According to liquidity preference theory, if the price level
a. fell, the interest rate would rise, and induce investment spending to rise.
b. fell, the interest rate would fall, and induce investment spending to fall.
c. rose, the interest rate would rise, and induce investment spending to fall.
d. rose, the interest rate would fall, and induce investment spending to rise.
A market economy cannot produce a socially desirable outcome because individuals are
motivated by their own selfish interests.
a. True
b. False
Figure 3-10
RefertoFigure3-10.If point A represents Alice’s production and point B represents
Betty’s production,
a. Alice produces 200 pitchers of lemonade and 100 pizzas while Betty produces 180
pitchers of lemonade and 180 pizzas.
b. Alice produces 180 pitchers of lemonade and 180 pizzas while Betty produces 200
pitchers of lemonade and 100 pizzas.
c. Alice produces 100 pitchers of lemonade and 200 pizzas while Betty produces 180
pitchers of lemonade and 180 pizzas.
d. Only Alice can benefit from specialization and trade.
An increase in the actual price level does not shift the short-run aggregate supply curve,
but an expected increase in the price level shifts the short-run aggregate supply curve to
the left.
a. True
b. False
Over the past several decades in the United States, the labor-force participation rate of
women has increased and the labor-force participation rate of men had remained steady.
a. True
b. False
A macroeconomist – as opposed to a microeconomist – would study
a. the effects of rent control on housing in New York City.
b. the effects of foreign competition on the US auto industry.
c. the effects of borrowing by the federal government.
d. the effects of raising the gasoline tax on transit ridership.
According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate
demand than an increase in government expenditures of the same size.
a. True
b. False
If a Japanese company opens a new factory in South Korea, it makes
a. foreign direct investment. The factory will make a bigger impact on South Korea’s
GDP than on its GNP.
b. foreign direct investment. The factory will make a bigger impact on South Korea’s
GNP than on its GDP.
c. foreign portfolio investment. The factory will make a bigger impact on South Korea’s
GDP than on its GNP.
d. foreign portfolio investment. The factory will make a bigger impact on South Korea’s
GNP than on its GDP.
Which of the following items is the one type of household expenditure that is
categorized as investment rather than consumption?
a. spending on education
b. the purchase of stocks and bonds
c. the purchase of a new house
d. the purchase of durable goods such as stoves and washing machines
Figure 32-2
RefertoFigure32-2.If the real exchange rate is 1, then there is a
a. surplus of 100 so the real exchange rate will fall.
b. surplus of 100 so the real exchange rate will rise.
c. shortage of 100 so the real exchange rate will fall.
d. shortage of 100 so the real exchange rate will rise.
The underground economy
a. excludes the amount of criminal activity in an economy.
b. is larger for developed nations than developing nations when measured as a percent
of GDP.
c. includes otherwise legal transactions that go unreported or unrecorded.
d. in the United States is insignificant is size when compared to the official measure of
GDP.
Which of the following transactions does nottake place in the markets for factors of
production in the circular-flow diagram?
a. a landowner leases land to a farmer
b. a farmer hires a teenager to help with harvest
c. a construction company rents trucks for its business
d. a woman buys corn for dinner
An increase in the money supply
a. reduces interest rates and shifts aggregate demand to the right.
b. reduces interest rates and shifts aggregate supply to the right
c. raises interest rates and shifts aggregate demand to the right.
d. raises interest rates and shifts aggregate supply to the right.
“Other things equal, an increase in supply causes a decrease in price” is a normative
statement, not a positive statement.
a. True
b. False
Nancy would like to double the money in her retirement account in five years.
According to the rule of 70, what rate of interest would she need to earn to attain her
objective?
a. 5 percent
b. 7 percent
c. 10 percent
d. 14 percent
The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons
of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost
$1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread
cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost
$12.00 per pair. Using 2005 as the base year, what was Aquilonia’s inflation rate in
2006?
a. 4 percent
b. 11 percent
c. 19.6 percent
d. 24.4 percent
The saying “Money is a veil.” means that
a. while nominal variables are the first thing we may observe about an economy, what’s
important are the real variables and the forces that determine them.
b. money is the principal medium of exchange in most economies.
c. the primary determinant of short-run economic fluctuations is not real variables, but
rather changes in the money supply.
d. in the long run money is of no importance to the determination of either real or
nominal variables.
The nominal interest rate tells you how fast the number of dollars in your bank account
rises over time.
a. True
b. False
Which of the following is the correct way to compute the future value of $Xthat earns
percent interest for N years?
a. $X(1 + rN)N
b. $X(1 + r)N
c. $X(1 + rN)
d. $X(1 + r/N)N
Public saving is T– G, while private saving is Y– T– C.
a. True
b. False
Trade between countries tends to
a. reduce both competition and specialization.
b. reduce competition and increase specialization.
c. increase competition and reduce specialization.
d. increase both competition and specialization.
Economists predict the business cycle well enough that stabilization policy is likely to
work despite lags in the effects of policy.
a. True
b. False
For economists, historical episodes
a. are not worthy of study because they offer few insights into current economic events
and problems.
b. are not worthy of study because laboratory experiments provide more reliable data.
c. are worthy of study because economists rely entirely on observation, rather than on
theory.
d. are worthy of study because they serve as valuable substitutes for laboratory
experiments.
According to classical macroeconomic theory, in the long run
a. monetary growth affects both real and nominal variables.
b. the only real variable affected by monetary growth is the unemployment rate.
c. a number of factors that affect unemployment are influenced by monetary growth.
d. monetary growth affects nominal but not real variables.
Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures
a. increase U.S. net capital outflow and have no affect on Greek net capital outflow.
b. increase U.S. net capital outflow and increase Greek net capital outflow.
c. increase U.S. net capital outflow, but decrease Greek net capital outflow.
d. decrease U.S. net capital outflow, but increase Greek net capital outflow.
Which of the following is correct?
a. Nominal and real interest rates always move together.
b. Nominal and real interest rates never move together.
c. Nominal and real interest rates do not always move together.
d. Nominal and real interest rates always move in opposite directions.
A U.S. Treasury bond is a
a. store of value and common medium of exchange.
b. store of value, but not a common medium of exchange.
c. a common medium of exchange, but not a store of value.
d. neither a store of value nor a common medium of exchange.
Suppose a tax cut affected aggregate demand and aggregate supply. The shift in
aggregate supply would make the
a. price level and real GDP change by more than otherwise.
b. price level change by more than otherwise and real GDP change by less than
otherwise.
c. price level change by less than otherwise and real GDP change by more than
otherwise.
d. price level and real GDP change by more than otherwise.
Table 3-19 Summary of the Gains from Trade
Refer to Table3-19. The values in the table represent the amounts of lemonade and
pizzas that Alice and Betty can produce in one week without and with specialization
and trade. What are Alice and Betty’s gains from specialization and trade?
a. Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of
lemonade and 10 pizzas.
b. Alice gains 200 pitchers of lemonade and 100 pizzas, while Betty gains 180 pitchers
of lemonade and 180 pizzas.
c. Alice gains 207 pitchers of lemonade and 110 pizzas, while Betty gains 193 pitchers
of lemonade and 190 pizzas.
d. Alice gains 400 pitchers of lemonade and 0 pizzas, while Betty gains 0 pitchers of
lemonade and 300 pizzas.
According to the theory of liquidity preference, an increase in the price level causes the
a. interest rate and investment to rise.
b. interest rate and investment to fall.
c. interest rate to rise and investment to fall.
d. interest rate to fall and investment to rise.
If a nation produces less than it spends what do we know about:
A. its net exports?
B. its net capital outflow?
C. its saving in relation to its domestic investment?