Consider a country that produces only two goods: bird feeders and binoculars. Suppose
it is possible for this country to increase its production of bird feeders without
producing fewer binoculars. In this case, its current output combination is inefficient.
In the United States, partnership profits are taxed at the business level and then are
taxed again as personal income in the form of dividend payments.
If Gladys sells her 1998 Jeep Cherokee for $3,500 in 2013, the sale of her car
contributes $3,500 to 2013 GDP.
In an open economy, there is interaction with other economies in terms of both trading
of goods and services and borrowing and lending.
A period of economic expansion ends with a business cycle trough.
A normal good is a good for which the demanded decreases as income decreases,
holding everything else constant.
A decrease in the labor force shifts the production possibility frontier inwards over
time.
The problem with inflation is that as prices rise, consumers can no longer afford to buy
as many goods and services.
To obtain real average hourly earnings, nominal average hourly earnings are multiplied
by the CPI.
To increase gas mileage, automobile manufacturers make cars small and light. Large
cars absorb more of the impact of an accident than small cars but yield lower gas
mileage. These facts suggest that a positive relationship exists between safety and gas
mileage.
For developed countries like the United States, GDP will always exceed GNP.
An inferior good is a good for which the quantity demanded increases as the price
decreases, holding everything else constant.
A decrease in the marginal income tax rate is a fiscal policy which will increase
aggregate demand.
Figure 13-2
Refer to Figure 13-2. Ceteris paribus, an increase in workers and firms adjusting to
having previously underestimated the price level would be represented by a movement
from
A) SRAS1 to SRAS2.
B) SRAS2 to SRAS1.
C) point A to point B.
D) point B to point A.
A general formula for the multiplier is
A) .
B) .
C) .
D) .
If net foreign investment is positive, which of the following must be true? (Assume that
the capital account is zero and net transfers are zero.)
A) Capital outflows are less than capital inflows.
B) Domestic investment must be less than national saving.
C) Net exports are negative.
D) None of the above are true when net foreign investment is positive.
Figure 3-8
Refer to Figure 3-8. The graph in this figure illustrates an initial competitive
equilibrium in the market for motorcycles at the intersection of D1 and S1 (point A). If
there is a surplus of motorcycles how will the equilibrium point change?
A) The equilibrium point will move from A to B.
B) The equilibrium point will move from A to C.
C) There will be no change in the equilibrium point.
D) The equilibrium point will move from A to E.
Figure 15-16
Refer to Figure 15-16. In the figure above, suppose the economy in Year 1 is at point A
and expected in Year 2 to be at point B. Which of the following policies could the
Federal Reserve use to move the economy to point C?
A) decrease income taxes
B) decrease the required-reserve ratio
C) buy Treasury bills
D) sell Treasury bills
Most of the unemployment that occurred during the Great Depression was
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) core unemployment.
Figure 3-8
Refer to Figure 3-8. The graph in this figure illustrates an initial competitive
equilibrium in the market for motorcycles at the intersection of D2 and S1 (point C).
Which of the following changes would cause the equilibrium to change to point B?
A) A positive change in the technology used to produce motorcycles and decrease in the
price of motorcycle insurance, a complement to motorcycles.
B) An increase in the wages of motorcycle workers and a decrease in the price of
motorcycle insurance, a complement to motorcycles.
C) An increase in the number of motorcycle producers and an increase in the number of
consumers who prefer riding motorcycles.
D) An increase in the wages of motorcycle workers and an increase in the price of
motorcycle insurance, a complement to motorcycles.
What factors are most important for determining exchange rate fluctuations in the long
run?
A) relative price levels across countries
B) relative rates of productivity growth across countries
C) preferences for domestic and foreign goods across countries
D) All of the above are correct.
The federal funds rate
A) is determined administratively by the Fed.
B) is determined by the supply of and demand for bank reserves.
C) is determined directly by household demand for funds.
D) is determined directly by firm demand for funds.
About ________ of research on new medicines is carried out in the United States. U.S.
A) 10 percent
B) one-half
C) two-thirds
D) 90 percent
An inflation rate of 5% between 2013 and 2014 would be implied by a change in the
GDP deflator from ________ in 2013 to ________ in 2014.
A) 105; 115
B) 200; 205
C) 400; 420
D) 375; 390
Just before, during, and after the recession of 2007-2009, net exports in the United
States
A) fell and remained negative.
B) fell, but remained positive.
C) rose and became positive.
D) rose, but remained negative.
Figure 16-5
Refer to Figure 16-5. In the dynamic model of AD–AS in the figure above, if the
economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal
or monetary policy is pursued, then at point B
A) the unemployment rate is very low.
B) firms are operating below capacity.
C) the economy is above full employment.
D) income and profits are rising.
E) there is pressure on wages and prices to rise.
In 2008, the Treasury and Federal Reserve took action to save large financial firms such
as Bear Stearns and AIG from failing. Which of the following is one reason why these
measures were taken?
A) The Emergency Economic Stabilization Act required the Fed and the Treasury to
provide financial assistance to firms that participated in regular open market actions
with the Fed.
B) The bankruptcy of a large financial firm would force the firm to sell its holdings of
securities, which could cause other firms that hold these securities to also fail.
C) The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time
to buy the firms before they went bankrupt.
D) The failure of these firms would have forced the Fed to increase interest rates, which
could have led to a severe recession.
Table 9-10
Refer to Table 9-10. Suppose an economy has only three goods and the typical family
purchases the amounts given in the table above. If 2006 is the base year, then what is
the CPI for 2013?
A) 14.3
B) 87.5
C) 114.3
D) 160
Inflation tends to ________ during the expansion phase of the business cycle and
________ during the recession phase of the business cycle.
A) increase; decrease
B) decrease; increase
C) decrease; decrease further
D) increase; increase further
Table 9-1
Consider the data above for a simple economy.
Refer to Table 9-1. The unemployment rate for this simple economy equals
A) (100/1,000) x 100.
B) (100/1,100) x 100.
C) (100/15,000) x 100.
D) (100/20,000) x 100.
Workers at a local construction company are paid $32.50 per hour, and they have
incorporated a 4 percent annual raise in their contracts to account for expected inflation.
Explain how unexpected inflation of 2 percent will affect the real wages earned by these
workers and the unemployment rate of these workers.
Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in
long-run macroeconomic equilibrium. For Year 2, graph aggregate demand, long-run
aggregate supply, and short-run aggregate supply such that the condition of the
economy will induce the Federal Reserve to conduct a contractionary monetary policy.
Briefly explain the condition of the economy and what the Federal Reserve is
attempting to do.
Define a partnership.
What do reports that the dollar is “overvalued” mean? How will foreign exchange
markets respond to this information? Support your answer graphically.
Why is the credibility of the Fed’s policy announcements particularly important?
How does the study of microeconomics differ from that of macroeconomics? Give one
example each of an issue studied in microeconomics and in macroeconomics.
Suppose a doctor can earn an additional $10,000 in revenue per year from keeping her
office open on Saturdays. What must the additional cost of keeping the office open on
Saturdays be to make this decision economically rational?
How do government policies that enforce property rights affect economic growth?
Explain whether FedEx’s sales are likely to fluctuate more or less than the sales of each
of the following firms as the economy moves from recession to expansion and back to
recession.
Whirlpool Corporation (appliance manufacturer)
Taco Bell
The Boeing Company (aircraft manufacturer)
GameStop (video game sales and rentals)