International data on the history of real GDP growth rates shows that over the last 120
years or so, rich countries got richer and poor countries got poorer.
a. True
b. False
Which of the following might cause the demand curve for an inferior good to shift to
the left?
a. a decrease in income
b. an increase in the price of a substitute
c. an increase in the price of a complement
d. None of the above is correct.
The Fed can influence the money supply by
a. changing how much it lends to banks.
b. changing the interest rate it pays banks on the reserves they are holding.
c. using open-market operations.
d. All of the above are correct.
A German citizen buys an automobile produced in the United States by a Japanese
company. As a result,
a. U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German
net exports decrease, and German GNP and GDP are unaffected.
b. U.S. net exports and GDP increase, Japanese GNP increases, German net exports
decrease, German GNP is unaffected, and German GDP decreases.
c. U.S. net exports and GDP increase, Japanese GNP increases, German net exports
decrease, and German GNP and GDP are unaffected.
d. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net
exports, GNP, and GDP decrease.
An increase in the expected price level shifts the short-run aggregate supply curve to
the right.
a. True
b. False
A perpetuity is distinguished from other bonds in that it
a. pays continuously compounded interest.
b. pays interest only when it matures.
c. never matures.
d. will be used to purchase another bond when it matures unless the owner specifies
otherwise.
Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin. Fred and Barney both
gain from the exchange. We can conclude that, for Barney, the opportunity cost of
producing 1 pumpkin is greater than 2 tomatoes.
a. True
b. False
If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent,
what is the nominal interest rate?
a. 4 percent
b. 6 percent
c. 8 percent
d. 10 percent
A favorable supply shock causes output to
a. rise. To counter this a central bank would increase the money supply.
b. rise. To counter this a central bank would decrease the money supply.
c. fall. To counter this a central bank would increase the money supply.
d. fall. To counter this a central bank would decrease the money supply.
onsumer goods that are produced, go into inventory, and are not sold during the current
period are
a. counted as intermediate goods and so are not included in current period GDP.
b. counted in current period GDP only if the firm that produced them sells them to
another firm.
c. included in current period GDP as inventory investment.
d. included in current period GDP as consumption.
Suppose a typical worker in India can produce 32 units of product in an eight-hour day,
while a typical worker in Bangladesh can produce 30 units of product in a 10-hour day.
We can conclude that
a. worker productivity in Bangladesh is higher than in India.
b. the standard of living will likely be higher in India than in Bangladesh.
c. productivity is 4 units per hour for the worker in Bangladesh and 3 units per hour for
the worker in India.
d. there will be no difference between the standard of living in India and Bangladesh.
Harry is a computer company executive, earning $200 per hour managing the company
and promoting its products. His daughter Quinn is a high school student, earning $6 per
hour helping her grandmother on the farm. Harry’s computer is broken. He can repair it
himself in one hour. Quinn can repair it in 10 hours. Harry’s opportunity cost of
repairing the computer is lower than Quinn’s.
a. True
b. False
Economic models omit many details to allow us to see what is truly important.
a. True
b. False
If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five
years, then you need to be making $43,333.33 in five years to have kept pace with
consumer price inflation.
a. True
b. False
Individual supply curves are summed vertically to obtain the market supply curve.
a. True
b. False
In the long run the unemployment rate equals
a. zero.
b. the cyclical rate of unemployment.
c. the natural rate of unemployment.
d. the sum of the cyclical and natural rate of unemployment.
In 2009 Greece’s budget deficit rose and people became worried about the ability of the
Greek government to continue to make payments on its debt. Which of these events
raise a country’s interest rates?
a. an increase in the budget deficit and increased concerns about the ability of the
government to pay back its debt
b. an increase in the budget deficit, but not increased concerns about the ability of the
government to pay back its debt
c. increased concerns about the ability of the government to pay back its debt, but not
an increase in the budget deficit
d. neither an increase in the budget deficit nor increased concerns about the ability of
the government to pay back its debt
Figure 3-3
Refer to Figure3-3. If the production possibilities frontiers shown are each for one day
of production, then which of the following combinations of tacos and burritos could
Arturo and Dina together produce in a given day?
a. 400 tacos and 350 burritos
b. 500 tacos and 250 burritos
c. 600 tacos and 150 burritos
d. 700 tacos and 100 burritos
Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of
wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of
wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and
consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and
consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initiated
between the two countries, and Freedonia sends 30 units of corn to Sylvania in
exchange for 30 units of wheat. Freedonia will now be able to consume a maximum of
a. 30 units of corn and 30 units of wheat.
b. 40 units of corn and 30 units of wheat.
c. 40 units of corn and 20 units of wheat.
d. 10 units of corn and 40 units of wheat.
When the price level rises, the number of dollars needed to buy a representative basket
of goods
a. increases, and so the value of money rises.
b. increases, and so the value of money falls.
c. decreases, and so the value of money rises.
d. decreases, and so the value of money falls
The idea of insurance
a. would not appeal to a risk-averse person.
b. is, other things the same, to reduce the probability of a fire, accident, or death.
c. is to share risk.
d. is to provide a sure thing, not a gamble.
If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency
per dollar, and the foreign price of the same good is 30 units of foreign currency, then
the real exchange rate is 2/3.
a. True
b. False
In the Coen Brothers’ movie TheHudsuckeProxythe board of directors picks someone to
run the company who they believe will make poor decisions. If things turn out as they
plan,
a. the price of a share of stock in the Hudsucker corporation should decline as the
demand for shares falls.
b. the price of a share of stock in the Hudsucker corporation should rise as the demand
for shares rises.
c. the price of a share of stock in the Hudsucker corporation should decline as the
supply of existing shares falls.
d. the price of a share of stock in the Hudsucker corporation should rise as the supply of
existing shares rises.
Which of the following are justifications for running a budget deficit?
a. avoiding raising tax rates
b. stabilizing an economy during a recession
c. both a and b
d. neither a nor b
Reserves decrease if the Federal Reserve
a. raises the discount rate or auctions more credit.
b. raises the discount rate but not if it auctions more credit.
c. lowers the discount rate or auctions more credit.
d. lowers the discount rate but not if it auctions more credit.
A model can be accurately described as a
a. theoretical abstraction with very little value.
b. device that is useful only to the people who created it.
c. realistic and carefully constructed theory.
d. simplification of reality.
A country experiencing a growth rate of 12% per year can go from being one of the
poorest to one of the richest in how many generations?
a. one
b. two
c. three
d. four
If the marginal propensity to consume is 0.75, and there is no investment accelerator or
crowding out, a $15 billion increase in government expenditures would shift the
aggregate demand curve right by
a. $60 billion, but the effect would be larger if there were an investment accelerator.
b. $60 billion, but the effect would be smaller if there were an investment accelerator.
c. $45 billion, but the effect would be larger if there were an investment accelerator.
d. $45 billion, but the effect would be smaller if there were an investment accelerator.
By about 1973, U.S. policymakers had learned that
a. Friedman and Phelps’s analysis of inflation and unemployment had been correct.
b. the short-run Phillips curve shifts when expectations of inflation change.
c. there is no long-run trade-off between inflation and unemployment.
d. All of the above are correct.
Which of the following is an example of financial intermediation?
a. John buys shares of stock issued by a fast food company.
b. A foreign government buys bonds issued by the U.S. Treasury.
c. Susan makes a deposit at a bank and the bank uses this money to make an auto loan
to Ferguson.
d. None of the above is correct.