According to liquidity preference theory, if the price level decreases, then
a. the interest rate falls because money demand shifts right.
b. the interest rate falls because money demand shifts left.
c. the interest rate rises because money supply shifts right.
d. the interest rate rises because money supply shifts left.
A tax on gasoline is an incentive that encourages people to drive smaller more
fuel-efficient cars.
a. True
b. False
Which of the following is an example of U.S. foreign direct investment?
a. A U.S. based mutual fund buys stock in Eastern European companies.
b. A U.S. citizen builds and operates a coffee shop in the Netherlands.
c. A Swiss bank buys a U.S. government bond.
d. A German tractor factory opens a plant in Waterloo, Iowa.
The banking system currently has $200 billion of reserves, none of which are excess.
People hold only deposits and no currency, and the reserve requirement is 4 percent. If
the Fed raises the reserve requirement to 10 percent and at the same time buys $50
billion worth of bonds, then by how much does the money supply change?
a. It rises by $600 billion.
b. It rises by $125 billion.
c. It falls by $2,500 billion.
d. None of the above is correct.
According to purchasing-power parity which of the following would happen if a
country raised its money supply growth rate?
a. its nominal exchange rate would fall
b. its real exchange rate would fall
c. its real net exports would rise
d. All of the above would happen.
Table 3-3
ProductionOpportunities
Refer to Table3-3. Which of the following combinations of cheese and wine could
France produce in 40 hours?
a. 2 units of cheese and 20 units of wine
b. 4 units of cheese and 15 units of wine
c. 6 units of cheese and 5 units of wine
d. 8 units of cheese and 20 units of wine
Shawn puts money into an account. One year later he sees that he has 6 percent more
dollars and that his money will buy 5 percent more goods.
a. The nominal interest rate was 11 percent and the inflation rate was 5 percent.
b. The nominal interest rate was 6 percent and the inflation rate was 5 percent.
c. The nominal interest rate was 5 percent and the inflation rate was -1 percent.
d. The nominal interest rate was 6 percent and the inflation rate was 1 percent.
A policy that induces people to save more shifts
a. the supply of loanable funds rightward and increases investment.
b. the supply of loanable funds leftward and decreases investment.
c. the supply of loanable funds rightward and decreases investment.
d. the supply of loanable funds leftward and increases investment.
Hamid spends an hour studying instead of watching TV with his friends. The
opportunity cost to him of studying is
a. the improvement in his grades from studying for the hour.
b. the improvement in his grades from studying minus the enjoyment of watching TV.
c. the enjoyment he would have received if he had watched TV with his friends.
d. zero. Since Hamid chose to study rather than to watch TV, the value of studying must
have been greater to him than the value of watching TV.
In the national income accounts, depreciation is called
a. “consumption of fixed capital.”
b. “negative investment.”
c. “diminished value.”
d. “loss due to wear.”
Last quarter in a closed economy GDP was 200,000. Expenditures on capital goods
such as business equipment and structures was 19,000, inventory rose 1,000, and new
construction of homes was 8,000. Consumption was 135,000 and taxes were 32,000.
What was public saving?
a. -4,000
b. -5,000
c. -14,000
d. -6,000
Suppose a government that taxed all interest income changed its tax law so that the first
$5,000 of a taxpayer’s interest income was tax free. This would shift the
a. supply of loanable funds to the right, causing interest rates to fall.
b. supply of loanable funds to the left, causing interest rates to rise.
c. demand for loanable funds to the right, causing interest rates to rise.
d. demand for loanable funds to the left, causing interest rates to fall.
Figure26-4.On the horizontal axis of the graph, Lrepresents the quantity of loanable
funds in billions of dollars.
RefertoFigure26-4. Regard the position of the Supply curve as fixed, as on the graph.
If the real interest rate is 4 percent, the inflation rate is 2 percent, and the market for
loanable funds is in equilibrium, then the position of the demand-for-loanable-funds
curve must be
a. D1.
b. D2.
c. between D1 and D2.
d. to the left of D1.
Which of the following is correct?
a. The Bureau of Labor Statistics uses data collected from those applying for
unemployment insurance to compute the unemployment rate.
b. The labor force includes all adults who are able to work.
c. Unpaid homemakers are counted as “employed” by the Bureau of Labor Statistics.
d. People working part time are counted as “employed” by the Bureau of Labor
Statistics.
Nominal GDP uses constant baseyear prices to place a value on the economy’s
production of goods and services, while real GDP uses current prices to place a value
on the economy’s production of goods and services.
a. True
b. False
Other things the same, which of the following happens if the price level rises?
a. Money demand shifts rightward.
b. Initially there is an excess demand for money in the money market.
c. The interest rate rises.
d. All of the above are correct.
Which of the following statements best characterizes a basic difference between market
economies and centrally- planned economies?
a. Society relies more upon prices to allocate resources when the economy is
centrally-planned than when it is market-based.
b. The self-interest of households is reflected more fully in the outcome of a
centrally-planned economy than in the outcome of a market economy.
c. Government plays a larger role in the economic affairs of a market economy than in
the economic affairs of a centrally-planned economy.
d. None of the above are correct.
The trade-off between the production of one good and the production of another good
can change over time because of technological advances.
a. True
b. False
Which of the following changes in the price index produces the greatest rate of
inflation: 106 to 112, 112 to 118, or 118 to 124?
a. 106 to 112
b. 112 to 120
c. 118 to 126
d. All of these changes produce the same rate of inflation.
As the price level falls
a. people are more willing to lend, so interest rates rise.
b. people are more willing to lend, so interest rates fall.
c. people are less willing to lend, so interest rates fall.
d. people are less willing to lend, so interest rates rise.
Belarus has a comparative advantage in the production of linen, but Russia has an
absolute advantage in the production of linen. If these two countries decide to trade,
a. Belarus should export linen to Russia.
b. Russia should export linen to Belarus.
c. trading linen would provide no net advantage to either country.
d. Without additional information about opportunity costs, this question cannot be
answered.
If Germany purchased more goods and services abroad than it sold abroad last year,
then it had
a. positive net exports which is a trade surplus.
b. positive net exports which is a trade deficit.
c. negative net exports which is a trade surplus.
d. negative net exports which is a trade deficit.
In the circular-flow diagram, which of the following items represents a payment for a
factor of production?
a. interest
b. capital
c. spending by households on goods
d. spending by households on services
Substitution bias causes the CPI to understate the increase in the cost of living from one
year to the next.
a. True
b. False
Minimum wages are the predominant reason for unemployment in the U.S. economy.
a. True
b. False
Specialization and trade are closely linked to
a. absolute advantage.
b. comparative advantage.
c. gains to some traders that exactly offset losses to other traders.
d. shrinkage of the economic pie.
If 2012 is the base year, then the inflation rate for 2012 equals
a.
b.
c.
d.
If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the
proceeds to buy foreign goods, which of the following increases?
a. Saudi Arabian net exports but not Saudi Arabian net capital outflow
b. Saudi Arabian net capital outflow but not Saudi Arabian net exports
c. both Saudi Arabian net exports and net capital outflow
d. neither Saudi Arabian net exports nor net capital outflow
Another term for equilibrium price is
a. dynamic price.
b. market-clearing price.
c. quantity-defining price.
d. balance price.
If a country has Y > C + I + G, then
a. S > I and it has a trade surplus.
b. S > I and it has a trade deficit.
c. S < I and it has a trade surplus.
d. S < I and it has a trade deficit.
Assuming the interest rate is 5 percent, which of the following has the greatest present
value?
a. $240 paid in three years
b. $225 paid in two years
c. $210 paid in one year
d. $200 today
Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro
area. Also, suppose a McDonald’s Big Mac costs $4.40 in the United States and 5.50
euros in Euro area. If the nominal exchange rate is .80 euros per dollar, the prices of
which goods have prices that are consistent with purchasing-power parity?
a. both the tall latte and the Big Mac
b. the tall latte but not the Big Mac
c. the Big Mac but not the tall latte
d. neither the tall latte nor the Big Mac
Why is the Chairman of the Federal Reserve often referred to as the ‘second most
powerful person in the United States?”
If a production function has the property called, then doubling all inputs causes the
amount of output to double as well.
Identify which of the following are included in the government purchases component of
GDP.the salary paid to a state court judge unemployment insurance benefits the
payment made by the federal government for a jet fighter social security payments a
county builds a jail building
In the aggregate demand and aggregate supply model, the point where the aggregate
demand curve crosses the long run aggregate supply curve, and the expected price level
equals the actual price level, is known as what?
Because of, an increase in the saving rate leads to higher growth of income and
productivity only for a while.
The theory of _____ states that the _____ adjusts to bring money supply and money
demand into balance.
Suppose goods A and B are substitutes. If the price of good A increases, will the
demand for good B increase or decrease?
Identify the largest and smallest components of GDP.
In a closed economy, Y – C – G equals . The variable Y is , C is , and G is .
Suppose a country experiences a change in weather patterns that makes farming more
difficult. Which curve(s) in the aggregate demand and aggregate supply model would
be affected, and which way would it (they) shift?
Illustrate the classical analysis of growth and inflation with aggregate demand and
long-run aggregate supply curves.
Suppose that the U.S. government budget deficit decreases. What curves in the
open-economy macroeconomic model shift? Explain why each curve shifts the
direction it does.
What two key assumptions does the quantity theory make concerning variables in the
equation of exchange?
Why do many economists advocate a consumption tax rather than an income tax?
Describe the process in the money market by which the interest rate reaches its
equilibrium value if it starts above equilibrium.
Assuming that rational expectations theory does not hold, if a central banks attempts to
reduce the inflation rate what happens to the unemployment rate in the short-run?
What is the theory of efficiency wages? Provide four reasons that employers might pay
efficiency wages.
Economists at which administrative department analyze data on workers and those
looking for work to help formulate labor-market policies?
What is the source of the supply of loanable funds in the open-economy
macroeconomic model?