If interest rates rose more in the U.S. than in Canada, then other things the same
a. U.S. citizens would buy more Canadian bonds and Canadian citizens would buy
more U.S. bonds.
b. U.S. citizens would buy more Canadian bonds and Canadian citizens would buy
fewer U.S. bonds.
c. U.S. citizens would buy fewer Canadian bonds and Canadian citizens would buy
more U.S. bonds.
d. U.S. citizens would buy fewer Canadian bonds and Canadian citizens would buy
fewer U.S. bonds.
If a country had capital flight, then the real exchange rate would
a. fall. To offset this fall the government could increase the budget deficit.
b. fall. To offset this fall the government could decrease the budget deficit.
c. rise. To offset this rise the government could increase the budget deficit.
d. rise. To offset this rise the government could decrease the budget deficit.
Other things the same, if the price level rises by 2% and people were expecting it to rise
by 5%, then some firms have
a. higher than desired prices which increases their sales.
b. higher than desired prices which depresses their sales.
c. lower than desired prices which increases their sales.
d. lower than desired prices which depresses their sales.
Figure 9-17
Refer to Figure 9-17. With free trade, total surplus is
a. $600.
b. $1,200.
c. $1,800.
d. $2,400.
A budget surplus is created if
a. the government sells more bonds than it buys back.
b. the government spends more than it receives in tax revenue.
c. private saving is greater than zero.
d. None of the above is correct.
Suppose an economy’s production consists only of corn and soybeans. In 2010, 20
bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per
bushel. In 2009, the price of corn was $2 per bushel and the price of soybeans was $1
per bushel. Using 2009 as the base year, it follows that, for 2010,
a. nominal GDP is $50, real GDP is $100, and the GDP deflator is 50.
b. nominal GDP is $50, real GDP is $100, and the GDP deflator is 200.
c. nominal GDP is $100, real GDP is $50, and the GDP deflator is 50.
d. nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.
If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal
interest rate is
a. 5 percent.
b. 1 percent.
c. 1.5 percent
d. 0.67 percent.
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. The area
measured by L+M+Y represents
a. consumer surplus after the tax.
b. consumer surplus before the tax.
c. producer surplus after the tax.
d. producer surplus before the tax.
A company that produces computer peripherals is considering buying some new
equipment that it expects will increase future profits. If the interest rate rises, the
present value of these future earnings
a. rises. The company is more likely to buy the equipment.
b. rises. The company is less likely to buy the equipment.
c. falls. The company is more likely to buy the equipment.
d. falls. The company is less likely to buy the equipment.
According to monetary neutrality and the Fisher effect, an increase in the money supply
growth rate eventually increases
a. inflation, nominal interest rates, and real interest rates.
b. inflation and nominal interest rates, but does not change real interest rates.
c. inflation and real interest rates, but does not change nominal interest rates.
d. neither inflation, nominal interest rates, or real interest rates.
Use the following graph to answer the following questions.
a. How would point J be represented as an ordered pair?
b. What type of curve is this?
c. Does this curve show a positive or negative correlation between price and quantity?
d. Compute the slope of D1 between points J and L.
e. What is the slope of D1 between points L and N? Why would you not have to
calculate this answer?
f. What is it called if we move from D1 to D2?
g. How do you know that the slope of D2 is the same as the slope of D1?
As income rises
a. money demand rises, so the interest rate rises.
b. money demand rises, so the interest rate falls
c. money demand falls, so the interest rate rises.
d. money demand falls, so the interest rate falls.
Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a
$100 billion increase in government expenditures shifts aggregate
a. demand rightward by more than $100 billion.
b. demand rightward by less than $100 billion.
c. supply leftward by more than $100 billion.
d. supply leftward by less than $100 billion.
What happens to consumer surplus in the iPod market if iPods are normal goods and
buyers of iPods experience an increase in income?
a. Consumer surplus decreases.
b. Consumer surplus remains unchanged.
c. Consumer surplus increases.
d. Consumer surplus may increase, decrease, or remain unchanged.
A reduction in the tax rate on income from saving would
a. most directly benefit the poor in the short run.
b. increase real wages over time.
c. decrease the capital stock over time.
d. decrease productivity over time.
Table 13-1
Refer to Table 13-1. What was Hershey’s earnings per share?
a. $38
b. $1.64
c. $1.31
d. $0.61
Figure 8-5
Suppose that the government imposes a tax of P3 – P1.
Refer to Figure 8-5. The price that sellers effectively receive after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
A logical starting point from which the study of international trade begins is
a. the recognition that not all markets are competitive.
b. the recognition that government intervention in markets sometimes enhances the
economic welfare of the society.
c. the principle of absolute advantage.
d. the principle of comparative advantage.
Other things the same, in the open-economy macroeconomic model, which of the
following would make India’s net capital outflow increase?
a. a decrease in U.S. interest rates
b. a decrease in Indian interest rates
c. an appreciation of the Indian rupee
d. None of the above is correct.
Suppose that over the past year, the real interest rate was 3 percent and the inflation rate
was -1 percent. It follows that
a. the dollar value of savings increased at 2 percent, and the purchasing power of
savings increased at 3 percent.
b. the dollar value of savings increased at 2 percent, and the purchasing power of
savings increased at 4 percent.
c. the dollar value of savings increased at 4 percent, and the purchasing power of
savings increased at 2 percent.
d. the dollar value of savings increased at 4 percent, and the purchasing power of
savings increased at 3 percent.
Which of the following is correct concerning opportunity cost?
a. Except to the extent that you pay more for them, opportunity costs should not include
the cost of things you would have purchased anyway.
b. To compute opportunity costs, you should subtract benefits from costs.
c. Opportunity costs and the idea of trade-offs are not closely related.
d. Rational people should compare various options without considering opportunity
costs.
Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of
improved international relations and increased confidence in policy makers, people
become more optimistic about the future and stay this way for some time.
Refer to Optimism. How is the new long-run equilibrium different from the original
one?
a. both price and real GDP are higher
b. both price and real GDP are lower.
c. the price level is the same and GDP is higher.
d. the price level is higher and real GDP is the same.
If at a given exchange rate foreign citizens wanted to buy fewer U.S bonds, then the
a. supply of dollars in the market for foreign-currency exchange shfits right.
b. supply of dollars in the market for foreign-currency exchange shfits left.
c. demand for dollars in the market for foreign-currency exchange shfits right.
d. demand for dollars in the market for foreign-currency exchange shfits left.
Other things the same, an increase in the expected price level shifts
a. short-run aggregate supply right.
b. short-run aggregate supply left.
c. aggregate-demand right.
d. aggregated-demand left.
For an imaginary economy, the value of the consumer price index was 125 in 2009, and
the inflation rate was 4.8 percent between 2008 and 2009. The consumer price index in
2008 was
a. 119.27.
b. 120.2.
c. 129.8.
d. 131.
Which of the following is correct?
a. capital flight from the United States decreases net capital outflow
b. an increase in the government budget deficit creates no change in net capital outflow
c. if the U.S. imposes a restriction on imports, net capital outflow increases
d. None of the above is correct.
Suppose a nation is currently producing at a point inside its production possibilities
frontier. We know that
a. the nation is producing beyond its capacity, so inflation will occur.
b. the nation is not using all available resources or is using inferior technology or both.
c. the nation is producing an efficient combination of goods.
d. there will be a large opportunity cost if the nation tries to increase production of any
good.
If the U.S. government imposed a quota on toy imports, then
a. imports and exports would both fall.
b. imports would fall and exports would rise.
c. imports would rise and exports would fall.
d. None of the above is correct.
When the price level falls
a. The interest rate falls because people will want to hold more money and so sell
bonds.
b. Firms will want to spend more on new business buildings and business equipment
and households will want to spend more building new homes.
c. Both A and B are correct.
d. None of the above are correct.
A possible outcome of the multilateral approach to free trade is that such an approach
can
a. win political support when a unilateral approach cannot.
b. result in more restricted trade than under a unilateral approach, when international
negotiations fail.
c. result in drastic reductions in tariffs for many countries.
d. All of the above are correct.
Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax,
a. the actual tax incidence is unaffected by the legislated tax incidence.
b. the employer now is required by law to pay more than 50 percent of the tax.
c. the employee now is required by law to pay more than 50 percent of the tax.
d. employers are no longer required by law to pay any portion of the tax.
If unemployment is above its natural rate, what happens to move the economy to
long-run equilibrium?
a. Inflation expectations rise which shifts the short-run Phillips curve to the right.
b. Inflation expectations rise which shifts the short-run Phillips curve to the left.
c. Inflation expectations fall which shifts the short-run Phillips curve to the right.
d. Inflation expectations fall which shifts the short-run Phillips curve to the left.
The theory of purchasing-power parity states that a unit of a country’s currency should
be able to buy the same quantity of goods in foreign countries as it does domestically.
Other things the same, the higher the rate of saving and investment in a country, the
higher will be the standard of living in the future.
Tuition is the single-largest cost of attending college for most students.
The CPI for 2008 is computed by dividing the price of the basket of goods and services
in 2008 by the price of the basket of goods and services in the base year, then
multiplying by 100.
David Ricardo was the author of the 1817 book Principles of Political Economy and
Taxation.
Changes in real GDP reflect only changes in the amounts being produced.
The government computes measures of income other than GDP because these other
measures usually tell different stories about overall economic conditions.
The CPI does not reflect the increase in the value of the dollar that arises from the
introduction of new goods.
Changes in monetary policy aimed at reducing aggregate demand involve decreasing
the money supply or increasing the interest rate.
An increase in the reserve requirement ratio increases reserves and decreases the money
supply.
The classical notion of monetary neutrality is consistent both with a vertical long-run
aggregate-supply curve and with a vertical long-run Phillips curve.
A higher U.S. interest rate discourages Americans from buying foreign assets and
encourages foreigners to buy U.S. assets.
If Brazil buys $100 million of tractors from the U.S., then U.S. net exports will
decrease.
When a production possibilities frontier is bowed outward, the opportunity cost of the
first good in terms of the second good increases as more of the second good is
produced.
As capital per worker rises, output per worker rises. However, this increase in output
per worker is smaller at larger levels of existing capital per worker.
Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A
year later, Bob withdraws his $105. If inflation was 5 percent during the year the money
was deposited, then Bob’s purchasing power has not changed.
When the Fed increases the money supply, the interest rate decreases. This decrease in
the interest rate increases consumption and investment demand, so the
aggregate-demand curve shifts to the right.