The marginal output of labor is the amount of output that can be produced if one more
unit of labor is added.
The marginal propensity to consume is the slope of the consumption function.
According to the quantity equation, money times the velocity of money equals real
GDP.
When one individual writes a check to another individual the money supply will not be
changed.
The relationship between the level of income and investment spending is known as the
consumption function.
If Tom can produce 20 multiple choice questions or 30 true/false questions in an hour,
and Mary can produce 15 multiple choice questions or 15 true/false questions in an
hour, then Tom has a comparative advantage in writing multiple choice questions.
The principle of voluntary exchange is the concept that a voluntary exchange between
two people makes both people better off.
A liquidity trap is a situation in which interest rates are so high that no one can afford to
borrow funds.
During recessions, automatic stabilizers work to reduce government expenditures and
increase government revenues.
The crowding out effect explains how an increase in consumption expenditures can
decrease government expenditure.
When the Fed increases the money supply, it leads to lower interest rates.
Figure 12.2 Refer to Figure 12.2 to answer the question. Series B is a variable that
increases when the economy is growing very fast.
A product produced overseas and sold in another country is an export.
A period in which real GDP in the economy declines for at least six months is referred
to as
A) long term growth.
B) a recession.
C) a positive fluctuation.
D) living standards.
If the government decreased its purchases of goods and services by $4,000, and this
resulted in an eventual decrease in GDP and income of $10,000, the MPC would be
equal to
A) 2.5.
B) 1.5.
C) 0.6.
D) 0.4.
Recall Application 2, “Do European Soccer Stars Change Clubs to Reduce Their
Taxes?” to answer the following questions:
According to the Application, is there evidence that high earning soccer players change
their country of residence in order to minimize their tax liabilities to the government?
A) No. There is no evidence supporting this claim.
B) Yes. Evidence prior to 1995 supports this theory.
C) Yes. Evidence after 1995 supports this theory.
D) Yes. Evidence before and after 1995 supports this theory.
The slope of a straight line is calculated as:
A) the variable on the vertical axis divided by the variable on the horizontal axis.
B) the variable on the horizontal axis divided by the variable on the vertical axis.
C) the run over the rise.
D) the rise over the run.
People who are only working part-time, but want to be working full-time, are classified
officially as
A) unemployed and in the labor force.
B) unemployed and out of the labor force.
C) employed and in the labor force.
D) employed and out of the labor force.
A situation where expansionary monetary policies are ineffective because nominal
interest rates are already low is called:
A) a liquidity trap.
B) a illiquidity drop.
C) a liquidity drop.
D) an illiquidity trap.
The labor force participation rate equals:
A) (labor force) / (population 16 years or older).
B) population /(labor force).
C) (labor force)/ population.
D) employed / population.
How many individuals are included in the Federal Open Market Committee (FOMC)?
A) 16
B) 12
C) 10
D) 8
When the “real” GDP falls, the rate of unemployment generally
A) increases.
B) decreases.
C) stays constant.
D) equals the natural rate.
In the short run, decreases in the money supply growth rate will
A) decrease real interest rates.
B) increase real interest rates.
C) may increase or decrease real interest rates.
D) have no effect on real interest rates.
Hops are used to produce beer. If the price of hops decreases:
A) the demand for beer increases.
B) the demand for beer decreases.
C) the supply of beer increases.
D) the supply of beer decreases.
Which of the following statements is false concerning policies to reduce inflation?
A) They are likely to have a lower cost if people think that the central bank is credible.
B) The costs are likely to exceed the benefits.
C) They have permanent benefits.
D) They are likely to be more credible if the government also makes an attempt to
reduce the budget deficit.
After experiencing about 4 percent inflation the last 10 years, Americans start to believe
that the inflation for this year is also 4 percent. This belief regarding the future path of
inflation based on previous inflation is called:
A) expectations of inflation.
B) rational expectations.
C) intuitions of inflation.
D) a self fulfilling prophecy.
Suppose prices increase by 4% per year. What nominal percentage return on your
savings account would you require to get a 1% real return?
A) 0%
B) 2%
C) 5%
D) 7%
Net investment is defined as:
A) the total amount of investment made in the economy.
B) the gross investment made in the economy plus depreciation.
C) the gross investment made in the economy less depreciation.
D) the depreciation of the capital stock in the economy less gross investment.
Briefly explain the “interest rate effect” explanation for why aggregate demand curve is
downward sloping.
In a closed economy with no government, derive the formula for the equilibrium output.
What is dumping and why would firms engage in it?
Define a “normal good” as it relates to markets.
Explain the economic concept of convergence.
Would consumers benefit more from a tariff or a quota on imports?
What are the two components of federal spending?
Will increased imports of supercomputers for industry promote economic growth?
Empirical evidence suggests that the labor supply curve for the economy is almost
vertical. What does this imply about the effect of an increase in taxes on labor on
employment, output, and real wages?
Consider two individuals, Celia and Sondra, who produce bracelets and pendants.
Celia’s and Sondra’s hourly productivity are as follows:
Who has the absolute advantage or comparative advantage in the production of
bracelets or pendants?