A production possibilities frontier is a graph that shows the combination of outputs that
an economy should produce.
a. True
b. False
The supply of loanable funds would shift to the right if either
a. tax reforms encouraged greater saving or the budget deficit became smaller.
b. tax reforms encouraged greater saving or investment tax credits were increased.
c. the budget deficit became larger or investment tax credits were increased.
d. the budget deficit became larger or tax reforms discouraged saving.
Higher inflation results in
a. more frequent price changes and increased variability of relative prices.
b. more frequent price changes and decreased variability of relative prices.
c. less frequent price changes and increased variability of relative prices.
d. less frequent price changes and decreased variability of relative prices.
The restrictive monetary policy followed by the Fed in the early 1980s
a. reduced both unemployment and inflation.
b. reduced inflation significantly, but at the cost of a severe recession.
c. reduced unemployment significantly, but at the cost of higher inflation.
d. raised both unemployment and inflation.
If the Fed raised the reserve requirement, the demand for reserves would
a. increase, so the federal funds rate would fall.
b. increase, so the federal funds rate would rise.
c. decrease, so the federal funds rate would fall.
d. decrease, so the federal funds rate would rise.
The efficient markets hypothesis implies that
a. building a portfolio based on a published list of the “most respected” companies is
likely to produce a better than-average return.
b. if a stock rose in price last year, it is likely to rise in price this year.
c. managed mutual funds should generally outperform indexed mutual funds.
d. None of the above are correct.
The unemployed who quit their jobs, were fired for cause, or just entered the labor force
are eligible for unemployment insurance.
a. True
b. False
An early frost in the vineyards of Napa Valley would cause a(n)
a. increase in the demand for wine, increasing price.
b. increase in the supply of wine, decreasing price.
c. decrease in the demand for wine, decreasing price.
d. decrease in the supply of wine, increasing price.
If a country has negative net capital outflows, then its net exports are
a. positive and its saving is larger than its domestic investment.
b. positive and its saving is smaller than its domestic investment.
c. negative and its saving is larger than its domestic investment.
d. negative and its saving is smaller than its domestic investment.
The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in
2006) by the CPI in 2006, then multiplying by 100.
a. True
b. False
If the central bank has discretion to make policy, it may create economic fluctuations
that reflect the electoral calendar. This is called the political business cycle.
a. True
b. False
If a union and a firm cannot reach an agreement on the terms of employment, then the
union can organize a withdrawal of labor from the firm, called a strike.
a. True
b. False
Suppose that the real exchange rate between the United States and Kenya is defined in
terms of baskets of goods. Other things the same, which of the following will increase
the real exchange rate (that is increase the number of baskets of Kenyan goods a basket
of U.S. goods buys)?
a. an increase in the number of Kenyan shillings that can be purchased with a dollar
b. an increase in the price of U.S. goods
c. a decrease in the price in Kenyan shillings of Kenyan goods
d. All of the above are correct.
An economy’s income is the same as its expenditure because every transaction has a
buyer and a seller.
a. True
b. False
An appreciation of the U.S. real exchange rate induces U.S. consumers to buy
a. fewer domestic goods and fewer foreign goods.
b. more domestic goods and fewer foreign goods.
c. fewer domestic goods and more foreign goods.
d. more domestic goods and more foreign goods.
Economic expansions in Europe and China would cause
a. the U.S. price level and real GDP to rise.
b. the U.S. price level and real GDP to fall.
c. the U.S. price level to rise and real GDP to fall.
d. the U.S. price level to fall and real GDP to rise.
Which of the following statements is true?
a. Productivity is calculated as hours worked divided by output produced.
b. Americans have a higher standard of living than Indonesians because American
workers are more productive than Indonesian workers.
c. Both A and B are correct.
d. None of the above are correct.
After much anticipation a company releases a new smartphone. The smartphone
doesn”t work as well as expected and lacks many of the features buyers had been
expecting. The unexpectedly negative reaction to the smartphone would
a. raise the present value and the price of the corporation’s stock.
b. raise the present value and reduce the price of the corporation’s stock.
c. reduce the present value and the price of the corporation’s stock.
d. reduce the present value and raise the price of the corporation’s stock.
If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and
it receives a new deposit of $500, it
a. must increase required reserves by $50.
b. will initially see reserves increase by $500.
c. will be able to use this deposit to make new loans amounting to $450.
d. All of the above are correct.
Keynes argued that aggregate demand is
a. stable, because the economy tends to return to its long-run equilibrium quickly after
any disturbance to aggregate demand.
b. stable, because changes in consumption are mostly offset by changes in investment
and vice versa.
c. unstable, because waves of pessimism and optimism create fluctuations in aggregate
demand.
d. unstable, because of long and variable policy lags that worsen economic fluctuations.
If the demand for loanable funds shifts left, then
a. the real interest rate and the equilibrium quantity of loanable funds both fall.
b. the real interest rate falls and the equilibrium quantity of loanable funds rises.
c. the real interest rate and the equilibrium quantity of loanable funds both rise.
d. the real interest rate rises and the equilibrium quantity of loanable funds falls.
Which of the following events would shift money demand to the right?
a. an increase in the price level
b. a decrease in the price level
c. an increase in the interest rate
d. a decrease in the interest rate
A risk-averse person has
a. utility and marginal utility curves that slope upward.
b. utility and marginal utility curves that slope downward.
c. a utility curve that slopes down and a marginal utility curve that slopes upward.
d. a utility curve that slopes upward and a marginal utility curve that slopes downward.
A country that currently does not trade with other countries could benefit by
a. restricting imports and promoting exports.
b. promoting imports and restricting exports.
c. restricting both imports and exports.
d. not restricting trade.
Given a nominal interest rate of 6 percent, in which of the following cases would you
earn the lowestafter-tax real rate of interest?
a. Inflation is 4 percent; the tax rate is 5 percent.
b. Inflation is 3 percent; the tax rate is 20 percent.
c. Inflation is 2 percent; the tax rate is 30 percent.
d. The after-tax real interest rate is the same for all of the above.
In the long run,
a. the natural rate of unemployment depends primarily on the level of aggregate
demand.
b. inflation depends primarily upon the money supply growth rate.
c. there is a tradeoff between the inflation rate and the natural rate of unemployment.
d. All of the above are correct.
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.
RefertoOptimism.Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right.
d. aggregate supply shifts left.
If purchases of foreign assets by U.S. residents exceed purchases of U.S. assets by
foreign residents, then U.S. net capital outflow is positive.
a. True
b. False
The CPI was 96 in 1982, and the CPI was 230 in 2012. How much money would you
have needed in 2012 in order to buy what you could have bought with $500 in 1982?
a. $208.96
b. $1,197.92
c. $697.92
d. $1,697.92
The slope of a fairly flat upward-sloping line will be a
a. small positive number.
b. large positive number.
c. small negative number.
d. large negative number.
Stock prices often rise when the Fed raises interest rates.
a. True
b. False
A circular-flow model and production possibilities frontier are similar in that
a. neither allows economic analysis to occur.
b. neither can be represented visually on a graph.
c. both make use of assumptions.
d. both make use of complex equations to arrive at solutions.