Consider three different closed economies with the following national income statistics.
Country A has taxes of $40 billion, transfers of $20 billion, and government
expenditures on goods and services of $30 billion. County B has private savings of $60
billion, and investment expenditures of $40 billion. Country C has GDP of $300 billion,
investment of $90, consumption of $180 billion, taxes of $60 billion and transfers of
$20 billion. From this information, we know that
a. country A has the largest government budget deficit.
b. country B has the largest government budget deficit.
c. country C has the largest government budget deficit.
d. The government budget deficit is equal in all three countries.
One way that governments can improve market outcomes is to ensure that individuals
are able to own and exercise control over their scarce resources.
a. True
b. False
People who buy stock in a corporation such as General Electric become
a. creditors of General Electric, so the benefits of holding the stock depend on General
Electric’s profits.
b. creditors of General Electric, but the benefits of holding the stock do not depend on
General Electric’s profits.
c. part owners of General Electric, so the benefits of holding the stock depend on
General Electric’s profits.
d. part owners of General Electric, but the benefits of holding the stock do not depend
on General Electric’s profits.
Figure 4-21
RefertoFigure4-21.What is the equilibrium price in this market?
a. $0
b. $5
c. $10
d. $20
Suppose the typical household spends $3,500 on goods and services during the month
of January, and $4,300 on the same goods and services in February. Using January as
the base period, what is the consumer price index for February?
a. 151.4
b. 81.4
c. 55.1
d. 122.9
Human capital
a. can be thought of, metaphorically, as the quality of society’s textbooks, whereas
technological knowledge
can be thought of as the time that the population has devoted to reading textbooks.
b. is more tangible than physical capital.
c. is an input in the production of goods and services.
d. is the same as the quantity of labor.
Suppose the government taxes the wealthy at a higher rate than it taxes the poor and
then develops programs to redistribute the tax revenue from the wealthy to the poor.
This redistribution of wealth
a. is more efficient and more equal for society.
b. is more efficient but less equal for society.
c. is more equal but less efficient for society.
d. is less equal and less efficient for society.
A year ago a country reduced the tax rate on all interest income from 20% to 10%.
During the year private saving was $500 billion as compared to $400 billion the year
before the tax reform. Taxes on interest income fell by $10 billion. Assuming no other
changes in income, or government revenues or spending, which of the following is
correct?
a. the substitution effect was larger than the income effect; national saving rose
b. the substitution effect was larger than the income effect; national saving fell
c. the income effect was larger than the substitution effect; national saving rose
d. the income effect was larger than the substitution effect; national saving fell
In a market economy, who makes the decisions that guide most economic activity?
a. firms only
b. households only
c. firms and households
d. government
If the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded,
a. there is a surplus and the interest rate is above the equilibrium level.
b. there is a surplus and the interest rate is below the equilibrium level.
c. there is a shortage and the interest rate is above the equilibrium level.
d. there is a shortage and the interest rate is below the equilibrium level.
Two bonds have the same term to maturity. The first was issued by a state government
and the probability of default is believed to be low. The other was issued by a
corporation and the probability of default is believed to be high. Which of the following
is correct?
a. Because they have the same term to maturity the interest rates should be the same.
b. Because of the differences in tax treatment and credit risk, the state bond should have
the higher interest rate.
c. Because of the differences in tax treatment and credit risk, the corporate bond should
have the higher interest rate.
d. It is not possible to say if one bond has a higher interest rate than the other.
In the open-economy macroeconomic model, if there were a surplus in the market for
foreign-currency exchange, the real exchange rate would appreciate.
a. True
b. False
Two years ago Lenny put some money into an account. He earned 6 percent interest on
this account and now he has about $1,000. About how much did Lenny deposit into his
account two years ago?
a. about $860
b. about $870
c. about $880
d. about $890
Studies have found which of the following economic terms mentioned most often in
U.S. newspapers?
a. Unemployment
b. Productivity
c. Inflation
d. Monetary policy
Which of the following would likely make the interest rate on a bond higher than
otherwise?
a. both high credit risk and a long term
b. high credit risk but not a long term
c. a long term but not a high credit risk
d. neither high credit risk nor a long term
Traveler’s checks are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
Which of the following depends primarily on the growth rate of the money supply?
a. inflation and the natural rate of unemployment
b. inflation but not the natural rate of unemployment
c. the natural rate of unemployment but not inflation
d. neither inflation nor the natural rate of unemployment
Which types of models are built with assumptions?
a. economic models, but not models in other disciplines such as physics and biology
b. economic models as well as models in other disciplines such as physics and biology
c. models that are built for teaching purposes but not for research purposes
d. bad models
Figure 3-2
Brazil’sProductionPossibilitiesFrontier
Referto Figure 3-2. If the production possibilities frontier shown is for two months of
production, then which of the following combinations of peanuts and cashews could
Brazil produce in two months?
a. 7 peanuts and 35 cashews
b. 5 peanuts and 100 cashews
c. 2 peanuts and 190 cashews
d. 3 peanuts and 150 cashews
Table 3-6
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
RefertoTable3-6.Which of the following combinations of toothbrushes and hairbrushes
could Zimbabwe not produce in 120 minutes?
a. 5 toothbrushes and 11 hairbrushes
b. 10 toothbrushes and 9 hairbrushes
c. 20 toothbrushes and 6 hairbrushes
d. 30 toothbrushes and 3 hairbrushes
From 1970 to 1998 the U.S. dollar
a. gained value compared to the Italian lira because inflation was higher in Italy.
b. gained value compared to the Italian lira because inflation was lower in Italy.
c. lost value compared to the Italian lira because inflation was higher in Italy.
d. lost value compared to the Italian lira because inflation was lower in Italy.
In a closed economy, national saving equals
a. investment.
b. income minus the sum of consumption and government purchases.
c. private saving plus public saving.
d. All of the above are correct.
Fiscal policy cannot be used to move the economy along the short-run Phillips curve.
a. True
b. False
Which of the following both make the sacrifice ratio higher than otherwise?
a. the Phillips curve is steep, inflation expectations adjust quickly.
b. the Phillips curve is steep, inflation expectations adjust slowly.
c. the Phillips curve is flat, inflation expectations adjust quickly
d. the Phillips curve is flat, inflation expectations adjust slowly.
Economists usually have to make do with whatever data the world happens to give
them.
a. True
b. False
Which of the following is consistent with the idea that high money supply growth leads
to high inflation?
a. the quantity theory and evidence from four hyperinflations during the 1920’s
b. the quantity theory but not evidence from four hyperinflations during the 1920’s
c. evidence from four hyperinflations during the 1920’s but not the quantity theory
d. neither the quantity theory nor evidence from four hyperinflation during the 1920’s
Suppose government expenditures on goods and services and net taxes both decrease,
and expenditures fall by more than net taxes. The effects of these changes on the budget
deficit cause
a. both the equilibrium interest rate and the equilibrium quantity of loanable funds to
fall.
b. both the equilibrium interest rate and the equilibrium quantity of loanable funds to
rise.
c. the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to
fall.
d. the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to
rise.
An increase in the price of cotton will increase the equilibrium price and decrease the
equilibrium quantity in the market for cotton t-shirts.
a. True
b. False
If the natural rate of unemployment falls,
a. both the short-run Phillips curve and the long-run Phillips curve shift.
b. only the short-run Phillips curve shifts.
c. only the long-run Phillips curve shifts.
d. neither the short-run nor the long-run Phillips curves shift.
Which of the following is notan example of a market?
a. A small town has only one seller of electricity.
b. In the United States, a sick person cannot legally purchase a kidney.
c. In Florida, there are many buyers and sellers of key lime pie.
d. The availability of Internet shopping has expanded the clothing choices for buyers
who do not live near large cities.
An increase in the minimum wage
a. reduces structural unemployment.
b. reduces frictional unemployment,
c. increases structural unemployment.
d. increases frictional unemployment.
Figure 28-3
RefetoFigure28-3.If the government imposes a minimum wage of $8, then
unemployment will increase by
a. 0 workers.
b. 2,000 workers.
c. 4,000 workers.
d. 7,000 workers.
Kayla faces risks and she pays a fee to ABC Company; in return, ABC Company agrees
to accept some or all of
Kayla’s risks. ABC Company is
a. a mutual fund.
b. an insurance company.
c. a diversified company.
d. an equity-financed company.
Which of the following is a function of money?
a. a unit of account
b. a store of value
c. medium of exchange
d. All of the above are correct.
A nation’s standard of living is determined by
a. the percentage of its GDP that is accounted for by government purchases.
b. the quantity of natural resources with which it is endowed.
c. the productivity of its workers.
d. factors and events that are beyond the nation’s control.
RefetoTable28-10. Calculate the number in the adult population, and the labor force
participation rate.
The two most important financial markets are the _____ market and the _____ market.
List the three alternative explanations for the upward slope of the short run aggregate
supply curve.
For a given short-run Phillips curve, if expected inflation is 8% but actual inflation is
10%, is the unemployment rate above or below its natural rate?
Table 3-41
RefertoTable3-41.What is England’s opportunity cost of one radio?
Explain how the actions of labor unions generate greater unemployment.
Scenario 27-1
Lisa has a utility function where Wis Lisa’s wealth in millions of dollars
and Uis the utility she obtains.
RefetoScenario27-1.Is Lisa risk averse? Explain.
Scenario 3-1
The production possibilities frontiers below show how much Greg and Catherine can
each produce in 8 hours of time.
RefertoScenario3-1. Which if any good(s) does Greg have an absolute advantage
producing?
An increase in households’ desired money holding causes a(n) _____ in interest rates.
This causes a(n) _____ in investment spending and aggregate demand.
How does the phenomenon of diminishing returns to capital explain the catch-up effect?
What variable adjusts to balance demand and supply in the market for loanable funds?
The existence of money makes trade easier. How is it that money can also increase the
standard of living?
What problems arise in interpreting unemployment data?
What is the distinction between foreign direct investment and foreign portfolio
investment?
Explain how inflation affects savings.
Briefly describe how labor unions can affect wages in non-unionized industries.
As measured by the amount of trade it does, has the U.S. economy become more
internationalized? Provide two reasons for this change.