The government uses the buying power of wages rather than face value or nominal
value in reporting changes in “real wages” in the economy.
The government spending multiplier is equal to the tax multiplier.
The federal government has a Constitutional requirement to operate a balanced budget
each fiscal year.
Excess reserves plus required reserves equal total reserves.
The contribution to output growth of technological progress is estimated by how much
of the output growth can be explained by the growth in inputs.
An increase in real GDP has no effect on the position of the money demand curve.
Fixed exchange rates are exposed to sudden devaluations or revaluations.
Investments made “today” in machines, equipment and buildings do not have an
immediate effect on total capital stock.
Recall Application 1, “The Chinese Yuan and Big Macs,” to answer the following
questions:
If the real exchange rate in the U.S. falls, U.S. net exports will rise.
Monetary policy refers to the actions taken by the Treasury Department to set the level
of the money supply.
The recent experience of sub-Saharan Africa has taught economists that institutions
such as the legal system and the regulatory environment play a key role in economic
growth.
The net international investment position reflects the domestic holding of foreign assets
minus foreign holdings of domestic assets.
There are 19 voting members at every FOMC meeting.
Which of the following is not included in the financial account?
A) change in private U.S. assets held abroad
B) income received on investments
C) change in foreign assets held in the United States
D) change in U.S. government assets held abroad
Which of the following would not be included in GDP?
A) the purchase of a used car
B) the sale of stocks
C) the sale of Firestone tires to Ford Motor company
D) None of the above would be included in GDP.
Suppose an automobile maker producing a certain kind of car suddenly experiences an
increase in the demand for the car. In the short run:
A) the demand for steel goes up but the steel prices remain the same.
B) the demand for steel goes up and the price of steel goes up very quickly.
C) the demand for steel goes down and the price of steel goes down.
D) the demand for steel goes down but the price of steel stays the same.
If a variable is 100 and then increases to 150, then using the initial value approach its
percentage growth is:
A) -50 percent.
B) 15 percent.
C) 40 percent.
D) 50 percent.
When the consumption function is expressed as C = Ca + b (1-t)y, “t” is the:
A) income tax rate.
B) net tax rate.
C) lump-sum tax rate.
D) sales tax rate.
Table 2.3 Refer to Table 2.3. The
marginal product of the 4th worker is:
A) 100 units of output.
B) 80 units of output.
C) 60 units of output.
D) 40 units of output.
“How many iPhones will Apple, Inc. sell this year?” is:
A) a microeconomic question.
B) both a microeconomic and macroeconomic question.
C) a macroeconomic question.
D) neither a microeconomic and a macroeconomic question.
We know that money is an asset that can be used to transport purchasing power from
one time period to another. This description of money illustrates its role as a:
A) unit of account.
B) liquid asset.
C) store of value.
D) medium of exchange.
Recall Application 1, “Shifts in the Natural Rate of Unemployment,” to answer the
following questions:
According to the application, William Dickens estimated that the natural rate of
unemployment in 1970 was:
A) 7 percent.
B) 6 percent.
C) 5 percent.
D) 4 percent.
Refer to Figure 8A.1. The stock of capital no longer increases once the economy
reaches point
A) a.
B) .
C) c.
D) e.
Suppose that GDP is ________ potential output. We would expect prices to fall, money
demand to fall, interest rates to fall, and total demand to ________.
A) above; rise
B) above; fall
C) below; rise
D) below; fall
In the Solow Model, an increase in the capital stock (K) by 10 percent, (holding L
constant) will result in an:
A) increase in Y by less than 10 percent.
B) increase in Y be more than 10 percent.
C) a decrease in Y by less than 10 percent.
D) a decrease in Y by 10 percent.
In 2002, President Bush imposed a tariff on imported steel. Which of the following
caused President Bush to end the tariff in 2003?
A) the threat of retaliatory policies by European countries
B) the realization that the tariffs hurt the consumers
C) the request of domestic steel producers to end the tariff
D) the emotional and diplomatic appeal by leaders in Europe and Japan.
Suppose that you own a house. What is the opportunity cost of living in the house?
A) There is no opportunity cost because you own the house.
B) There is no opportunity cost unless you could set up a business in the house.
C) The opportunity cost is the rent you could have received from a tenant if you didn’t
live there.
D) The opportunity cost is the cost of your monthly mortgage payment plus bills.
An unexpected increase in inventories has:
A) no effect on future production.
B) a positive effect on future production.
C) a negative effect on current production.
D) a negative effect on future production.
Let “C = + by” define the consumption function. The term ” ” is known as
A) autonomous consumption.
B) induced consumption.
C) the marginal propensity to consume.
D) the marginal propensity to save.
Refer to Figure 11.5. A decrease in exports is best illustrated by diagram
A) A.
B) B.
C) C.
D) D.
Suppose that the equilibrium rent for apartments in San Francisco is $1200 per month.
If the City of San Francisco legislates that apartment owners cannot charge rent higher
than $1900, then the apartment market in San Francisco will experience:
A) an equilibrium.
B) a shortage.
C) an excess supply.
D) an increase in supply.
The formula for the tax multiplier is
A) 1 / (1 – MPC).
B) –MPC / (1-MPC).
C) –MPC / (MPC + 1).
D) MPC/ (1 + MPC).
If the marginal propensity to consume is 0.2 and there is a $10 million increase in one
component of spending, the aggregate demand curve will shift horizontally to the right
by:
A) $8 million.
B) $12.5 million.
C) $15 million.
D) $2 million.
Explain the difference between an open economy and a closed economy.
Suppose that the price of oranges increases and the quantity of oranges in the market
decreases. Suggest two reasons why this might have happened.
Which policy is effective in getting the economy out of a recession if the economy is in
a liquidity trap? Which policy is ineffective?
What is an economic view of traffic congestion?
The Bahamas is a chain of islands whose economy relies heavily on tourism. The
majority of the hotels and resorts in the island are owned by foreign countries. Which
do you think is larger, Bahamas’ GDP or GNP? Explain.
How does an increase in the marginal propensity to consume affect the consumption
function? What happens to equilibrium output? Illustrate your answer with a graph of
the income-expenditure model.
What is a wage-price spiral?
When a government pays a company for producing a product or good with the result
that selling the product is more profitable regardless of the price so that the company
will produce more of it, it is called a ________.
Explain what the Phillips curve represents.