Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures
a. increase U.S. and Israeli net capital outflow.
b. increase U.S. net capital outflow, but decrease Israeli net capital outflow.
c. decrease U.S. net capital outflow, but increase Israeli net capital outflow.
d. None of the above is correct.
Which of the following would cause prices to fall and output to rise in the short run?
a. short-run aggregate supply shifts right
b. short-run aggregate supply shifts left
c. aggregate demand shifts right
d. aggregate demand shifts left
A firm might offer efficiency wages in order to attract a better pool of applicants.
a. True
b. False
Net capital outflow is the purchase of domestic assets by foreign residents minus the
purchase of foreign assets by domestic residents.
a. True
b. False
When the Fed conducts open-market sales,
a. it sells Treasury securities, which increases the money supply.
b. it sells Treasury securities, which decreases the money supply.
c. it auctions term loans, which increases the money supply.
d. it auctions term loans, which decreases the money supply.
Which of the following statements best describes the economist’s view of finance and
the financial system?
a. The financial system is very important to the functioning of the economy, and the
tools of finance are often helpful to us as individuals when we find ourselves making
certain decisions.
b. The financial system, while interesting, is not very important to the functioning of the
economy; however, the tools of finance are often helpful to us as individuals when we
find ourselves making certain decisions.
c. The financial system is very important to the functioning of the economy; however,
the tools of finance are not particularly helpful to us as individuals since we seldom
make decisions for which those tools are useful.
d. The field of finance is intimately concerned with the financial system and the tools of
finance, and financial economists see great importance in them; however, the
“mainstream” economist sees little value in studying financial markets or the tools of
finance.
Table 3-17
The following table contains some production possibilities for an economy for a given
year.
RefertoTable3-17.If the production possibilities frontier is a straight line, then “?” must
be
a. 180.
b. 200.
c. 220.
d. 240.
If the people thought that many banks in a certain country were at or near the point of
bankruptcy, then that country’s real exchange rate
a. and net exports would rise.
b. would rise and its net exports would fall.
c. would fall and its net exports would rise.
d. and its net exports would fall.
The scientific method can be applied to the study of economics.
a. True
b. False
In the long run, money demand and money supply determine
a. the value of money and the real interest rate.
b. the value of money but not the real interest rate.
c. the real interest rate but not the value of money.
d. neither the value of money nor the real interest rate.
Figure 34-3
RefertoFigure34-3. Which of the following sequences (numbered arrows) shows the
logic of the interest-rate effect?
a. 1, 2, 3, 4
b. 1, 4, 3, 2
c. 3, 4, 2, 1
d. 3, 2, 1, 4
Even though monetary policy is neutral in the short run, it may have profound real
effects in the long run.
a. True
b. False
Which of the following would make the equilibrium real interest rate decrease and the
equilibrium quantity of loanable funds increase?
a. The demand for loanable funds shifts right.
b. The demand for loanable funds shifts left
c. The supply of loanable funds shifts right.
d. The supply of loanable funds shifts left.
Daniel owns a coffee kiosk. All of his employees work 8 hours per day. In 2011, he
employed 6 people who produced a total of 912 cups of coffee each day. In 2012, he
hired a seventh employee and production increased to 1008 cups of coffee each day. In
Daniel’s kiosk, productivity
a. increased by about 10.5 percent
b. increased by 9.5 percent
c. decreased by about 5.6 percent
d. decreased by about 5.3 percent
An increase in household saving causes consumption to
a. rise and aggregate demand to increase.
b. rise and aggregate demand to decrease.
c. fall and aggregate demand to increase.
d. fall and aggregate demand to decrease.
Table 3-31
RefertoTable3-31.For the rancher, the opportunity cost of 16 pounds of meat is
a. 4.0 pounds of potatoes.
b. 5.2 pounds of potatoes.
c. 6.4 pounds of potatoes.
d. 9.6 pounds of potatoes.
A leading environmental group recently published a report contending that humans are
running a “resource deficit” because we are using natural resources faster than they can
be regenerated. The group claims that this means that economic growth will eventually
stop, and will even be reversed. An economist would
a. agree with the report, and would point to rising natural resource prices as evidence.
b. agree with the report, but wouldn’t think it was important because growth will not
slow down for several centuries.
c. disagree with the report, in part because it ignores the mitigating effects of
technological change.
d. disagree with the report because labor and capital are the primary determinants of
growth, and since they are plentiful, growth will not slow down.
If a person is risk averse, then as wealth increases, total utility of wealth
a. increases at an increasing rate.
b. increases at a decreasing rate.
c. decreases at an increasing rate.
d. decreases at a decreasing rate.
A union is an employer association that bargains with workers over wages, benefits, and
working conditions.
a. True
b. False
Real GDP per person in rich countries, such as Germany, is sometimes more than 10
times that of poor countries like India.
a. True
b. False
The effect of budget deficits on interest rates
a. increases private investment, so eventually the capital stock rises.
b. increases private investment, so eventually the capital stock falls.
c. decreases private investment, so eventually the capital stock rises.
d. decreases private investment, so eventually the capital stock falls.
Opponents of tax reforms intended to raise saving argue that such reforms
a. favor those with high income, and that saving may not rise because of the substitution
effect.
b. favor those with high income, and that saving may not rise because of the income
effect.
c. favor those with low income, and that saving may not rise because of the substitution
effect.
d. favor those with low income, and that saving may not rise because of the income
effect.
If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the
real interest rate is
a. -16 percent.
b. -4 percent.
c. 4 percent.
d. 16 percent.
Figure 3-25
RefertoFigure3-25.Chile should specialize in the production of
a. coffee and import soybeans.
b. soybeans and import coffee.
c. both goods and import neither good.
d. neither good and import both goods.
The information for 2008 in millions in the table below was reported by the World
Bank. On the basis of this information, which list below contains the correct ordering of
real GDP per person from highest to lowest?
a. Japan, Germany, United States
b. Japan, United States, Germany
c. Germany, United States, Japan
d. United States, Japan, Germany
If a country has a negative net capital outflow, then
a. on net it is purchasing assets from abroad. This adds to its demand for domestically
generated loanable funds.
b. on net it is purchasing assets from abroad. This subtracts from its demand for
domestically generated loanable funds.
c. on net other countries are purchasing assets from it. This adds to its demand for
domestically generated loanable funds.
d. on net other countries are purchasing assets from it. This subtracts from its demand
for domestically generated loanable funds.
Suppose an economy produces only eggs and ham. In 2009, 100 dozen eggs are sold at
$3 per dozen and 50 pounds of ham sold at $4 per pound. In 2010, the base year, eggs
sold at $1.50 per dozen and ham sold at $5 per pound. For 2009,
a. nominal GDP is $400, real GDP is $500, and the GDP deflator is 80.
b. nominal GDP is $400, real GDP is $500, and the GDP deflator is 125.
c. nominal GDP is $500, real GDP is $400, and the GDP deflator is 80.
d. nominal GDP is $500, real GDP is $400, and the GDP deflator is 125.
The Bureau of Labor Statistics’ U3 measure of joblessness is the official unemployment
rate.
a. True
b. False
If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent
would require sacrificing
a. 2 percent of annual output.
b. 6 percent of annual output.
c. 8 percent of annual output.
d. 11 percent of annual output.
In the markets for the factors of production in the circular-flow diagram, households are
buyers and firms are sellers.
a. True
b. False
A central bank’s setting (or altering) of the money supply is known as
a. open-market operation.
b. interest rate policy.
c. monetary policy.
d. employment policy.
Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she
enters the soft drink section, she notices that the price of ginger ale has increased 15
percent, so she decides to buy some peppermint tea instead. To which problem in the
construction of the CPI is this situation most relevant?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. income effect
Your boss gives you an increase in the number of dollars you earn per hour. This
increase in pay makes
a. your nominal wage increase. If your nominal wage rose by a greater percentage than
the price level, then your real wage also increased.
b. your nominal wage increase. If your nominal wage rose by a greater percentage than
the price level, then your real wage decreased.
c. your real wage increase. If your real wage rose by a greater percentage than the price
level, then your nominal wage also increased.
d. your real wage decrease. If your real wage rose by a greater percentage than the price
level, then your nominal wage decreased.
A reduction in inflation would lead to
a. more frequent price changes and increased variability of relative prices.
b. more frequent price changes and decreased variability of relative prices.
c. less frequent price changes and increased variability of relative prices.
d. less frequent price changes and decreased variability of relative prices.
According to the theory of liquidity preference, the interest rate adjusts to balance the
supply of, and demand for, loanable funds.
a. True
b. False
Table 4-16
The following table shows the supply and demand schedules in a market.
RefertoTable4-16. If the supply curve shifts to the right, will the price in this market
rise or fall?
Explain how trade with other countries is beneficial.
During the early 1930s there were a number of bank failures in the United States. What
did this do to the money supply? The New York Federal Reserve Bank advocated open
market purchases. Would these purchases have reversed the change in the money supply
and helped banks? Explain.
The U.S. buys $500 billion of goods and $250 billion of services from foreign
countries. Foreign countries buy $250 billion of goods and $300 billion of services
from the U.S. What is net exports?
The nation of Zambonia experiences the same rate of population growth every year. If
the population of Zambonia doubles every 35 years, then what is the approximate
annual rate of population growth?
A country recently had saving of 250 billion euro and domestic investment of 400
billion euro. What was the value of this country’s net exports? Show your work.
Why is there a lag between the Fed’s actions and the economy’s response?
Why is the president of the New York Fed always a voting member of the FOMC?
Tracy quits her job, which pays $25,000 a year, to finish her college degree. Her annual
college expenses are $12,000 for tuition and fees and $1,000 for books. What is her
opportunity cost of attending college for the year?
Other things the same, what happens to the price level and quantity of output when an
adverse shift in the short run aggregate supply curve occurs?
Scenario 1-3
It costs a company $35,000 to produce 700 graphing calculators. The company’s cost
will be $35,070 if it produces an additional graphing calculator. The company is
currently producing 700 graphing calculators.
RefertoScenario1-3.What is the minimum price the company will charge for the
701thcalculator?
Bonds issued by state and local governments are called _____ bonds. Bonds issued by
financially shaky corporations are called _____ bonds. Of these two, which type of
bond usually pays a relatively higher interest rate?
Figure 34-14
Refer to Figure 34-14. Households’ desired money holdings are given by MD1. If the
current rate of interest is r3, then there is excess _____. Households will _____
interest-earning assets, which causes the interest rate to _____.
If a country removes an import quota, what happens to its exchange rate, its exports,
and its net exports?
Why is productivity related to the standard of living? In your answer be sure to explain
what productivity and the standard of living mean. Make a list of things that determine
labor productivity.
If a county becomes less likely to default on its bonds, what happens to that country’s
interest rate and exchange rate? Explain.
Provide an example of how current expenditures might benefit future generations.