Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in
the inflation rate requires
a. a sacrifice of 5 percent of annual output.
b. a sacrifice of 5 percent of government spending.
c. an increase in the unemployment rate of 5 percentage points.
d. a 5 percent increase in the government budget deficit.
Unemployment insurance is designed to offer workers full protection against job loss.
a. True
b. False
A country must have a positive net outflow of capital if it has a trade deficit.
a. True
b. False
If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange
rate is 4 pesos per dollar, what is the real exchange rate?
a. 3
b. 4/3
c. 3/4
d. None of the above is correct.
If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the
real interest rate is
a. -4 percent.
b. 3 percent.
c. 4 percent.
d. 8 percent.
If the Fed conducts open-market sales, the money supply
a. increases and aggregate demand shifts right.
b. increases and aggregate demand shifts left.
c. decreases and aggregate demand shifts right.
d. decreases and aggregate demand shifts left.
For purposes of calculating the CPI, the transportation category of consumer spending
includes the cost of
a. subways.
b. gasoline.
c. both subways and gasoline.
d. neither subways nor gasoline.
The agency responsible for regulating the money supply in the United States is
a. the Comptroller of the Currency.
b. the U.S. Treasury.
c. the Federal Reserve.
d. the U.S. Bank.
Table 23-4
The table below reports nominal and real GDP for the U.S. from 1929 to 1932.
RefertoTable23-4.What are the GDP deflator and the inflation rate for 1931?
a. 9.16, -11.5
b. 9.16, -10.3
c. 1091.37, 10.3
d. 1091.37, 11.5
If inflation is higher than expected, then borrowers make nominal interest payments that
are less than they expected.
a. True
b. False
In which of the following situations should a firm pay efficiency wages?
a. A hiring manager can easily judge the quality of applicants, and after workers have
worked for the firm a while, they tend not to look for other jobs.
b. A hiring manager can easily judge the quality of applicants, and after workers have
worked for the firm a while, they tend to look for other jobs.
c. A hiring manager cannot easily judge the quality of applicants, and after workers
have worked for the firm a while, they tend to look for other jobs.
d. A hiring manager cannot easily judge the quality of applicants, and after workers
have worked for the firm a while, they tend not to look for other jobs.
If the government reduced the minimum wage and pursued contractionary monetary
policy, then in the long run
a. both the unemployment rate and the inflation rate would be lower.
b. the unemployment rate would be lower and the inflation rate would be higher.
c. the unemployment rate would be higher and the inflation rate would be lower.
d. the unemployment rate and the inflation rate would be higher.
A rise in the budget deficit
a. shifts both the supply of loanable funds in the market for loanable funds and the
supply of dollars in the market for foreign-currency exchange right.
b. shifts both the supply of loanable funds in the market for loanable funds and the
supply of dollars in the market for foreign-currency exchange left.
c. shifts both the demand for loanable funds in the market for loanable funds and the
demand for dollars in the market for foreign-currency exchange right.
d. shifts both the demand for loanable funds in the market for loanable funds and the
demand for dollars in the market for foreign-currency exchange left.
If unemployment is above its natural rate, what happens to move the economy to
long-run equilibrium?
a. Inflation expectations rise which shifts the short-run Phillips curve to the right.
b. Inflation expectations rise which shifts the short-run Phillips curve to the left.
c. Inflation expectations fall which shifts the short-run Phillips curve to the right.
d. Inflation expectations fall which shifts the short-run Phillips curve to the left.
Which of the following is notcorrect?
a. The U.S. economy has never experienced deflation.
b. Since 1965, the U.S. nominal interest rate has exceeded the U.S. real interest rate.
c. Since 1965, the U.S. economy has experienced rising consumer prices in most years.
d. During deflation, the real interest rate exceeds the nominal interest rate.
In the short run, which of the following rates of growth in the money supply is likely to
lead to the lowest level of unemployment in the economy?
a. 3 percent per year
b. 5 percent per year
c. 7 percent per year
d. 9 percent per year
Cyclical unemployment refers to
a. the portion of unemployment created by job search.
b. short-run fluctuations around the natural rate of unemployment.
c. changes in unemployment due to changes in the natural rate of unemployment.
d. the portion of unemployment created by wages set above the equilibrium level.
When a country imposes an import quota, its exchange rate
a. rises because the supply of dollars in the market for foreign-currency exchange falls.
b. falls because the supply of dollars in the market for foreign-currency exchange rises.
c. rises because the demand for dollars in the market for foreign-currency exchange
rises.
d. falls because the demand for dollars in the market for foreign-currency exchange
falls.
Senator Bright, who understands economic principles, is trying to convince workers in
her district that trade with other countries is beneficial. Senator Bright should argue that
trade can be beneficial
a. only if it allows us to obtain things that we couldn’t make for ourselves.
b. because it allows specialization, which increases total output.
c. to us if we can gain and the others involved in the trade lose.
d. in only a limited number of circumstances because others are typically
self-interested.
In principle, the government could increase the money supply or increase government
expenditures to try to offset the effects of a wave of pessimism about the future of the
economy.
a. True
b. False
Refer to Figure3-4. If the production possibilities frontiers shown are each for
one year of production, then which of the following combinations of sweaters and
jackets could Lisa and Bryce together notproduce in a given year?
a. 1 sweater and 21 jackets
b. 2 sweaters and 20 jackets
c. 3 sweaters and 12 jackets
d. 5 sweaters and 4 jackets
From 2000 to 2012 the U.S. had a trade
a. surplus and a large net capital inflow.
b. surplus and a large net capital outflow.
c. deficit and a large net capital inflow.
d. deficit and a large net capital outflow.
Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society’s goods and services are distributed equally among society’s members.
c. society’s goods and services are distributed fairly, though not necessarily equally,
among society’s members.
d. society is getting the maximum benefits from its scarce resources.
Table 3-8
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Refer to Table3-8. Assume that England and Spain each has 24 labor hours available.
If each country divides its time equally between the production of cheese and bread,
then total production is
a. 10 units of cheese and 6 units of bread.
b. 25 units of cheese and 7.5 units of bread.
c. 20 units of cheese and 12 units of bread.
d. 12 units of cheese and 8 units of bread.
Suppose that the tires of a certain tire manufacturer are discovered to be defective.
Other things the same, this news would cause
a. the demand for this company’s stock to decrease, so the price would rise.
b. the demand for this company’s stock to decrease, so the price would fall.
c. the supply of this company’s stock to decrease, so the price would fall.
d. the supply of this company’s stock to decrease, so the price would rise.
If Martina’s income increases and, as a result, she chooses to buy more lattés per month
at each price, then her demand curve will
a. shift to the right.
b. shift to the left.
c. not shift; instead, Martina will move along her demand curve downward and to the
right.
d. not shift; instead, Martina will move along her demand curve upward and to the left.
Economic growth causes a production possibilities frontier to shift outward.
a. True
b. False
Melissa offers you $1,000 today or $1,500 in 5 years. You would prefer to take the
$1,500 in 5 years if the interest rate is
a. 8 percent.
b. 9 percent.
c. 10 percent.
d. All of the above are correct.
Which of the following is correct?
a. The Federal Reserve has 14 regional banks. The Board of Governors has 12 members
who serve 7-year terms.
b. The Federal Reserve has 14 regional banks. The Board of Governors has 7 members
who serve 14-year terms.
c. The Federal Reserve has 12 regional banks. The Board of Governors has 12 members
who serve 7-year terms.
d. The Federal Reserve has 12 regional banks. The Board of Governors has 7 members
who serve 14-year terms.
Which of the following is nota reason economies experience structural unemployment?
a. job search
b. unions
c. minimum-wage laws
d. efficiency wages
Countries that pursued outward-oriented policies in the 20th century
a. experienced lower rates of economic growth than did countries that pursued
inward-oriented policies.
b. experienced higher levels of political instability than did countries that pursued
inward-oriented policies.
c. include Singapore, South Korea, and Taiwan.
d. All of the above are correct.
The CPI for 2008 is computed by dividing the price of the basket of goods and services
in 2008 by the price of the basket of goods and services in the base year, then
multiplying by 100.
a. True
b. False
Theis the interest rate at which banks make overnight loans to other banks.
Is the following a positive or normative statement? The United States government
should mandate that every citizen purchases health insurance.
Other things the same, which of the following would a rise in the real interest rate raise:
desired investment spending, desired national saving, desired net capital outflow?
Means-tested government programs tend to reduce saving. What are means-tested
programs and how do they reduce saving?
With eight hours of work Elmer can produce 20 pounds of carrots or 15 pounds of peas.
With eight hours Bugs can produce 10 pounds of carrots or 7.5 pounds of peas. Can
Elmer and Bugs gain from trade? Defend your answer.
and are the two most important financial intermediaries.
Table 4-15
The following table shows the number of cases of water each seller is willing to sell at
the prices listed.
RefertoTable4-15.Assume these are the only four suppliers in this market and the
function for market demand is QD=1000-100P, where QDis the quantity demanded and
P is the price. If the price is $6 per case, is there a shortage or surplus, and how large is
the shortage or surplus?
The Fedbonds when it conducts an open-market purchase. This actionthe money supply.
Changes in aggregate demand can cause fluctuations in _____ and _____ in the short
run, and only ____ in the long run.
Julia can fix a meal in 1 hour, and her opportunity cost of one hour is $50. Jacque can
fix the same kind of meal in 2 hours, and his opportunity cost of one hour is $20. Will
both Julia and Jacque be better off if she pays him $45 per meal to fix her meals?
Explain.
To reduce aggregate demand, the government may reduce or increase .
According to traditional Keynesian analysis, which has a greater impact on aggregate
demand, changing taxes or changing government expenditures? Why?
Suppose that a country has an inflation rate of about 3 percent per year and a real GDP
growth rate of about 3 percent per year. How large of a deficit can the government run
(as a percentage of GDP) without raising the debt- to-income ratio?
Suppose the typical basket for the calculation of the CPI includes one computer. Since
computers have gotten better over time as a result of technological change, what
problem does this create for calculating the CPI?
As the aggregate demand curve shifts to the right, what happens to the price level and
output? What do these changes imply happens to the inflation rate and the
unemployment rate?