Sari puts $100 into an account with an interest rate of 10 percent. According to the rule
of 70, about how much does she have at the end of 21 years?
a. $210
b. $300
c. $800
d. $1,010
When the Fed lowers the growth rate of the money supply, it must take into account
a. only the short-run effect on production.
b. only the short-run effects on inflation and production.
c. only the long-run effect on inflation.
d. the long-run effect on inflation as well as the short-run effect on production.
Economists at the Department of the Treasury
a. design U.S. currency and coins.
b. provide Congress with the annual budget.
c. enforce the U.S. antitrust laws.
d. provide advice on tax policy to the President.
A decrease in the tax rate is more likely to increase the standard of living if the income
effect of a change in the interest rate is
a. small and an increase in private saving tends to have a small impact on the capital
stock.
b. small and an increase in private saving tends to have a large impact on the capital
stock.
c. large and an increase in private saving tends to have a small impact on the capital
stock.
d. large and an increase in private saving tends to have a large impact on the capital
stock.
Figure 2-6
Refer to Figure 2-6. Unemployment could cause this economy to produce at which
point(s)?
a. A, B
b. C, D, F, G
c. C, F, G
d. D
For a number of years Canada and many European countries have had higher average
unemployment rates than the United States. The Phillips curve suggests that these
countries
a. have higher average inflation rates than the United States.
b. have long-run Phillips curves to the right of the United States’.
c. may have less generous unemployment compensation or lower minimum wages.
d. All of the above are consistent with the evidence on unemployment rates.
If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what
is the expected real interest rate?
a. 11.5 percent
b. 7 percent
c. 4.5 percent
d. 2.5 percent
High and unexpected inflation has a greater cost
a. for those who borrow than for those who save.
b. for those who hold a little money than for those who hold a lot of money.
c. for those who have fixed nominal wages than for those who have nominal wages that
adjust with inflation.
d. All of the above are correct.
Suppose that 50 hot dogs are demanded at a particular price. If the price of hot dogs
rises from that price by 5 percent, the number of hot dogs demanded falls to 48. Using
the midpoint approach to calculate the price elasticity of demand, it follows that the
a. demand for hot dogs in this price range is unit elastic.
b. price increase will decrease the total revenue of hot dog sellers.
c. price elasticity of demand for hot dogs in this price range is about 1.22.
d. price elasticity of demand for hot dogs in this price range is about 0.82.
If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the
price elasticity of demand is
a. 0.02.
b. 0.33.
c. 3.
d. 4.
The term “invisible hand” was coined by
a. Adam Smith.
b. David Ricardo.
c. Karl Marx.
d. Benjamin Franklin.
In 2009, based on concepts similar to those used to estimate U.S. employment figures,
the Italian adult non-institutionalized population was 51.070 million, the labor force
was 24.710 million, and the number of people employed was 22.765 million. According
to these numbers, the Italian labor-force participation rate and unemployment rate were
about
a. 48.4% and 7.9%.
b. 48.4% and 3.8%.
c. 44.6% and 7.9%
d. 44.6% and 3.8%
Which of the following is a lesson concerning shifts in aggregate demand?
a. they contribute to fluctuations in output.
b. in the long-run they change real output, but not the price level.
c. policymakers are unable to mitigate the severity of economic fluctuations.
d. All of the above are correct.
Price changes from year to year are not proportional, and consumers respond to these
changes by altering their spending patterns. The problem this creates for inflation
calculations is called
a. deflation.
b. inflation.
c. unmeasured quality change.
d. substitution bias.
What is the fundamental basis for trade among nations?
a. shortages or surpluses in nations that do not trade
b. misguided economic policies
c. absolute advantage
d. comparative advantage
Which of the following transactions does not take place in the markets for the factors of
production in the circular-flow diagram?
a. Jason provides plumbing services for a plumbing company and receives an hourly
wage from the company for his services.
b. Jennifer works as a marriage counselor and her clients pay her on a per-hour basis for
her services.
c. Brody owns several shopping malls and receives rent payments from the companies
that operate those malls.
d. Bree sells advertising for a newspaper and receives a commission from the
newspaper company for each advertisement that she sells.
Figure 22-2
Use the pair of diagrams below to answer the following questions.
Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease
in aggregate demand moves the economy to
a. A and 2.
b. D and 3.
c. E and 3.
d. None of the above is correct.
Figure 2-2
Refer to Figure 2-2. If the outer loop of this circular-flow diagram represents flows of
dollars, then the inner loop includes
a. flows of goods and services from households to firms.
b. flows of inputs from households to firms.
c. flows of rent payments paid to owners of land.
d. flows of wages and salaries paid to workers.
Figure 9-7. The figure applies to the nation of Wales and the good is cheese.
Refer to Figure 9-7. Which of the following is a valid equation for the gains from
trade?
a. Gains from trade = (1/2)(P1 – P0)(Q2 – Q1).
b. Gains from trade = (1/2)(P1 – P0)(Q2 – Q0)
c. Gains from trade = (1/2)(P1 – P0)(Q1 + Q2).
d. Gains from trade = (1/2)(Q1)(P3 – P1).
If the quantity demanded of a certain good responds only slightly to a change in the
price of the good, then the
a. demand for the good is said to be elastic.
b. demand for the good is said to be inelastic.
c. law of demand does not apply to the good.
d. demand curve for the good shifts only slightly in response to a change in price.
Table 3-7
Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
Hours Needed
to Make 1 Quantity Produced
in 2400 Hours
Refer to Table 3-7. Japan has an absolute advantage in the production of
a. cars and a comparative advantage in the production of cars.
b. cars and a comparative advantage in the production of airplanes.
c. neither good and a comparative advantage in the production of cars.
d. neither good and a comparative advantage in the production of airplanes.
When a good is taxed, the burden of the tax
a. falls more heavily on the side of the market that is more elastic.
b. falls more heavily on the side of the market that is more inelastic.
c. falls more heavily on the side of the market that is closer to unit elastic.
d. is distributed independently of relative elasticities of supply and demand.
The supply curve for milk
a. shifts when the price of milk changes because the price of milk is measured on the
vertical axis of the graph.
b. shifts when the price of milk changes because the quantity supplied of milk is
measured on the horizontal axis of the graph.
c. does not shift when the price of milk changes because the price of milk is measured
on the vertical axis of the graph.
d. does not shift when the price of milk changes because the price of milk is measured
on the horizontal axis of the graph.
Ben decided to increase the number of stocks in his portfolio. In doing so, Ben reduced
a. both the firm-specific risk and the market risk of his portfolio.
b. the firm-specific risk, but not the market risk of his portfolio.
c. the market risk, but not the firm-specific risk of his portfolio.
d. neither the market risk nor the firm-specific risk of his portfolio.
A circular-flow diagram is a model that
a. helps to explain how participants in the economy interact with one another.
b. helps to explain how the economy is organized.
c. incorporates all aspects of the real economy.
d. Both (a) and (b) are correct.
Angela reads financial advice columns and concludes the following. Which, if any, of
her conclusions are incorrect?
a. Higher average returns come at the price of higher risk.
b. People who are risk averse should never hold stock.
c. Diversification cannot eliminate all of the risk in stock portfolio.
d. None of her conclusions are incorrect.
Table 3-5
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Labor Hours Needed
to Make 1 Unit of Number of Units
Produced in 40 Hours
Refer to Table 3-5. Assume that England and Spain each has 40 labor hours available.
If each country divides its time equally between the production of cheese and bread,
then total production is
a. 20 units of cheese and 5 units of bread.
b. 25 units of cheese and 7.5 units of bread.
c. 40 units of cheese and 10 units of bread.
d. 50 units of cheese and 15 units of bread.
Over the last fifty years both real GDP and prices have trended upward in most
countries. Continuing real GDP growth and inflation can be explained by
a. continuing technological progress alone.
b. continuing increases in the money supply alone.
c. continued technological progress and continuing increases in the money supply.
d. None of the above can explain continuing real GDP growth and inflation.
The value of a stock is based on the
a. present values of the dividend stream and final price. As a result, the value of a stock
rises when interest rates rise.
b. present values of the dividend stream and final price. As a result, the value of a stock
falls when interest rates rise.
c. future values of the dividend stream and final price. As a result, the value of a stock
rises when interest rates rises.
d. future values of the dividend stream and final price. As a result, the value of a stock
falls when interest rates rise.
Suppose government expenditures on goods and services increase, transfers are
unchanged, and taxes rise by less than the increase in expenditures. These changes in
the government’s budget cause
a. both the equilibrium interest rate and the equilibrium quantity of loanable funds to
fall.
b. both the equilibrium interest rate and the equilibrium quantity of loanable funds to
rise.
c. the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to
fall.
d. the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to
rise.
The broken window fallacy states that when a window breaks and someone spends
money to repair it, they have created new economic activity that would not have
otherwise taken place.
The imposition of a tariff on imported wine will increase the domestic price of wine,
decrease the quantity of wine imported, and increase the quantity of wine produced
domestically.
The equilibrium price is the same as the market-clearing price.
An increase in money demand would create a surplus of money at the original value of
money.
Explain why banks can influence the money supply if the required reserve ratio is less
than 100 percent.
“The US should not restrict employers from outsourcing work to foreign countries” is a
normative statement.
Production possibilities frontiers can be used to illustrate scarcity, trade-offs,
opportunity cost, efficiency, unemployment, technological advances, and economic
growth.
It is best to view the official unemployment rate as a useful but imperfect measure of
joblessness.
When a binding price floor is imposed on a market for a good, some people who want
to sell the good cannot do so.
Additions to inventory subtract from GDP, and when the goods in inventory are sold,
the reductions in inventory add to GDP.
Minimum-wage laws are one reason there is always some unemployment in the U.S.
economy.
To increase domestic investment, a country must increase its saving.
New home construction is included in the consumption component of GDP.
Suppose that in a country the total holdings of banks were as follows:
required reserves = $45 million
excess reserves = $15 million
deposits = $750 million
loans = $600 million
Treasury bonds = $90 million
Show that the balance sheet balances if these are the only assets and liabilities.
Assuming that people hold no currency, what happens to each of these values if the
central bank changes the reserve requirement ratio to 2%, banks still want to hold the
same percentage of excess reserves, and banks don”t change their holdings of Treasury
bonds? How much does the money supply change by?
The more elastic are supply and demand in a market, the greater are the distortions
caused by a tax on that market, and the more likely it is that a tax cut in that market will
raise tax revenue.
Figure 2-14
Refer to Figure 2-14. The opportunity cost of an additional doghouse increases as
more doghouses are produced.
By itself, when a Japanese bank purchases a bond issued by a U.S. coporation, U.S. net
capital outflow rises.
The long-run trend in real GDP is upward. How is this possible given business cycles?
What explains the upward trend?
Policymakers often consider trade restrictions in order to protect domestic producers
from foreign competitors.