Foreign investment can increase a country’s capital stock.
When applying the marginal principle, you should pick the level at which the activity’s
marginal benefit is less than its marginal cost.
In the short run, it is likely that an increase in the money supply will cause both output
and the price level to increase.
Fiscal policy generally takes the form of regulations specifying the maximum amount
by which the money supply can be changed.
Higher prices lead to higher levels of real wealth.
When supply increases and the supply curve shifts to the right, equilibrium price and
equilibrium quantity will both increase.
The government spending multiplier in a closed economy is the same as the
government spending multiplier in an open economy.
Foreign exchange market intervention involves the purchase or sale of currencies by
governments to influence the market exchange rate.
Jim’s nominal wage increased by 1%, and the prices of goods that Jim buys increased
by 4%. Jim’s real wage has:
A) increased.
B) remained constant.
C) decreased.
D) changed by 5%, but the direction of the change is ambiguous.
According to the method of growth accounting, which of the following contribute to
economic growth?
A) capital growth
B) labor growth
C) technological progress
D) all of the above
The income-expenditure model focuses on changes in
A) output levels.
B) price.
C) import restrictions.
D) operational lags.
Recall the Application which questions whether a standard real business cycle model
can be used to explain both the origin and severity of the Great Depression to answer
the following question(s).According to the Application, during the Great Depression,
real wages ________, which is ________ with a standard real business cycle model.
A) fell; consistent
B) rose; consistent
C) fell; inconsistent
D) rose; inconsistent
Does the term “mandatory spending” mean that spending must go on forever?
A) Yes, once appropriated, spending is indefinite.
B) No, once appropriated, spending is for the life of the program only or until it
changes.
C) Yes, the laws which authorized this spending cannot be changed.
D) Yes, Congress has no right to change these spending programs.
If nominal wages increase by 5 percent while real wages fall by 1 percent, the inflation
rate must be
A) 1 percent.
B) 4 percent.
C) 5 percent.
D) 6 percent.
Recall the Application that questions if the United States can or should adopt a
value-added tax (VAT) to answer the following question(s). The value-added tax is
essentially a sales tax that is levied on each stage of production. Firms pay the value
added tax on their sales and then receive a credit for value-added taxes paid by their
suppliers. Unlike a sales tax, the value-added tax is embedded in the price of
goods.Recall the Application. One difference between a value-added tax and an income
tax is the value-added tax
A) is difficult to collect.
B) is not a consumption tax.
C) does not penalize individuals who save.
D) is a progressive tax.
Suppose that a product benefits from a successful advertising campaign. The result is
that
A) the demand for the product increases.
B) the demand for the product decreases.
C) the supply of the product increases.
D) the supply of the product decreases.
The one organization that has the power to change the total amount of reserves in the
banking system is the
A) Congress.
B) Executive Branch of the Federal Government.
C) U.S. Treasury.
D) Federal Reserve System.
Suppose the unemployment rate is currently at 5 percent. If the number of unemployed
increases by the same number as the number of people unemployed, then:
A) the unemployment rate will increase.
B) the labor force participation rate will decrease.
C) the unemployment rate will decrease.
D) the population growth rate will increase.
Table 5.1
Refer to Table 5.1. Assume that this economy produces only two goods: Good X and
Good Y. The value for this economy’s nominal GDP in year 1:
A) is $110.
B) is $146.
C) is $200.
D) cannot be determined from this information.
The Asian financial crisis of 1997 was due to the fact:
A) that the U.S. continuously raised its interest rates.
B) that Asian countries experienced increasingly larger trade deficits.
C) that Asian inflation rates were out of control.
D) that loss of confidence in several economies resulted in the massive selling of their
currencies.
If the economy finds itself at a point where planned spending is greater than output,
then we will expect to see:
A) a decrease in inventories.
B) an increase in inventories.
C) a decrease in planned spending.
D) an equilibrium level of output.
Recall Application 3, “Oil Supply Disruptions, Speculation and Supply Shocks,” to
answer the following questions:
According to the Application, the actions of oil speculations will:
A) benefit the economy because it smooths out the changes in the prices of oil.
B) benefit the economy because it increases the prices of oil, causing the development
of energy efficient technology.
C) hurt the economy because it causes prices of oil to spike.
D) hurt the economy because it increases the incentives of the economy to import more
oil.
Depreciation is subtracted from GNP to determine
A) net income.
B) net national product (NNP).
C) net GDP.
D) net imbalance on exports.
Explain why the supply of foreign currency in the foreign exchange market is upward
sloping and the demand for foreign currency in the foreign exchange market is
downward sloping.
Define the aggregate demand curve. Explain the impact of an increase in the price level
on the quantity of real GDP demanded.
A business borrows from a bank at 7 percent but expects 3 percent general inflation in
the economy. What are the nominal and real rates of interest facing this borrower?
Explain why budget deficits should not be a source of economic concern in the short
run but at the same time can harm the economy in the long run.
Suppose country A has a per capita income of $1000 while country B has a per capita
income of $2000. If country A’s GDP grows at 7 percent per year, while country B’s
GDP grows at 3.5 percent per year, how long will it take for country A’s income per
capita equal country B’s?
What is the difference between “an increase in supply” and “an increase in quantity
supplied” of a good?
Explain why money demand will be affected when the public expects inflation.
If a government imposes a tax on the producers of a product, in addition to making the
product more costly and less profitable, the tax will ________.
Define a hyperinflation and explain what causes it.