Rational expectations of inflation means that when decisions are made regarding
inflation, people use information rather than making assumptions that inflation will rise
or decline in the future.
Stocks and bonds are types of financial intermediaries.
Economists assume that individuals make informed decisions and act in their own
self-interest.
For most firms, payments to capital inputs are the biggest cost of doing business in the
U.S.
When the country is experiencing a balance of payments deficit, it must devalue its
currency.
A decrease in government spending will lead to an increase in investment.
Figure 4.5 Figure 4.5 illustrates the supply of guitars. A decrease in the supply of
guitars is represented by a movement from:
A) point B to point C.
B) point B to point A.
C) S1 to S0.
D) S1 to S2.
Actual investment purchases in a given period are measured by:
A) the change in business inventories.
B) depreciation.
C) net investment.
D) gross investment.
Suppose that a new study is released stating that consumption of orange juice (a
substitute for apple juice) reduces the risk of cancer and a major freeze destroys half of
the country’s apple crop. What happens to the price and quantity of apple juice?
A) The price of apple juice might rise or fall and the quantity of apple juice falls.
B) The price of apple juice might rise or fall and the quantity of apple juice rises.
C) The price of apple juice falls and the quantity of apple juice falls.
D) The quantity of apple juice might rise or fall and the price of apple juice rises.
In the short run, decreases in government spending will
A) increase the level of prices and GDP.
B) decrease the level of GDP.
C) increase the level of prices.
D) have no effect on either the level of prices or GDP.
Aggregate demand refers to the relationship between
A) prices and the quantity of a good supplied.
B) the price level and the quantity of real GDP supplied.
C) prices and the quantity of a good demanded.
D) the price level and the quantity of real GDP demanded.
Which specific government agency monitors unemployment?
A) Commerce Department
B) Bureau of Labor Statistics
C) Executive Branch
D) State Department
When Mary’s income increases, she purchases fewer hamburgers. We can conclude that
for Mary, hamburger is a(n) ________ good.
A) normal
B) inferior
C) substitute
D) complementary
Which of the following is not a key economic question?
A) What products to produce?
B) Who produces the products?
C) How to produce the products?
D) Who gets the produced products?
Table 6.13 Refer to
Table 6.13. If 1999 is the base year, the inflation rate between 1999 and 2001 is:
A) 1.4%.
B) 114%.
C) 14%.
D) 9%.
Table 6.6 Refer to Table 6.6.
The labor force:
A) equals 10.5 million.
B) equals 136.5 million.
C) equals 147 million.
D) cannot be determined from this information.
If the stock of capital of a nation is ________ while the population ________, the
nation can produce more output, but output per worker falls.
A) fixed; decreases
B) declining; decreases
C) fixed; increases
D) fixed; remains stable
If wages are sticky downward, an increase in labor:
A) demand decreases the wage rate.
B) supply increases the wage rate.
C) demand increases the wage rate.
D) none of the above
According to this Application, if the volatility of energy prices led to expectations of
declining real GDP, investment spending at that time would tend to decrease. This
relationship between the decrease in investment spending and the expected decline in
real GDP would be expressed by the
A) liquidity principle.
B) accelerator theory.
C) present value theory.
D) real-nominal principle.
Explain the transaction and speculative motives for holding money.
What is the “law of demand”?
Show why the balanced-budget multiplier equals one.
Explain why bond prices decrease when the economy is in a boom.
What is the balanced-budget multiplier?
Identify the factors that would shift the autonomous consumption.
Critically evaluate the statement “Honolulu is an expensive place to live. Therefore the
inflation rate must be high in Honolulu.”
Explain how a more liberal immigration policy would affect the labor market
equilibrium and the potential output in the economy.
Explain why, in a simple economy which does not include the government or taxation,
saving equals investment at the equilibrium level of output.