If Robert is risk-averse, then he will always
a. choose not to play a game where he has a 50 percent chance of winning $1 and a 50
percent chance of losing $1.
b. choose not to play a game where he has a 75 percent chance of winning $1 and a 25
percent chance of losing $1.
c. choose to play a game where he has a 52 percent chance of winning $1 and a 48
percent chance of losing $1.
d. All of the above are correct.
Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up
and running exceed his monthly income. Norberto is best described as a
a. saver or as a supplier of funds.
b. saver or as a demander of funds.
c. borrower or as a supplier of funds.
d. borrower or as a demander of funds.
Which of the following numbers is not associated with shares of a company’s stock?
a. term
b. dividend
c. price
d. price-earnings ratio
As the MPC gets close to 1, the value of the multiplier approaches
a. 0.
b. 1.
c. infinity.
d. None of the above is correct.
Which of the following is not an example of a group responding to an incentive?
a. Students attend class because of an attendance policy that reduces their grade for
absences.
b. Consumers buy more of a product when it is on sale at a reduced price.
c. Universities offer fewer online classes when they generate more revenue than
traditional classes.
d. Employees work harder to earn higher commissions.
If there is excess demand for money, then people will
a. deposit more money into interest-bearing accounts, and the interest rate will fall.
b. deposit more money into interest-bearing accounts, and the interest rate will rise.
c. withdraw money from interest-bearing accounts, and the interest rate will fall.
d. withdraw money from interest-bearing accounts, and the interest rate will rise.
Scenario 13-2. Assume the following information for an imaginary, closed
economy.
GDP = $200,000; consumption = $120,000;
government purchases = $35,000; and taxes = $25,000.
Refer to Scenario 13-2. For this economy, public saving is equal to
a. $-10,000 and the government is running a budget deficit of $10,000.
b. $-10,000 and the government is running a budget surplus of $10,000.
c. $10,000 and the government is running a budget deficit of $10,000.
d. $10,000 and the government is running a budget surplus of $10,000.
Stock market fluctuations
a. often go hand in hand with fluctuations in the economy more broadly.
b. rarely have anything to do with fluctuations in the economy more broadly.
c. have few, if any, macroeconomic implications.
d. are attributable to the widespread belief that the efficient markets hypothesis is
correct.
Which of the following has a present value of $100?
a. $110 in two years when the interest rate is 5 percent
b. $112.36 in two years when the interest rate is 6 percent
c. $117.49 in two years when the interest rate is 7 percent
d. None of the above are correct to the nearest cent.
Suppose that efficiency wages become more common in the economy. Imposing
efficiency wages
a. increases the quantity demanded and decreases the quantity supplied of labor.
b. decreases the quantity demanded and increases the quantity supplied of labor.
c. increases the quantity demanded and decreases the quantity supplied of labor.
d. decreases the quantity demanded and increases the quantity supplied of labor.
Figure 5-6
Refer to Figure 5-6. If the price decreased from $18 to $6, total revenue would
a. increase by $1,200, and demand is elastic between points A and C.
b. increase by $800, and demand is elastic between points A and C.
c. decrease by $1,200, and demand is inelastic between points A and C.
d. decrease by $800, and demand is inelastic between points A and C.
Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose
also that the quality of lawn mowers deteriorates while the price of lawn mowers stays
the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the
improvement in quality, then, other things equal,
a. the CPI will rise.
b. the CPI will fall.
c. the CPI will stay the same.
d. lawn mowers will no longer be included in the market basket.
The price elasticity of demand measures the
a. magnitude of the response in quantity demanded to a change in price.
b. direction of the shift in the demand curve in response to a market event.
c. size of the shortage created by the increase in demand.
d. responsiveness of quantity demanded to a change in income.
Suppose that a new government is elected in Eurnesia. The new government takes steps
toward improving the court system and reducing government corruption. The citizens of
Eurnesia find these efforts credible and outsiders believe these changes will be effective
and long lasting. These changes will probably
a. raise real GDP per person and productivity in Eurnesia.
b. raise real GDP per person but not productivity in Eurnesia.
c. raise productivity but not real GDP per person in Eurnesia.
d. raise neither productivity nor real GDP per person in Eurnesia.
The principal lag for monetary policy
a. and fiscal policy is the time it takes to implement policy.
b. and fiscal policy is the time it takes for policy to change spending.
c. is the time it takes to implement policy. The principal lag for fiscal policy is the time
it takes for policy to change spending.
d. is the time it takes for policy to change spending. The principal lag for fiscal policy is
the time it takes to implement it.
Greg’s Tasty Ice Cream is considering building a new ice cream factory that costs $8.3
million. The company accountants believe that, not accounting for interest costs,
building the factory will increase profits by $5 million the first year, $4 million the
second year and have no value thereafter. Greg’s Tasty Ice Cream should build the
factory if the interest rate is
a. 3% but not if it is 4%.
b. 4% but not if it is 5%.
c. 5% but not if it is 6%.
d. 6% but not if it is 7%.
Liquidity refers to
a. the relation between the price and interest rate of an asset.
b. the risk of an asset relative to its selling price.
c. the ease with which an asset is converted into a medium of exchange.
d. the sensitivity of investment spending to changes in the interest rate.
When demand is perfectly inelastic, the demand curve will be
a. negatively sloped, because buyers decrease their purchases when the price rises.
b. vertical, because buyers purchase the same amount as before whenever the price rises
or falls.
c. positively sloped, because buyers increase their purchases when price rises.
d. positively sloped, because buyers increase their total expenditures when price rises.
Last year the imaginary country of Bahkan had a population of 10,000, 6,000 people
worked 8 hours a day and produced a real GDP of $30,000,000. The imaginary country
of San Andreo had a population of 15,000, 8,000 people worked 7 hours a day and
produced a real GDP of $33,000,000. Which of the following is correct?
a. Bahkan had the higher productivity and the higher real GDP per person.
b. San Andreo had the higher productivity and the higher real GDP per person.
c. Bahkan had the higher productivity while San Andreo had the higher real GDP per
person.
d. San Andreo had the higher productivity while Bahkan had the higher real GDP per
person.
Economic expansions in Germany and Japan would cause
a. the U.S. price level and real GDP to rise.
b. the U.S. price level and real GDP to fall.
c. the U.S. price level to rise and real GDP to fall.
d. the U.S. price level to fall and real GDP to rise.
Table 7-5
For each of three potential buyers of oranges, the table displays the willingness to pay
for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three
buyers of oranges, and only three oranges can be supplied per day.
Refer to Table 7-5. If the market price of an orange is $1.20, then the market quantity
of oranges demanded per day is
a. 1.
b. 2.
c. 3.
d. 4.
According to the rule of 70, if the interest rate is 10 percent, about how long will it take
for the value of a savings account to double?
a. about 3 years
b. about 7 years
c. about 7 years
d. about 10 years
Suppose the government finds a major defect in one of a company’s products and
demands that the product be taken off the market. We would expect that the
a. supply of existing shares of the stock and the price will both rise.
b. supply of existing shares of the stock and the price will both fall.
c. demand for existing shares of the stock and the price will both rise.
d. demand for existing shares of the stock and the price will both fall.
One year a country has negative net exports. The next year it still has negative net
exports and imports have risen more than exports.
a. its trade surplus fell.
b. its trade surplus rose.
c. its trade deficit fell.
d. its trade deficit rose
Printing money to finance government expenditures
a. causes the value of money to rise.
b. imposes a tax on everyone who holds money.
c. is the principal method by which the U.S. government finances its expenditures.
d. None of the above is correct.
You have some estimates of national accounts numbers for a closed economy for the
coming year. Under one set of expectations, government purchases will be $30 billion,
transfer payments will be $10 billion, and taxes will be $45 billion. Under another set of
expectations, GDP will be $200 billion, taxes will be $50 billion, transfer payments will
be $20 billion, consumption will be $120 million, and investment will be $40 billion.
Based on these numbers in the first case there should be a
a. $15 billion surplus, and in the second case a $10 billion surplus.
b. $15 billion surplus, and in the second case a $10 billion deficit.
c. $5 billion surplus, and in the second case a $10 billion surplus.
d. $5 billion surplus, and in the second case a $10 billion deficit.
Causes of market failure include
a. externalities and market power.
b. market power and incorrect forecasts of consumer demand.
c. externalities and foreign competition.
d. incorrect forecasts of consumer demand and foreign competition.
Which of the following is not an example of a durable good?
a. a refrigerator
b. an automobile
c. a business suit
d. a furnace
You bought some shares of stock and, over the next year, the price per share increased
by 5 percent and the price level increased by 8 percent. Before taxes, you experienced
a. both a nominal gain and a real gain, and you paid taxes on the nominal gain.
b. both a nominal gain and a real gain, and you paid taxes only on the real gain.
c. a nominal gain and a real loss, and you paid taxes on the nominal gain.
d. a nominal gain and a real loss, and you paid no taxes on the transaction.
Which of the following is an example of U.S. foreign portfolio investment?
a. Albert, a German citizen, buys stock in a U.S. computer company.
b. Larry, a citizen of Ireland, opens a fish and chips restaurant in the United States.
c. Nancy, a U.S. citizen, buys bonds issued by a Japanese bank.
d. Dustin, a U.S. citizen, opens a country-western tavern in New Zealand.
Average income has been stagnant for many years in
a. Gabon.
b. Ireland.
c. Singapore.
d. All of the above are correct.
Which of the following statements is correct?
a. By definition, all natural resources are nonrenewable.
b. Market prices give us reason to believe that natural resources are a limit to economic
growth.
c. An economy must be blessed with ample quantities of natural resources if it is to be a
highly productive economy.
d. Differences in natural resources can explain some of the differences in standards of
living around the world.
In the open-economy macroeconomic model, other things the same, an increase in the
exchange rate raises the quantity of dollars supplied in the market for foreign-currency
exchange.
In the open economy model, the supply of loanable funds comes from national saving
and net capital outflow.
A circular-flow diagram is a visual model of the economy.
Minimum-wage laws are precise policy instruments that can specifically target workers
whose family incomes are low.
In 2009, the level of U.S. real GDP was close to four times its 1965 level.
The government can potentially improve market outcomes if market inequalities or
market failure exists.
Macroeconomics is the study of the economy as a whole.
If, for an imaginary closed economy, investment amounts to $10,000 and the
government is running a $2,500 deficit, then private saving must amount to $12,500.
Explain the connection between the vertical long-run aggregate supply curve and the
vertical long-run Phillips curve.
Economists generally believe that policies such as reducing barriers to trade are likely
to foster economic growth.
Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28
percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2
percent.
Fill in the table below with the direction of the variables that change in response to the
events in the first column.
U.S. real
interest rate U.S. domestic
investment U.S. net
capital
outflow U.S. real
exchange rate
of domestic
currency U.S. trade
balance
U.S. government
budget deficit
increases
U.S. imposes
import quotas
capital flight
from the United
States
Interdependence among individuals and interdependence among nations are both based
on the gains from trade.
If we observe that when the price of chocolate decreases by 10%, quantity demanded
increases by 25%, then the demand for chocolate is price elastic.
With the understanding that people respond to incentives, outline the possible outcome
for teachers if the K-12 school year is extended to 11 months per year instead of the
existing 9 months per year.
If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5,
and the divided per share is $2, then the price-earnings ratio is