When computing national income, which of the following is included in compensation
of employees?
a. wages and salaries paid to employees
b. employers’ contributions to Social Security and employee benefit plans
c. the monetary value of fringe benefits, tips, and paid vacations
d. all of the above
In most societies, dollar price acts as the main rationing device. If dollar price weren’t
the main rationing device, would there still be a need for some rationing device to take
its place?
a. No, because with dollar price there would be no scarcity, although shortages would
still exist.
b. Yes, because there is a need for a rationing device as long as scarcity exists.
c. Yes, because there is a need for a rationing device as long as the world’s population is
so large.
d. No, because dollar price creates scarcity and without money price scarcity wouldn’t
exist.
e. none of the above
Stagflation consists of
a. high inflation and low unemployment.
b. low inflation and high unemployment.
c. high inflation and high unemployment.
d. high unemployment and an economy in a deep recession.
e. none of the above
An appreciation of the U.S. dollar against foreign currencies tends to __________ U.S.
net exports and shift the U.S. AD curve to the __________.
a. raise; right
b. raise; left
c. lower; right
d. lower; left
The liquidity trap refers to the
a. assumption that the money supply curve is vertical as a result of the Fed’s control.
b. problem that occurs when interest rates reach such high levels that no individuals
want to hold their wealth in the form of money.
c. situation that occurs when an excess supply of money results in people holding more
money than they desire.
d. possibility that interest rates drop so low that people willingly hold all the additions
to the money supply, rather than use it to buy bonds.
In a recessionary gap, the implications of downward wage inflexibility are that there
will be
a. further leftward shifts of AD that worsen unemployment.
b. no further leftward shifts of AD, allowing the shifts in SRAS to close the
recessionary gap.
c. no further leftward shifts of SRAS, allowing the shifts in AD to close the
recessionary gap.
d. no rightward shifts of SRAS, allowing for the possibility of persistent high
unemployment.
A Federal Reserve Bank is located in which of the following cities?
a. Detroit
b. Baltimore
c. Minneapolis
d. Seattle
e. Cincinnati
If the simple quantity theory of money predicts well, what would we expect to see (in
the real world)?
a. changes in the money supply strongly correlated with changes in interest rates
b. changes in the money supply strongly correlated with changes in inflation rates
c. changes in Real GDP strongly correlated with changes in the money supply
d. changes in velocity strongly correlated with changes in the money supply
e. none of the above
Something that provides utility is called a
a. good.
b. bad.
c. want.
d. need.
e. a and d
Political candidates running for the same office tend to voice
a. the same views on how things should be accomplished so that one candidate does not
gain an advantage over the other.
b. the same views on how things should be accomplished, simply because there usually
is no difference between their views.
c. quite different views on how things should be accomplished so that voters will see
that one approach is better than another.
d. the same views on what things should be accomplished, but not speak specifically on
how things should be accomplished.
If it is assumed that people vote for the candidate who comes closer to matching their
own views, then
a. candidates will label themselves as right-wingers.
b. candidates will label themselves as left-wingers.
c. candidates will label their opponents as middle-of-the-roaders.
d. candidates will discuss the means to accomplishing ends.
e. a candidate who is trailing in the polls will modify his or her position to become
more like his or her opponent.
A tariff is a tax on
a. savings.
b. capital goods.
c. imports.
d. land.
One country has a comparative advantage over another country in the production of a
good if it
a. has a curved production possibilities curve and the other country has a linear
production possibilities curve.
b. has a linear production possibilities curve and the other country has a curved
production possibilities curve.
c. is a lower opportunity cost producer of the good.
d. has lower fixed costs than the other country.
Exhibit 2-8
Who has the comparative advantage in the production of good Y?
a. Maria
b. Maya
c. Both Maria and Maya
d. Neither Maria nor Maya
The answer is: “It is sometimes in the best interest of business firms to pay their
employees higher-than-equilibrium wage rates.” What is the question?
a. What do efficiency wage models imply?
b. What do classical economists say?
c. What is the central tenet of Say’s law?
d. What did John Maynard Keynes say was the reason for inflexible wages?
e. none of the above
When a commercial bank borrows from the Fed,
a. the reserves of the bank fall.
b. the bank can make more loans.
c. it must be because the bank is not meeting its reserve requirements.
d. the money supply falls.
Exhibit 1-1
If the student whose study habits are illustrated here is currently studying for the
8th hour, she should
a. cut back on the number of hours she is studying because the marginal benefit of
studying for the 8th hour is less than the marginal cost of doing so.
b. cut back on the number of hours she is studying because the marginal benefit of
studying for the 8th is greater than the marginal cost of doing so.
c. increase the number of hours she is studying because the marginal benefit of
studying for the 8th hour is less than the marginal cost of doing so.
d. increase the number of hours she is studying because the marginal benefit of
studying for the 8th hour is greater than the marginal cost of doing so.
The money supply curve is usually horizontal.
a. True
b. False
During a time of rising asset values, a bank can increase its returns by engaging in
regulatory capital arbitrage.
a. True
b. False