Suppose that monetary neutrality and the Fisher effect both hold. An increase in the
money supply growth rate increases
a. the inflation rate and growth of real GDP.
b. the inflation rate but not the growth rate of real GDP.
c. the growth rate of real GDP, but not the inflation rate.
d. neither the inflation rate nor the growth rate of real GDP.
Which of the following is correct?
a. Nearly all economists believe that unions are bad for the economy as a whole.
b. Unionized firms pay wages above the competitive equilibrium level.
c. Unions increase the level of employment in unionized firms.
d. Unions decrease the level of employment in firms without unions.
If WarmWear, a U.S.manufacturer of winter clothing, opens a new factory in Austria,
then
a. Austrian GNP increases by more than Austrian GDP, because GDP includes income
earned by foreigners working in Austria.
b. Austrian GNP increases by more than Austrian GDP, because GDP excludes income
earned by foreigners working in Austria.
c. Austrian GNP increases by less than Austrian GDP, because GDP includes income
earned by foreigners working in Austria.
d. Austrian GNP increases by less than Austrian GDP, because GDP excludes income
earned by foreigners working in Austria.
A rapid increase in the number of workers, other things the same, is likely in the short
term to
a. raise real GDP per person, but decrease real GDP.
b. decrease both real GDP and real GDP per person.
c. raise both real GDP and real GDP per person.
d. raise real GDP, but decrease real GDP per person.
In the language of macroeconomics, investment refers to
a. saving.
b. the purchase of new capital.
c. the purchase of stocks, bonds, or mutual funds.
d. All of the above are correct.
“Other things equal, when the price of a good rises, the quantity demanded of the good
falls, and when the price falls, the quantity demanded rises.” This relationship between
price and quantity demanded
a. applies to most goods in the economy.
b. is represented by a downward-sloping demand curve.
c. is referred to as the law of demand.
d. All of the above are correct.
As the price level rises,
a. the exchange rate falls, so net exports fall.
b. the exchange rate falls, so net exports rise.
c. the exchange rate rises, so net exports fall.
d. the exchange rate rises, so net exports rise.
Figure 5-11
Refer to Figure 5-11. If the price falls from point A to point B, total revenue
a. increases, and demand is price elastic.
b. decreases, and demand is price elastic.
c. increases, and demand is price inelastic.
d. decreases, and demand is price inelastic.
Table 4-9
The demand schedule below pertains to sandwiches demanded per week.
Refer to Table 4-9. Suppose x = 1. Then the slope of the market demand curve is
a. -3.
b. -1/3.
c. 1/3.
d. 3.
Congress relies on economists at the Congressional Budget Office to
a. enforce the nation’s antitrust laws.
b. set the nation’s monetary policy.
c. provide evidence that incumbent members of Congress are performing well in their
jobs.
d. provide independent evaluations of policy proposals.
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. The opportunity cost of 1 novel for Jordan is
a. 1/3 poem.
b. 3 poems.
c. 4 poems.
d. 12 poems.
A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its
inventory. In the second quarter of 2010 the firm sells the nail guns to a U.S.
construction company. In which quarter(s) is (are) GDP higher?
a. the first and the second
b. the first but not the second
c. the second but not the first
d. neither the first nor the second
A bank has a 10 percent reserve requirement, $4,000 in deposits, and has loaned out all
it can given the reserve requirement.
a. It has $40 in reserves and $3,960 in loans.
b. It has $400 in reserves and $3,600 in loans.
c. It has $444 in reserves and $3,556 in loans.
d. None of the above is correct.
For an imaginary economy, the value of the consumer price index was 140 in 2006 and
149.10 in 2007. The economy’s inflation rate for 2007 was
a. 6.1 percent.
b. 6.5 percent.
c. 9.1 percent.
d. 49.1 percent.
Suppose that the real exchange rate between the United States and Kenya is defined in
terms of baskets of goods. Other things the same, which of the following will increase
the real exchange rate (that is increase the number of baskets of Kenyan goods a basket
of U.S. goods buys)?
a. an increase in the number of Kenyan shillings that can be purchased with a dollar
b. an increase in the price of U.S. baskets of goods
c. a decrease in the price in Kenyan shillings of Kenyan goods
d. All of the above are correct.
Which of the following would not be an expected response from a decrease in the price
level and so help to explain the slope of the aggregate-demand curve?
a. When interest rates fall, In-and-Out Convenience Stores decides to build some new
stores.
b. The exchange rate falls, so French restaurants in Paris buy more Kansas beef.
c. Tyler feels wealthier because of the price-level decrease and so he decides to remodel
his kitchen.
d. With prices down and wages fixed by contract, Fargo Concrete Company decides to
lay off workers.
Figure 3-6
Maxine’s Production Possibilities Frontier Daisy’s Production Possibilities
Frontier
Refer to Figure 3-6. Suppose Maxine decides to increase her production of tarts by 5.
What is the opportunity cost of this decision?
a. 2/5 pie
b. 2 pies
c. 5/2 pies
d. 10 pies
Stock represents
a. a claim to a share of the profits of a firm.
b. ownership in a firm.
c. equity finance.
d. All of the above are correct
The deviation of unemployment from its natural rate is called
a. the normal rate of unemployment.
b. deviant unemployment.
c. cyclical unemployment.
d. fluctuating unemployment.
Figure 19-5
Refer to Figure 19-5. Starting from r2 and E3, an increase in the budget surplus can be
illustrated as a move to
a. r3 and E4.
b. r3 and E2.
c. r1 and E4.
d. r1 and E2.
U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory
in Denmark. Borrowing for factories in which location(s) is included in the U.S.
demand for loanable funds?
a. The U.S. only.
b. Denmark only.
c. The U.S. and Denmark.
d. Neither the U.S. nor Denmark.
Suppose that there are diminishing returns to capital. Suppose also that two countries
are the same except one has more capital per worker and so it has more real GDP per
worker than the other. Finally, suppose that the saving rate in both countries increases
from 4 percent to 7 percent. Over the next ten years we would expect that
a. the growth rate will not change in either country.
b. the country that started with less capital per worker will grow faster.
c. the country that started with more capital per worker will grow faster.
d. both countries will grow and at the same higher rate.
Which of the following is upward-sloping?
a. both the long-run and the short-run Phillips curve
b. neither the long-run nor the short-run Phillips curve
c. the long-run Phillips curve, but not the short-run Phillips curve
d. the short-run Phillips curve, but not the long-run Phillips curve
Table 3-3
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Machine Minutes
Needed to Make 1
Refer to Table 3-3. Zimbabwe has an absolute advantage in the production of
a. toothbrushes and a comparative advantage in the production of toothbrushes.
b. toothbrushes and a comparative advantage in the production of hairbrushes.
c. hairbrushes and a comparative advantage in the production of toothbrushes.
d. hairbrushes and a comparative advantage in the production of hairbrushes.
You put money into an account and earn a real interest rate of 4 percent. Inflation is 2
percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of
interest?
a. 1.2 percent
b. 2.8 percent
c. 4.8 percent
d. None of the above is correct.
Figure 8-17
The vertical distance between points A and B represents the original tax.
Refer to Figure 8-17. If the government changed the per-unit tax from $5.00 to $2.50,
then the price paid by buyers would be $7.50, the price received by sellers would be $5,
and the quantity sold in the market would be 1.5 units. Compared to the original tax
rate, this lower tax rate would
a. increase government revenue and increase the deadweight loss from the tax.
b. increase government revenue and decrease the deadweight loss from the tax.
c. decrease government revenue and increase the deadweight loss from the tax.
d. decrease government revenue and decrease the deadweight loss from the tax.
When a tax is placed on the sellers of a product, buyers pay
a. more, and sellers receive more than they did before the tax.
b. more, and sellers receive less than they did before the tax.
c. less, and sellers receive more than they did before the tax.
d. less, and sellers receive less than they did before the tax.
For which of the following goods is the income elasticity of demand likely highest?
a. water
b. diamonds
c. hamburgers
d. housing
Table 3-6
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
Hours Needed
To Make 1 Amount Produced
in 40 Hours
Refer to Table 3-6. We could use the information in the table to draw a production
possibilities frontier for Maya and a second production possibilities frontier for Miguel.
If we were to do this, measuring toasters along the horizontal axis, then
a. the slope of Maya’s production possibilities frontier would be -1.6 and the slope of
Miguel’s production possibilities frontier would be -2.
b. the slope of Maya’s production possibilities frontier would be -0.625 and the slope of
Miguel’s production possibilities frontier would be -0.5.
c. the slope of Maya’s production possibilities frontier would be 0.625 and the slope of
Miguel’s production possibilities frontier would be 0.5.
d. the slope of Maya’s production possibilities frontier would be 1.6 and the slope of
Miguel’s production possibilities frontier would be 2.
If saving is greater than domestic investment, then
a. there is a trade deficit and Y > C + I + G.
b. there is a trade deficit and Y < C + I + G.
c. there is a trade surplus and Y > C + I + G.
d. there is a trade surplus and Y < C + I + G.
Economists agree that increases in the money-supply growth rate increase inflation and
that inflation is undesirable. So why have there been hyperinflations and how have they
been ended?
Other things the same, an increase in the foreign price level leads to an increase in the
real exchange rate.
As the interest rate increases, what happens to the present value of a future payment?
Explain why changes in the interest rate will lead to changes in the quantity of loanable
funds demanded and investment spending.
Both the value of hamburgers sold by a restaurant and the value of the beef it used to
make these hamburgers are included in GDP.
The minimum wage is more often binding for teenagers than for other members of the
labor force.
When an economy’s government goes from running a budget deficit to running a budget
surplus, the economy’s long-run growth prospects are improved.
The inflation rate reported in the news is usually calculated from the GDP deflator
rather than the consumer price index.
Consumer price index =
A tax of $1 on buyers shifts the demand curve downward by exactly $1.
The nation of Loneland does not allow international trade. In Loneland, you can buy 1
pound of beef for 2 pounds of cheese. In neighboring countries, you can buy 2 pounds
of beef for 3 pounds of cheese. If Loneland were to allow free trade, it would export
cheese.
The production possibilities frontier is a graph that shows the various combinations of
outputs that the economy can possibly produce given the available factors of production
and the available production technology.
The natural rate of unemployment is constant over time.
If new government regulations designed to protect wetlands remove very productive
farmland from production, then the production possibilities frontier will shift inward.
M2 is both larger and less liquid than M1.
Economists usually have to make do with whatever data the world happens to give
them.
Credit risk refers to the probability that the issuer of a bond will fail to pay some or all
of the interest or principal.
If aggregate demand and aggregate supply both shift right, we can be sure that the price
level is higher in the short run.
When demand is inelastic, a decrease in price increases total revenue.
A tax on sellers usually causes buyers to pay more for the good and sellers to receive
less for the good than they did before the tax was levied.
Substitution bias causes the CPI to understate the increase in the cost of living from one
year to the next.