Economic analysis includes commuting time as part of the cost of traffic congestion.
The exchange rate of currencies between countries affects the prices of the goods
purchased and sold between them.
In the United States today, the government will exchange gold or silver for paper
money.
The market system works by getting each person, motivated by his or her own
self-interest, to produce products for other people.
The government debt is the difference between the current level of total expenditures
and revenues.
Recall Application 2, “Economic Equality May Sustain Economic Growth,” to answer
the following questions:
According to the Application, intangible capital is the largest source of economic
growth.
If the economy is at full employment equilibrium, an increase in the money supply will
cause a higher level of output and an increase in the price level.
Protection shields domestic workers from foreign competition.
An economy can, in principle, produce at full employment with any inflation rate.
The aggregate demand curve shows a(n) ________ relationship between the ________.
A) positive; interest rate and investment
B) negative; level of real GDP and investment
C) positive; price level and real GDP
D) negative; price level and real GDP
A federal budget ________ occurs when the government spends less than it collects in
taxes.
A) surplus
B) deficit
C) equilibrium
D) floor
Per capita GDP decreases when:
A) GDP and the population increase at the same rate.
B) GDP does not change and the population increases.
C) GDP and the population decrease at the same rate.
D) GDP increases and the population does not change.
Figure 11.3
In Figure 11.3, the change in investment spending is represented as the distance
between points
A) C0 and C1.
B) y0 and y1.
C) a0 and a1.
D) a1 and y1.
The price of bonds and the interest rate are:
A) positively related.
B) negatively related.
C) sometimes positively related and other times negatively related, depending on the
bond payments.
D) There is no relationship between the interest rate and the price of bonds.
Which of the following sequence of events follows a rise in the discount rate?
A) interest rate investment total demand real GDP
B) interest rate investment total demand real GDP
C) interest rate investment total demand real GDP
D) interest rate investment total demand real GDP
Imagine two countries, Zorba and Anduluvia. Zorba is producing everything at a lower
resource cost than Anduluvia. If the two countries trade what is the reason?
Which of the following economists was responsible for developing the theory of
rational expectations?
A) Milton Friedman
B) Robert Lucas
C) Robert Barro
D) John Keynes
Which of the following is NOT a subgroup of the Federal Reserve System?
A) the Federal Reserve Banks
B) the Federal Funds Market
C) the Board of Governors
D) the Federal Open Market Committee
What happens to the equilibrium wage rate in the U.S. and Canada when more U.S. and
Canadian workers migrate to Europe?
A) The real wage in Canada will increase while the real wage in the US will decrease.
B) The real wage in Canada will decrease while the real wage in the US will increase.
C) The real wage in Canada and the US will increase.
D) The real wage in Canada and the US will decrease.
Suppose the United States produces only two goods, grapes and tractors. If the United
States has a comparative advantage in tractors, a move toward free trade will:
A) harm tractor workers, benefit grape workers, but benefit the nation as a whole.
B) harm tractor workers, harm grape workers, but benefit the nation as a whole.
C) benefit tractor workers, harm grape workers, but benefit the nation as a whole.
D) benefit tractor workers, harm grape workers, but harm the nation as a whole.
The budget deficit was about ________ percent of GDP in 2011.
A) 8.7
B) 6.7
C) 4.3
D) 12.8
If the marginal propensity to consume is 0.2, the value of the marginal propensity to
save is:
A) 5.
B) 1.25.
C) 2.
D) 0.8.
Recall Application 2, “Economic Equality May Sustain Economic Growth,” to answer
the following questions:
According to the Application, which of the following factors could increase growth and
equality simultaneously?
A) increased tax revenues
B) a well functioning credit and loans market
C) improved telecommunications system
D) the development of new consumer electronics
Assume that households and firms have rational expectations. The current
unemployment rate is 7%, which is above the natural rate of unemployment. Explain
how this can happen. Would you expect this unemployment rate to persist for long?
Why or why not?
“The budget surpluses incurred by the government during the late 1990s were purely
due to the major tax increase implemented during Clinton’s Administration.” Do you
agree or disagree?
Consider a nation that has a comparative advantage in the production of goods using
unskilled labor. What types of workers will benefit from increased trade, and what type
will lose?
What is the Consumer Price Index?
Recall Application 1, “Money with Faces of Rodents,” to answer the following
questions:
When local banks issued the capivaris, did this cause the money supply to change?
Explain your answer.
Is it possible for nominal wages to decrease while real wages increase?
Consider a firm that is trying to determine how many hours to remain open in a day.
How would the firm make this decision?
Explain the “crowding out” criticism of Keynesian policies of increasing government
spending to stimulate the economy.