The economy is currently on its production possibilities frontier (PPF). A politician says
that it is possible to get more of everything—more infrastructure, more schools, more
national defense, more spending on social programs, and so on. The politician is
a. correct if he is assuming a rightward-shifting PPF.
b. incorrect if he is assuming a rightward-shifting PPF.
c. incorrect if he is assuming a PPF that does not change.
d. correct if he is assuming a PPF that does not change.
e. a and c
Exhibit 12-1
How much bank capital does Bank A have (i.e.what dollar value goes in blank (A))?
a. $0.
b. $50
c. $20
d. $10
e. $5
A toll of $1 per car is imposed on a road regardless of time of day. If the toll creates
equilibrium travel flows at the busiest time of day, it will create a __________ at all
other times.
a. surplus of space
b. shortage of space
c. zero money price for space
d. zero opportunity cost for space
The level of Real GDP that the economy produces in long-run equilibrium is Natural
Real GDP.
a. True
b. False
Which of the following is false?
a. Even if a corporation is not currently issuing bonds, you could still buy a bond
directly from the corporation.
b. Bonds that are rated AAA from Standard and Poor’s have received the highest rating
possible.
c. A bond that is rated in the D categoryindicates that the bond issuer cannot pay off the
bond.
d. It is possible to buy a bond from someone who purchased and still holds the bond he
bought from the corporation at an earlier date.
Exhibit 15-6
Assume that the economy starts out producing Q1. An economist who believes that the
economy is not self-regulating would assert that the government should use
_________________ fiscal policy to close the existing ___________________ gap.
a. expansionary; inflationary
b. expansionary; recessionary
c. contractionary; recessionary
d. contractionary; inflationary
Exhibit 2-4
The opportunity cost of moving from point A to point B is
a. 60,000 copiers.
b. 40,000 copiers.
c. 20,000 copiers.
d. 20,000 fax machines.
e. 40,000 fax machines.
In the simple Keynesian model, there are three simplifying assumptions.Among these
assumptions is:
a. the price level is flexible
b. no foreign sector
c. the price level is constant until the economy reaches its full-employment level
d. the money supply always rises
e. b and c
An aggregate demand (AD) curve shows the
a. amount of a particular good people are willing and able to buy at a particular price,
ceteris paribus.
b. real output (Real GDP) people are willing and able to sell at different price levels,
ceteris paribus.
c. real output (Real (GDP) people are willing and able to buy and to sell at different
price levels, ceteris paribus.
d. real output (Real GDP) people are willing and able to buy at different price levels,
ceteris paribus.
The Fed can change the federal funds rate by issuing an order, but it cannot change the
discount rate this way.
a. True
b. False
The Friedman natural rate theory is based on rational expectations and is also called the
new classical theory.
a. True
b. False
Exhibit 7-5Economic Data for Country Z
What was Country Z’s economic growth rate between year 3 and year 4?
a. 6.1%
b. 2.3%
c. 3.0%
d. 18.2%
The infant industry argument for trade protectionism holds that
a. new industries sometimes need a protective environment in which to grow so that
they can compete with older, more established foreign competitors.
b. foreign competitors are often viewed as “infants” by large U.S. firms.
c. tariffs are often preferred to quotas.
d. quotas raise prices more than tariffs raise prices.
e. a and c
If the economy is on the downward-sloping portion of the Laffer curve, a(an)
__________ in tax rates will __________ tax revenues.
a. decrease; reduce
b. increase; raise
c. decrease; raise
d. decrease; not change
e. increase; not change
If someone gives you a free ticket to the movies, then there is no opportunity cost
involved with going to the movies.
a. True
b. False
Look at the following data: The structural unemployment rate is 4 percent, the natural
unemployment rate is 5 percent, and the cyclical unemployment rate is 3 percent.The
frictional unemployment rate is ____________ percent and the actual unemployment
rate is __________ percent.
a. 2; 7
b. 2; 8
c. 1; 7
d. 1; 8
The yield of a stock is the
a. dividend divided by the closing price per share.
b. dividend divided by the average daily price of the stock.
c. closing price divided by the 52-week low price.
d. dividend divided by the opening price per share.
A demand curve is the graphical representation of the law of demand.
a. True
b. False