Using the following information on a hypothetical economy in equilibrium, calculate
total output for 2008.
If exports are exactly equal to imports, total output for 2008 is
a. $5.2 trillion
b. $5.7 trillion
c. $8.4 trillion
d. $8.7 trillion
e. $13.9 trillion
Maximizing output by following the principle of comparative advantage requires
a. specialization only
b. exchange only
c. both specialization and exchange
d. neither specialization nor exchange
e. either specialization or exchange, but not both
A weakness of the classical model is
a. the quality of its explanations for long-run movements of the economy
b. its confusion between the long and short run
c. its assumption that the labor market always clears
d. its treatment of crowding out in the long run
e. its inadequate attention to the long run
A decrease in the price level will reduce business confidence and cause a decrease in
equilibrium GDP.
If Indiana has an absolute advantage over Maine in producing both corn and ball
bearings, then
a. Indiana should produce both corn and ball bearings
b. there are no benefits possible from specialization
c. Maine should produce ball bearings and Indiana should produce corn
d. Indiana should produce ball bearings and Maine should produce corn
e. they still may benefit from specialization, but more information is needed to
determine which state should specialize in each
If there is an increase in the price of oil and the Fed wishes to maintain price stability,
what should it do?
a. Do nothing, because the self-correcting mechanism will adjust the economy
b. Sell bonds in the open market
c. Wait, because the price level seldom changes when there is an increase in the price of
oil
d. Encourage firms to not adjust the wages they pay
e. Buy bonds in the open market.
What interest rate does the Fed charge when it makes loans to banks?
a. the prime rate
b. the U.S. Treasury Bond rate
c. the discount rate
d. the federal funds rate
e. the U.S. Treasury Bill rate
In what sense is it a cost that people must spend time and resources coping with
inflation?
a. Because the loss of time and resources frustrates people unnecessarily
b. Because the time and resources could have been used to produce something else
instead
c. Because the time and resources could have been wasted elsewhere
d. Because the time and resources are a sunk cost
e. Because the time and resources are insufficient to cope with the problem
If the exchange rate (dollars per unit of foreign currency) has decreased because of a
shift of the supply curve, the demand curve, or both, we say there has been a(n)
a. appreciation of the foreign currency
b. depreciation of the foreign currency
c. revaluation of the foreign currency
d. devaluation of the foreign currency
e. fixing of the foreign currency
Suppose that population grows by 2 percent annually. For the standard of living to rise,
which of the following must occur?
a. Nominal GDP must grow by more than 2 percent.
b. Real GDP must grow by more than 2 percent.
c. Real GDP per capita must grow by more than 2 percent.
d. Consumption spending must grow by more than 2 percent.
e. Private investment spending must grow by more than 2 percent.
Refer to Figure 15-13. Starting from point A, suppose a supply shock shifts the
aggregate supply curve to AS2. In the short run, this will
a. decrease real GDP, increase the price level, lower wages, and return the aggregate
supply curve to AS1
b. increase real GDP, decrease the price level, increase wages, and return the aggregate
supply curve to AS1
c. decrease real GDP and increase the price level
d. increase real GDP and decrease the price level
e. lower the full employment level of real GDP to Y2.
In the classical model the interest rate is determined in the money market; in the
short-run macro model the interest rate is determined in the market for loanable funds.
Consider an economic model designed to analyze the behavior of business firms. An
assumption that the goal of the firms is to maximize profit would be
a. a simplifying assumption
b. a critical assumption
c. an abstraction from reality
d. an unnecessary detail
e. irrelevant to the conclusions of the model
Newspaper reports about good news in the economy are often followed by declines in
stock and bond prices because
a. the Fed reacts in anticipation of the news to prevent speculation
b. financial markets are often irrational
c. financial markets prefer recessions to spending shocks
d. stock and bond holders fear the Fed’s reaction to possible overheating
e. newspapers may be confused about the performance of financial markets
Refer to Figure 9-13. A decreased labor demand on the graph would
a. increase total output
b. decrease total output at a constant rate
c. decrease total output at an increasing rate
d. decrease total output at a decreasing rate
e. not change total output