Paying efficiency wages are a way for a company to cut costs and become more
efficient, and are therefore lower than market wages.
Stagflation occurs when aggregate supply and aggregate demand both increase.
The Bretton Woods system was established in 1944 and remained in place until the
early 1970s.
The level of crowding out associated with a tax cut will be smaller if the tax change has
a supply-side effect than it will be if it only has a demand-side effect.
The natural rate of unemployment is fixed and unchanging.
The basis for trade is absolute advantage, not comparative advantage.
Peanut butter and jelly are complements. If the price of peanut butter increases, the
demand for jelly will increase.
An argument in favor of the Federal Reserve adopting inflation targeting is that in the
long run, the Fed can have an impact on inflation but not on real GDP.
A welding machine is an example of a factor of production if it is being used to produce
automobiles.
In order to maintain an undervalued yuan to encourage a trade surplus, the Chinese
government must buy dollars and increase the supply of yuan.
The amount of national income in an economy equals the money supply in an economy.
If inflation is unanticipated, no redistribution of income can occur.
If marginal benefit is less than marginal cost, output is inefficiently high.
An increase in government spending will result in an increase in the price level and an
increase in real GDP in the long run.
Figure 19-11
Refer to Figure 19-11. The graph above depicts supply and demand for British pounds
during a trading day. At a fixed exchange rate of $2.00 per pound, the pound is
________ versus the dollar. A ________ of the pound would correct the fundamental
disequilibrium that exists in this market.
A) undervalued; devaluation
B) undervalued; revaluation
C) overvalued; revaluation
D) overvalued; devaluation
A decrease in consumer confidence can put your job at risk if
A) aggregate expenditures fall.
B) consumers expect their incomes to rise in the future.
C) aggregate expenditures rise.
D) consumers expect firms to increase investment in the future.
How do lower taxes affect aggregate demand?
A) They increase disposable income, consumption, and aggregate demand.
B) They reduce disposable income, consumption, and aggregate demand.
C) they increase corporate investment and aggregate demand.
D) They increase aggregate supply and thus increase aggregate demand as well.
Increases in the minimum wage are intended to raise the incomes of low-income
workers. Many economists favor a different policy to achieve this goal, a policy that
avoids the deadweight losses that result from the minimum wage. What is this policy?
A) distribution of food stamps to low-income consumers
B) distribution of vouchers that can be used for rent or mortgage payments
C) the Alternative Minimum Tax
D) the earned income tax credit
The additional benefit to a consumer from consuming one more unit of a good or
service
A) is equal to consumer surplus.
B) is equal to the opportunity cost of consuming the good or service.
C) is equal to marginal benefit.
D) is equal to economic surplus.
Table 4-7
Refer to Table 4-7. The equations above describe the demand and supply for Pauline’s
Pickled Pomegranates. The equilibrium price and quantity for Pauline’s Pickled
Pomegranates are $30 and 15 thousand units. What is the value of producer surplus?
A) $50 thousand
B) $112.5 thousand
C) $225 thousand
D) $337.5 thousand
Figure 19-8
Refer to Figure 19-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the
European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate,
A) there is a shortage of euro equal to 500 million.
B) there is a surplus of euro equal to 300 million.
C) there is a shortage of euro equal to 200 million.
D) there is a surplus of euro equal to 700 million.
The federal budget deficit acts as an automatic stabilizer because
A) government tax revenues decrease during a recession.
B) unemployment insurance payments decrease during a recession.
C) food stamp payments increase during expansionary periods.
D) Medicaid payments increase during expansionary periods.
A balance sheet
A) measures flows of income and expenditure over a given period of time.
B) measures assets, liabilities, and net worth at a giving instance in time.
C) equates flows of revenue with flows of expenditure.
D) None of the above are correct.
Suppose that when the price of hamburgers increases, the Ruiz family increases their
purchases of hot dogs. To the Ruiz family,
A) hamburgers and hot dogs are complements.
B) hamburgers and hot dogs are inferior goods.
C) hamburgers and hot dogs are normal goods.
D) hamburgers and hot dogs are substitutes.
According to the “wealth effect,” when the ________ falls, the ________ rises.
A) inflation rate; nominal value of household assets
B) unemployment rate; average level of household income
C) price level; the nominal value of household wealth
D) price level; the real value of household wealth
What does limited liability mean?
A) The owners of the business are personally responsible for paying expenses incurred
by the business.
B) Only employees can have a claim on the assets of the business.
C) The personal assets of the owners cannot be claimed if the business is bankrupt.
D) Anybody with a liability against a firm can claim only what their liability refers to.
Figure 16-9
Refer to Figure 16-9. Given that the economy has moved from A to B in the graph
above, which of the following would the appropriate fiscal policy to achieve potential
GDP?
A) increase taxes
B) increase government spending
C) decrease the money supply
D) increase interest rates
An increase in government spending may expedite recovery from a recession in the
short run, but in the long run this policy may
A) reduce investment in new capital.
B) make domestic businesses less competitive in international markets as the dollar
appreciates in value.
C) raise interest rates and reduce consumer expenditures on automobiles and new
houses.
D) All of the above are correct.
Why does inflation make nominal GDP a poor measure of the increase in total
production from one year to the next?
Explain what potential conflict exists between shareholders in a corporation and the
corporation’s managers.
Table 16-5
Refer to Table 16-5. The economy is in the state described by the table above. Draw
the dynamic aggregate demand and aggregate supply diagram to illustrate the state of
the economy in year 1 and year 2, assuming that no policy is pursued. Then illustrate
and explain the appropriate fiscal policy to use in this situation. Assume that the policy
results in the economy producing potential GDP.
Suppose you are an advisor to the Business Cycle Dating Committee. You are asked to
look at macroeconomic data to evaluate whether the economy has entered a recession
this year. Which data do you look at? How does the economy behave at the onset of a
recession?
What is the difference between net exports and the current account balance?
How could the existence of an unemployment insurance system or other transfer
programs have reduced the severity of the Great Depression?
List the Fed’s four main monetary goals.