If the Federal Reserve wanted to change the money supply in the economy, it would be
least likely to
A) buy bonds on the open market.
B) sell bonds on the open market.
C) change the level of reserves required to be held by banks.
D) change the federal funds rate.
When a country is experiencing persistent inflation, then:
A) real GDP is greater than nominal GDP before the base year.
B) real GDP is greater than nominal GDP after the base year.
C) real GDP is less than nominal GDP before the base year.
D) both B and C are correct.
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.
Suppose there are only 2 nations, Atlantis and Pacifica, and only two goods, surfboards
and kayaks. If Atlantis produces only surfboards, it can make 27 per day. If Atlantis
produces only kayaks, it can make 18 per day. If Pacifica produces only surfboards, it
can make 32 per day. If Pacifica produces only kayaks, it can make 24 per day. After
trade begins, ________ will specialize in the production of surfboards and ________
will specialize in the production of kayaks.
A) Atlantis; Atlantis
B) Pacifica; Atlantis
C) Atlantis; Pacifica
D) No trade will occur.
If the real interest rate is 7 percent and the inflation rate is 7 percent, then the nominal
interest rate is
A) 0 percent.
B) 3.5 percent.
C) 7 percent.
D) 14 percent.
Governments in developing countries can promote economic growth by:
A) increasing the taxes on education.
B) decreasing the taxes on imports.
C) decreasing the subsidies for exports.
D) increasing subsidies for education.
If you expect that the inflation rate is 5 percent and the actual inflation rate turned out to
be exactly 3 percent, then:
A) lenders gain.
B) borrowers gain.
C) both the borrowers and lenders gain.
D) neither borrowers nor lenders gain.
When one company is the sole seller of certain products in a market, it is called a
A) government exclusive.
B) monopoly.
C) manipulation of the market.
D) conglomerate.
Entitlement and mandatory spending consist of:
A) interest payments on government debt held by the public.
B) all the spending that Congress authorized by prior laws.
C) all the programs authorized by Congress on an annual basis.
D) all of the above.
In the long run, any decreases in aggregate demand
A) decrease the level of prices and output.
B) decrease the level of prices.
C) decrease the level of output.
D) have no effect on either the level of prices or of output.
The increase in spending that occurs because the demand for investment goods
increases when the price level falls is known as the
A) interest rate effect.
B) international trade effect.
C) price effect.
D) wealth effect.
A reduction in the British interest rate relative to the U.S. interest rate will cause a(n):
A) appreciation of the dollar and an appreciation of the British pound.
B) appreciation of the dollar and a depreciation of the British pound.
C) depreciation of the dollar and an appreciation of the British pound.
D) depreciation of the dollar and a depreciation of the British pound.
Recall the Application about the effect of global warming on economic growth to
answer the following question(s).
According to this Application, the economic effects of increases in temperature seem to
A) be confined to poorer countries.
B) be confined to richer countries.
C) be equal across all countries.
D) be nonexistent in most countries.
The purpose of advertising products to consumers is to:
A) reduce costs for producers.
B) decrease the demand for the product.
C) increase the price of the product.
D) change consumers’ tastes toward the product.
Given the following information about AAA bank:
What is the reserve ratio?
A) 50 percent
B) 30 percent
C) 20 percent
D) 15 percent
Which of the following is not a financial intermediary?
A) commercial bank
B) savings and loan association
C) life insurance company
D) district bank of the Federal Reserve System
The principle that “as one input increases while the other inputs are held fixed, output
increases at a decreasing rate” is known as the
A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) spillover principle.
Figure 7.2 Refer to Figure 7.2. At wage rate $7, there is a ________ of labor equal to
________ million people.
A) shortage; 10
B) shortage; 40
C) surplus; 40
D) surplus; 10
Recall Application 1, “The Chinese Yuan and Big Macs,” to answer the following
questions:
According to the Application, the Big Mac “exchange rate” is based on which economic
theory?
A) law of one price
B) comparative advantage
C) supply and demand
D) diminishing returns
The required reserve ratio is 10%. If the banks hold excess reserves, then the money
multiplier is:
A) less than 10.
B) greater than 10.
C) less than 0.10.
D) zero.