much of the public did not believe that the Fed would keep money growth low, so
unemployment rose less than it would have otherwise.
d. Much of the public did not believe that the Fed would keep money growth low, so
unemployment rose more than it would have otherwise.
In which case can we be sure real GDP rises in the short run?
a. government purchases increase and taxes rise.
b. government purchases increase and taxes fall.
c. government purchases decrease and taxes rise.
d. government purchases decrease and taxes fall.
Which of the following are U.S. taxpayers allowed to adjust for inflation for the
purpose of income taxes?
a. both interest income and capital gains.
b. interest income but not capital gains.
c. capital gains but not interest income.
d. neither interest income nor capital gains.
Table 23-10
A hypothetical country of Lahland produces only movies and popcorn. Quantities and
prices of these goods for the last several years are shown below. The base year is 2015 .
RefertoTable23-10.What was this country’s real GDP in 2016?
a. $10,575
b. $11,250
c. $10,950
d. $12,550
Monetary neutrality implies that an increase in the quantity of money will
a. increase employment.
b. increase the price level.
c. increase the incentive to save.
d. increase the real interest rate.
Changes in the consumer price index are useful in predicting changes in the producer
price index.
a. True
b. False
When ranking movies by nominal box office receipts, what important fact is
overlooked?
a. More people go to movies now than in the past.
b. There are no good substitutes for movies currently.
c. Prices, including those for movie tickets, have been rising over time.
d. Movies and DVD are complements.
The natural rate of unemployment is impervious to economic policy.
a. True
b. False
From time to time, the demand for workers has risen in one region of the United States
and fallen in another. This illustrates
a. frictional unemployment created by efficiency wages.
b. structural unemployment created by efficiency wages.
c. frictional unemployment created by sectoral shifts.
d. structural unemployment created by sectoral shifts.
When quantity supplied decreases at every possible price, we know that the supply
curve has
a. shifted to the left.
b. shifted to the right.
c. not shifted; rather, we have moved along the supply curve to a new point on the same
curve.
d. not shifted; rather, the supply curve has become flatter.
Figure 2-17
RefertoFigure2-17. The curves shown are
a. supply curves.
b. demand curves.
c. preference curves.
d. income-consumption curves.
Which list ranks assets from most to least liquid?
a. money, bonds, cars, houses
b. money, cars, houses, bonds
c. bonds, money, cars, houses
d. bonds, cars, money, houses
Figure 4-20
RefertoFigure4-20. If price is $25, then quantity demanded and quantity supplied,
respectively, are
a. 500 units and 500 units.
b. 500 units and 800 units.
c. 600 units and 600 units.
d. 800 units and 500 units.
To increase the money supply, the Fed could
a. sell government bonds.
b. increase the discount rate.
c. decrease the reserve requirement.
d. None of the above is correct.
A pound of steak costs $10 in the U.S. and 56.25 riyals (the currency of Saudi Arabia)
in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate?
Show your work.
Suppose the Federal Reserve pursues contractionary monetary policy. In the long run
a. both inflation and the unemployment rate are higher than they were prior to the
change in policy.
b. inflation is higher and the unemployment rate is the same as it was prior to the
change in policy.
c. inflation is lower and the unemployment rate is lower than it was prior to the change
in policy.
d. inflation is lower and unemployment is the same as it was prior to the change in
policy.
Other things the same, the real exchange rate between U.S. and Belgian goods would be
higher if
a. prices in the U.S. were higher, or the number of euro the dollar purchased were
higher.
b. prices in the U.S. were higher, or the number of euro the dollar purchased were
lower.
c. prices in the U.S. were lower, or the number of euro the dollar purchased were higher.
d. prices in the U.S. were lower, or the number of euro the dollar purchased were lower.
If baked potatoes and sour cream are complements, then an increase in the price of sour
cream decreases the demand for baked potatoes.
a. True
b. False
Productivity is defined as the quantity of goods and services produced from each unit of
labor input.
a. True
b. False
In the long run, if the Fed decreases the rate at which it increases the money supply,
a. inflation and unemployment will be higher.
b. inflation will be higher and unemployment will be lower.
c. inflation will be lower and unemployment will be higher.
d. None of the above is correct.
A country recently had saving of 300 billion euros and domestic investment of 200
billion euros. What was the value of this country’s net exports? Explain how you found
your answer.
Suppose there is a shortage in the market for loanable funds. Is the interest rate above or
below its equilibrium level? How do desired saving and desired investment at this
interest rate compare?
When the Federal Reserve injects money into the banking system, it initially causes an
excess _____ of money. Equilibrium in the money market is reestablished through a(n)
_____ in the price level.
Figure 2-3
RefertoFigure2-3.What do the inner arrows represent in the figure?
How do banks make profits?
In what sense is capital accumulation costly to a society?
What are exports, and how are they different from imports?
Last month a country sold more goods and services to residents of foreign countries
than it purchased from them. What does this imply about this country’s trade balance?
Studies have found that there is a relationship between height and productivity. Briefly
explain.
Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the
amounts shown in the table below. Assume that the market basket for the CPI is defined
in the base year.
RefertoScenario24-6.Using 2010 as the base year, what is the inflation rate in 2011?
What do trade policies do to the standard of living?
Other things the same, if the U.S. interest rate rises, what happens to the net capital
outflow of other countries?
Briefly compare the structural unemployment that arises from minimum-wage laws to
the frictional unemployment that arises from the process of job search.
Economists argue that the move from barter to money increased trade and production.
How is this possible?
Explain how the prices of goods and services used in the CPI differ from the prices used
in the PPI.
U.S. real GDP is substantially higher today than it was 60 years ago. What does this tell
us, and what does it not tell us, about the well-being of U.S. residents?
Economics is the study of ______.
What happens to desired investment spending if the interest rate rises? Is this response
relevant to the supply of loanable funds curve or the demand for loanable funds curve?
Budget in Recession
During a recession government revenues from the income tax fall and government
transfers rise as the reduction in income and the rise in unemployment raise the number
of people who qualify for benefits.
RefertoBudgetinRecessio. This change in the deficit causes net capital outflow to
change. How is this change in net capital outflow shown in the market for
foreign-currency exchange? What happens to the exchange rate?