The price of a stock is equal to the present value of expected future dividend payments
from the stock.
Growth that cannot be explained by increases in capital and labor must be caused by
technological progress.
Recall Application 3, “Oil Supply Disruptions, Speculation and Supply Shocks,” to
answer the following questions:
Oil price speculation always hurt the economy and should be banned in the United
States.
When the Federal Reserve buys bonds on the open market, it decreases the money
supply.
Transfer payments are subtracted from national income to get to personal income.
Temporary tax cuts tend to stimulate consumer spending at the same rate as permanent
tax cuts.
Which of the following is NOT included in M1 or M2?
A) checking account balances
B) currency in circulation outside of commercial banks
C) traveler’s checks
D) credit card balances
Figure 4.3
Figure 4.3 illustrates the supply and demand for blue jeans. If the actual price of blue
jeans is $30, we would expect the price of blue jeans to ________, the quantity
demanded of blue jeans to ________, and the quantity supplied of blue jeans ________.
A) increase; increase; increase
B) increase; decrease; increase
C) decrease; increase; decrease
D) decrease; decrease; increase
Suppose that a market for a product is in equilibrium at a price of $5 per unit. At any
price above $5 per unit:
A) there will be an excess demand for the product.
B) there will be an excess supply of the product.
C) the quantity supplied of the product will be greater than the quantity demanded of
that product.
D) both B and C.
Recall the Application about the success of the 2009 stimulus package to answer the
following question(s).
According to the Application, economist John B. Taylor found that the temporary tax
cuts which were a part of the 2009 stimulus package
A) were very successful in stimulating consumption spending.
B) did very little to stimulate consumption spending.
C) were split very evenly between consumption spending and household saving.
D) were primarily used to pay off home mortgage balances.
Figure 7.1
Refer to Figure 7.1. Start from initial equilibrium. If firms increase their capital stock,
the new real wage could be ________ and the new amount of labor employed could be
________.
A) Z; A
B) Z; C
C) X; A
D) X; C
Broadly defined, investments are:
A) actions that create a cost today but provide benefits in the future.
B) actions that create benefits today and provide costs in the future.
C) actions that create costs and benefits in the future.
D) actions that create costs today, but provide no benefit in the future.
The terms of trade refers to the:
A) slope of the production possibilities curve.
B) relative amounts of the goods that will be exchanged for each other in trade.
C) opportunity cost of producing each good in each country.
D) all of the above
The labor demand curve is downward sloping because as the real wage ________ the
amount of labor hired ________.
A) rises; increases
B) falls; increases
C) falls; decreases
D) rises; remains constant
A balance of payments surplus occurs when a country experiences a ________ that is
not matched by additional purchases of ________ by the private sector.
A) current account surplus; foreign assets
B) current account surplus; government issued debt
C) capital account surplus; home made goods and services
D) financial account surplus; foreign assets
Figure 2.3 In Figure 2.3, an efficient production point on production possibility curve
XV is:
A) point A.
B) point B.
C) point C.
D) none of the above.
Real interest rates ________ and nominal interest rates ________.
A) can be positive or negative; must be positive
B) must be positive; must be positive
C) must be positive; can be positive or negative
D) can be positive or negative; can be positive or negative
An unemployed individual decides to spend the day fishing. The opportunity cost of
fishing is equal to:
A) the cost of bait and any other monetary expenses.
B) zero, because the person doesn’t have a job.
C) the value of the individual’s wages while he was working.
D) the cost of bait, any other monetary expenses, and the value of the best alternative
use of the individual’s time.
Recall the Application about the study by Thomas J. Sargent of hyperinflations after
World War I in Germany, Austria, Hungary, and Poland, and how those hyperinflations
ended, to answer the following question(s).
According to this Application, Sargent concluded that hyperinflations were ultimately
caused by fiscal policy that was financed by
A) money creation and not taxes.
B) taxes and not money creation.
C) both money creation and taxes.
D) sources other than money creation and taxes.
The ability of one person or nation to produce a good at a lower absolute cost than
another is called a(n):
A) market advantage.
B) comparative advantage.
C) absolute advantage.
D) specialization advantage.
Suppose that Bob had $500 in travelers checks unused from his trip to Italy and he
decides to deposit the checks to his checking account. This transaction will:
A) keep M1 and M2 unchanged.
B) increase M1 and M2.
C) decrease M1 and M2.
D) keep M1 unchanged and increase M2.
Which of the following may shift the labor demand curve?
A) an increase in the value of leisure
B) a decrease in the value of leisure
C) more people entering the labor force
D) an increase in the value of output that firms produce
The real interest rate is:
A) the nominal interest rate adjusted for the effects of inflation.
B) the interest rate quoted in financial markets.
C) both of the above.
D) none of the above.
Steel rod prices are an example of:
A) auction prices.
B) regulated prices.
C) custom prices.
D) personal prices.
Explain why only final goods are included in GDP.
If your salary increases at a lower rate than prices are increasing, what would happen to
your buying power?
Rank <from 1 to 3> the following categories of federal spending from larger (1) to
smaller (3): ( ) Discretionary defense spending
( ) Medicare and Medicaid spending
( ) Net interest spending
Define “money.”
What is a centrally planned economy?