Figure 3-21
Refer to Figure3-21. Without trade, Uzbekistan produced and consumed 12 bolts and
36 nails and Azerbaijan produced and consumed 14 bolts and 24 nails. Then, each
country agreed to specialize in the production of the good in which it has a comparative
advantage and trade 16 bolts for 38 nails. As a result, Uzbekistan gained
a. 2 bolts and 2 nails and Azerbaijan gained 2 bolts and 18 nails.
b. 4 bolts and 2 nails and Azerbaijan gained 2 bolts and 14 nails.
c. 14 bolts and 38 nails and Azerbaijan gained 16 bolts and 42 nails.
d. 16 bolts and 38 nails and Azerbaijan gained 16 bolts and 38 nails.
In 1961, President John F. Kennedy, acting upon advice from his economists, proposed
tax cuts. The advice he received
a. was opposed to the teaching of Keynes, who had taught that tax cuts were
counterproductive.
b. was opposed to the teaching of Keynes, who had taught that all attempts to stabilize
the economy were futile.
c. came from economists who had studied Keynes’s ideas when those ideas were only a
few years old.
d. came from economists who were unaware of Keynes’s ideas because those ideas had
not yet been widely disseminated at that time.
Critics of stabilization policy argue that
a. there is a lag between the time policy is passed and the time policy has an impact on
the economy.
b. the impact of policy may last longer than the problem it was designed to offset.
c. policy can be a source of, instead of a cure for, economic fluctuations.
d. All of the above are correct.
Which of the following lists contains, in this order, natural resources, human capital,
and physical capital?
a. For a restaurant: the land the restaurant was built on, the money it borrowed to buy
supplies, the freezers where the chops and steaks are kept.
b. For a furniture company: wood, the skills and knowledge of its workers, saws.
c. For a railroad: fuel, railroad engines, railroad tracks.
d. None of the above is correct.
Other things the same, which of the following would both make Americans more
willing to buy Italian goods?
a. the nominal exchange rate falls, the price of goods in Italy falls
b. the nominal exchange rate falls, the price of goods in Italy rises
c. the nominal exchange rate rises, the price of goods in Italy falls
d. the nominal exchange rate rises, the price of goods in Italy rises
Which of the following can explain a decrease in the U.S. real exchange rate?
a. the U.S. government budget deficit falls
b. the U.S. impose import quotas
c. the default risk of U.S. assets falls
d. All of the above are correct.
Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and
a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10
workers. For many years, the two countries traded, each completely specializing
according to their respective comparative advantages. Now war has broken out between
them and all trade has stopped. Without trade, Caninia produces and consumes 10
blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5
meals per day. The war has caused the combined daily output of the two countries to
decline by
a. 15 blankets and 35 meals.
b. 25 blankets and 40 meals.
c. 35 blankets and 45 meals.
d. 50 blankets and 80 meals.
If the tax revenue of the federal government is less than its spending, then the federal
government necessarily
a. runs a budget deficit.
b. runs a budget surplus.
c. runs a national debt.
d. will increase taxes.
When the relative price of a good increases, consumers respond by buying
a. a larger quantity of that good and a larger quantity of substitutes for that good.
b. a larger quantity of that good and a smaller quantity of substitutes for that good.
c. a smaller quantity of that good and a larger quantity of substitutes for that good.
d. a smaller quantity of that good and a smaller quantity of substitutes for that good.
If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then
how many dollars does it take to buy a meal in Rio?
a. 40 and your purchase will increase Brazil’s net exports.
b. 10 and your purchase will increase Brazil’s net exports.
c. 40 and your purchase will decrease Brazil’s net exports.
d. 10 and your purchase will decrease Brazil’s net exports.
If toast and butter are complements, then which of the following would increase the
demand for toast?
a. a decrease in the price of toast
b. a decrease in the price of butter
c. an increase in the price of butter
d. Both a and b are correct.
The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that
the Fed
a. increased the money supply because it was concerned about unemployment.
b. increased the money supply because it was concerned about inflation.
c. decreased the money supply because it was concerned about unemployment.
d. decreased the money supply because it was concerned about inflation.
During wars the public tends to hold relatively more currency and relatively fewer
deposits. This decision makes reserves
a. and the money supply increase.
b. and the money supply decrease.
c. increase, but leaves the money supply unchanged.
d. decrease, but leaves the money supply unchanged.
Historical episodes are not valuable to economists.
a. True
b. False
If the current year CPI is 90, then the price level has decreased 10 percent since the
base year.
a. True
b. False
Shoeleather cost refers to
a. the cost of more frequent price changes induced by higher inflation.
b. the distortion in resource allocation created by distortions in relative prices due to
inflation.
c. resources used to maintain lower money holdings when inflation is high.
d. the tendency to expend more effort searching for the lowest price when inflation is
high.
If the supply of dollars in the market for foreign-currency exchange shifts right, then the
exchange rate
a. rises and the quantity of dollars exchanged falls.
b. rises and the quantity of dollars exchanged does not change.
c. falls and the quantity of dollars exchanged rises.
d. falls and the quantity of dollars exchanged does not change.
Jarrod says that the future value of $250 saved for one year at 6 percent interest is less
than the future value of $250 saved for two years at 3 percent interest. Simon says that
the present value of a $250 payment to be received in one year when the interest rate is
6 percent is less than the value of a $250 payment to be received in two years when the
interest rate is 3 percent.
a. Jarrod and Simon are both correct.
b. Jarrod and Simon are both incorrect.
c. Only Jarrod is correct.
d. Only Simon is correct.
When the government redistributes income from the wealthy to the poor,
a. efficiency is improved, but equality is not.
b. both wealthy people and poor people benefit directly.
c. people work less and produce fewer goods and services.
d. the government collects more revenue in total.
If a central bank is independent,
a. it has the ability to alter taxes.
b. it allocates savings to firms.
c. it restricts trade to increase domestic employment.
d. it operations are not controlled by the political process.
If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate
is 8%.
a. True
b. False
Table 28-4
2010 Labor Data for Adults (ages 16 and older) in Meditor
RefetoTable28-4. What is the adult female population in Meditor?
a. 40 million
b. 70 million
c. 100 million
d. 105 million
Table 3-31
RefertoTable3-31.For the farmer, 8 pounds of
a. meat is the opportunity cost of 10.6 pounds of potatoes.
b. meat is the opportunity cost of 16.0 pounds of potatoes.
c. potatoes is the opportunity cost of 6.8 pounds of meat.
d. potatoes is the opportunity cost of 8.0 pounds of meat.
The decisions of firms and households are guided by prices and self-interest in a
a. command economy.
b. centrally-planned economy.
c. market economy.
d. All of the above are correct.
Studies confirm that controlling for other variables such as the percentage of GDP
devoted to investment, poor countries tend to grow at a faster rate than rich countries.
a. True
b. False
Sometimes On Time (SOT) Airlines is considering buying a new jet. SOT would be
more likely to buy a new jet if there were either
a. a decrease in the price of a new jet or a decrease in the interest rate.
b. a decrease in the price of a new jet or an increase in the interest rate.
c. an increase in the price of a new jet or a decrease in the interest rate.
d. an increase in the price of a new jet or an increase in the interest rate.
If U.S. exports are $150 billion and U.S. imports are $100 billion, which of the
following is correct?
a. The U.S. has a trade surplus of $100 billion.
b. The U.S. has a trade surplus of $50 billion.
c. The U.S. has a trade deficit of $100 billion.
d. The U.S. has a trade deficit of $50 billion.
Figure26-4.On the horizontal axis of the graph, Lrepresents the quantity of loanable
funds in billions of dollars.
RefertoFigure26-4. If the equilibrium quantity of loanable funds is $50 billion and if
the equilibrium nominal interest rate is 8 percent, then
a. there is an excess supply of loanable funds at a real interest rate of 6 percent.
b. there is an excess demand for loanable funds at a real interest rate of 8 percent.
c. the rate of inflation is approximately 2 percent.
d. the rate of inflation is approximately 14 percent.
While vacationing in Turkey you see a rug you consider purchasing. The seller tells you
the rug costs 1,200 Turkish lire.
A. If the exchange rate is .60 lira per dollar, how many dollars does the rug cost?
B. If the dollar depreciates against the lira, will it take more or fewer dollars to buy the
rug? Explain.
For both parties to gain from trade, the price at which they trade must lie exactly in the
middle of the two opportunity costs.
a. True
b. False
Which of the following is notamong the four industries with the largest employment in
the United States today?
a. lumber
b. aircraft
c. communications
d. electrical components
When the money supply and the price level in countries that experienced hyperinflation
are plotted on a graph against time, we see that
a. the price level grew at about the same rate as the money supply.
b. the price level grew at a much faster rate than the money supply.
c. the price level grew at a much slower rate than the money supply.
d. the inflation rate and the money supply growth rate do not appear to be related.