In the long run, the purchasing power parity theory predicts exchange rates accurately,
particularly when there is a large difference in inflation rates across countries.
a. True
b. False
If income tax rates are cut, the size of the budget deficit will necessarily increase.
a. True
b. False
A community of 100 persons wants to redistribute (transfer) some income from
themselves to members of group A.So far, they don’t seem to be able to do what they
say they want to do.This is most likely because each member of the community of 100
persons sees his contribution as __________________ relative to the total (of
contributions) and therefore chooses to be a __________________.
a. large; rent-seeker
b. small; rent-seeker
c. small; free rider
d. large; free rider
e. none of the above
Exhibit 16-5
If the economy is at point 6, and the natural unemployment rate exists at points 1, 4,and
5, it follows that
a. Real GDP is greater than Natural Real GDP.
b. Real GDP is less than Natural Real GDP.
c. Real GDP is the same as Natural Real GDP.
d. the economy is in a recessionary gap.
e. b and d
Another term for excess supply is shortage.
a. True
b. False
Based upon the equation of exchange, which of the following (ceteris paribus) is most
likely to bring about inflation?
a. An increase in the money supply.
b. A decrease in velocity.
c. An increase in Real GDP.
d. a and b
e. a and c
In reality, idle resources must exist in the economy in order for the multiplier process to
lead to an increase in Real GDP.
a. True
b. False
Produced goods used as inputs for the production of other goods comprise the resource
known as
a. natural resources.
b. services.
c. capital.
d. entrepreneurship.
In the equation of exchange, the money supply multiplied by velocity equals
a. GDP.
b. the price level.
c. the quantity of goods produced.
d. the average number of times that a dollar is used to purchase a final good or service.
At the beginning of the 20th century one farmer in the U.S. produced enough to feed
____________ people, and at the end of the century, one farmer produced enough to
feed ____________ people.
a. 20; 40
b. 7; 15
c. 12; 42
d. 8; 35
When the official dollar price of a foreign currency is set below its equilibrium level,
the foreign currency
a. has been depreciated.
b. is overvalued.
c. is undervalued.
d. is devalued.
e. is revalued.