The principal-agent problem that exists between shareholders and managers also exists
between managers and workers.
When Javier’s income increases by $5,000, he spends an additional $3,750 dollars. This
implies that his marginal propensity to consume is 0.75.
An increase in perceived risk of foreign assets increased both the financial account
surplus and current account deficit in the United States during the late 1990s.
A monetary policy target is a variable that the Fed can affect directly, which then affects
one or more of the Fed’s policy goals.
The larger the MPS, the smaller the value of the multiplier.
A decrease in government spending will result in a decrease in the price level and a
decrease in real GDP in the long run.
A university must decide if it should stop offering foreign language classes. This
decision involves answering the economic question of “how to produce.”
Net worth and stockholders’ equity are both equal to the difference between assets and
liabilities.
In economics, the term “free market” refers to a market where no sales tax is imposed
on products sold.
A study conducted by Robert Shiller, a Yale Economist, found that a large majority of
the public thinks that increases in inflation will not quickly lead to an increase in wages.
Adoption of the euro as both a medium of exchange and unit of account in the EU
countries serves to increase competition among European firms and decrease individual
countries’ monetary policy options when confronted by recessions and booms.
The dynamic aggregate demand and aggregate supply model accounts for the price
level rising every year.
Whenever a buyer and a seller agree to trade, both must believe they will be made
better off
A) unless the buyer resides in a different country than the seller resides in. International
trade may make the buyer or seller worse off.
B) unless one party is richer than the other.
C) only if the buyer and seller live in countries with market economies.
D) whether the buyer and seller live in the same city or different countries.
Which of the following is an appropriate discretionary fiscal policy if equilibrium real
GDP falls below potential real GDP?
A) an increase in government purchases
B) an increase in the supply of money
C) an increase in individual income taxes
D) a decrease in transfer payments
The Apple iPhone is sold in a box labeled “Made in China.” A study by economists at
the Asian Development Bank found the value of the iPhone components China
________ U.S. firms is ________ the value of assembling the iPhones in Chinese
factories.
A) exports to; equal to
B) exports to; greater than
C) imports from; less than
D) imports from; greater than
Figure 19-7
Refer to Figure 19-7. If the Indian government pegs its currency to the dollar at a value
below $.02/rupee, we would say the currency is
A) undervalued.
B) overvalued.
C) parity valued.
D) equilibrium valued.
National income is derived from gross domestic product by
A) subtracting retained earnings from gross domestic product.
B) adding personal taxes and depreciation to gross domestic product.
C) subtracting depreciation from gross domestic product.
D) adding personal income and transfer payments to gross domestic product.
________ is defined as the value of a household’s assets minus the value of its
liabilities.
A) Household income
B) Household wealth
C) Personal household consumption
D) Planned household investment
With a required reserve ratio of 20 percent, an increase in reserves of $10,000 could
lead to a maximum increase in checking account deposits in the entire banking system
of
A) $2,000
B) $8,000
C) $50,000
D) $100,000
According to Joseph Schumpeter, economic growth is achieved through
A) focusing only on making old products better rather than inventing new ones.
B) centralizing economic production.
C) a process termed “creative destruction.”
D) removing the entrepreneur from the production function.
A tax rebate by the government would
A) increase your pretax income, but not your disposable income.
B) increase your disposable income, but not your pretax income.
C) decrease your pretax income, but not your disposable income.
D) decrease your disposable income, but not your pretax income.
Figure 17-1
Refer to Figure 17-1. Suppose that the economy is currently at point A on the short-run
Phillips curve in the figure above, and the unemployment rate at A is the natural rate. If
the economy was to move to point B, which of the following must be true?
A) The economy is producing a level of GDP equal to potential GDP.
B) Aggregate demand must have increased.
C) Equilibrium GDP at point B must be below potential GDP.
D) The Fed conducted expansionary policy to cause the move.
E) The Fed purchased treasury bills to cause the move.
Which of the following provides health-care coverage to people age 65 and over?
A) Medicaid
B) Medicare
C) Social Security
D) Health-Aid
Robert Shiller posed the following question to workers: “Imagine that next year the
inflation rate unexpectedly doubles. How long would it probably take, in these times,
before your income is increased enough so that you can afford the same things as you
do today?” Shiller found that ________ percent of the workers he interviewed reported
that it would take several years to restore the purchasing power of their wages or that
this power would never be restored.
A) 25
B) 42
C) 64
D) 81
The automatic mechanism ________ the price level in the case of ________ and
________ the price level in the case of ________.
A) raises; recession; lowers; expansion
B) lowers; expansion; lowers; recession
C) raises; expansion; raises; recession
D) lowers; recession; raises; expansion
Paper currency is a
A) commodity money.
B) fiat money.
C) barter money.
D) bond.
Suppose that domestic investment in Japan is 20.2% of GDP, and Japanese national
savings is 24% of GDP. What is Japan’s foreign investment as a percentage of GDP?
A) 1.19%
B) 3.8%
C) 27.8%
D) 44.2%
Table 8-6
Refer to Table 8-6. Consider the table of production and price statistics for a small
economy in 2013. If the economy only produces the four goods listed below, what is
GDP for 2013?
A) $428,000
B) $267,000
C) $24,000
D) $1,424
Discuss the likely impact of each of the following on the unemployment rate:
a. The length of time workers are eligible to receive unemployment insurance payments
is cut in half.
b. The government passes a law making labor unions illegal.
c. The minimum wage is raised by 50 percent.
d. The government funds an Internet site where companies can post job openings at no
charge.
Which of the following is an example of adverse selection?
A) The odds of a fire rise after a building is insured because the person with fire
insurance is likely to pay less attention to fire hazards.
B) Someone who did not install fire alarms and a sprinkler system in a building he
owns buys insurance for the building.
C) Someone with automobile insurance drives more recklessly than someone without
insurance.
D) People prefer to buy new cars rather than used cars.
A corporation’s board of directors
A) hire the managers of the corporation.
B) control the day-to-day activities of the corporation.
C) are personally liable for the debts of the corporation.
D) are the sole owners of the corporation.
What is the macroeconomic consequence if firms accumulate large amounts of
unplanned inventory at the beginning of a recession?
Using the five criteria in the book, explain how U.S. currency is suitable to use as a
medium of exchange.
Discuss the correct and incorrect economic analysis in the following statements.
“If a disease kills a large number of turkeys, the supply of turkeys will decrease. This
will result in a price increase, which will then cause the supply of turkeys to increase.”
Does expansionary fiscal policy directly increase the money supply? Isn’t it true that the
president and Congress fight recessions by spending more money?
Should countries specialize in producing goods and services based on having a
comparative advantage or an absolute advantage? Why?