In 2009, the imaginary nation of Mainland had a population of 7,000 and real GDP of
210,000. In 2010 the population was 7,300 and real GDP of 223,380. Over the year in
question, real GDP per person in Mainland grew by
a. 2 percent, which is high compared to average U.S. growth over the last one-hundred
years.
b. 2 percent, which is about the same as average U.S. growth over the last one-hundred
years.
c. 4 percent, which is high compared to average U.S. growth over the last one-hundred
years.
d. 4 percent, which is about the same as average U.S. growth over the last one-hundred
years.
A country has national saving of $50 billion, government expenditures of $30 billion,
domestic investment of $10 billion, and net capital outflow of $40 billion. What is its
supply of loanable funds?
a. $20 billion
b. $30 billion
c. $50 billion
d. $60 billion
If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to
a. $140 of new money.
b. $14,000 of new money.
c. $140,000 of new money.
d. None of the above is correct.
Suppose a basket of goods and services has been selected to calculate the consumer
price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in
2007, it cost $168.75. Which of the following statements is correct?
a. Using 2005 as the base year, the economy’s inflation rate was higher in 2007 than it
was in 2006.
b. If 2007 is the base year, then the CPI is 33.75 in 2006.
c. If the CPI is 156.25 in 2007, then 2005 is the base year.
d. Using 2005 as the base year, the economy’s inflation rate for 2006 was 27 percent.
Policies that reduce the incentive for households to save include
a. means-testing.
b. College and university financial aid administration.
c. inheritance taxes.
d. All of the above.
A certificate of indebtedness that specifies the obligations of the borrower to the holder
is called a
a. bond.
b. stock.
c. mutual fund.
d. All of the above are correct.
In the special case of the 100 percent-reserve banking, the money multiplier is
a. 1 and banks create money.
b. 1 and banks do not create money.
c. 2 and banks create money
d. 2 and banks do not create money.
Which of the following pairs of portfolios exemplifies the risk-return tradeoff?
a. For Portfolio A, the average return is 6 percent and the standard deviation is 15
percent; for Portfolio B, the average return is 6 percent and the standard deviation is 25
percent.
b. For Portfolio A, the average return is 5 percent and the standard deviation is 15
percent; for Portfolio B, the average return is 8 percent and the standard deviation is 15
percent.
c. For Portfolio A, the average return is 5 percent and the standard deviation is 25
percent; for Portfolio B, the average return is 8 percent and the standard deviation is 15
percent.
d. For Portfolio A, the average return is 5 percent and the standard deviation is 15
percent; for Portfolio B, the average return is 8 percent and the standard deviation is 25
percent.
Figure30-3. On the graph, MS represents the money supply and MD represents money
demand. The usual quantities are measured along the axes.
RefetoFigure30-3. What quantity is measured along the vertical axis?
a. the price level
b. the velocity of money
c. the value of money
d. the quantity of money
Which of the following properly describes the interest-rate effect that helps explain the
slope of the aggregate- demand curve?
a. As the money supply increases, the interest rate falls, so spending rises.
b. As the money supply increases, the interest rate rises, so spending falls.
c. As the price level increases, the interest rate falls, so spending rises.
d. As the price level increases, the interest rate rises, so spending falls.
A government reduces its budget deficit, but at the same time people become concerned
that the outlook for future government expenditures and revenues increase the chance it
will default. Which of the following is correct?
a. The reduced budget deficit will raise interest rates in general. The increased risk of
default will raise interest rates on government bonds.
b. The reduced budget deficit will raise interest rates in general. The increased risk of
default will reduce interest rates on government bonds.
c. The reduced budget deficit will reduce interest rates in general. The increased risk of
default will raise interest rates on government bonds.
d. The reduced budget deficit will reduce interest rates in general. The increased risk of
default will reduce interest rates on government bonds.
When the price of a good is low, selling the good is profitable, and so the quantity
supplied is large.
a. True
b. False
Over the past several decades, the difference between the labor-force participation rates
of men and women in the U.S. has gradually increased.
a. True
b. False
Who of the following is counted as “unemployed” by the Bureau of Labor Statistics?
a. someone working without pay for a family member’s business
b. someone who is absent from their job due to illness
c. someone on temporary layoff
d. All of the above are correct.
Table 3-28
Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim
can switch between setting up and testing computers at a constant rate. The following
table applies.
RefertoTable3-28.Barb’s opportunity cost of setting up one computer is testing
a. 4/5 computer and Jim’s opportunity cost of setting up one computer is testing 3/4
computer.
b. 4/5 computer and Jim’s opportunity cost of setting up one computer is testing 4/3
computers.
c. 5/4 computers and Jim’s opportunity cost of setting up one computer is testing 3/4
computer.
d. 5/4 computers and Jim’s opportunity cost of setting up one computer is testing 4/3
computers.
When the Fed increases the money supply, the interest rate decreases. This decrease in
the interest rate increases consumption and investment demand, so the
aggregate-demand curve shifts to the right.
a. True
b. False
A dairy buys $50,000 worth of milk and spend $5,000 on cartons and utilities. It sells
the cartons of milk to a grocery store for $60,000 that then sells all of the cartons to
consumers for $65,000. How much do these actions add to GDP?
a. $55,000
b. $65,000
c. $120,000
d. None of the above are correct.
A pie chart is a way to display information regarding two variables.
a. True
b. False
The language of economics is
a. needlessly arcane.
b. valuable because it provides a new and useful way of learning about the world.
c. easy to learn within a day.
d. unnecessary to learn for a thorough understanding of economics.
The one variable that stands out as the most significant explanation of large variations
in living standards around the world is
a. productivity.
b. population.
c. preferences.
d. prices.
The Bureau of Labor Statistics produces data on unemployment and other aspects of the
labor market from a regular survey of about
a. 600 households.
b. 6,000 households.
c. 60,000 households.
d. 6,000,000 households.
Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an
example of
a. investment for Mark and U.S. foreign direct investment.
b. investment for Mark and U.S. foreign portfolio investment.
c. saving for Mark and U.S. foreign direct investment.
d. saving for Mark and U.S. foreign portfolio investment.
Figure 33-3.
RefertoFigure33-3. The natural rate of output occurs at
a. Y1.
b. Y2.
c. Y3.
d. both Y1and Y3.
Figure 34-3
RefertoFigure34-3. For an economy such as the United States, what component of the
demand for goods and services is most responsible for the decrease in output from Y1to
Y2?
a. consumption
b. investment
c. net exports
d. government spending
The concept of present value helps explain why the quantity of loanable funds
demanded decreases when the interest rate increases.
a. True
b. False
Policies that reduce the time it takes unemployed workers to find new jobs
a. can reduce both frictional unemployment and the natural rate of unemployment.
b. can reduce frictional unemployment, but they cannot reduce the natural rate of
unemployment.
c. cannot reduce frictional unemployment, but they can reduce the natural rate of
unemployment.
d. cannot reduce either frictional unemployment or the natural rate of unemployment.
An economic expansion caused by a shift in aggregate demand remedies itself over
time as the expected price level
a. falls, shifting aggregate demand right.
b. rises, shifting aggregate demand left.
c. falls, shifting aggregate supply right.
d. rises, shifting aggregate supply left.
What is the most important factor that explains differences in living standards among
countries?
a. labor unions
b. minimum wage laws
c. productivity
d. efficiency
As the number of stocks in a portfolio rises,
a. both firm-specific risks and market risk fall.
b. firm-specific risks fall; market risk does not.
c. market risk falls; firm-specific risks do not.
d. neither firm-specific risks nor market risk falls.
Table 3-25
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
RefertoTable3-25. The opportunity cost of 1 toaster for Maya is
a. 0.625 mixers.
b. 1.6 hours of labor.
c. 1.6 mixers.
d. 8 hours of labor.
The long-run effects of an increase in the saving rate include
a. a higher level of productivity.
b. a higher growth rate of productivity.
c. a higher growth rate of income.
d. All of the above are correct.