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The net present value (NPV) of an activity or project is equal to the _____ value of all
of the revenues minus the _____ value of all of the costs associated with it.
A) future; present
B) present; present
C) present; future
D) future; future
An increase in government spending of $300 billion and a tax cut of $300 billion will
have _____ effects on the budget balance and _____ effects on real GDP.
A) equal; equal
B) equal; unequal
C) unequal; equal
D) unequal; unequal
The NAIRU is:
A) the inflation rate at which the unemployment rate does not change over time.
B) a trade-off between unemployment and inflation.
C) the unemployment rate at which inflation does not change over time.
D) a rate at which it is possible to achieve lower unemployment by accepting higher
inflation.
Look at the table Production Possibilities Schedule I. The opportunity cost of producing
the fourth unit of consumer goods is _____ units of capital goods.
A) 2
B) 4
C) 6
D) 8
If Mega Corp. borrows $9,000 and agrees to pay the lender $10,000 in one year, the
annual interest rate on the loan is approximately:
A) 9.0%.
B) 10.0%.
C) 11.1%.
D) 0.9%
In the paradox of thrift:
A) firms that are pessimistic about the future lay off the most saving-conscientious
workers.
B) when families and business are feeling pessimistic about the future, they spend
more.
C) increased saving by individuals increases their chances of becoming unemployed.
D) risky behavior during economic tough times has large negative consequences for
society.
The expenses involved in actually putting together and executing a deal are called
liquidity costs.
A) True
B) False
An individual can reduce financial risk by diversifying investments, that is, by investing
in several assets whose possible losses are independent events.
A) True
B) False
Many impoverished nations struggle with diseases like malaria. How would reduction
or elimination of malaria contribute to long-run economic growth?
According to the law of demand, if the price of steak increases in Rhode Island, the
demand for steak will decrease in Rhode Island.
A) True
B) False
Figure: The Market for Laptop Sleeves
Look at the figure The Market for Laptop Sleeves. Assume that Sand Dare the domestic
supply and demand curves and the world price is PW. Identify the area of government
tax revenue when a tariff raises the domestic price from the world price to PT.
A) D + E + F
B) D + F
C) E
D) B
According to the liquidity preference model:
A) an increase in the money supply lowers the equilibrium rate of interest.
B) a decrease in the money supply lowers the equilibrium rate of interest.
C) the money supply curve is a horizontal line.
D) the demand for money curve is a vertical line.
Table: National Income Accounts
Trillions
Look at the table National Income Accounts. The value of tax revenue is:
A) $1.8 trillion.
B) $4.9 trillion.
C) $2.1 trillion.
D) $1.6 trillion.
Which country had the lowest growth rate of real GDP per capita between 1980 and
2010?
A) Ireland
B) France
C) Argentina
D) Zimbabwe
The primary purpose of financial intermediaries it to transform funds gathered from
savers into financial assets.
A) True
B) False
Suppose an economy has $200,000 of demand deposits and $40,000 of excess reserves,
with a 10% required reserve ratio. If the monetary authorities raise the required reserve
ratio to 20%:
A) excess reserves will rise by 10%.
B) excess reserves will fall by 10%.
C) there will be no more excess reserves in the system.
D) excess reserves will decrease by $20,000.
High inflation rates in the 1970s were helpful to S&Ls because the price of the fees that
S&Ls charged increased faster than their costs, so that the profitability of S&Ls
increased.
A) True
B) False
Figure: The Market for Roses
Look at the figure The Market for Roses. Assume that PAis the autarky price and PWis
the world price. Producer surplus without international trade would be area:
A) X+ Y+ Z.
B) W+ X+ Y.
C) X+ Y.
D) Y.
Look at the scenario Market Basket. What is the value of the price index in 2010?
A) 100
B) 111
C) 90
D) 0
Table: Peanut Butter and Jelly
Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars of
peanut butter and 10 jars of jelly. If 2012 is the base year, what is the rate of inflation
between 2012 and 2013?
A) 4.5%
B) 11.25%
C) 22.5%
D) 44.5%
Look at the table Individual and Aggregate Consumption Functions. Which of the
following represents Mark's individual consumption function?
A) C= 200 + 1.1YD
B) C= 450 + 0.5YD
C) C= 0.8YD
D) C= 200 + 0.9YD
Direct foreign investment means the purchase of:
A) stock in foreign companies.
B) bonds of a foreign country.
C) bank loans in a foreign country.
D) factories in a foreign country.
According to the classical model of the price level, an increase in the money supply will
cause _____ and _____ increase in real GDP.
A) inflation; no long-run
B) inflation; a long-run
C) no inflation; a long-run
D) deflation; no long-run
Table: Price and Output Data
Look at the table Price and Output Data.
The price index for year 2 is:
A) 4.
B) 12.
C) 60.
D) 80.
When a Japanese investor buys stock in General Motors, the _____ account is affected.
A) current
B) financial
C) reserve
D) foreign exchange
Short-term interest rates apply to financial assets due within:
A) 24 hours.
B) three months.
C) six months.
D) one year.
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. If the economy is in short-run
equilibrium at Y1 in panel (b), a contractionary policy to bring the economy back to
potential output at YP would attempt to shift the:
A) SRAS to the left.
B) LRAS to the left.
C) aggregate demand curve to the left by decreasing aggregate demand.
D) aggregate demand curve to the right by increasing aggregate demand.
Under the Glass-Steagall Act, investment banks were allowed to accept deposits that
were not covered by deposit insurance, as well as to trade in financial assets, such as
stocks and bonds.
A) True
B) False
One consequence of equilibrium is that when trying to figure out which checkout line at
the college bookstore is the fastest, one should choose:
A) the line nearest the door.
B) the line farthest from the door.
C) the middle line.
D) randomly; if one line were truly faster, everyone would move to it and it would no
longer be faster.
The U.S. dollar is an example of:
A) commodity-backed money.
B) fiat money.
C) commodity money.
D) near-money.
Between 1980 and 1994, real per capita GDP in sub-Saharan Africa:
A) fell by 13%.
B) fell by 50%.
C) increased by 10%.
D) increased by 7% per year.
Assuming a positive interest rate, the present value of a future payment is _____ its
future dollar amount.
A) exactly the same as
B) approximately the same as
C) less than
D) more than
