Firms pay an efficiency wage because:
A) it reduces the risk of losing the best workers.
B) it is required by law.
C) they don’t have to offer health insurance if they pay efficiency wages.
D) it reduces the employee’s income tax liability.
Many public utilities burn oil to generate electricity. If the price of oil increases, we
expect a shift to the _____ in the _____ curve for _____ and a _____ price for
electricity
A) right; supply; electricity; lower
B) left; supply; electricity; higher
C) right; demand; oil; higher
D) left; demand; oil; lower
In the absence of international capital flows, the equilibrium interest rate in the U.S.
market for loanable funds is 3%, while in Germany it is 7%. International borrowing
and lending between the United States and Germany may result in a common interest
rate of _____ and _____.
A) 5%; capital inflows to the United States matching the capital outflows from
Germany
B) 3%; massive capital inflows from Germany to the United States
C) 4%; capital outflows from the United States matching the capital inflows to
Germany
D) 7%; massive capital inflows from the United States to Germany
The national debt:
A) is the sum of all past federal surpluses.
B) grows when the government runs a deficit.
C) grows when the government runs a surplus.
D) did not exist until 1998.
Congress increases personal income tax rates to balance the budget. Automatic
stabilizers will _____ the _____ effect of the _____ in aggregate demand.
A) increase; contractionary; decrease
B) decrease; contractionary; decrease
C) increase; expansionary; increase
D) decrease; expansionary; increase
Suppose the economy is in a recessionary gap. To move equilibrium aggregate output
closer to the level of potential output, the best fiscal policy option is to:
A) decrease government purchases.
B) decrease taxes.
C) decrease government transfers.
D) increase real interest rates.
Growth accounting enables us to:
A) calculate how long it takes the economy to grow.
B) calculate the effects of technological progress on economic growth.
C) compare growth rates across countries.
D) better calculate real GDP per capita.
To close an inflationary gap with fiscal policy, the government could:
A) reduce budget allocations to interstate highway maintenance.
B) increase federal subsidies to state universities.
C) lower the corporate income tax rate.
D) raise the average amount awarded for a disability pension.
In a simple economy with no government and no foreign sector, autonomous consumer
spending is $100 and planned investment spending is $300. The marginal propensity to
consume is 0.75.
a. Solve for the equilibrium level of real GDP.
b. If real GDP is $2,000, what is unplanned inventory investment?
In 2010, Congress passed the Dodd-Frank Act, which was designed to improve
regulation of the financial sector and avoid another financial crisis like the one of 2008.
A) True
B) False
Look at the scenario Market Basket. What is the rate of inflation between 2010 and
2011?
A) “10%
B) 11%
C) 32%
D) 0%
Social Security and Medicare:
A) are implicit liabilities.
B) are often included in debt statistics.
C) are discretionary types of fiscal policy.
D) result in less spending by government.
The Federal Reserve never buys U.S. Treasury bills directly from the federal
government because it could:
A) make the budget deficit worse.
B) be a route to disastrous inflation.
C) lead to a recession.
D) reduce the power of the Fed.
If farmer Sam MacDonald can produce 200 pounds of cabbages and no potatoes or no
cabbages and 100 pounds of potatoes and if he faces a linear production possibility
frontier, the opportunity cost of producing an additional pound of cabbage is _____
pound(s) of potatoes.
A) 0.5
B) 2
C) 100
D) 200
The Canadian dollar is a floating currency. If the exchange rate for the Canadian dollar
changes from US$0.95 to US$0.98, the Canadian dollar has appreciated.
A) True
B) False
Refer to the table Balance of Payments. The country’s balance of payments on financial
account is:
A) zero.
B) $375 billion.
C) $355 billion.
D) “$355 billion.
The short-run aggregate supply curve is positively sloped because wages and prices are
not all completely flexible.
A) True
B) False
The difference between GDP and GNP is that:
A) GNP includes international factor income.
B) GDP includes international factor income.
C) GNP includes the money supply.
D) GDP includes the money supply.
A jobless recovery occurs when GDP is growing at a below-average rate and
unemployment is rising.
A) True
B) False
Monetary policy affects aggregate demand through changes in:
A) government spending.
B) consumer and investment spending.
C) tax receipts.
D) export demand.
Frictional unemployment:
A) occurs only during expansions.
B) is due to time workers spend in job search.
C) is the difference between cyclical unemployment and the natural rate of
unemployment.
D) hasn’t occurred since the 1930s.
In a bank run:
A) the bank has a surplus of deposits and must turn customers away.
B) bank customers try to withdraw their deposits.
C) the bank runs out of money to lend to customers.
D) the bank runs out of profitable investments for the funds of its depositors.
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. Which of the following
measures an inflationary gap?
A) Y3 ” Y1
B) Y3 ” Y2
C) Y2 ” Y1
D) Y3 ” Y0
Figure: Sugar and Freight Trains
Look at the figure Sugar and Freight Trains. Suppose the economy is operating at point
C. The opportunity cost of producing the fourth freight train would be:
A) 19 tons of sugar.
B) 45 tons of sugar.
C) 80 tons of sugar.
D) 3 freight trains.
The statistics and data on unemployment are gathered and reported:
A) daily.
B) weekly.
C) monthly.
D) yearly.
Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges,
and this figure shows each nation’s production possibility frontier for the two goods.
Look at the figure Comparative Advantage. The opportunity cost of producing 1 box of
oranges for Eastland is _____ box(es) of peaches.
A) 1
B) 0.25
C) 4
D) 10
Scenario: Income”Expenditure Equilibrium
Real GDP is $8,000, autonomous consumption is $500, and planned investment
spending is $200. The marginal propensity to consume is 0.8.
Look at the scenario Income”Expenditure Equilibrium. How much is planned aggregate
spending?
A) $7,100
B) $6,400
C) $8,000
D) $700
Now that fast food places such as McDonald’s are accepting credit card payments, the:
A) demand for money has increased.
B) demand for money has decreased.
C) demand for money has not been affected.
D) supply of money has increased, as some cash is unused.
If actual GDP is less than potential output, then the economy is:
A) in an inflationary gap.
B) in a recessionary gap.
C) in a long-run equilibrium.
D) at full employment.
The Venezuelan bolivar trades at a fixed exchange rate. If Venezuela uses monetary
policy to change the exchange rate of the bolivar from $0.16 to $0.20, the bolivar has:
A) depreciated.
B) been devalued.
C) appreciated.
D) been revalued.
Between 1970 and 2010, in general, the money supply grew more rapidly in poorer
countries than in wealthy ones.
A) True
B) False