The substitution effect of a price change implies that as the price of a good falls, people
are likely to buy less of the good whose price has fallen.
Spending on consumer durables decreases as the interest rate increases.
The value of goods produced in a previous year but sold in the current year is added to
the GDP for the current year.
The government uses the buying power of wages in reporting changes in “nominal
wages” in the economy.
Recall the Application about the incentives to buy hybrid vehicles to answer the
following question(s).
According to the Application, giving subsidies for the purchase of hybrid vehicles was
the most efficient way for the government to reduce CO2 emissions.
Optimistic expectations about the future increase investment spending because they
inflate the price of stock shares.
Two goods are substitutes if an increase in the price of one good leads to an increase in
demand for the other.
When people in France and in Germany buy from and sell to each other, an exchange of
currencies must also take place.
Increases in consumer wealth will cause an increase in autonomous consumption.
In order to get his bachelor’s degree, Timothy gave up an offer for a full time job as a
bartender. Therefore, Timothy incurred an opportunity cost.
In the GDP accounts, investment includes the purchase of newly issued shares of stock.
Money market mutual funds are hard to classify because they are used both for making
transactions and savings.
An increase in demand will cause the equilibrium price and quantity to rise.
Among developed countries during 1955-1988, the central banks of Germany and
Switzerland were the most successful in controlling inflation.
Interest rates will increase if the Fed conducts an open market purchase.
When differences between nominal GDP and real GDP result due to price changes and
nothing else is compared, an index is created called the
A) inflation index.
B) consumer price index.
C) GDP deflator.
D) index of leading indicators.
The principle that what matters to people is the real value or purchasing power of
money is the:
A) marginal principle.
B) principle of diminishing returns.
C) spillover principle.
D) real-nominal principle.
Points outside the production possibilities curve represent combinations of products that
are
A) attainable only if the economy’s resources are fully employed.
B) attainable only if the economy’s resources are not fully employed.
C) attainable if the economy’s resources are either fully employed or not fully
employed.
D) unattainable.
When referring to “marginal” changes, the economic focus is on:
A) changes that affect only a few people or products.
B) large changes on the low end.
C) graduated changes on the high end.
D) small or incremental changes.
If the U.S. population increases, then:
A) the demand for electricity increases.
B) the demand for electricity decreases.
C) the quantity demanded for electricity decreases.
D) the quantity demanded for electricity increases.
Figure 8.2 Refer to Figure 8.2 If the economy currently has K1 level of capital, which
of the following is true?
A) The level of capital will increase through time if saving equals s1 only.
B) The level of capital will increase through time if saving equals s2 only.
C) The level of capital will increase through time if saving equals s1 and s2.
D) The level of capital will stay the same if saving is at s1 or s2.
Jimbo has a comparative advantage over Ned in producing a good if
A) Jimbo can produce more of the good than Ned can in a given time period.
B) Jimbo has a lower opportunity cost of producing the good than does Ned.
C) Jimbo has to trade off more than Ned does to produce the good.
D) Jimbo has a higher opportunity cost of producing the good than does Ned.
Recall the Application about the U.S. “Locomotive Effect”: how U.S. growth affects
foreign economies and the demand for foreign products, to answer the following
question(s). From the early 1990s until quite recently, the U.S. economy grew faster
than the rest of the world, with its share of the world economy increasing from
approximately 26 percent in 1992 to over 32 percent in 2001. Because the U.S.
economy is such an important part of the world economy, its growth promoted growth
in foreign countries.According to this Application, growth in China and India caused
U.S. exports to increase. Because of this increase in U.S. exports, U.S. income will
A) increase by the same amount.
B) increase by a larger amount.
C) decrease by the same amount.
D) decrease by a larger amount.
Figure 18.3 Refer to Figure 18.3. The opportunity cost of producing scooters in Livonia
is
A) 2/3 of a pogo stick.
B) 6/5 of a pogo stick.
C) 1.5 pogo sticks.
D) 1.25 pogo sticks.
Recall the Application about the use of fertilizer and its impact on crop yields to
answer the following question(s). The table is taken from this Application. Fertilizer
and Corn Yield
Refer to the table above. The farmer increased his total production of corn by 9 bushels
per acre after applying
A) the first bag of fertilizer.
B) the second bag of fertilizer.
C) the third bag of fertilizer.
D) the fourth bag of fertilizer.
Define an “inferior good” as it relates to markets.
What is a “change in quantity demanded”? How is a “change in quantity demanded”
illustrated in a demand diagram?
Why are policies that give tax breaks to saving likely to be harder on the poor rather
than the rich?
Suppose that the price of apples decreases and the quantity of apples in the market
decreases. Suggest two reasons why this might have happened.
Explain the Federal Open Market Committee of the Federal Reserve System.
What will happen to the price level and wages if the economy is producing exactly at
full employment?
Why does depreciation decrease the stock of capital?
Explain how accounting rules have been beneficial for markets.