Table 16-4.
The First Bank of Roswell
Refer to Table 16-4. Suppose the bank faces a reserve requirement of 10 percent.
Starting from the situation as depicted by the T-account, a customer deposits an
additional $50,000 into his account at the bank. If the bank takes no other action it will
a. have $65,000 in excess reserves.
b. have $55,000 in excess reserves.
c. need to raise an additional $5,000 of reserves to meet the reserve requirement ratio
d. None of the above is correct.
Disposable income is
a. the total income earned by a nation’s permanent residents.
b. the total income earned by a nation’s residents in the production of good and services.
c. the income that households and non-corporate businesses receive.
d. the income that households and businesses have remaining after satisfying their
obligations to the government.
When a country’s government budget deficit decreases,
a. the real exchange rate of its currency and its net exports increase.
b. the real exchange rate of its currency and its net exports decrease.
c. the real exchange rate of its currency increases and its net exports decrease.
d. the real exchange rate of its currency decreases and its net exports increase.
Which of the following would not result from all countries specializing according to the
principle of comparative advantage?
a. The size of the economic pie would increase.
b. Worldwide production of goods and services would increase.
c. The well-being of citizens in each country would be enhanced.
d. Each country’s production possibilities frontier would shift inward.
In the national income accounts, depreciation is called
a. “consumption of fixed capital.”
b. “negative investment.”
c. “diminished value.”
d. “loss due to wear.”
A U.S. publisher purchases new computers that were manufactured in the U.S. This
purchase by itself makes
a. a positive contribution both to investment and to GDP.
b. a positive contribution both to consumption and to GDP.
c. a positive contribution to GDP, but it does not affect investment or consumption.
d. a positive contribution to investment, but it does not affect GDP.
Figure 8-4
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is
a. $12.
b. between $8 and $12.
c. between $5 and $8.
d. $5.
If a shortage exists in a market, then we know that the actual price is
a. above the equilibrium price, and quantity supplied is greater than quantity demanded.
b. above the equilibrium price, and quantity demanded is greater than quantity supplied.
c. below the equilibrium price, and quantity demanded is greater than quantity supplied.
d. below the equilibrium price, and quantity supplied is greater than quantity demanded.
Suppose that monetary neutrality and the Fisher effect both hold. An increase in the
money supply growth rate increases
a. the inflation rate and the nominal interest rate by the same number of percentage
points.
b. nominal interest rates but by less than the percentage point increase in the inflation
rate.
c. the inflation rate but not the nominal interest.
d. neither the inflation rate nor the nominal interest rate.
An increase in the expected price level shifts the
a. short-run and long-run aggregate supply curves left.
b. the short-run but not the long-run aggregate supply curve left.
c. the long-run but not the short-run aggregate supply curve left.
d. neither the long-run nor the short-run aggregate supply curve left.
Opponents of active stabilization policy
a. advocate a monetary policy designed to offset changes in the unemployment rate.
b. argue that fiscal policy is unable to change aggregate demand or aggregate supply.
c. believe that the political process creates lags in the implementation of fiscal policy.
d. None of the above is correct.
If an economy uses silver as money, then that economy’s money
a. serves as a store of value but not as a medium of exchange.
b. serves as a medium of exchange but not as a unit of account.
c. is commodity money.
d. has no intrinsic value.
Bank runs
a. will affect neither the money supply nor the money multiplier.
b. are only a problem for insolvent banks.
c. can be neither prevented nor mitigated by the Federal Reserve.
d. are a problem because banks only hold a fraction of deposits as reserves.
Suppose an economy produces two goods, food and machines. This economy always
operates on its production possibilities frontier. Last year, it produced 1000 units of
food and 47 machines. This year it experienced a technological advance in its
machine-making industry. As a result, this year the society wants to produce 1050 units
of food and 47 machines. Which of the following statements is correct?
a. Because the technological advance occurred in the machine-making industry, it will
not be possible to increase food production without reducing machine production below
47.
b. Because the technological advance occurred in the machine-making industry,
increases in output can only occur in the machine industry.
c. In order to increase food production in these circumstances without reducing machine
production, the economy must reduce inefficiencies.
d. The technological advance reduced the amount of resources needed to produce 47
machines, so these resources could be used to produce more food.
Under which of the following conditions would the interdiction of illegal drugs result in
a decrease in the quantity of drugs sold and in a decrease in total spending on illegal
drugs by drug users?
a. The interdiction has the effect of shifting the demand curve for illegal drugs to the
right.
b. The price elasticity of demand for illegal drugs is 1.3.
c. The price elasticity of supply for illegal drugs is 0.8.
d. As a result of the interdiction, the price of illegal drugs increases by 20 percent and
the quantity of illegal drugs sold decreases by 16 percent.
Figure 6-24
Suppose the government imposes a $2 on this market.
Refer to Figure 6-24. The buyers and sellers will bear an eaqual share of the tax burden
if the demand is
a. D1, and the supply is S1.
b. D2, and the supply is S1.
c. D1, and the supply is S2.
d. D2, and the supply is S2.
On a given short-run Phillips curve which of the following is not held constant?
a. the level of GDP
b. the position of the aggregate-supply curve
c. expected inflation
d. the expected growth rate of the money supply
Rank the countries from highest to lowest based on underground economic activity as a
percentage of GDP.
a. Bolivia, Thailand, United States, Sweden.
b. Thailand, United States, Sweden, Bolivia.
c. United States, Bolivia, Sweden, Thailand.
d. Bolivia, Thailand, Sweden, United States.
If Iowa’s opportunity cost of corn is lower than Oklahoma’s opportunity cost of corn,
then
a. Iowa has a comparative advantage in the production of corn.
b. Iowa has an absolute advantage in the production of corn.
c. Iowa should import corn from Oklahoma.
d. Oklahoma should produce just enough corn to satisfy its own residents’ demands.
Figure 7-13
Refer to Figure 7-13. If the price of the good is $600, then
a. consumer surplus is $800.
b. consumer surplus is $900.
c. producer surplus is $900.
d. producer surplus is $1,000.
James owns two houses. He rents one house to the Johnson family for $10,000 per year.
He lives in the other house. If he were to rent the house in which he lives, he could earn
$12,000 per year in rent. How much do the housing services provided by the two
houses contribute to GDP?
a. $0
b. $10,000
c. $12,000
d. $22,000
If the Canadian nominal exchange rate does not change, but prices rise faster in Canada
than in all other countries, then the Canadian real exchange rate
a. does not change.
b. rises.
c. declines.
d. There is not enough information to answer the question
Over the period 1960-1991,
a. South Korea had a higher growth rate than the United States because it had a higher
ratio of investment to GDP.
b. the United States had a higher growth rate than South Korea because it had a higher
ratio of investment to GDP.
c. South Korea had a higher growth rate than the United States even though it had a
similar ratio of investment to GDP.
d. the United States had a higher growth rate than South Korea even though it had a
similar ratio of investment to real GDP.
The nation’s antitrust laws are enforced by economists at the Department of
a. Labor.
b. Health and Human Services.
c. Justice.
d. Treasury.
Other things the same, when the price level rises, interest rates
a. rise, which means consumers will want to spend more on homebuilding.
b. rise, which means consumers will want to spend less on homebuilding.
c. fall, which means consumers will want to spend more on homebuilding.
d. fall, which means consumers will want to spend less on homebuilding.
Assume that a 4 percent decrease in income results in a 6 percent increase in the
quantity demanded of a good. The income elasticity of demand for the good is
a. negative, and the good is an inferior good.
b. negative, and the good is a normal good.
c. positive, and the good is an inferior good.
d. positive, and the good is a normal good.
The world price of a ton of steel is $1,000. Before Russia allowed trade in steel, the
price of a ton of steel there was $650. Once Russia allowed trade in steel with other
countries, Russia began
a. exporting steel and the price per ton in Russia remained at $650.
b. exporting steel and the price per ton in Russia increased to $1,000.
c. importing steel and the price per ton in Russia remained at $650.
d. importing steel and the price per ton in Russia increased to $1,000.
Figure 8-4
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-4. The per-unit burden of the tax on sellers is
a. $7.
b. $5.
c. $4.
d. $3.
If marijuana were legalized, it is likely that there would be an increase in the supply of
marijuana. Advocates of marijuana legalization argue that this would significantly
reduce the amount of revenue going to the criminal organizations that currently supply
marijuana. These advocates believe that the
a. supply for marijuana is elastic.
b. demand for marijuana is elastic.
c. supply for marijuana is inelastic.
d. demand for marijuana is inelastic.
Which of the following affected aggregate demand during the recession of 2008-2009?
a. a decline in residential construction and a decrease in lending
b. a decline in residential construction but not a decrease in lending
c. a decrease in lending but not a decline in residential construction
d. neither a decrease in residential construction nor a decrease in lending