Table 2-1
The following table contains some production possibilities for an economy for a given
month.
Refer to Table2-1. If the production possibilities frontier is bowed outward, then “?”
could be
a. 400.
b. 450.
c. 600.
d. 750.
Which of the following is notcorrect?
a. If the inflation rate exceeds the nominal interest rate, then the purchasing power of an
interest-earning deposit falls over time.
b. If there is deflation, then the purchasing power of an interest-earning deposit rises by
more than the nominal interest rate over time.
c. The higher the rate of inflation, the smaller the increase in the purchasing power of an
interest-earning deposit.
d. The purchasing power of an interest-earning deposit can increase or decrease over
time, but it cannot stay the same.
You know that a candy bar costs sixty cents today. You also know the CPI for 1962 and
the CPI for today. Which of the following would you use to compute the price of the
candy bar in 1962 prices?
a. sixty cents (today’s CPI – 1962 CPI)
b. sixty cents (1962 CPI – today’s CPI)
c. sixty cents (today’s CPI / 1962 CPI)
d. sixty cents (1962 CPI / today’s CPI)
Supporters of using government expenditures to respond to recession
a. argue that monetary policy should be used first. To respond to a recession the Fed
would increase the money supply.
b. argue that monetary policy should be used first. To respond to a recession the Fed
would decrease the money supply.
c. argue that monetary policy should be used only after fiscal policy has been used. To
respond to a recession the Fed would increase the money supply.
d. argue that monetary policy should be used only after fiscal policy has been used. To
respond to a recession the Fed would decrease the money supply.
In the United States in 2012, government purchases of goods and services were
a. larger than consumption, but smaller than investment.
b. larger than investment, but smaller than consumption.
c. smaller than both consumption and investment.
d. larger than both consumption and investment.
Economists make use of assumptions, some of which are unrealistic, for the purpose of
a. teaching economics to people who have never before studied economics.
b. advancing their political agendas.
c. developing models when the scientific method cannot be used.
d. focusing their thinking.
“When workers have a relatively small quantity of capital to use in producing goods
and services, giving them an additional unit of capital increases their productivity by a
relatively large amount.” This statement
a. is an assertion that production functions have the property of constant returns to
scale.
b. is consistent with the view that capital is subject to diminishing returns.
c. is inconsistent with the view that it is easier for a country to grow fast if it starts out
relatively poor.
d. All of the above are correct.
Interest rates fall and investment falls. Which of the following could explain these
changes?
a. The government goes from a surplus to a deficit.
b. The government repeals an investment tax credit.
c. The government replaces a consumption tax with an income tax.
d. None of the above is correct.
Which of the following increases inflation and reduces unemployment in the short run?
a. either an increase in government expenditures by itself or an increase in the money
supply growth rate by itself
b. an increase in government expenditures, but not an increase in the money supply
growth rate
c. an increase in the money supply growth rate, but not an increase in government
expenditures
d. neither an increase in government expenditures nor an increase in the money supply
Suppose the economy is in long-run equilibrium. In a short span of time, there is an
increase in the money supply, a tax decrease, a pessimistic revision of expectations
about future business conditions, and a rise in the value of the dollar. In the short run,
we would expect
a. the price level and real GDP both to rise.
b. the price level and real GDP both to fall.
c. the price level and real GDP both to stay the same.
d. All of the above are possible.
The President receives economic policy advice from economists at each of the
following except
a. the Council of Economic Advisors.
b. the Department of the Treasury.
c. the Congressional Budget office.
d. the Department of Labor.
The money supply increases when the Fed
a. buys bonds. The increase will be larger, the smaller is the reserve ratio.
b. buys bonds. The increase will be larger, the larger is the reserve ratio.
c. sells bonds. The increase will be larger, the smaller is the reserve ratio.
d. sells bonds. The increase will be larger, the larger is the reserve ratio.
If more firms chose to pay efficiency wages, which of the following would shift to the
right?
a. both the long-run Phillips curve and the long-run aggregate supply curve
b. the long-run Phillips curve but not the long-run aggregate supply curve
c. the long-run aggregate supply curve but not the long-run Phillips curve
d. neither the long-run Phillips curve nor the long-run aggregate supply curve
If all workers and all jobs were the same such that all workers were equally well suited
for all jobs, then job search would not be a problem.
a. True
b. False
An economy can produce at any point on or inside its production possibilities frontier,
but it cannot produce at points outside its production possibilities frontier.
a. True
b. False
Other things the same, if the price level is lower than expected, then some firms believe
that the relative price of what they produce has
a. decreased, so they increase production.
b. decreased, so they decrease production.
c. increased, so they increase production.
d. increased, so they decrease production.
When the quality of a good deteriorates while its price remains the same, the purchasing
power of the dollar
a. increases, so the CPI overstates the change in the cost of living if the quality change
is not accounted for.
b. increases, so the CPI understates the change in the cost of living if the quality change
is not accounted for.
c. decreases, so the CPI overstates the change in the cost of living if the quality change
is not accounted for.
d. decreases, so the CPI understates the change in the cost of living if the quality change
is not accounted for.
Figure 4-5
RefertoFigure4-5.Which of the following would cause the demand curve to shift from
Demand B to Demand C in the market for mattresses?
a. a decrease in the price of mattresses
b. a decrease in the price of custom wooden sleigh bed frames
c. a change in consumer tastes away from wooden bedroom furniture
d. a decrease in the number of people in the United States
According to the theory of purchasing-power parity, the nominal exchange rate between
two countries must reflect the differing
a. price levels in those countries.
b. resource endowments in those countries.
c. income levels in those countries.
d. standards of living between those countries.
Which of the following statements about the termof a bond is correct?
a. Termrefers to the various characteristics of a bond, including its interest rate and tax
treatment.
b. The term of a bond is determined entirely by its credit risk.
c. The term of a bond is determined entirely by how much sales charge the buyer of the
bond pays when he or she purchases the bond.
d. Interest rates on long-term bonds are usually higher than interest rates on short-term
bonds.
The government of Blenova considers two policies. Policy A would shift AD right by
500 units while policy B would shift AD right by 300 units. According to the short-run
Phillips curve, policy A will lead
a. to a lower unemployment rate and a lower inflation rate than policy B.
b. to a lower unemployment rate and a higher inflation rate than policy B.
c. to a higher unemployment rate and lower inflation rate than policy B.
d. to a higher unemployment rate and higher inflation rate than policy B.
What would happen to the equilibrium price and quantity of peanut butter if the price of
peanuts went up, the price of jelly fell, fewer firms decided to produce peanut butter,
and health officials announced that eating peanut butter was good for you?
a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.
Skyline Chili wants to finance the purchase of new equipment for its restaurants. The
firm has limited internal funds, so Skyline likely will
a. demand funds from the financial system by buying bonds.
b. demand funds from the financial system by selling bonds.
c. supply funds to the financial system by buying bonds.
d. supply funds to the financial system by selling bonds.
Monetary policy is determined by a committee whose voting members include all the
presidents of the regional Federal Reserve Banks.
a. True
b. False
The value of the consumer price index increased from 140 to 147 during 2006. Nathan
opened a bank account at the beginning of 2006, and at the end of 2006 his account
balance was $12,840. The purchasing power of Nathan’s account increased by 2 percent
during the year. We can conclude that Nathan opened his account with a deposit of
$11,500 at the beginning of 2006.
a. True
b. False
Microeconomics and macroeconomics are closely intertwined.
a. True
b. False
During the current quarter, a firm produces consumer goods and adds some of those
goods to its inventory rather than selling them. The value of the goods added to
inventory is
a. not included in the current quarter GDP.
b. included in the current quarter GDP as investment.
c. included in the current quarter GDP as consumption.
d. included in the current quarter GDP as a statistical discrepancy.
Table24-12.Will’s expenditures on food for three consecutive years, along with other
values, are presented in the table below.
RefertoTable24-12.Suppose Will’s 2009 food expenditures in 2011 dollars amount to
$5,750. Then x, the consumer price index for 2011, has a value of
a. 184.0.
b. 185.8.
c. 187.5.
d. 189.4.
Figure 2-5
RefertoFigure2-5. It is possible for this economy to produce
a. 60 dryers and 50 washers.
b. 60 dryers and 60 washers.
c. 80 dryers and 50 washers.
d. All of the above.
If you put $400 into a bank account today and it promises to pay 5% interest for 6
years, how much is in the account at the end of the six years?
a.
b.
c.
d.