An increase in the price level causes a movement down the aggregate demand curve.
If the demand for a product decreases and the supply of the product does not change,
equilibrium price and equilibrium quantity will both increase.
Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion. If Congress
and the president increase government purchases by $500 billion, then the economy
will be brought to equilibrium at potential real GDP.
If Blake can pick more cherries in one hour than Cody, then Blake has a comparative
advantage in cherry picking.
If the multiplier is 10, the marginal propensity to consume must be 0.1.
The larger the marginal propensity to import, the larger the government purchases
multiplier.
Table 1-4
Refer to Table 1-4. The table above shows the sales of flat-panel television sets in
Central America. Present the information using a bar graph.
If the purchasing power of the dollar is less than the purchasing power of the British
pound, purchasing power parity predicts that the exchange rate will
A) increase if the exchange rate is greater than 1 pound per dollar.
B) decrease if the exchange rate is less than 1 pound per dollar.
C) be equal to the relative purchasing power across the currencies in the long run.
D) All of the above are correct.
Assume the average annual CPI values for 2012 and 2013 were 207.3 and 215.3,
respectively. What was the percent increase in the CPI between these two years?
A) 0.96
B) 1.04
C) 3.86
D) 8.0
Which of the following is a consequence of minimum wage laws?
A) Low skilled workers benefit because minimum wage increases the number of jobs
providing low skilled workers with training.
B) Employers will be reluctant to offer low-skill workers jobs with training.
C) Producers have an incentive to offer workers non-wage benefits such as health care
benefits and convenient working hours rather than a higher wage.
D) All workers benefit when the minimum wage is increased.
Figure 5-3
Figure 5-3 represents the market for medical services with and without insurance, and
the effect of a third-party payer system on the demand for medical services.
Refer to Figure 5-3. The efficient quantity of medical services is
A) 400.
B) 800.
C) 1,200.
D) >1,200.
The effect of a recession on a company like Whirlpool Corporation is such that
A) sales decline more sharply for Whirlpool as compared to firms that do not produce
durable goods.
B) profits fall less sharply as compared to firms that do not produce durable goods.
C) the decline in sales is more short-lived as compared to firms that do not produce
durable goods.
D) there is no difference in the impact of the recession on its profits as compared to
firms that do not produce durable goods.
Which of the following describes the degree of control that the Fed has over the money
supply?
A) The Fed has absolute control over the money supply.
B) The Fed has no control of the money supply.
C) The Fed has substantial control over the money supply.
D) The Fed is not concerned about the level of the money supply, and does not attempt
to control it.
Suppose the U.S. Congress is successful in enacting tariffs large enough to eliminate the
current account deficit. What would happen to the level of domestic investment?
A) It would not change.
B) It would rise and exceed national saving.
C) It would rise to a level equal to net foreign investment.
D) It would fall to a level equal to national saving.
The monetary policy target the Federal Reserve focuses primarily on today is
A) the unemployment rate.
B) M1.
C) the inflation rate.
D) the interest rate.
E) M2.
If workers and firms raise their inflation expectations,
A) unemployment will fall.
B) actual inflation will fall to match expected inflation.
C) the short-run Phillips curve will be vertical.
D) the short-run Phillips curve will shift upward.
A bank holds its reserves as ________ and ________.
A) securities; loans
B) securities; deposits at the Federal Reserve
C) vault cash; deposits at the Federal Reserve
D) vault cash; loans
The branch of economics which studies the behavior of entire economies and policies
that affect the economy as a whole is called
A) public economics.
B) microeconomics.
C) macroeconomics.
D) normative economics.
Suppose a transaction changes a bank’s balance sheet as indicated in the following
T-account, and the required reserve ratio is 10 percent.
As a result of the transaction, the bank can make a maximum loan of
A) $0.
B) $200.
C) $1,800.
D) $2,000.
What impact does an increase in the price level in the United States have on net exports
and why?
A) An increase in the price level decreases net exports because higher prices decrease
the value of the dollar.
B) An increase in the price level decreases net exports by increasing the relative cost of
American goods.
C) An increase in the price level increases net exports because higher prices lower the
value of the dollar.
D) An increase in the price level increases net exports because higher prices decrease
American spending on imports.
FICA is a payroll tax imposed on employers and workers that is used to fund Social
Security and Medicare. Which of the following statements regarding the tax is true?
A) Employers are required to pay a greater share of the tax than workers but most
economists believe the burden of the tax is shared equally.
B) Congress wanted the burden of the tax to be greater for employers than for workers.
C) Most economists believe the burden of the tax falls almost entirely on workers.
D) Most economists believe the burden of the tax falls mostly on employers.
Figure 15-7
Refer to Figure 15-7. Suppose the economy is in a recession and the Fed pursues an
expansionary monetary policy. Using the static AD–AS model in the figure above, this
would be depicted as a movement from
A) A to B.
B) B to C.
C) C to B.
D) A to E.
E) C to D.
Some corporate governance experts believe that serving on a company’s board of
directors for an extended length of time diminishes that member’s independence from
the company’s CEO. If this is true, it would tend to
A) reduce the principal-agent problem.
B) increase the principal-agent problem.
C) be in the best interest of shareholders.
D) have no impact on the company’s performance, since the CEO is only one member
of top management.
Figure 2-3
Refer to Figure 2-3. Carlos Vanya grows tomatoes and strawberries on his land. A
portion of his land is more suitable for growing tomatoes and the other portion is better
suited for strawberry cultivation. Which of the graphs in Figure 2-3 represent his
production possibilities frontier?
A) Graph A
B) Graph B
C) Graph C
D) either Graph A or Graph B
E) either Graph B or Graph C
Which of the following is considered contractionary fiscal policy?
A) Congress increases the income tax rate.
B) Congress increases defense spending.
C) Legislation removes a college tuition deduction from federal income taxes.
D) The New Jersey legislature cuts highway spending to balance its budget.
The economic growth model predicts that
A) the level of real GDP per capita in poor countries will grow faster than in rich
countries.
B) the per-worker production function of poor countries will be flatter than the
per-worker production function of rich countries.
C) lower-income industrial countries will forever be unable to catch up to
higher-income industrial countries.
D) economic growth in rich countries can only be accomplished at the expense of slow
or even negative growth in poor countries.
What is the difference between aggregate expenditure and aggregate demand?
Explain, in detail, how the adjustment to macroeconomic equilibrium occurs when
spending is less than production. Be sure to discuss how inventories play a crucial role
in the adjustment process. State what happens to GDP and employment during the
adjustment process.
How does an increase in government purchases financed by an increase in the deficit
affect exchange rates? Support your answer with graphs of the loanable funds market
and the foreign exchange market.
Fill in the missing values in the table of data collected in the household survey for
December, 1996. The working-age population, employment, unemployment, and labor
force are measured in thousands. Show your work.
During 2007, many ‘subprime” and “Alt-A” borrowers began to default on their
mortgages. Describe ‘subprime” and “Alt-A” borrowers.
Table 8-31
Refer to Table 8-31. The table above represents hypothetical data from the National
Income Accounts for 2013. Use the data to calculate personal income and disposable
income.
Starting from long-run equilibrium, use the basic aggregate demand and aggregate
supply diagram to show what happens in both the long run and the short run when there
is an increase in wealth.
