Suppose that a country that has a high average wage level agrees to trade with a country
that has a low average wage level. Which country can benefit?
a. only the one with a low level of output per person.
b. only the one with a high level of output per person.
c. both
d. neither
Which of the following combinations of nominal interest rates and inflation implies a
real interest rate of 7 percent?
a. a nominal interest rate of 5 percent and an inflation rate of 4 percent.
b. a nominal interest rate of 4 percent and an inflation rate of 3 percent.
c. a nominal interest rate of 8 percent and an inflation rate of 1 percent.
d. a nominal interest rate of 14 percent and an inflation rate of 2 percent.
Which of the following statements is correct?
a. A large, well-known corporation such as Proctor and Gamble would generally use
financial intermediation to finance expansion of its factories.
b. On average, indexed funds outperform managed funds.
c. Unlike corporate bonds and stocks, checking accounts are a store of value.
d. Financial intermediaries are institutions through which savers can directly provide
funds to borrowers.
If the nominal interest rate is 5 percent and there is a deflation rate of 3 percent, what is
the real interest rate?
a. 8 percent
b. 2 percent
c. 15 percent
d. 1.7 percent
Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This
year, she spent all of her income to purchase 180 units of corn at $6 per unit.
a. Jane’s nominal income and real income decreased this year.
b. Jane’s nominal income decreased this year, but her real income increased.
c. Jane’s nominal income and real income increased this year.
d. Jane’s nominal income increased this year, but her real income decreased.
Table 3-27
Assume that Huang and Min can switch between producing parasols and producing
porcelain plates at a constant rate.
Refer to Table3-27. Assume that Huang and Min each has 36 labor hours available.
Originally, each person divided his/her time equally between the production of parasols
and plates. Now, each person spends all their time producing the good in which they
have a comparative advantage. As a result, the total output of plates increased by
a. 0.
b. 1.5.
c. 3.
d. 9.
Dollar bills, rare paintings, and emerald necklaces are all
a. media of exchange.
b. units of account.
c. stores of value.
d. All of the above are correct.
If a government started with a budget deficit and moved to a surplus, domestic
investment
a. and the real exchange rate would rise.
b. and the real exchange rate would fall.
c. would rise and the real exchange rate would fall.
d. would fall and the real exchange rate would rise.
Table 3-18
The following table contains some production possibilities for an economy for a given
month.
RefertoTable3-18.If the production possibilities frontier is bowed outward, then “?”
could be
a. 150.
b. 225.
c. 300.
d. 375.
For an imaginary economy, when the real interest rate is 5 percent, the quantity of
loanable funds demanded is $1,000 and the quantity of loanable funds supplied is
$1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2
percent. Currently,
a. the market for loanable funds is in equilibrium.
b. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will rise.
c. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will fall.
d. the quantity of loanable funds demanded exceeds the quantity of loanable funds
supplied, and as a result the real interest rate will rise.
A firm produces construction equipment, some of which it sells to domestic businesses
and some of which it exports. Which of the following effects of capital flight in the
country where it produces would likely increase the quantity of equipment it sells?
a. both what happens to the interest rate and what happens to the exchange rate
b. what happens to the interest rate but not what happens to the exchange rate
c. what happens to the exchange rate but not what happens to the interest rate
d. neither what happens to the interest rate nor what happens to the interest rate.
The cost of inflation reduction is less if people believe that the central bank will really
reduce inflation.
a. True
b. False
New oak tables are normal goods. What would happen to the equilibrium price and
quantity in the market for oak tables if the price of maple tables rises, the price of oak
wood rises, more buyers enter the market for oak tables, and the price of the glue used
in the production of the new oak tables increased?
a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.
The idea that a decrease in the price level raises the real value of households’ money
holdings, which increases consumer spending and the quantity of goods and services
demanded is known as
a. the interest-rate effect.
b. the exchange-rate effect.
c. the theory of liquidity preference.
d. the wealth effect.
In the context of decisionmaking, the word “marginal” is most closely associated with
the word
a. “unimportant.”
b. ‘slow.”
c. “edge.”
d. “irrational.”
In the long run, a higher saving rate
a. cannot increase the capital stock.
b. means that people must consume less in the future.
c. increases the level of productivity.
d. None of the above is correct.
Which of the following is correct?
a. Some bonds have terms as short as a few months.
b. Because they are so risky, junk bonds pay a low rate of interest.
c. Corporations buy bonds to raise funds.
d. All of the above are correct.
Government policy can do nothing about the natural rate of unemployment.
a. True
b. False
The labor force equals the
a. number of people employed.
b. number of people employed plus the number of people unemployed.
c. number of people employed plus the number of people unemployed plus teenagers
between ages 14 and 16 who work at least 10 hours a week.
d. adult population.
Which of the following statements is correct?
a. Buyers determine supply, and sellers determine demand.
b. Buyers determine demand, and sellers determine supply.
c. Buyers determine both demand and supply.
d. Sellers determine both demand and supply.
According to purchasing-power parity, if over the course of a year the price level in the
U.S. rises more than in Canada, then which of the following rises?
a. the U.S. real exchange rate, but not the U.S. nominal exchange rate
b. the U.S. nominal exchange rate, but not the U.S. real exchange rate
c. the U.S. nominal exchange rate and the U.S. real exchange rate
d. neither the real exchange rate nor the nominal exchange rate
Critics of government-run employment agencies and public training programs argue
that the private market is better at matching workers and jobs than the government is.
a. True
b. False
To maintain their standard of living, most people rely on
a. government assistance.
b. their labor earnings.
c. their personal savings.
d. All of the above are correct.
The payments you make on your automobile loan are given in terms of dollars. As
prices rise you notice you give up fewer goods to make your payments.
a. The dollar amount you pay is a nominal value. The number of goods you give up is a
real value.
b. The dollar amount you pay is a real value. The number of goods you give up is a
nominal value.
c. Both the dollar amount you pay and the goods you give up are nominal values.
d. Both the dollar amount you pay and the goods you give up are real values.
Suppose there are constant returns to scale. Now suppose that over time a country
doubles its workers, its natural resources, its physical capital, and its human capital, but
its technology is unchanged. Which of the following would double?
a. both output and productivity
b. output, but not productivity
c. productivity, but not output
d. neither productivity nor output
John has been a sky diver for many years. When the company John works for offers its
employees the option to purchase a life insurance policy, John purchases a policy. This
illustrates the problem of
a. moral hazard.
b. adverse selection.
c. risk-return tradeoff.
d. diversification.
Olivia bakes cakes and Andrew grows corn. Olivia and Andrew both like to eat cake
and eat corn. In which of the following cases is it impossible for both Olivia and
Andrew to benefit from trade?
a. Olivia cannot grow corn and Andrew cannot bake cakes.
b. Olivia is better than Andrew at baking cakes and Andrew is better than Olivia at
growing corn.
c. Olivia is better than Andrew at baking cakes and at growing corn.
d. Both Olivia and Andrew can benefit from trade in all of the above cases.
The Bureau of Labor Statistics counts discouraged workers as
a. employed. Including them as employed makes the unemployment rate lower than
otherwise.
b. unemployed. Including them as unemployed makes the unemployment rate higher
than otherwise.
c. out of the labor force. If the were counted as unemployed the unemployment rate
would be higher.
d. None of the above is correct.
Suppose the interest rate is 4 percent. Which of the following has the greatest present
value?
a. $100 today plus $190 one year from today
b. $150 today plus $140 one year from today
c. $200 today plus $90 one year from today
d. $250 today plus $40 one year from today
Maury did not work last week because fire forced an evacuation of his workplace. The
Bureau of Labor Statistics counts Maury as
a. unemployed and in the labor force.
b. unemployed and not in the labor force.
c. employed and in the labor force.
d. employed and not in the labor force.
When the government attempts to improve equality in an economy the result is often
a. an increase in overall output in the economy.
b. additional government revenue since overall income will increase.
c. a reduction in equality.
d. a reduction in efficiency.
A market includes
a. buyers only.
b. sellers only.
c. both buyers and sellers.
d. the place where transactions occur but not the people involved.
A survey showed that in each of the past 12 months there was one person who was
unemployed who worked in all other months. There were also two people who were
unemployed for all 12 months. What percentage of the unemployment spells during the
year was short term, and what percentage of the unemployment in a given month was
long term?
a. 75% was short term; 33.3% was long term
b. 75% was short term; 66.7% was long term
c. 85.7% was short term; 33.3% was long term
d. 85.7% was short term; 66.7% was long term