Improvements in the quality of goods and services over time
a. cause GDP statistics to understate true output growth from year to year
b. cause GDP statistics to overstate true output growth from year to year
c. are fully accounted for in the Bureau of Economic Analysis’ measurement of GDP
d. are reflected in higher prices and therefore do not affect the measurement of real
GDP
e. are offset by declining productivity over time
Aggregation is important because it allows macroeconomists to divide a whole into its
individual components.
Which of the following cases represent the smallest increase in the real national debt?
a. The price level increases by 200 percent and the nominal debt increases by 200
percent.
b. The price level increases by 200 percent and the nominal debt increases by 100
percent.
c. The price level increases by 200 percent and the nominal debt increases by 500
percent.
d. The price level increases by 100 percent and the nominal debt increases by 300
percent.
e. None of the above.
Refer to Figure 8-7. What is the equilibrium interest rate in the above figure?
a. 6% because that is where the total supply of funds equals the total demand.
b. 5% because business and the government want to borrow as much as possible.
c. 6% because that is where the amount of funds demanded is equal to the amount of
funds demanded.
d. 7% because households refuse to lend enough funds at a lower interest rate.
e. 5% because households refuse to lend enough funds at a higher interest rate.
Microeconomics is the study of
a. government decisions
b. the federal government’s budget
c. the economic behavior of entire nations
d. the economic behavior of individual decision makers
e. the overall economy
A bank wants to get rid of excess reserves by making loans because
a. it will be penalized if it does not get rid of the reserves
b. the reserves do not earn interest
c. it is afraid it will lose the excess reserves
d. firms will not borrow from a bank with excess reserves
e. the bank has too many liabilities
When the Federal Reserve System was first established, which of the following was its
chief responsibility?
a. Keeping the inflation rate low and stable
b. Ensuring the stability of the banking system
c. Achieving full employment of the labor force
d. Keeping the interest rate low and stable
e. Keeping output growth high and stable.
For the average living standard of a nation to rise, the only thing that needs to happen is
for nominal GDP to increase faster than the price level.
Which of the following is the main weakness of the classical model?
a. It assumes that the labor supply curve is vertical.
b. It assumes that the labor supply curve is horizontal.
c. It assumes that the labor market clears.
d. It assumes that the labor demand curve is horizontal.
e. It assumes that the labor demand curve is vertical.
There have been no major banking panics in the U.S. since the creation of the Federal
Reserve System.
During the Great Depression, the economist who raised the loudest objections against
the classical model was
a. Milton Friedman
b. John Nash
c. Adam Smith
d. Ben Bernanke
e. John Maynard Keynes
A particular music store, Discs-R-Us, sells over 3,000 different compact disks. Pat’s
opportunity cost of choosing to purchase a compact disk by Pearl Jam
a. is zero if he does not like any other compact disk
b. is how much he would have enjoyed his second-favorite compact disk
c. depends on the compact disks not sold by the store
d. is negative
e. is how much he would have enjoyed a compact disk by Vanilla Ice
If two economists disagree on an issue and their disagreement is based on personal
value judgments, then this controversy is a normative one.
According to the law of demand,
a. there is a positive relationship between quantity demanded and price
b. as the price rises, demand will shift to the left
c. there is a negative relationship between quantity demanded and price
d. as the price rises, demand will shift to the right
e. as the price rises, consumers will continue to purchase the same quantity of the good
Which of the following could cause economic growth?
a. Growth in productivity
b. Growth in the employment-population ratio
c. Growth in the average number of hours worked
d. Growth in the population
e. All of these
Refer to Figure 9-14. Which of the following combination of policies would shift the
curves as indicated?
a. A decrease in income tax rates coupled with increased employment subsidies to
firms.
b. An increase in income tax rates coupled with increased employment subsidies to
firms.
c. An increase in the safety net available to individuals coupled with a decrease in
income tax rates.
d. Increased employment subsidies available to firms coupled with an increase in the
safety net available to firms.
e. A decrease in income tax rates.
Assume that U.S. agricultural land is used either to raise cotton for clothing or to grow
wheat. Agricultural researchers develop a new wheat hybrid that is more resistant to
drought and insects. What effect will this have on the production possibilities frontier
for cotton and wheat?
a. maximum possible production of both cotton and wheat will rise
b. maximum possible production of cotton will rise; maximum possible production of
wheat will not change
c. maximum possible production of wheat will rise; maximum possible production of
cotton will not change
d. maximum possible production of cotton will rise; maximum possible production of
wheat will fall
e. maximum possible production of wheat will rise; maximum possible production of
cotton will fall
The aggregate production function is the
a. relationship between the amount of labor employed in the economy and the total
amount of output produced
b. relationship between available labor and the total amount of output produced
c. the relationship between land and capital and labor employed in the economy
d. long-run equilibrium of the macroeconomy
e. amount of output any worker can produce given existing land and capital constraints
If the Fed lowered the required reserve ratio,
a. excess reserves would decrease
b. the money supply would decrease
c. the money supply would increase
d. banks would borrow more from the Fed
e. loans would earn more interest.