A firm has four different investment options. Option A will give the firm $10 million at
the end of one year, $10 million at the end of two years, and $10 million at the end of
three years. Option B will give the firm $5 million at the end of one year, $10 million at
the end of two years, and $15 million at the end of three years. Option C will give the
firm $15 million at the end of one year, $10 million at the end of two years, and $5
million at the end of three years. Option D will give the firm $21 million at the end of
one year, nothing at the end of two years, and $9 million at the end of three years.
Which of these options has the highest present value if the rate of interest is 5 percent?
a. Option A
b. Option B
c. Option C
d. Option D
If orange juice and apple juice are substitutes, an increase in the price of orange juice
will shift the demand curve for apple juice to the right.
a. True
b. False
The GDP Deflator reflects
a. the prices of all final goods and services currently produced domestically, as does the
CPI.
b. the price of a fixed basket of goods and services purchased by a typical consumer, as
does the CPI.
c. the prices of all final goods and services currently produced domestically, while the
CPI reflects the price of a fixed basket of goods and services purchased by a typical
consumer.
d. the price of a fixed basket of goods and services purchased by a typical consumer,
while the CPI reflects the prices of all final goods and services produced domestically.
Figure 4-24
The diagram below pertains to the demand for turkey in the United States.
RefertoFigure4-24.All else equal, an increase in the income of buyers who consider
turkey to be an inferior good would cause a move from
a. DAto DB.
b. DBto DA.
c. x to y.
d. y to x.
Other things the same, which of the following could explain a rise in Sweden’s net
capital outflow?
a. interest rates on Swedish bonds rise
b. the probability of default on Swedish bonds rises
c. Sweden enacts a law reducing taxes on income earned by foreign-owned businesses
operating in Sweden
d. None of the above are correct.
Since 1870 Canadian and U.S real GDP per person grew from below to above that in
the United Kingdom. The explanation for this is likely that productivity grew faster in
Canada and the U.S. than in the United Kingdom.
a. True
b. False
You sell cupcakes. One day you double the time you spend and double all your inputs,
and make twice as many cupcakes. Your cupcake production function has
a. decreasing returns to scale.
b. zero returns to scale.
c. constant returns to scale.
d. increasing returns to scale.
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.Assume that banks desire to continue holding the same ratio of
excess reserves to deposits. What is the reserve requirement and what is the reserve
ratio?
a. 2 percent, 8 percent
b. 8 percent, 10 percent
c. 10 percent, 12.5 percent
d. None of the above is correct.
Roundabout trade decreases production.
a. True
b. False
Consider the market for portable air conditioners in equilibrium. When a heat wave
strikes the equilibrium price
a. and quantity both decrease.
b. and quantity both increase.
c. increases, and the equilibrium quantity decreases.
d. decreases, and the equilibrium quantity increases.
When households find themselves holding too much money, they respond by
a. purchasing interest-earning financial assets and interest rates fall.
b. purchasing interest-earning financial assets and interest rates rise.
c. holding the extra money and interest rates rise.
d. selling interest-earning financial assets, which eliminates the excess supply of money.
Other things the same, an increase in foreign prices raises the real exchange rate.
a. True
b. False
One reason we need government, even in a market economy, is that
a. there is insufficient market power in the absence of government.
b. property rights are too strong in the absence of government.
c. the invisible hand is not perfect.
d. Both a and b are correct.
Which of the following is correct?
a. Over the last 100 years Japan had a higher average growth rate than the United
States. It follows that, today, the standard of living in Japan is higher than in the United
States.
b. The typical person in Bangladesh today has about twice the real income of a typical
American 100 years ago.
c. The typical citizen of China today has about one-half as much real income as the
typical citizen of America today.
d. None of the above is correct.
If monetary neutrality holds, then an increase in the money supply
a. increases real but not nominal variables. Most economists think that monetary
neutrality is a good description of the short run.
b. increases real but not nominal variables. Most economists think that monetary
neutrality is a good description of the long run.
c. increases nominal but not real variables. Most economists think that monetary
neutrality is a good description of the short run.
d. increases nominal but not real variables. Most economists think that monetary
neutrality is a good description of the long run.
Bob traps lobsters in Maine and sells them to a restaurant in Mexico. Other things the
same, these sales
a. increase U.S. net exports and have no effect on Mexican net exports.
b. increase U.S. net exports and decrease Mexican net exports.
c. decrease U.S. net exports and have no effect on Mexican net exports.
d. decrease U.S. net exports and increase Mexican net exports.
Which of the following is inconsistent with the others?
a. Y – C – G > I
b. this country had a trade surplus
c. the purchase of foreign assets by this country’s residents exceed foreigner’s purchases
of this country’s assets
d. this country’s investment exceeded its domestic saving
If the price of a good is low,
a. firms would increase profit by increasing output.
b. the quantity supplied of the good could be zero.
c. the supply curve for the good will shift to the left.
d. firms can and should raise the price of the product.
A shortage exists in a market if
a. there is an excess supply of the good.
b. quantity supplied exceeds quantity demanded.
c. the current price is below its equilibrium price.
d. All of the above are correct.
To decrease the money supply, the Fed could
a. sell government bonds.
b. increase the discount rate.
c. increase the reserve requirement.
d. All of the above are correct.
Tuition is the single-largest cost of attending college for most students.
a. True
b. False
A bank’s assets equal its liabilities under
a. both 100-percent-reserve banking and fractional-reserve banking.
b. 100-percent-reserve banking but not under fractional-reserve banking.
c. fractional-reserve banking but not under 100-percent-reserve banking.
d. neither 100-percent-reserve banking nor fractional-reserve banking.
Olivia was accepted by Northwestern and by another university. She is trying to decide
where to go. Which of the following should influence her decision?
a. how much she spent applying to Northwestern, and the difference between living
expenses at Northwestern and the other university
b. how much she spent applying to Northwestern, but not the difference between living
expenses at Northwestern and the other university
c. the difference between living expenses at Northwestern and her second choice, but
not how much she spent applying to Northwestern
d. neither how much she spent applying to Northwestern nor the difference between
living expenses at Northwestern and her second choice
Suppose expected inflation and actual inflation are both relatively high, and
unemployment is at its natural rate. If the Fed then pursues a contractionary monetary
policy, which of the following results would be expected in the short run?
a. Expected inflation would exceed actual inflation, and unemployment would exceed
its natural rate.
b. Expected inflation would exceed actual inflation, and unemployment would be below
its natural rate.
c. Actual inflation would exceed expected inflation, and unemployment would exceed
its natural rate.
d. Actual inflation would exceed expected inflation, and unemployment would be below
its natural rate.
If an American-based firm opens and operates a new clothing factory in Honduras, then
it is engaging in
a. foreign portfolio investment.
b. foreign financial investment.
c. foreign direct investment.
d. indirect foreign investment.
If something happens to alter the quantity supplied at any given price, then we move
along the fixed supply curve to a new quantity supplied.
a. True
b. False
On its web site, your bank posts the interest rates it is paying on savings accounts.
Those posted rates
a. and a price index are both real variables.
b. and a price index are both nominal variables.
c. are real variables, and a price index is a nominal variable.
d. are nominal variables, and a price index is a real variable
Suppose the parents of a child born in the year 2000 had invested $5,000 at a 10%
interest rate to be paid out to the child when she turns 21 years old. Approximately how
many times will the investment double by the time it is paid out to the child?
a. 2 times
b. 3 times
c. 4 times
d. 8 times
A circular-flow diagram is a model that
a. helps to explain how participants in the economy interact with one another.
b. helps to explain how the economy is organized.
c. incorporates all aspects of the real economy.
d. Both (a) and (b) are correct.
To increase living standards, public policy should
a. ensure that workers are well educated and have the necessary tools and technology.
b. make unemployment benefits more generous.
c. move workers into jobs directly from high school.
d. ensure a greater degree of equality, taking all income-earners into account.
The average U.S. citizens’ share of the government debt represents less than 2 percent
of a person’s lifetime income.
a. True
b. False
An decrease in taxes shifts aggregate demand
a. to the right. The larger the multiplier is, the farther it shifts.
b. to the right. The larger the multiplier is, the less it shifts.
c. to the left. The larger the multiplier is, the farther it shifts.
d. to the left. The larger the multiplier is, the less it shifts.
Provide two specific ways in which reducing inflation might leave “permanent scars”
on the economy.
How would an economist typically assess the extent of economic progress in a nation?
Suppose the required reserve ratio is 20%. What is the maximum amount of total
money supply that can be created from an initial deposit of $200? In general, why
might the actual amount of total money creation be less than the maximum?
Compare and contrast the population theories of Malthus and Kremer.
If expected inflation decreases does the short-run Phillips curve shift? If so, what
direction does it shift? Does the long-run Phillips curve shift? If so, what direction does
it shift?
What is the benefit of a high saving rate?
Given that firms change their prices infrequently, a business that has just raised its price
will have a __________ relative price; over time as its price remains fixed its relative
price __________.
A bushel of apples costs $15.00 in the U.S. The same apples cost 1,600 yen in Japan. If
the exchange rate is 80 yen per dollar, is there a possibility for arbitrage? Explain and
defend your answer. As part of your defense, find the real exchange rate.
Figure 23-2.
RefetoFigure23-2. Identify the location for markets for factors of production and
markets for goods and services.
The classical dichotomy says that two groups of variables are affected by different
forces. What are these two groups of variables?
Economists agree that increases in the money-supply growth rate increase inflation and
that inflation is undesirable. So why have there been hyperinflations and how have they
been ended?
Write the formula for finding the future value of $1,000 today in 10 years if the interest
rate is 4 percent.
Depositors Move Funds out of Greek Banks.
In 2011 Greek citizens were concerned about the size of government debt. Fearful that
the government might be unable to fulfill its promise to insure depositors in Greek
banks against losses created by bank failures, depositors moved funds out of Greek
banks.
RefertoDepositorsMoveFunds outofGreekBanks.What happened to domestic
investment? Why?
Table 24-14
The table below lists the per pound prices of meat and potatoes for the months of
January, February, and March. Assume that the typical consumer buys 25 pounds of
meat and 15 pounds of potatoes each month, and that January is the base period.
RefertoTable24-14. Calculate the consumer price index for February and March.
Suppose the Johnson Corporation releases an earnings report that beats the market’s
expectations. What does the efficient markets hypothesis predict will happen to
Johnson’s stock price.
Is the following a positive or normative statement? The unemployment rate in Nevada
is higher than the unemployment rate in New York.
An economy recently had 800 billion euros of saving and 600 billion euros of net
capital outflow. What was its investment? What was its quantity of loanable funds
supplied?