Suppose that the adult population is 4 million, the number of unemployed is 0.25
million, and the labor-force participation rate is 75%. What is the unemployment rate?
a. 6.25%
b. 8.3%
c. 9.1%
d. 18.75%
If a bank posts a nominal interest rate of 11 percent, and inflation is expected to be 4
percent, then
a. the expected real interest rate is 11 percent.
b. the expected real interest rate is 7 percent.
c. the expected real interest rate is 4 percent.
d. the expected real interest rate is 15 percent.
Suppose the economy is closed with national saving of $2 trillion, consumption of $8
trillion, and government purchases of $1 trillion. What is GDP?
a. $8 trillion
b. $9 trillion
c. $10 trillion
d. $11 trillion
Which of the following is included in M2 but not in M1?
a. currency
b. demand deposits
c. savings deposits
d. All of the above are included in both M1 and M2.
Figure 8-4
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-4. The tax results in a loss of consumer surplus that amounts to
a. $120.
b. $340.
c. $450.
d. $510.
Mike, a U.S. citizen, buys $1,000 worth of olives from Greece. By itself this purchase
a. increases U.S. imports by $1,000 and increases U.S. net exports by $1,000.
b. increases U.S. imports by $1,000 and decreases U.S. net exports by $1,000.
c. increases U.S. exports by $1,000 and increases U.S. net exports by $1,000.
d. increases U.S. exports by $1,000 and decreases U.S. net exports by $1,000.
Senator Noitall says that in order to help poor countries develop, the United States
should: 1. Prevent U.S. corporations from investing in poor countries because they take
profits that the poor countries should have; 2. Not import goods from poor countries
that use child labor; Work to promote political stability in poor countries; and 4. Reduce
poor countries’ reliance on market forces in their economies. How many of these ideas
are likely to help poor countries grow?
a. 1
b. 2
c. 3
d. 4
Today, bank runs are not a major problem for the U.S. banking system because
a. bank runs are now illegal.
b. banks now hold 100 percent of their deposits in reserve.
c. banks are now all government-operated.
d. the federal government now guarantees the safety of deposits at most banks.
Table 4-6
Refer to Table 4-6. Which combination would produce an increase in equilibrium
quantity and an indeterminate change in equilibrium price?
a. A
b. B
c. C
d. D
If the public decides to hold more currency and fewer deposits in banks, bank reserves
a. decrease and the money supply eventually decreases.
b. decrease but the money supply does not change.
c. increase and the money supply eventually increases.
d. increase but the money supply does not change.
If the quality of a good deteriorates while its price remains the same, then the value of a
dollar
a. rises and the cost of living increases.
b. rises and the cost of living decreases.
c. falls and the cost of living increases.
d. falls and the cost of living decreases.
One of the 20th century’s worst episodes of inflation occurred in
a. the United States in the 1960s.
b. Italy in the 1950s.
c. Russia in the 1930s.
d. Germany in the 1920s.
Relative to a situation in which domestic firms do not compete with foreign firms, firms
in countries that engage in free trade
a. can realize economies of scale more fully.
b. have greater market power.
c. experience larger producer surplus.
d. All of the above are correct.
Historically, the typical price-earnings ratio for stocks is about
a. 3
b. 8
c. 15
d. 26
According to liquidity preference theory, the money-supply curve would shift if the Fed
a. engaged in open-market transactions.
b. changed the discount rate.
c. changed the reserve requirement.
d. did any of the above.
Suppose an economy produces only ice cream cones. If the price level rises, the value
of currency
a. rises, because one unit of currency buys more ice cream cones.
b. rises, because one unit of currency buys fewer ice cream cones.
c. falls, because one unit of currency buys more ice cream cones.
d. falls, because one unit of currency buys fewer ice cream cones.
If you presently have $50,000 saved and earn 15 percent interest per year, about how
many years will it take for your investment to triple?
a. 6
b. 8
c. 10
d. 12
Figure 5-5
Refer to Figure 5-5. At a price of $12 per unit, sellers’ total revenue equals
a. $150.
b. $200.
c. $288.
d. $364.
Which of the following is accurate?
a. Monetary policy is neutral in both the short run and the long run.
b. Though monetary policy is neutral in the long run, it may have effects on real
variables in the short run.
c. Monetary policy has profound effects on real variables in both the short run and the
long run.
d. Monetary policy has profound effects on real variables in the long run, but is neutral
in the short run.
In the basket of goods that is used to compute the consumer price index, which of the
following categories of consumer spending is the smallest?
a. food & beverages
b. recreation
c. housing
d. apparel
Much of macroeconomics attempts to explain
a. changes in the price of oil and gasoline.
b. long-run growth and short-run fluctuations in real GDP.
c. changes in the growth rate of state government spending.
d. changes in the prices and quantities of individual goods and services.
The efficient markets hypothesis says that beating the market consistently is
a. impossible. Many studies find that beating the market is, at best, extremely difficult.
b. impossible. Many studies find that beating the market is relatively easy.
c. relatively easy. Many studies find that beating the market is, at best, extremely
difficult.
d. relatively easy. Many studies find that beating the market is relatively easy.
A country has national saving of $60 billion, government expenditures of $30 billion,
domestic investment of $40 billion, and net capital outflow of $20 billion. What is its
supply of loanable funds?
a. $30 billion
b. $60 billion
c. $70 billion
d. $100 billion
Figure 13-3. The figure shows two demand-for-loanable-funds curves and two
supply-of-loanable-funds curves.
Refer to Figure 13-3. A shift of the supply curve from S1 to S2 is called
a. an increase in the supply of loanable funds.
b. an increase in the quantity of loanable funds supplied.
c. a decrease in the supply of loanable funds.
d. a decrease in the quantity of loanable funds supplied.
Which of the following is both a store of value and regularly used as a medium of
exchange?
a. cash and stocks
b. cash but not stocks
c. stocks but not cash
d. neither cash nor stocks
For an imaginary economy, the value of the consumer price index was 138.75 in 2007,
and the inflation rate was 11 percent between 2006 and 2007. The consumer price index
in 2006 was
a. 125.
b. 127.75.
c. 149.75.
d. 154.01.
Figure 14-4. The figure shows a utility function for Dexter.
Refer to Figure 14-4. Suppose the vertical distance between the points (0, A) and (0,
B) is 12. If his wealth increased from $1,300 to $1,800, then
a. Dexter’s subjective measure of his well-being would increase by less than 12 units.
b. Dexter’s subjective measure of his well-being would increase by more than 12 units.
c. Dexter would change from being a risk-averse person into a person who is not risk
averse.
d. Dexter would forgo the insurance he bought when his wealth was $1,300.
The president of a poor country has announced that he will implement the following
measures which he claims are designed to increase growth: Reduce corruption in the
legal system; 2. Reduce reliance on market forces because they allocate goods and
services in an unfair manner; 3. Restrict investment in domestic industries by foreigners
because they take some of the profits out of the country; 4. Encourage trade with
neighboring countries; and 5. Increase the fraction of GDP devoted to consumption.
How many of these measures will have a positive effect on growth?
a. 1
b. 2
c. 3
d. 4
Unions
a. do not affect the natural rate of unemployment.
b. lower the wages of unionized workers.
c. raise the profits of unionized firms.
d. lower the wages of workers in industries without unions.
Figure 6-19
Refer to Figure 6-19. How much tax revenue does this tax produce for the
government?
a. $24
b. $30
c. $32
d. $56
A high demand for a company’s stock is an indication that
a. the company is in need of funds.
b. the company has recently sold a large quantity of bonds.
c. people are optimistic about the company’s future.
d. people are pessimistic about the company’s future.
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
Which of the following statements about the consumers’ responses to rising gasoline
prices is correct?
a. About 10 percent of the long-run reduction in quantity demanded arises because
people drive less and about 90 percent arises because they switch to more fuel-efficient
cars.
b. About 90 percent of the long-run reduction in quantity demanded arises because
people drive less and about 10 percent arises because they switch to more fuel-efficient
cars.
c. About half of the long-run reduction in quantity demanded arises because people
drive less and about half arises because they switch to more fuel-efficient cars.
d. Because gasoline is a necessity, consumers do not decrease their quantity demanded
in either the short run or the long run.
Labor Market Data
Below is some hypothetical data on the labor market.
Refer to Labor Market Data. If the government imposed a minimum wage of $5,
what would unemployment be?
a. 0
b. 2,000
c. 3,000
d. 5,000
The Bureau of Labor Statistics’ U-1 measure of joblessness is smaller than its U-6
measure of joblessness.
Economists acting as scientists make positive statements, while economists acting as
policy advisers make normative statements.
The duties of the Council of Economic Advisers are to advise the president of the
United States and to determine U.S. monetary policy.
Constant returns to scale is the point on a production function where increasing inputs
will no longer increase output.
A Turkish firm excahnges lira (Turkish currency) for dollars. It then uses these dollars
to purchase computers from the U.S. These actions decrease U.S. net capital outflow
and increase U.S. net exports.
Fill in the table below, showing whether equilibrium price and equilibrium quantity go
up, go down, stay the same, or change ambiguously.
If orange juice and apple juice are substitutes, an increase in the price of orange juice
will shift the demand curve for apple juice to the left.
The history of the textile industry raises important questions for economic policy.
If a company making frozen orange juice expects the price of its product to be higher
next month, it will supply more to the market this month.
Over the last 140 years or so, on average Canada’s real GDP per-person grew faster than
that of the U.K.
Trade can make everyone better off except in the case where one person is better at
doing everything.
The government purchases component of GDP includes salaries paid to soldiers but not
Social Security benefits paid to the elderly.
If the price elasticity of demand is equal to 0, then demand is unit elastic.
Since 1946, the president of the United States has received guidance from the Council
of Economic Advisers.
When a binding price ceiling is imposed on a market for a good, some people who want
to buy the good cannot do so.