Suppose the economy is in long-run equilibrium. In a short span of time, there is a large
influx of skilled immigrants, a major new discovery of oil, and a major new
technological advance in electricity production. In the short run, we would expect
a. the price level to rise and real GDP to fall.
b. the price level to fall and real GDP to rise.
c. the price level and real GDP both to stay the same.
d. All of the above are possible.
A firm may pay efficiency wages in an attempt to
a. entice workers to work the night shift rather than the day shift.
b. improve productivity by reducing turnover.
c. reduce costs by attracting the least-skilled workers to apply for job vacancies.
d. All of the above are correct.
If households view a tax cut as temporary, then the tax cut
a. has no effect on aggregate demand.
b. has more of an effect on aggregate demand than if households view it as permanent.
c. has the same effect as when households view the cut as permanent.
d. has less of an effect on aggregate demand than if households view it as permanent.
If the money supply increased by 10% and at the same time velocity decreased by 10%,
then according to the quantity equation there would be no change in the price level.
a. True
b. False
If the Fed announced its intention to sell bonds, then it would be signaling that it was
going to
a. raise the money supply. It could do this to counter high unemployment.
b. raise the money supply. It could do this to counter high inflation.
c. reduce the money supply. It could do this to counter high unemployment.
d. reduce the money supply. It could do this to counter high inflation.
When he was 18, Hussam put $100 into an account at an interest rate of 8 percent. He
now has $158.69 in this account. For how many years did Hussam leave this money in
his account?
a. 5 years
b. 6 years
c. 7 years
d. 8 years
Which of the following is the most likely result from an increase in a country’s
government budget surplus?
a. higher interest rates
b. lower imports
c. lower net capital outflows
d. lower domestic investment
In recent years the Federal Open Market Committee has focused on a target for
a. M1 growth.
b. the federal funds rate.
c. the number of Treasury Securities issued by the federal government.
d. total reserves of banks.
Figure 2-5
RefertoFigure2-5. The opportunity cost of this economy moving from point A to point
B is
a. 20 dryers.
b. 20 washers.
c. 20 dryers and 20 washers.
d. 60 dryers.
Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock,
has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The
price-earnings ratio for Longview stock is
a. 20, which is high compared to historical standards of the market.
b. 20, which is low compared to historical standards of the market.
c. 10, which is low compared to historical standards of the market.
d. 10, which is high compared to historical standards of the market.
When the money market is drawn with the value of money on the vertical axis, an
increase in the money supply causes the equilibrium value of money
a. and equilibrium quantity of money to increase.
b. and equilibrium quantity of money to decrease.
c. to increase, while the equilibrium quantity of money decreases.
d. to decrease, while the equilibrium quantity of money increases.
During the 2008-2009 recession real GDP fell by about
a. 2%
b. 4%
c. 6%
d. 8%
In early 2010 Molly paid $200,000 for a house built in 2000. She spent $30,000 on new
materials to remodel the house. Although Molly lived in the house after she remodeled
it, its rental value rose. Which of the following contributed to real GDP in 2010?
a. the price of the house, the cost of remodeling materials, the increase in rental value
b. the price of the house and the cost of remodeling materials, but not the increase in
rental value
c. the costs of the remodeling materials and the increase in rent, but not the price of the
house
d. None of the above are correct.
The slope of a line is equal to
a. rise divided by run.
b. run divided by rise.
c. rise minus run.
d. rise plus run.
Diversification
a. increases the likely fluctuation in a portfolio’s return, but reduces market risk.
b. increases the likely fluctuation in a portfolio’s return, but reduces firmspecific risk..
c. reduces the likely fluctuation in a portfolio’s return and reduces market risk.
d. reduces the likely fluctuation in a portfolio’s return and reduces firmspecific risk.
Which of the following would likely increase private saving?
a. Both expansion of IRA type accounts and a consumption tax.
b. Expansion of IRA type accounts, but not a consumption tax.
c. A consumption tax, but not expansion of IRA type accounts.
d. Neither expansion of IRA type accounts nor a consumption tax.
A relatively steep demand curve indicates that
a. quantity demanded will adjust only slightly to a price change.
b. quantity demanded will adjust significantly to a price change.
c. quantity demanded will not adjust to a price change.
d. the change in quantity demanded will exactly equal a change in price.
Money is
a. the most liquid asset and a perfect store of value.
b. the most liquid asset but an imperfect store of value.
c. not the most liquid asset but a perfect store of value.
d. neither the most liquid asset and nor a perfect store of value.
Which of these activities will most likely result in an external benefit?
a. Ted purchases a dilapidated house and cleans up the yard and exterior of the house.
b. Tim purchases an iPhone and downloads new apps.
c. Terri purchases a new SUV and drives it to work every day.
d. Thomas purchases a suit and wears it on his interviews.
A movement upward and to the right along a supply curve is called a(n)
a. increase in supply.
b. decrease in supply.
c. decrease in quantity supplied.
d. increase in quantity supplied.
Suppose every good costs $8 per unit and Molly holds $120. What is the real value of
the money she holds?
a. $120. If the price of goods rises, to maintain the real value of her money holdings she
needs to hold more dollars.
b. $120. If the price of goods rises, to maintain the real value of her money holdings she
needs to hold fewer dollars.
c. 15 units of goods. If the price of goods rises, to maintain the real value of her money
holdings she needs to hold more dollars.
d. 15 units of goods. If the price of goods rises, to maintain the real value of her money
holdings she needs to hold fewer dollars.
Table 4-5
The table below shows the quantities demanded of cases of Mt. Dew per month by four
families at various prices.
RefertoTable4-5.Suppose the four families listed in the table are the only demanders of
Mt. Dew in the market. If the price of a case of Mt. Dew decreases by $1, the
a. market quantity demanded decreases by 10.
b. market quantity demanded increases by 10.
c. Adams family increases its quantity demanded by more than the Smith family.
d. Jones family increases its quantity demanded by more than the Williams family.
The reported unemployment rate should be viewed as
a. a useful but imperfect measure of joblessness.
b. clearly smaller than the true unemployment rate.
c. clearly larger than the true unemployment rate.
d. being very close to the true unemployment rate.
Figure 2-7
RefertoFigure2-7.What is the opportunity cost of moving from point M to point L?
a. zero
b. 15 tvs
c. 20 engines and 15 tvs
d. 20 engines
Table 4-1
RefertoTable4-1.If the market consists of Michelle and Laura only and the price falls
by $1, the quantity demanded in the market increases by
a. 2 units.
b. 3 units.
c. 4 units.
d. 5 units.
Other things the same, higher population growth
a. raises the amount of physical capital per worker and there is some evidence that it
raises the pace of technological progress.
b. raises the amount of physical capital per worker, but there is some evidence that it
reduces the pace of technological progress.
c. reduces the amount of physical capital per worker, but there is some evidence that it
raises the pace of technological progress.
d. reduces the amount of physical capital per worker and there is some evidence that it
reduces the pace of technological progress.
If the best educated and most skilled persons leave a country, then in the short term this
country’s human capital per worker
a. and physical capital per worker will increase.
b. and physical capital per worker will decrease.
c. will increase but physical capital per worker will decrease.
d. will decrease but physical capital per worker will increase.
Economists differ in their views of the role of the government in promoting economic
growth. At the very least, the government should
a. lend support to the invisible hand by maintaining property rights and political
stability.
b. limit foreign investment to industries that don’t already exist in the country.
c. impose trade restrictions to protect the interests of domestic producers and
consumers.
d. subsidize key industries.
Other things the same,as the price level falls, the real value of a dollar
a. rises, and interest rates rise.
b. rises, and interest rates fall.
c. falls, and interest rates rise.
d. falls, and interest rates fall.
Assume that when $100 of new reserves enter the banking system, the money supply
ultimately increases by $625. Assume also that no banks hold excess reserves and that
the entire money supply consists of bank deposits. If, at a point in time, reserves for all
banks amount to $500, then at that same point in time, loans for all banks amount to
$2,625.
a. True
b. False
Unemployment insurance reduces hardships of unemployment but also increases the
amount of structural unemployment.
a. True
b. False
Suppose that the country of Xenophobia chose to isolate itself from the rest of the
world. Its ruler proclaimed that Xenophobia should become self-sufficient, so it would
not engage in foreign trade. From an economic perspective, this idea would
a. make sense if Xenophobia had an absolute advantage in all goods.
b. make sense if Xenophobia had no absolute advantages in any good.
c. not make sense as long as Xenophobia had a comparative advantage in some good.
d. not make sense as long as Xenophobia had an absolute advantage in at least half the
goods that could be traded.