The Carters’ oldest son attends Big State University. He and his parents pay all his fees
and tuition. These payments count in GDP as
a. investment.
b. government spending.
c. consumption of services.
d. consumption of durable goods.
Based on the quantity equation, if M= 8,000, P= 3, and Y= 12,000, then V=
a. 0.33.
b. 2.0.
c. 4.5.
d. 0.5.
Figure 3-2
Brazil’sProductionPossibilitiesFrontier
Referto Figure 3-2. If the production possibilities frontier shown is for two months of
production, then which of the following combinations of peanuts and cashews could
Brazil not produce in two months?
a. 5 peanuts and 88 cashews
b. 4 peanuts and 115 cashews
c. 3 peanuts and 155 cashews
d. 1 peanuts and 200 cashews
Data show that at least 20 percent of U.S. manufacturing jobs are destroyed every year.
a. True
b. False
Indexation refers to
a. a process of adjusting the nominal interest rate so that it is equal to the real interest
rate.
b. using a law or contract to automatically correct a dollar amount for the effects of
inflation.
c. using a price index to deflate dollar values.
d. an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is
in line with the GDP deflator.
If the U.S. government imposes a quota on imports of jet planes, then
a. net capital outflow rises.
b. net exports rise.
c. the exchange rate rises.
d. All of the above are correct.
Minimum-wage laws, unions, and efficiency wages contribute to
a. both structural unemployment and the natural rate of unemployment.
b. neither structural unemployment nor the natural rate of unemployment.
c. structural unemployment, but not the natural rate of unemployment.
d. the natural rate of unemployment, but not structural unemployment.
When studying the effects of public policy changes, economists
a. always refrain from making assumptions.
b. sometimes make different assumptions about the short run and the long run.
c. consider only the direct effects of those policy changes and not the indirect effects.
d. consider only the short-run effects of those policy changes and not the long-run
effects.
As long as prices are rising over time, then
a. the nominal interest rate exceeds the real interest rate.
b. the real interest rate exceeds the nominal interest rate.
c. the real interest rate is positive.
d. the nominal interest rate is a better indicator than the real interest rate of how fast the
purchasing power of your bank account is changing over time.
Which of the following shifts the long-run Phillips curve left?
a. both an increase in the inflation rate and a decrease in the minimum wage rate
b. an increase in the inflation rate, but not a decrease in the minimum wage rate
c. a decrease in the minimum wage rate, but not an increase in the inflation rate
d. neither a decrease in the minimum wage rate nor an increase in the inflation rate
There is evidence that the rate at which money changed hands rose during the German
hyperinflation. This means that
a. velocity rose. If monetary neutrality holds the rise in velocity increased the ratio M/P.
b. velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio
M/P.
c. velocity fell. If monetary neutrality holds the fall in velocity increased the ratio M/P.
d. velocity fell. If monetary neutrality holds the fall in velocity decreased the ratio M/P.
Table 3-26
Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
Refer to Table3-26. Without trade, Japan produced and consumed 50 cars and 6
airplanes and Korea produced and consumed 27 cars and 7 airplanes. Then, each
country agreed to specialize in the production of the good in which it has a comparative
advantage and trade 28 cars for 8 airplanes. As a result, Japan gained
a. 0 cars and 2 airplanes and Korea gained 1 car and 1 airplane.
b. 2 cars and 2 airplanes and Korea gained 1 car and 1 airplane.
c. 28 cars and 8 airplanes and Korea gained 28 cars and 8 airplanes.
d. 52 cars and 8 airplanes and Korea gained 28 cars and 8 airplanes.
Suppose the Fed increased the growth rate of the money supply. Which of the following
would be higher in the long run?
a. both the natural rate of unemployment and the inflation rate
b. the natural rate of unemployment, but not the inflation rate
c. the inflation rate, but not the natural rate of unemployment
d.neither the natural unemployment rate nor the inflation rate
Figure34-4.On the figure, MSrepresents money supply and MDrepresents money
demand.
RefertoFigure34-4. Suppose the current equilibrium interest rate is 3. Let Y3represent
the corresponding quantity of goods and services demanded, and let P3represent the
corresponding price level. Starting from this situation, if the Federal Reserve decreases
the money supply and if the price level remains at P3, then
a. there will be an increase in the equilibrium quantity of goods and services demanded.
b. there will be a decrease in the equilibrium interest rate.
c. the aggregate-demand curve will shift to the right.
d. fewer firms will choose to borrow to build new factories and buy new equipment.
Countries with low GDP per person tend to have
a. lower rates of child malnutrition.
b. fewer infants with low birth weight.
c. higher rates of infant mortality.
d. more access to safe drinking water.
The demand curve is the upward-sloping line relating price and quantity demanded.
a. True
b. False
The Soviet government in the 1980’s never abandoned the ruble as the official currency.
However, the people of Moscow preferred to accept
a. cigarettes in exchange for goods and services, because they were convinced that
cigarettes were going to soon become hard to come by.
b. American dollars in exchange for goods and services, because rubles were extremely
hard to come by.
c. goods such as cigarettes or American dollars in exchange for goods and services,
reminding us of the fact that government decree by itself is not sufficient for the success
of a commodity money.
d. All of the above are correct.
Figure27-1. The figure shows a utility function.
RefertoFigure27-1. The properties exhibited by this utility function help to explain
various things we observe in the economy, including
a. the risk-return tradeoff.
b. insurance.
c. diversification.
d. All of the above are correct.
Trade allows a country to consume outside its production possibilities frontier.
a. True
b. False
If an economy used gold as money, its money would be
a. commodity money, but not fiat money.
b. fiat money, but not commodity money.
c. both fiat and commodity money.
d. functioning as a store of value and as a unit of account, but not as a medium of
exchange.
If purchasing-power parity holds, a bushel of rice costs $10 in the U.S., and the nominal
exchange rate is 25 Thai baht per dollar, what is the price of rice in Thailand?
a. 400 baht
b. 250 bhat
c. 100 bhat
d. None of the above is correct.
Which of the following is an example of a highly organized market?
a. the market for textbooks
b. the market for spa services
c. the market for soybeans
d. the market for ice cream
High-school athletes who skip college to become professional athletes
a. obviously do not understand the value of a college education.
b. usually do so because they cannot get into college.
c. understand that the opportunity cost of attending college is very high.
d. are not making a rational decision since the marginal benefits of college outweigh the
marginal costs of college for high-school athletes.
You are better off choosing $100 today rather than $200 in 9 years if the interest rate is
a. lower than about 8 percent.
b. higher than about 8 percent.
c. lower than about 10 percent.
d. higher than about 10 percent.
The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase
in world prices of oil and foodstuffs were affecting the economy.
RefertoTheEconomyin2008.The short-run effects of the housing and financial crisis
are shown by
a. moving to the right along the short-run Phillips curve.
b. moving to the left along the short-run Phillips curve.
c. shifting the short-run Phillips curve right.
d. shifting the short-run Phillips curve left.
According to the liquidity preference theory, an increase in the overall price level of 10
percent
a. increases the equilibrium interest rate, which in turn decreases the quantity of goods
and services demanded.
b. decreases the equilibrium interest rate, which in turn increases the quantity of goods
and services demanded.
c. increases the quantity of money supplied by 10 percent, leaving the interest rate and
the quantity of goods and services demanded unchanged.
d. decreases the quantity of money demanded by 10 percent, leaving the interest rate
and the quantity of goods and services demanded unchanged.
The principle that “people face tradeoffs” applies to
a. individuals.
b. families.
c. societies.
d. All of the above are correct.
According to liquidity preference theory, a decrease in the price level causes the interest
rate to
a. increase, which increases the quantity of goods and services demanded.
b. increase, which decreases the quantity of goods and services demanded.
c. decrease, which increases the quantity of goods and services demanded.
d. decrease, which decreases the quantity of goods and services demanded.
Inflation increases the value of money.
a. True
b. False
The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the
inflation rate?
a. 8 percent
b. 15 percent
c. 2 percent
d. 1.7 percent
In a particular country in 2000, the average worker needed to work 40 hours to produce
55 units of output. In that same country in 2008, the average worker needed to work 30
hours to produce 45 units of output. In that country, the productivity of the average
worker
a. decreased by about 6 percent between 2000 and 2008.
b. remained unchanged between 2000 and 2008.
c. increased by about 9 percent between 2000 and 2008.
d. increased by about 18 percent between 2000 and 2008.
The Fed can increase the money supply by conducting open-market
a. sales or by raising the discount rate.
b. sales or by lowering the discount rate.
c. purchases or by raising the discount rate.
d. purchases or by lowering the discount rate.
A farmer sells five pounds of pecans to a Smith’s Fresh Pecans for $10. Smith’s Fresh
Pecans resells three pounds for $4.50 per pound. The remaining pecans are shelled and
canned and sold for a total of $8.00 Taking these transactions into account, how much is
added to GDP?
a. $22.50
b. $29.50
c. $21.50
d. $31.50
Sometimes economists disagree because their scientific judgments differ. Which of the
following instances best reflects this source of disagreement?
a. One economist believes everyone should pay the same percentage of their income in
taxes; another economist believes that wealthier citizens should pay a higher percentage
of their income in taxes.
b. One economist believes that manufacturing firms should face greater regulation to
preserve the environment; another economist believes the government should not
intervene in free markets.
c. One economist believes that equality should be valued over efficiency in policy
decisions; another economist believes that efficiency should be valued over equality in
policy decisions.
d. One economist believes the government should tax a household’s income; another
economist believes the government should tax a household’s consumption.
Table 24-4
The table below pertains to Studious, an economy in which the typical consumer’s
basket consists of 5 books and 10 calculators.
RefertoTable24-4.If 2012 is the base year, then the consumer price index was
a. 100 in 2012, 123.8 in 2013, and 133.3 in 2014.
b. 100 in 2012, 124.2 in 2013, and 133.3 in 2014.
c. 210 in 2012, 260 in 2013, and 280 in 2014.
d. 100 in 2012, 150 in 2013, and 170 in 2014.