The field of finance primarily studies
a. how society manages its scarce resources.
b. the implications of time and risk for allocating resources over time.
c. firms’ decisions concerning how much to produce and what price to charge.
d. how society can reduce market risk.
Figure 2-23
RefertoFigure2-23. The opportunity cost of moving from point B to point A is zero.
a. True
b. False
Which of the following effects helps to explain the slope of the aggregate-demand
curve?
a. the exchange-rate effect
b. the wealth effect
c. the interest-rate effect
d. All of the above are correct.
Which of the following is not an example of a group responding to an incentive?
a. Students attend class because of an attendance policy that reduces their grade for
absences.
b. Consumers buy more of a product when it is on sale at a reduced price.
c. Universities offer fewer online classes when they generate more revenue than
traditional classes.
d. Employees work harder to earn higher commissions.
Ariana is the CEO of a corporation that hires nonunion labor. According to the theory of
efficiency wages, if she decides to pay her workers more than the competitive
equilibrium wage, then
a. the profits of her firm might increase.
b. she will face a shortage of labor.
c. the turnover of her workers may increase.
d. None of the above is correct.
Table 24-10
The table below shows the prices of baseballs and baseball bats for three years. Assume
the typical consumer’s basket consists of 6 baseballs and 2 baseball bats.
RefertoTable24-10.The inflation rate was
a. 10.03 percent in 2009 and 17.43 percent in 2010.
b. 17.00 percent in 2009 and 32.50 percent in 2010.
c. 10.03 percent in 2009 and 29.20 percent in 2010.
d. 17.00 percent in 2009 and 29.20 percent in 2010.
Frictional unemployment is thought to explain relatively
a. short spells of unemployment, as is structural unemployment.
b. long spells of unemployment, as is structural unemployment.
c. short spells of unemployment, while structural unemployment is thought to explain
relatively long spells of unemployment.
d. long spells of unemployment, while structural unemployment is thought to explain
relatively short spells of unemployment.
Other things the same, as the stocks of a greater number of corporations are held in a
portfolio,
a. risk increases at an increasing rate.
b. risk increases at a decreasing rate.
c. risk decreases at an increasing rate.
d. risk decreases at a decreasing rate.
The classic tradeoff between “guns and butter” states that when a society spends more
on national defense, it has less to spend on consumer goods to raise the standard of
living.
a. True
b. False
Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses
is $30 per dozen. We would expect a
a. shortage to exist and the market price of roses to increase.
b. shortage to exist and the market price of roses to decrease.
c. surplus to exist and the market price of roses to increase.
d. surplus to exist and the market price of roses to decrease.
Job search is the process of matching workers with appropriate jobs.
a. True
b. False
The unemployment rate equals the percentage of the adult population that is
unemployed.
a. True
b. False
Technological progress shifts the long-run aggregate supply curve to the right.
a. True
b. False
The Federal Reserve Board of Governors
a. rotate each four years.
b. are appointed by the President and confirmed by the Senate.
c. are elected by popular vote.
d. hold lifetime appointments.
An American retailer purchased 500 pairs of shoes from a company in Thailand in the
second quarter of 2016 but does not sell them to a consumer until the third quarter of
2016. Which of the following components of U.S. GDP is affected by this transaction in
the third quarter of 2016?
a. consumption, investment and imports
b. only consumption and investment
c. only consumption and imports
d. only investment and imports
The following table contains a monthly demand schedule for large, single-topping,
carry-out pizzas.
If the law of demand applies to these pizzas, then A could be
a. 40.
b. 35.
c. 30.
d. All of the above could be correct.
Economists speaking like policy advisers make
a. claims about how the world is.
b. descriptive statements.
c. normative statements.
d. More than one of the above is correct.
If a government managed to reduce the time inconsistency problem by mandating that
the central bank target inflation at a low rate, then
a. the long-run Phillips curve would shift right.
b. the long-run Phillips curve would shift left.
c. the short-run Phillips curve would shift up.
d. the short-run Phillips curve would shift down.
If M= 2,000, P = 2.25, and Y= 6,000, what is velocity?
a. 6.75.
b. 3.00.
c. 1.33.
d. 1.50.
A manufacturer produces 1 million televisions in the first quarter of the year. It sells
900,000 of them before the end of the first quarter, and holds the others in its
warehouse. How will the 100,000 unsold televisions be treated in the GDP statistics?
a. Since the televisions eventually will be bought by consumers, they will be included
as consumption in the first quarter.
b. Since the televisions were not purchased in the first quarter, they will be counted as
an increase in second- quarter GDP.
c. The televisions will be counted as a change in inventory in the first quarter and so
will be included in first- quarter GDP.
d. The televisions will be counted as a change in inventory in the first quarter, and when
sold in the second quarter will raise second-quarter GDP.
Table 3-35
Referto Table 3-35.At which of the following prices, if any, could both Denmark and
Finland gain from trade?
a. 2/3 pounds of ham per dozen eggs.
b. 1 pound of ham per dozen eggs.
c. 1.4 pounds of ham per dozen eggs.
d. None of the above are correct.
The quantity demanded of a product is the amount that buyers are willing and able to
purchase at a particular price.
a. True
b. False
Assume the bonds below have the same term and principal and that the state or local
government that issues the municipal bond has a good credit rating. Which list has
bonds correctly ordered from the one that pays the highest interest rate to the one that
pays the lowest interest rate?
a. corporate bond, municipal bond, U.S. government bond
b. corporate bond, U.S. government bond, municipal bond
c. municipal bond, U.S. government bond, corporate bond
d. U.S. government bond, municipal bond, corporate bond
In the long run, if the Fed increases the growth rate of the money supply,
a. inflation will be higher.
b. unemployment will be lower.
c. real GDP will be higher.
d. All of the above are correct.
Figure 3-6
Refer to Figure3-6. If Maxine and Daisy each divides her time equally between
making pies and making tarts, then total production is
a. 6 pies and 10 tarts.
b. 7.5 pies and 3 tarts.
c. 7.5 pies and 10 tarts.
d. 13.5 pies and 13 tarts.
Most economists believe that a tradeoff between inflation and unemployment exists
a. only in the short run.
b. only in the long run.
c. in both the short and long run.
d. in neither the short nor long run.
When the money market is drawn with the value of money on the vertical axis, long-run
equilibrium is obtained when the quantity demanded and quantity supplied of money
are equal due to adjustments in
a. the value of money.
b. real interest rates.
c. nominal interest rates.
d. the money supply.
Transactions involving items produced in the past, such as the sale of a 5-year-old
automobile by a used car dealership or the purchase of an antique rocking chair by a
person at a yard sale, are
a. included in current GDP because GDP measures the value of all goods and services
sold in the current year.
b. included in current GDP but valued at their original prices.
c. not included in current GDP because it is difficult to determine their value.
d. not included in current GDP because GDP only measures the value of goods and
services produced in the current year.
“Other things equal, when the price of a good rises, the quantity demanded of the good
falls, and when the price falls, the quantity demanded rises.” This relationship between
price and quantity demanded is referred to as
a. equilibrium.
b. the law of demand.
c. the relationship between supply and demand.
d. the definition of an inferior good.
When the Fed makes open-market purchases bank
a. withdrawals and lending increase.
b. withdrawals increase and lending decreases.
c. deposits and lending increase.
d. deposits increase and lending decreases.
The three problems with using the consumer price index as a measure of the cost of
living are
a. widely acknowledged and easy to solve.
b. widely acknowledged and difficult to solve.
c. nearly unacknowledged and easy to solve.
d. nearly unacknowledged and difficult to solve.
Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The
local currency is the dia. Namdian banks collectively hold 100 million dias of required
reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury
Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use
only demand deposits and so the money supply consists of demand deposits.
RefetoScenario29-1.Suppose the Central Bank of Namdia loaned the banks of Namdia
5 million dias. Suppose also that both the reserve requirement and the percentage of
deposits held as excess reserves stay the same. By how much would the money supply
of Namdia change?
a. 60 million dias
b. 50 million dias
c. 40 million dias
d. None of the above is correct.
For the U.S. economy, which of the following helps explain the slope of the
aggregate-demand curve?
a. An increase in the price level decreases the interest rate.
b. An increase in the price level increases the interest rate.
c. An increase in the money supply decreases the interest rate.
d. An increase in the money supply increases the interest rate.
An example of a price that changes only infrequently is the price of
a. stocks on the New York Stock Exchange.
b. crude oil.
c. residential real estate.
d. magazines sold at newsstands.
The effect states that a lower price level reduces the amount of money people wish to
hold. When they lend out their excess savings, thefalls causing investment spending to
rise and increases the quantity of goods and services demanded.
Other things the same, what happens to the price level and the quantity of output when
the short run aggregate supply curve shifts to the right?
When the interest rate is above equilibrium, there is excess _____ of money.
Households will _____ interest-earning assets, which _____ the interest rate.
What is meant by an asset bubble?
Which government policy raises the interest rate and raises investment spending?
Use the money market to explain the interest-rate effect and its relation to the slope of
the aggregate demand curve.
Table 28-10
The table below lists the number of people by labor force classification for the country
of Springfield.
RefetoTable28-10. Calculate the number in the labor force, and the unemployment rate.
Define net capital outflow.
How frequently is U.S. GDP reported? Is GDP adjusted for seasonality?
Suppose the government raises taxes. Which curves in the aggregate demand and
aggregate supply model would be affected, and which way would they shift?
Explain how the prices of goods and services used in the CPI differ from the prices
reflected by GDP deflator.
Explain why policy lags could make stabilization policies counterproductive.
Suppose the nation’s price level rises as a result of an increase in aggregate demand and
a decrease in aggregate supply which leaves output unchanged. If the Fed is required to
follow a rule that stabilizes the price level, what will the Fed do to the money supply
and what impact will this have on total output in the economy?
What direction of change in velocity could explain the price level increasing by a
smaller percentage than the money supply? What would this change in velocity imply
about the frequency with which money changes hands?
Assume the natural rate of unemployment is 6%. Draw the short-run and long-run
Phillips curves and show the position of the economy if expected inflation is 3% and
the actual inflation rate is 2%.
A central bank raises the money supply growth rate and keeps it at that higher rate.
Explain the process by which the economy moves to long-run equilibrium.
The wealth-effect notes that a _____ price level increases the real value of households’
wealth. The larger real wealth _____ the quantity of goods and services demanded.
During hyperinflations, people desire to hold less money and will go to the bank more
frequently. This waste of resources due to the high rate of inflation is known as .
Table 28-10
The table below lists the number of people by labor force classification for the country
of Springfield.
RefetoTable28-10. Calculate the U-5 unemployment rate.
In the long run an increase in the money supply causes the price level to __________.
The price level moves in this direction because an increase in the money supply creates
__________ in the money market that causes people to ________ spending.