If there is inflation, real interest rates will be greater than nominal interest rates.
A “market” is an arrangement that enables people to exchange goods and services.
In order to go to college, James incurs an opportunity cost even though all he gave up
was a full time job as a clerk at Wally World.
The fiscal expansion during the Kennedy administration was successful because the
economy was already operating above full employment.
The amount of money banks can create is determined by the required reserve ratio.
Positive economics questions “What ought to be?” while normative economics predicts
the consequences of alternative actions, answering the questions, “What is?” or “What
will be?”
Changes in labor demand or labor supply can change real wages.
The formula for an infinite sum is 1 / (1 – ), where = (1 – reserve ratio).
The reduction in investment spending in the long run results from an increase in
government expenditures because:
A) real interest rates increase.
B) real interest rates decrease.
C) nominal interest rates decrease.
D) the tax rate increases.
The value of a dollar
A) is its purchasing power.
B) remains constant over time.
C) is its face value.
D) is set by the government.
If autonomous consumption increases, the size of the multiplier would:
A) increase.
B) decrease.
C) remain constant.
D) either increase or decrease depending on the size of the change in autonomous
consumption.
The principle that individuals and firms pick the activity level where the incremental
benefit of that activity equals the incremental cost of that activity is known as the:
A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) spillover principle.
If the government increases its purchases of goods and services by $3,000 and the MPC
is 0.8, GDP and income will eventually increase by
A) $2,400.
B) $6,000.
C) $15,000.
D) $24,000.
One cost of unanticipated inflation is
A) both lenders and borrowers lose.
B) arbitrary redistributions of income.
C) nominal income falls below real income.
D) people cannot repay their debts.
Recall Application 2, “Using Long-Term Macro Data to Measure Multipliers,” to
answer the following questions:
According to the application, the best time to measure the country’s spending
multipliers is:
A) during the buildups and the aftermaths of major wars.
B) during and after a stock market crash.
C) before and after a presidential election.
D) before and after the crash of the housing bubble.
Figure 14.5 Refer to Figure 14.5. Assume the interest rate equals 8%. What would
cause the money supply to shift from to ?
A) a higher discount rate
B) an open market purchase
C) a lower reserve requirement
D) a higher fed funds rate
Recall Application 5, “The Role of Political Factors in Economic Growth,” to answer
the following questions:
According to the application, which of the following is an example of authoritarian
institutions?
A) monarchies
B) tightly controlled oligarchies
C) dictatorships
D) All of the above are correct.
A tax on labor causes a smaller drop in equilibrium employment when:
A) the labor supply curve is steep than when it is flat.
B) the labor demand curve is steep than when it is flat.
C) the labor supply curve is flat than when it is steep.
D) the labor demand curve is flat than when it is steep.
Define the marginal propensity to import.
Explain how automatic stabilizers work.
Explain three ways we can use macroeconomic analysis.
Explain how an import tariff results in an import ban.
What kind of policies can be used to reduce aggregate demand?
Describe how the wage rate adjusts so that the labor market reaches equilibrium.
Consider the following weekly production possibilities of gloves and hats in Panama
and Russia:
What is each country’s opportunity cost of producing gloves and hats? If the countries
could, should they trade?
Suppose that the following table represents all of the possible investments in the
economy. If the nominal interest rate is six percent, what is the total amount of
investment in the economy? (Note: The Returns are for one period later.)