If, in an economy experiencing inflation, the government decided to tax real interest
income rather than nominal interest income, this change would cause the real interest
rate to ________ and the equilibrium quantity of loanable funds to ________.
A) fall; rise
B) fall; fall
C) rise; fall
D) rise; rise
Expansionary fiscal policy to prevent real GDP from falling below potential real GDP
would cause the inflation rate to be ________ and real GDP to be ________.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower
By the 2000s, an important market change occurred when investment banks became
significant participants in the secondary market for
A) mortgages.
B) Treasury securities.
C) corporate bonds.
D) currency.
The level of saving in Japan has historically been high relative to the level of domestic
investment. Based on this information, we would expect that
A) Japan’s net foreign investment has been relatively low.
B) Japan’s net exports have been relatively high.
C) Japan’s capital inflows are positive.
D) Japan’s private saving is greater than its public saving.
If inflation in the United States is higher than inflation in other countries, what will be
the effect on net exports for the United States?
A) Net exports will rise as U.S. exports increase.
B) Net exports will rise as U.S. imports decrease.
C) Net exports will decrease as U.S. exports decrease.
D) Net exports will decrease as U.S. imports decrease.
Figure 4-3
Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price
of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order
to raise the price to P2.
Refer to Figure 4-3. What area represents producer surplus at the equilibrium price of
P1?
A) A + B + D
B) D + E
C) D + E + G + H
D) A + B + C + D + E
Which aggregate supply curve has a positive slope?
A) long run only
B) short run only
C) both long run and short run
D) neither long run nor short run
You have a bond that pays $60 per year in coupon payments. Which of the following
would result in a decrease in the price of your bond?
A) Coupon payments on newly-issued bonds fall to $40 per year.
B) The likelihood that the firm issuing your bond will default on debt decreases.
C) The price of a share of stock in the company rises.
D) Coupon payments on newly-issued bonds rise to $75 per year.
Ariel is a Canadian citizen who works in Montreal, Canada and owns a winter home in
Palm Beach, Florida. When Ariel spends the winters in Palm Beach, an increase in the
value of the Canadian dollar relative to the U.S. dollar should
A) help Ariel as each Canadian dollar of her salary is now worth more U.S. dollars.
B) hurt Ariel as each Canadian dollar of her salary is now worth less U.S. dollars.
C) hurt Ariel as it is now more expensive to live in Palm Beach since the Canadian
dollar appreciation.
D) help Ariel as it is now less expensive to live in Canada since the Canadian dollar
appreciation.
Figure 3-5
Refer to Figure 3-5. At a price of $15, the quantity sold
A) is 2 units.
B) is 4 units.
C) is 6 units.
D) cannot be determined.
Figure 4-1
Figure 4-1 shows Kendra’s demand curve for ice-cream cones.
Refer to Figure 4-1. Kendra’s marginal benefit from consuming the third ice cream
cone is
A) $13.00
B) $2.50
C) $1.50
D) $0.50
The United States abandoned the ________ because the government wanted to rapidly
expand the money supply in response to the Great Depression.
A) gold standard
B) Bretton Woods system
C) managed float
D) floating exchange rate system
An increase in the price level causes
A) the money demand curve to shift to the left.
B) the money demand curve to shift to the right.
C) a movement up along the money demand curve.
D) a movement down along the money demand curve.
Which of the following is an examples of spending on factors of production in the
circular flow model?
A) Tuan purchases a cappuccino at the student union.
B) Laurence rents a car to drive to a wedding in San Diego.
C) Yvette pays $50 to join a softball league.
D) The “Lucky Ducky” casino buys a new craps table for the casino floor.
Figure 13-1
Refer to Figure 13-1. Ceteris paribus, an increase in government spending would be
represented by a movement from
A) AD1 to AD2.
B) AD2 to AD1.
C) point A to point B.
D) point B to point A.
Matt’s real wage in 2014 is $26.80. If the price level is 104, what is Matt’s nominal
wage?
A) $30.80
B) $27.87
C) $26.80
D) $25.77
Emma is a road construction worker. During the winter months, Emma finds it more
difficult to get work. The unemployment Emma experiences in the winter is
A) structural.
B) cyclical.
C) seasonal.
D) functional.
Figure 3-4
Refer to Figure 3-4. If the current market price is $25, the market will achieve
equilibrium by
A) a price increase, increasing the supply and decreasing the demand.
B) a price decrease, decreasing the supply and increasing the demand.
C) a price decrease, decreasing the quantity supplied and increasing the quantity
demanded.
D) a price increase, increasing the quantity supplied and decreasing the quantity
demanded.
Figure 2-8
Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala.
Each country produces two goods, pineapples and coconuts.
Refer to Figure 2-8. What is the opportunity cost of producing 1 ton of coconuts in
Costa Rica?
A) 3/8 of a ton of pineapples
B) 2/3 of a ton of pineapples
C) 1 1/2 tons of pineapples
D) 100 tons of pineapples
Using the aggregate supply and demand model, illustrate what happens in the long run
when the economy suffers a supply shock. Begin your analysis by assuming the
economy has suffered the supply shock in the short run, but has not yet adjusted to it in
the long run.
Table 9-21
Source: Energy Information Administration
Refer to Table 9-21. The table above reports the consumer price index and the average
U.S. retail price for unleaded regular gasoline for four different periods since 1976.
Note that the gasoline prices are in cents per gallon.
Calculate the real average retail price of unleaded regular gasoline in 1982-1984
dollars. In which period were gasoline prices the highest in real terms? Also, calculate
the real average retail price of unleaded regular gasoline in 2011 dollars.
You review a salesman’s income over a 5-year period. You note it fluctuates
tremendously from year to year, yet his consumption of goods and services remains
consistently at the same level, year after year. Does this mean that income is not a
determinant of consumption, or could something else explain his behavior?
Explain how the CPI is constructed.
People complain that inflation increases the cost of goods and services and therefore
reduces their purchasing power. If inflation and income grow at the same rate, is this
complaint valid? Explain carefully.
Suppose that the required reserve ratio is 20 percent and you deposit $50,000 of
currency into Comerica Bank. What is the potential increase in deposits in the banking
system brought about by your deposit? What is the potential change in the money
supply?