When the consumer price index rises, the typical family
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can offset the effects of rising prices by saving more.
Which of the following is correct?
a. If the Fed purchases bonds in the open market, then the money supply curve shifts
right. A change in the price level does not shift the money supply curve.
b. If the Fed sells bonds in the open market, then the money supply curve shifts right. A
change in the price level does not shift the money supply curve.
c. If the Fed purchases bonds, then the money supply curve shifts right. An increase in
the price level shifts the money supply curve right.
d. If the Fed sells bonds, then the money supply curve shifts right. A decrease in the
price level shifts the money supply curve right.
Table 24-9
The table below lists the per gallon prices of gas and milk for the months of April, May,
and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of
milk each month, and that April is the base period.
RefertoTable24-9. What is the inflation rate for May?
a. 66.4%
b. 60.1%
c. -4.1%
d. 10%
Which of the following is an example of an adverse supply shock?
a. a decrease in the money supply
b. a tax cut
c. a worldwide drought
d. decreased government spending
Many studies indicate changes in monetary policy have most of their effect on
aggregate demand about six months after the change is made.
a. True
b. False
Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of
mints rises from $1.25 to $1.75. If the CPI rises from 140 to 182, then people likely will
buy
a. more cola and more mints.
b. more cola and fewer mints.
c. less cola and more mints.
d. less cola and fewer mints.
The basic tools of supply and demand are central to microeconomic analysis but are of
little use to macroeconomics.
a. True
b. False
If the interest rate is above the Fed’s target, the Fed should
a. buy bonds to increase the money supply.
b. buy bonds to decrease the money supply.
c. sell bonds to increase the money supply.
d. sell bonds to decrease the money supply.
Historical episodes are
a. valuable to economists because they allow economists to see how the science of
economics has evolved.
b. valuable to economists because they allow economists to evaluate economic theories.
c. not of concern to economists because economics is about predicting the future, not
dwelling on the past.
d. not of concern to economists because the exact circumstances of historical episodes
are unlikely to be observed again.
In the open-economy macroeconomic model, net exports equal the quantity of dollars
demanded in the market for foreign currency exchange.
a. True
b. False
In the 1970s and 1980s the U.S. dollar depreciated against the German mark and
appreciated against the Italian lira because U.S. inflation was lower than in Germany
but higher than in Italy.
a. True
b. False
If a county has 25 billion euros of imports, 15 billion euros of exports, and sells 20
billion euros of assets to foreigners, how many foreign assets do domestic residents
purchase?
a. 5 billion euros
b. 10 billion euros
c. 30 billion euros
d. None of the above are correct.
Figure 4-26
RefertoFigure4-26.Which of the following movements would illustrate the effect in the
market for swimming lessons of an increase in the incomes of parents with school-aged
children?
a. Point A to Point B
b. Point C to Point B
c. Point C to Point D
d. Point A to Point D
An increase in the U.S. interest rate discourages Americans from buying foreign assets
and encourages foreigners to buy U.S. assets.
a. True
b. False
The Employment Act of 1946 states that
a. the Fed should use monetary policy only to control the rate of inflation.
b. the government should promote full employment and production.
c. the government should periodically increase the minimum wage and unemployment
insurance benefits.
d. All of the above are correct.
A good in the U.S. costs $20. The same good costs 150 pesos in Mexico. If the nominal
exchange rate is 10 pesos per dollar, what is the real exchange rate?
a. 4/3 so the good is more expensive in the U.S.
b. 4/3 so the good is more expensive in Mexico
c. 3/4 so the good is more expensive in the U.S.
d. 3/4 so the good is more expensive in Mexico
Scenario25-1. An economy’s production form takes the form Y= AF(L, K, H, N).
RefertoScenario25-1. In the production function, which of the following represents
technology?
a. A
b. K
c. H
d. N
If the Federal Reserve increases the growth rate of the money supply, in the long run
a. inflation is higher and the unemployment rate is lower.
b. inflation is higher while the unemployment rate is unchanged.
c. inflation is unchanged while the unemployment rate is lower.
d. None of the above is correct.
Which of the following is correct?
a. An increase in the money supply causes the interest rate to decrease so that aggregate
demand shifts left.
b. An increase in stock prices reduces consumption spending so that aggregate demand
shifts left.
c. An increase in the price level causes the exchange rate to rise so that aggregate
demand shifts left.
d. A recession in other countries reduces U.S. net exports so that U.S. aggregate demand
shifts left.
The recession of 2008-2009 was preceded by
a. a sharp decline in housing prices.
b. large losses among financial institutions that owned mortgage-backed securities.
c. rises in mortgage defaults and home foreclosures.
d. all of the above
When the money market is drawn with the value of money on the vertical axis, an
increase in the money supply
a. increases the price level and increases the value of money.
b. increases the price level and decreases the value of money.
c. decreases the price level and increases the value of money.
d. decreases the price level and decreases the value of money.
The production of which of the following goods was among the four industries with the
largest employment in the United States a century ago?
a. horse shoes
b. woolen goods
c. candles
d. minerals from mining
Recent entrants into the labor force account for about
a. 1/5 of those who are unemployed.
b. 1/4 of those who are unemployed.
c. 1/3 of those who are unemployed.
d. 1/2 of those who are unemployed.
Figure 4-9
RefertoFigure4-9. The graphs show the demand for cigarettes. In Panel (a), the arrows
are consistent with which of the following events?
a. Tobacco and marijuana are complements, and the price of marijuana decreased.
b. Tobacco is a “gateway drug,” and the price of marijuana increased.
c. The price of cigarettes increased.
d. The arrows are consistent with all of these events.
Table 3-21
Assume that Jamaica and Norway can switch between producing coolers and producing
radios at a constant rate. The following table shows the number of coolers or number of
radios each country can produce in one day.
Refer to Table3-21. At which of the following prices would both Jamaica and Norway
gain from trade with each other?
a. 1 radio for 1 cooler
b. 1 radio for 4 coolers
c. 1 radio for 10 coolers
d. Jamaica and Norway would both gain from trade at all of the above prices.
For the purpose of calculating GDP, investment is spending on
a. stocks, bonds, and other financial assets.
b. real estate and financial assets such as stocks and bonds.
c. capital equipment, inventories, and structures, including household purchases of new
housing.
d. capital equipment, inventories, and structures, excluding household purchases of new
housing.
A consumption tax that replaces an income tax
a. only taxes a household on the money it spends.
b. discourages saving.
c. would likely result in a lower level of saving than an income tax.
d. ultimately taxes income twice – once when the household pays income tax and once
when the household makes a purchase.
Which of the following is notcorrect?
a. When a union is present in a labor market, wages are not determined by the
equilibrium of supply and demand.
b. Like any cartel, a union is a group of sellers acting together in the hope of exerting
their joint market power.
c. The process by which unions and firms agree on the terms of employment is called a
strike.
d. Most workers in the U.S. economy are not members of a union.
Figure 4-7
RefertoFigure4-7. The shift from Da to Db is called
a. an increase in demand.
b. a decrease in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.
There are many concerns for risk-averse lenders. Consider the following: 1. Lenders are
concerned that borrowers with the greatest risk are the ones most likely to actively
pursue loans. 2. Lenders are concerned that real GDP will decline leading to reduced
corporate profits. 3. Lenders are concerned that products produced by certain
corporations will become obsolete.
a. 1 is market risk; 2 is firm-specific risk
b. 2 is market risk; 3 is firm-specific risk
c. 3 is market risk; 1 is firm-specific risk
d. 2 is firm-specific risk; 3 is market risk
Suppose a country offers a new investment tax credit. Which curve(s) in the aggregate
demand and aggregate supply model would be affected, and which way would it (they)
shift?
U.S. Investment Tax Credit
Suppose that Congress and the President enact legislation that provides a tax rebate to
businesses that purchase capital goods. Assume other countries make no policy
changes.
RefertoU.S.InvestmentTaxCredit.What happens to the interest rate, U.S. net capital
outflow, and the net capital outflow of foreign countries?
According to the long-run Phillips curve, if the Fed increases the growth rate of the
money supply, what happens to the inflation rate and the unemployment rate in the long
run?
Suppose the number of buyers in a market decreases. As a result, would the demand
curve in this market shift to the right or to the left?
Jennifer takes 2 hours to make a loaf of bread and 1 hour to make a dozen cookies.
Janet takes 3 hours to make a loaf of bread and 3/4 hours to make a dozen cookies.
Who, if either, has an absolute advantage baking bread? Who, if either, has an absolute
advantage making cookies?
If a savings account pays 3.5% interest, then according to the rule of 70 how long will it
take for the account balance to double?
List the five steps for calculating the consumer price index and inflation rate.
To stabilize output, the Federal Reserve will the money supply when aggregate demand
falls.
If the Federal Reserve’s goal is to stabilize aggregate demand, then in response to an
increase in money demand, the Federal Reserve will _____ the money supply.
List the three reasons for why the aggregate-demand curve slopes downward.
List the four components of GDP.
With the understanding that people respond to incentives, outline the possible outcome
for teachers if the K-12 school year is extended to 11 months per year instead of the
existing 9 months per year.
If expected inflation rises but actual inflation remains the same, what happens to the
unemployment rate? Defend your answer.
What effect do protectionist policies have on the trade deficit?
The three main factors of production, or categories of inputs, used by firms to produce
goods and services are
Figure 2-14
Consider the production possibilities curve for a country that can produce sweaters,
apples (in bushels), or a combination of the two.
RefertoFigure2-14.What is the opportunity cost of moving from point T to point R?
When banks decide to increase their reserves, the money supply will(holding all else
constant).
When the government increases its borrowing, the budget _____ increases and
government debt _____. The resulting change in investment due to this increased
government borrowing is called _____.