Which of these statements does not apply to market economies?
a. Prices prevent decentralized decision making from degenerating into chaos.
b. Prices coordinate the actions of millions of people with varying abilities and desires.
c. Prices ensure that anyone who wants a product can get it.
d. Prices ensure that what needs to get done does in fact get done.
Stacey, a U.S. citizen, buys a bond issued by an Italian pasta manufacturer.
a. This purchase is foreign direct investment. By itself it increases U.S. net capital
outflow.
b. This purchase is foreign direct investment. By itself it decreases U.S. net capital
outflow.
c. This purchase is foreign portfolio investment. By itself it increases U.S. net capital
outflow.
d. This purchase is foreign portfolio investment. By itself it decreases U.S. net capital
outflow.
Who gets scarce resources in a market economy?
a. the government
b. whoever the government decides gets them
c. whoever wants them
d. whoever is willing and able to pay the price
In the open-economy macroeconomic model, if a country’s interest rate falls, then its
a. net capital outflow and its net exports rise.
b. net capital outflow rises and its net exports fall.
c. net capital outflow falls and its net exports rise.
d. net capital outflow and its net exports fall.
The point where both x and y are zero is known as the
a. origin.
b. null.
c. zero coordinate.
d. center.
Table 4-4
Refer to Table 4-4. If these are the only four sellers in the market, then when the price
decreases from $4 to $2, the market quantity supplied
a. increases by 10 units.
b. decreases by 10 units.
c. decreases by 20 units.
d. decreases by 30 units.
If you deposit $100 of currency into a demand deposit at a bank, this action by itself
a. does not change the money supply.
b. increases the money supply.
c. decreases the money supply.
d. has an indeterminate effect on the money supply.
If a central bank reduced inflation by 3 percentage points and in the short run this made
output fall by 3 percentage points for 3 years and the unemployment rate rise from 3
percent to 9 percent for three years, the sacrifice ratio is
a. 1.
b. 2.
c. 3.
d. None of the above is correct.
Which of the following is not a cause of frictional unemployment?
a. the destruction of manufacturing jobs
b. a worker leaving a job to find one with better benefits
c. minimum-wage laws
d. unemployment insurance
In a simple circular-flow diagram, households buy goods and services with the income
they get from
a. wages.
b. rents.
c. profits.
d. All of the above are correct.
Braden says that $400 saved for one year at 4 percent interest has a smaller future value
than $400 saved for two years at 2 percent interest. Lefty says that the present value of
$400 to be received one year from today if the interest rate is 4 percent exceeds the
present value of $400 to be received two years from today if the interest rate is 2
percent.
a. Braden and Lefty are both correct.
b. Braden and Lefty are both incorrect.
c. Only Braden is correct.
d. Only Lefty is correct.
A typical American worker covered by unemployment insurance receives
a. 50 percent of his former wages for 26 weeks.
b. 50 percent of his former wages for 52 weeks.
c. 100 percent of his former wages for 26 weeks.
d. 100 percent of his former wages for 52 weeks.
Based on past experience, if a country is experiencing hyperinflation, then which of the
following would be a reasonable guess?
a. The country has high money supply growth.
b. Inflation is acting like a tax on everyone who holds money.
c. The government is printing money to finance its expenditures.
d. All of the above are correct.
In the United States in 2009, consumption represented approximately
a. 60 percent of GDP.
b. 70 percent of GDP.
c. 80 percent of GDP.
d. 90 percent of GDP.
Table 5-5
The following table shows a portion of the demand schedule for a particular good at
various levels of income.
Refer to Table 5-5. Using the midpoint method, at a price of $12, what is the income
elasticity of demand when income rises from $5,000 to $10,000?
a. 0.00
b. 0.41
c. 1.00
d. 2.45
Which of the following statements is correct?
a. The interest rate that is usually reported is the interest rate that has been corrected for
inflation.
b. The supply of, and demand for, loanable funds depend on the real (rather than
nominal) interest rate.
c. If the nominal interest rate has decreased and the real interest rate has also decreased,
then the inflation rate must have decreased as well.
d. All of the above are correct.
Suppose that the central bank unexpectedly increases the growth rate of the money
supply. In the short run the effects of this are shown by
a. moving to the left along the short-run Phillips curve.
b. moving to the right along the short-run Phillips curve.
c. shifting the short-run Phillips curve to the right.
d. shifting the short-run Phillips curve to the left.
Raisin bran and milk are complements. An increase in the price of raisins will
a. increase consumer surplus in the market for raisin bran and decrease producer surplus
in the market for milk.
b. increase consumer surplus in the market for raisin bran and increase producer surplus
in the market for milk.
c. decrease consumer surplus in the market for raisin bran and increase producer surplus
in the market for milk.
d. decrease consumer surplus in the market for raisin bran and decrease producer
surplus in the market for milk.
You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at
Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on
the same night, and his concert is your next-best alternative activity. Tickets to see
Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see
and hear Willie Nelson perform. Assume there are no other costs of seeing either event.
Based on this information, at a minimum, how much would you have to value seeing
the Cubs play the White Sox to accept the ticket and go to the game?
a. $0
b. $10
c. $40
d. $50
A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a
company in the U.K. Which of these countries has an increase in net capital outflow?
a. The U.S. and the U.K.
b. The U.S. but not the U.K.
c. The U.K. but not the U.S.
d. Neither the U.S. nor the U.K.
Household spending on education is counted in which component or subcomponent of
GDP?
a. consumption of durable goods
b. consumption of nondurable goods
c. consumption of services
d. investment
Last year, Shelley bought 6 pairs of designer jeans when her income was $40,000. This
year, her income is $50,000, and she purchased 10 pairs of designer jeans. Holding
other factors constant, it follows that Shelley
a. considers designer jeans to be a necessity.
b. considers designer jeans to be an inferior good.
c. considers designer jeans to be a normal good.
d. has a low price elasticity of demand for jeans.
When computing the opportunity cost of attending a concert you should include
a. the price you pay for the ticket and the value of your time.
b. the price you pay for the ticket, but not the value of your time.
c. the value of your time, but not the price you pay for the ticket.
d. neither the price of the ticket nor the value of your time.
Net capital outflow measures
a. foreign assets held by domestic residents minus domestic assets held by foreign
residents.
b. the imbalance between the amount of foreign assets bought by domestic residents
and the amount of domestic assets bought by foreigners.
c. the imbalance between the amount of foreign assets bought by domestic residents and
the amount of domestic goods and services sold to foreigners.
d. None of the above is correct.
The inflation rate in year 2 equals
a. .
b. .
c. .
d. .
For a particular good, a 2 percent increase in price causes a 12 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a. There are no close substitutes for this good.
b. The good is a luxury.
c. The market for the good is broadly defined.
d. The relevant time horizon is short.
Figure 3-3
Arturo’s Production Possibilities Frontier Dina’s Production Possibilities Frontier
Refer to Figure 3-3. If Arturo and Dina both spend all of their time producing tacos,
then total production is
a. 400 tacos and 0 burritos.
b. 400 tacos and 250 burritos.
c. 800 tacos and 0 burritos.
d. 800 tacos and 500 burritos.
Table 16-2. An economy starts with $10,000 in currency. All of this currency is
deposited into a single bank, and the bank then makes loans totaling $9,250. The
T-account of the bank is shown below.
Refer to Table 16-2. If all banks in the economy have the same reserve ratio as this
bank, then the value of the economy’s money multiplier is
a. 1.33.
b. 10.00.
c. 10.81.
d. 13.33.
According to the definitions of private and public saving, if Y, C, and G remained the
same, an increase in taxes would
a. raise both private and public saving.
b. raise private saving and lower public saving.
c. lower private saving and raise public saving.
d. lower private and public saving.
When the money market is drawn with the value of money on the vertical axis, long-run
equilibrium is obtained when the quantity demanded and quantity supplied of money
are equal due to adjustments in
a. the value of money.
b. real interest rates.
c. nominal interest rates.
d. the money supply.
The CPI was 120 in 2008 and 126 in 2009. Phil borrowed money in 2008 and repaid the
loan in 2009. If the nominal interest rate on the loan was 8 percent, then the real interest
rate was
a. -2 percent.
b. 3 percent.
c. 5 percent.
d. 13 percent.
The price of a good that prevails in a world market is called the
a. absolute price.
b. relative price.
c. comparative price.
d. world price.
Scarcity means that there is less of a good or resource available than people wish to
have.
Efficiency wages create structural unemployment.
Demand for a good is said to be inelastic if the quantity demanded increases slightly
when the price falls by a large amount.
The Federal Reserve can alter the size of the money supply by changing reserves or
changing reserve requirements.
A government program that pays farmers not to plant corn on part of their land can help
farmers not only through the subsidy payments to farmers who participate in the
program but also by raising the market price of corn.
The Bureau of Labor Statistics divides the adult population into four categories:
employed, underemployed, unemployed, and not in the labor force.
According to some estimates, over the last two decades China has had an annual
average growth rate of about 12 percent.
According to the Fisher effect, if inflation rises then the nominal interest rate rises.
An outcome is said to be efficient if an economy is conserving the largest possible
quantity of its scarce resources while still meeting the basic needs of society.
Inflation is costly only if it is unanticipated.
The natural rate of unemployment is the desirable rate of unemployment for an
economy.
A price ceiling set above the equilibrium price causes a surplus in the market.
Suppose that the Turkish government budget deficit increases. What curves in the
open-economy macroeconomic model shift? Explain why each curve shifts the
direction it does.
With careful planning, we can usually get something that we like without having to give
up something else that we like.
Explain the time inconsistency of monetary policy.
If you believe the stock market is informationally efficient, then it is a waste of time to
engage in fundamental analysis.
Regardless of whether a tax is levied on sellers or buyers, taxes encourage market
activity.
A firm might offer efficiency wages so its workers will eat a more nutritious diet and
therefore be healthier and more productive.
As the price elasticities of supply and demand increase, the deadweight loss from a tax
increases.
Figure 6-27
Refer to Figure 6-27. If the government places a $2 tax in the market, the seller
receives $4.