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If the opportunity cost of 1 wristwatch is 4 wall clocks in Japan and 2 wall clocks in
Germany, it makes sense for Germany to produce wristwatches.
Labor market equilibrium occurs at a real wage where the demand for labor exceeds the
supply of labor.
Overstating the actual change in prices has a large impact on Social Security spending.
Many economists, including those in the Congressional Budget Office believed that the
2009 stimulus package has significant effects.
An increase in government spending will shift the aggregate demand curve to the left.
Voluntary export restraints are illegal under international trading rules.
Because the government has so much money, and can print more, it does not need to
borrow and therefore rarely pays net interest on debt.
The full-employment level of output can only be achieved when the unemployment rate
is zero.
The real exchange rate is the:
A) the price of U.S. goods and services relative to foreign goods and services.
B) the price of U.S. goods and services relative to other U.S. goods and services.
C) price of domestic goods relative to foreign currencies.
D) price of foreign goods relative to U.S. dollars.
If real salaries increase but nominal salaries do not, this means that
A) the purchasing power of money has decreased.
B) prices have not changed.
C) prices have risen.
D) prices have fallen.
The group responsible for deciding on monetary policy is the
A) Federal Open Market Committee.
B) Board of Governors only.
C) Federal Advisory Council.
D) group of 12 Federal Reserve Bank presidents only.
The circular flow is used to make the point that
A) rising prices never occur during times of unemployment.
B) unemployment only occurs during a recession.
C) production generates income.
D) households purchase factors of production from firms.
Based on the model of the money market, if prices in the economy decrease, the
equilibrium interest rate should
A) stay the same.
B) increase.
C) decrease.
D) increase to the same extent that the supply of money increases.
Recall the Application about the Brazilian city of Silva Jardim that has issued its own
local currency to answer the following question(s). In order to entice local residents to
spend their money on stores in town, the small city of Silva Jardim in Brazil, hatched a
plan for its own currency. The currency is called the capivari and features a picture of a
local rodent on the bills. The capivaris are issued by a local bank, which holds one unit
of official Brazilian currency for each capivari it issued. Local merchants, however,
give discounts for paying in capivaris so that local residents are therefore encouraged to
make local purchases.
According to this Application, the small city of Silva Jardim in Brazil has issued its
own currency called the capivari. When people use this currency to execute
transactions, this currency is being used as a
A) medium of exchange.
B) unit of account.
C) store of value.
D) commodity money.
Recall the Application about the time it took to recover from the recession of
2007-2009 to answer the following question(s).
According to this Application, some economists believe that the economy was slow to
recover from the recession of 2007-2009 because this recession was brought on
primarily by
A) a decrease in the demand for housing.
B) rapid inflation.
C) increasing oil prices.
D) a financial crisis.
If money is used as a mechanism to hold purchasing power for a period of time it is
functioning as a
A) standard of value.
B) store of value.
C) medium of exchange.
D) unit of account.
If Say's Law holds true, then if the economy produced $10 trillion this year:
A) the demand for goods and services also equals $10 trillion.
B) production next year has to be larger than $10 trillion.
C) the demand for goods and services must be less than $10 trillion.
D) production next year has to be smaller than $10 trillion.
Diminishing returns occurs because:
A) not enough people have jobs.
B) one of the inputs to the production process is fixed.
C) consumers do not buy enough of the products produced.
D) people have not satisfied their self-interests.
Figure 14.6
Refer to Figure 14.6. If the money supply increases from to :
A) money demand must decrease for the money market to return to equilibrium.
B) the interest rate will decrease to 6%.
C) the interest rate will increase to 10%.
D) the money market will return to equilibrium only if the money supply is reduced to
its original level.
Economists call the physical cost of changing prices
A) the cost of doing business.
B) menu costs.
C) inflationary suffrage.
D) increasing profits.
The index used most often to measure prices paid by households is the:
A) producer price index.
B) consumer price index.
C) wholesale price index.
D) GDP deflator.
In the long run, without government intervention, the economy responds to a decrease
in aggregate demand with:
A) an increase in aggregate demand.
B) a second decrease in aggregate demand.
C) an increase in short-run aggregate supply.
D) a decrease in short-run aggregate supply.
A worker who currently is not working, but is not looking for a job is considered as:
A) employed.
B) unemployed.
C) not in the labor force.
D) in the labor force.
Explain the arguments for monetary policy targeting only the inflation rate.
If Year 1 is the base year, the price index for Year 2 is 105, and the price index for Year
3 is 103. What is the inflation rate in Years 2 and 3? Explain what has happened to the
cost of living between Years 1 and 2 and Years 2 and 3.
A permanent excess supply of a product is possible when the government sets a
minimum price that is ________ than the equilibrium price.
Table 8.1 Refer to Table 8.1. Compute real
GDP per capita for each of the three countries. Why is it important to examine real GDP
per capita rather than real GDP?
Summarize the effects of a decrease in the money supply on the rate of interest,
investment spending, and real GDP.
