A reduction in the price level will shift the money demand curve to the right.
In the United States, corporate profits are taxed twice.
Recall Application 3, “The Broken Window Fallacy and Keynesian Economics,” to
answer the following question:
During recessions, automatic stabilizers work to reduce government expenditures and
increase government revenues.
In the short run, an increase in the money supply will lead to a higher aggregate demand
and a higher price level.
Recall the Application about unwanted commercial e-mail, or spam, to answer the
following question(s).
According to the Application, one idea to reduce the volume of e-mail spam is to charge
the sender for each commercial e-mail sent.
The United States is a country with a high saving rate.
The nominal wage is the wage rate adjusted for changes in the price level.
Figure 18.1 Refer to Figure 18.2. The opportunity cost of producing tomatoes in
Pizzaland is:
A) 0.4 cheese.
B) 0.6 cheese.
C) 1.67 cheese.
D) 2.5 cheese.
Suppose that GDP is ________ potential output. We would expect prices to rise, money
demand to rise, interest rates to rise, and total demand to ________.
A) above; fall
B) above; rise
C) below; fall
D) below; rise
Which of the following is a determinant of firms’ investment and employment
decisions?
A) cost of capital
B) expectations of future economic conditions
C) interest rates
D) All of the above are correct.
The period of time in which the level of output moves from a trough to a peak is called
a
A) recovery.
B) depression.
C) contraction.
D) plateau.
A trade surplus occurs when
A) a country purchases more from abroad than other countries purchase from it.
B) a country sells more abroad than it purchases from abroad.
C) a country’s firms open more stores abroad than foreign firms open in the country.
D) foreign firms open more stores in a country than the country opens in foreign
countries.
A good for which demand decreases when income decreases is known as a(n) ________
good.
A) normal
B) inferior
C) complementary
D) substitute
If the U.S. real exchange rate increases, U.S. exports will ________ and U.S. imports
will ________.
A) fall; fall
B) fall; rise
C) rise; fall
D) rise; rise
If the banking industry is unable to review a borrower’s credit history, then the market
will experience a bank failure caused by:
A) imperfect information.
B) public goods.
C) perfect information.
D) imperfect competition.
Recall the Application about the difficulty in estimating the size of multipliers and the
historical record of the size of multipliers to answer the following
question(s).According to this Application, based on the information found by
economists Robert Barro and Charles Redlick on multipliers for defense spending,
increases in government spending for defense
A) increased the economy, but by less than the amount of the government spending.
B) increased the economy by an average of 4 times the amount of the government
spending.
C) increased the economy by more than 5 times the amount of the government
spending.
D) actually decreased the size of the economy.
Suppose that for a given year money growth is 12 percent, real GDP growth is 4
percent, and velocity is constant. According to the growth version of the quantity
equation, the inflation rate would be
A) 0.67 percent.
B) 3 percent.
C) 8 percent.
D) 16 percent.
Figure 2.1
On the production possibilities curve in Figure 2.1 the gain from decreasing
manufacturing production from 700 tons to 500 tons is:
A) 700 tons of agriculture.
B) 500 tons of agriculture.
C) 200 tons of agriculture.
D) 100 tons of agriculture.
A decrease in the discount rate will
A) decrease the money supply.
B) not affect the money supply.
C) increase the money supply.
D) have an unclear effect on the money supply.
If home prices are falling, consumers purchasing a home will find their purchasing
power of money has increased. This benefit to consumers is called the
A) inflation effect.
B) wealth effect.
C) home equity effect.
D) multiplier effect.
The quantity equation is expressed as
A) MV = Py.
B) MP = Vy.
C) M/V = P/y.
D) M+V = P+y.
What is meant when economists use the term “overheating of the economy”?
A) Consumers have dramatically increased spending.
B) GDP is higher than potential output.
C) The stock market is experiencing heavy trading.
D) The balance of trade is affecting the GDP too much.
Suppose a bank has $600,000 in deposits, a reserve ratio of 20 percent, and bank
reserves of $240,000. This bank can make new loans in the amount of
A) $840,000.
B) $360,000.
C) $120,000.
D) $12,000.
Figure 11.4 Refer to Figure 11.4. On Both expenditure lines C + I + G0 and C + I +
G1, the MPC is:
A) 2/3.
B) 1/3.
C) 1/2.
D) 3/2.
Autarky refers to:
A) a situation in which nations trade goods and services.
B) a nation in the Middle East.
C) a situation in which there is no trade.
D) the equilibrium a nation reaches after trade begins.
If the growth rate of money is 7 percent, the growth rate of prices is 4 percent, and
velocity is not changing, what is the growth rate of output in an economy?
Why do many economists advocate a consumption tax rather than an income tax?
Explain why financial intermediaries are necessary to facilitate the movement of funds
from savers to investors and how they provide benefits to both groups.
Draw a graph illustrating a labor market in equilibrium. Illustrate and explain the effect
of an increase in the preference for leisure by workers.
Explain why high nominal interest rates in an economy does not necessarily mean real
interest rates in the same economy are also high.