An increase in the price level increases the speculative demand for money.
Intermediate goods are not counted as part of gross domestic product.
Inside lags in fiscal policy tend to take a long time, usually longer than the outside lags.
The basket of goods measured in computing the CPI includes goods produced in prior
years and imported goods.
The United States relies heavily on seignorage to finance its government expenditures.
Corporate profits are taxed by state and local governments, but not by the federal
government.
Investment in energy saving technology is more profitable the larger the uncertainty
regarding the prices of oil in the future.
In the simple economy where y = C + I, equilibrium output is determined at the level of
income where saving equals investment.
For an economy, the government spending multiplier is equal to the investment
multiplier.
When the economy is producing below full employment, the wage-price spiral cannot
occur.
Classical economics refers to a body of work initially developed by John Maynard
Keynes.
To operate efficiently, an economy generally “needs” ________ unemployment.
A) cyclical
B) frictional
C) structural
D) seasonal
Decreases in the stock of capital will lead to
A) increases in wages and total GDP.
B) decreases in wages and increases in GDP.
C) increases in wages and decreases in GDP.
D) decreases in wages and GDP.
Which of the following equations is correct?
A) real interest rate = nominal interest rate – inflation
B) real interest rate = nominal interest rate + inflation
C) nominal interest rate = real interest rate – inflation
D) real interest rate = nominal interest rate * inflation
A constitutional balanced budget amendment would
A) require that federal expenditures equal revenues (excluding borrowing).
B) divide the federal budget into a capital budget and an operating budget.
C) require a majority vote of Congress to authorize spending increases.
D) require that the federal government maintain a balanced operating budget only.
Recall Application 4, “The Argentine Financial Crisis,” to answer the question below:
The Argentine financial crisis of 2002 occurred because:
A) the U.S. dollar continued to appreciate against other currencies.
B) the country experienced increasingly larger trade surpluses.
C) the loss of confidence in the economy resulted in massive selling of U.S. dollars.
D) the Argentine peso was in a flexible exchange rate regime.
An increase in government spending will result in a:
A) shift the aggregate expenditure line upwards.
B) shift the aggregate expenditure line downwards.
C) movement along the aggregate demand curve upwards.
D) movement along the aggregate demand curve downwards.
Suppose that a new advertising campaign extolling the virtues of apple juice is
successful, and a major freeze destroys half of the country’s apple crop. What happens
to the price and quantity of apple juice?
A) The equilibrium price of apple juice might rise or fall and the equilibrium quantity
of apple juice falls.
B) The equilibrium price of apple juice might rise or fall and the equilibrium quantity of
apple juice rises.
C) The equilibrium price of apple juice rises and the equilibrium quantity of apple juice
might rise or fall.
D) The equilibrium price of apple juice falls and the equilibrium quantity of apple juice
might rise or fall.
Figure 4.2 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is
$15, we would expect that
A) demand will decrease until quantity demanded equals quantity supplied.
B) supply will increase until quantity demanded equals quantity supplied.
C) price will decrease until quantity demanded equals quantity supplied.
D) there will be no change in the price since the market is in equilibrium.
Which of the following would result in a higher real wage rate and a greater level of
employment in the United States?
A) an increase in the U.S. population
B) more liberal U.S. immigration policies
C) an increase in the supply of capital in the United States
D) all of the above
The supply of money in the U.S. economy is determined primarily by
A) decisions made by the Federal Reserve and the U.S. Treasury.
B) the actions of the Federal Reserve and the banking system.
C) consumers and the banking system.
D) the demand for money in the economy.
Under current WTO rules, a country can adopt
A) any environmental standard it chooses, even if it discriminates against foreign
producers.
B) any environmental standard it chooses as long as it does not discriminate against
foreign producers.
C) only WTO-approved environmental standards.
D) only the same environmental standards as its immediate geographic neighbors.
An increase in the price level will cause a:
A) movement along the aggregate demand curve upwards.
B) movement along the aggregate demand curve downwards.
C) shift in the aggregate demand curve upwards.
D) shift in the aggregate demand curve downwards.
At the end of the 1990s, the U.S. budget:
A) was in deficit.
B) was in surplus.
C) was balanced.
D) none of the above
Figure 12.1
Refer to Figure 12.1. Suppose the economy is currently at Point A. If interest rates
increase, the economy moves to Point:
A) C.
B) B.
C) E.
D) The economy stays at Point A.
Explain why the money supply does not change when one individual writes a check to
another.
What is cyclical unemployment?
Define “crowding in.”
If your salary increases and the cost of goods in stores increase at the same rate, does a
unit of money have more or less buying power?
Explain what effect an increase in the U.S. price level have on the U.S. dollar-Japanese
yen exchange rate. Make sure you identify which currency appreciates.
Explain the difference between nominal wages and real wages.
Suppose that the natural rate of unemployment for the economy is 6 percent and the
economy is currently experiencing a 9 percent unemployment rate. Explain what will
likely happen to wages and prices as the economy adjusts to the long-run equilibrium.
According to the law of one price, in the long run what would happen to the exchange
rate if the price of a computer in the United States is $1,000, the price of a computer in
Russia is 2,000,000 rubles, and the current exchange rate was $1.00 = 1,000 rubles?