We would expect the interest rate on Bond A to be higher than the interest rate on Bond
B if the two bonds have identical characteristics except that
a. the credit risk associated with Bond A is lower than the credit risk associated with
Bond B.
b. Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat
Corporation.
c. Bond A has a term of 20 years and Bond B has a term of 2 years.
d. All of the above are correct.
You could borrow $2,000 today from Bank A and repay the loan, with interest, by
paying Bank A $2,154 one year from today. Or, you could borrow Xdollars today from
Bank B and repay the loan, with interest, by paying Bank B $2,477.10 one year from
today. In order for the same interest rate to apply to the two loans, X=
a. $2,300.00.
b. $2,450.00.
c. $2,500.00.
d. $2,525.50.
The effect of an increase in the price level on the aggregate-demand curve is
represented by a
a. shift to the right of the aggregate-demand curve.
b. shift to the left of the aggregate-demand curve.
c. movement to the left along a given aggregate-demand curve.
d. movement to the right along a given aggregate-demand curve.
Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best
baseball players can earn more than 400 times as much as Babe Ruth earned in 1931.
However, prices have also risen since 1931. We can conclude that
a. the best baseball players today are about 400 times better off than Babe Ruth was in
1931.
b. because prices have also risen, the standard of living of baseball stars hasn’t changed
since 1931.
c. one cannot make judgments about changes in the standard of living based on changes
in prices and changes in incomes.
d. one cannot determine whether baseball stars today enjoy a higher standard of living
than Babe Ruth did in 1931 without additional information regarding increases in prices
since 1931.
RefertoFigure2-9,Panel(a)andPanel(b).Which of the following is nota result of the
shift of the economy’s production possibilities frontier from Panel (a) to Panel (b)?
a. the tradeoff between the production of donuts and coffee changes
b. the opportunity cost of a cup of coffee is higher at all levels of coffee production
c. production of 4 donuts and 2 cups of coffee becomes possible
d. production of 1 donut and 4 cups of coffee becomes efficient
The Federal Reserve
a. requires little time to change policy and aggregate demand responds quickly.
b. requires little time to change policy but aggregate demand responds slowly.
c. usually requires a substantial time to change policy but aggregate demand responds
quickly.
d. usually requires a substantial time to change policy and aggregate demand responds
slowly.
The price index was 128 in 2013, and the inflation rate was 24 percent between 2012
and 2013. The price index in 2012 was
a. 104.0.
b. 103.2.
c. 158.7.
d. 152.0.
The actions of buyers and sellers naturally move markets toward equilibrium.
a. True
b. False
The content of the basket of goods and services used to compute the CPI changes every
month.
a. True
b. False
Which of the following is correct if there is an adverse supply shock?
a. The short-run aggregate supply curve and the short-run Phillips curve both shift right.
b. The short-run aggregate supply curve and the short-run Phillips curve both shift left.
c. The short-run aggregate supply curve shifts right and the short-run Phillips curve
shifts left.
d. The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts
right.
If the United States imposes an import quota on clothing, then U.S. exports
a. increase, U.S. imports increase, and U.S. net exports will not change.
b. increase, U.S. imports decrease, and U.S. net exports increase.
c. decrease, U.S. imports increase, and U.S. net exports decrease.
d. decrease, U.S. imports decrease, and U.S. net exports will not change.
Samantha holds stocks in four companies. If she adds stocks of several more companies
she will decrease
a. firm specific risk and market risk.
b. firm specific risk but not market risk.
c. market risk but not firm specific risk.
d. neither firm specific nor market risk.
Banks and mutual funds are examples of financial markets.
a. True
b. False
During the 1990s, the United Kingdom experienced low levels of inflation while
Turkey experienced high levels of inflation. A likely explanation of these facts is that
a. the United Kingdom has a better education system than Turkey.
b. the rate of growth of the quantity of money was slower in the United Kingdom than
in Turkey.
c. workers in Turkey are more productive than workers in the United Kingdom.
d. there are more instances of market power in Turkey than in the United Kingdom.
The law of demand is true for most goods in the economy.
a. True
b. False
In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed
basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40
in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following
statements is correct?
a. When 2006 is chosen as the base year, the consumer price index is 90 in 2007.
b. When 2006 is chosen as the base year, the inflation rate is 150 percent in 2007.
c. When 2007 is chosen as the base year, the consumer price index is 100 in 2006.
d. When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.
The introduction of a new good
a. increases the cost of maintaining the same level of economic well-being.
b. decreases the cost of maintaining the same level of economic well-being.
c. has no impact on the cost of maintaining the same level of economic well-being.
d. may increase or decrease the cost of maintaining the same level of economic
well-being, depending on how expensive the new good is.
Which of the following is an example of a renewable natural resource?
a. fish
b. soybeans
c. wood
d. All of the above are correct.
The money demand curve is downward sloping because as the value of money falls
people desire to hold a larger quantity of money.
a. True
b. False
Workers searching for jobs that best suit them is most closely associated with
a. cyclical unemployment.
b. frictional unemployment.
c. seasonal unemployment.
d. structural unemployment.
Once the supply curve for a product or service is drawn, it
a. remains stable over time.
b. can shift either rightward or leftward.
c. is possible to move along the curve, but the curve will not shift.
d. tends to become steeper over time.
A rightward shift of the short-run aggregate-supply curve results in a more favorable
trade-off between inflation and unemployment.
a. True
b. False
Figure 3-7
Refer to Figure3-7. If the production possibilities frontier shown for Juba is for 2 hours
of work, then how long does it take Juba to make one bowl?
a. 1/8 hour
b. 1/2 hour
c. 2 hours
d. 8 hours
Figure 4-21
RefertoFigure4-21.What is the equilibrium quantity in this market?
a. 2.5 units
b. 5 units
c. 7.5 units
d. 10 units
Monetary Policy in Flosserland
In Flosserland, the Department of Finance is responsible for monetary policy.
Flosserland has had an inflation rate of 25% for many years.
RefertoMonetaryPolicyinFlosserland.Suppose that the Flosserland Department of
Finance has run a public relations campaign claiming it will reduce inflation to 12.5%
but it actually raises inflation to 30%. Suppose that the public had expected that the
Department of Finance would reduce inflation but only to 22%. Then
a. unemployment falls, but it would have fallen less if people had been expecting 12.5%
inflation.
b. unemployment falls, but it would have fallen less if people had been expecting 25%
inflation.
c. unemployment rises, but it would have risen less if people had been expecting 12.5%
inflation.
d. unemployment rises, but it would have risen less if people had been expecting 25%
inflation.
When the Fed conducts open-market purchases,
a. it buys Treasury securities, which increases the money supply.
b. it buys Treasury securities, which decreases the money supply.
c. it borrows money from member banks, which increases the money supply.
d. it lends money to member banks, which decreases the money supply.
Figure 2-15
Refer to Figure2-15. Consider the production possibilities frontier for an economy that
produces only sofas and cars. When society moves from point A to point B,
a. the opportunity cost is the same as when society moves from point B to point C.
b. it is giving up cars to get sofas.
c. the opportunity cost is increasing.
d. it moves from an inefficient point to an efficient point.
Suppose that real GDP grew more in Country A than in Country B last year.
a. Country A must have a higher standard of living than country B.
b. Country A’s productivity must have grown faster than country B’s.
c. Both of the above are correct.
d. None of the above are correct.
The classical theory of inflation
a. is also known as the quantity theory of money.
b. was developed by some of the earliest economic thinkers.
c. is used by most modern economists to explain the long-run determinants of the
inflation rate.
d. All of the above are correct.
Figure 3-14
RefertoFigure3-14.Arturo’s opportunity cost of one burrito is
a. 3/4 taco and Dina’s opportunity cost of one burrito is 1/2 taco.
b. 3/4 taco and Dina’s opportunity cost of one burrito is 2 tacos.
c. 4/3 tacos and Dina’s opportunity cost of one burrito is 1/2 taco.
d. 4/3 tacos and Dina’s opportunity cost of one burrito is 2 tacos.