Cleo promises to pay Jacques $1,000 in two years. If the interest rate is 6 percent, how
much is this future payment worth today?
a. $883.60
b. $887.97
c. $890.00
d. None of the above are correct to the nearest cent.
Which of the following statements is correct about the relationship between inflation
and interest rates?
a. There is no relationship between inflation and interest rates.
b. The interest rate is determined by the rate of inflation.
c. In order to fully understand inflation, we need to know how to correct for the effects
of interest rates.
d. In order to fully understand interest rates, we need to know how to correct for the
effects of inflation.
The term economists use to describe a situation in which the economy’s overall price
level is rising is
a. growth.
b. inflation.
c. recession.
d. expansion.
If a country allows trade and, for a certain good, the domestic price without trade is
higher than the world price,
a. the country will be an exporter of the good.
b. the country will be an importer of the good.
c. the country will be neither an exporter nor an importer of the good.
d. Additional information is needed about demand to determine whether the country
will be an exporter of the good, an importer of the good, or neither.
Which of the following best describes the response of output as time passes to an
increase in the saving rate?
a. The growth rate of output does not change.
b. The growth rate of output increases and gets even larger as time passes.
c. The growth rate of output increases and does not change as time passes.
d. The growth rate of output increases, but diminishes to its former level as time passes.
Productivity is the
a. key determinant of living standards, and growth in productivity is the key
determinant of growth in living standards.
b. key determinant of living standards, but growth in productivity is not the key
determinant of growth in living standards.
c. not the key determinant of living standards, but growth in productivity is the key
determinant of growth in living standards.
d. not the key determinant of living standards, and growth in productivity is not the key
determinant of growth in living standards.
The Stock Market Boom of 2015
Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise
more than expected and stay high for some time.
Refer to Stock Market Boom 2015. In the short run what happens to the price level
and real GDP?
a. both the price level and real GDP rise.
b. both the price level and real GDP fall.
c. the price level rises and real GDP falls.
d. the price level falls and real GDP rises.
Critics of stabilization policy argue that
a. policy affects aggregate demand quickly, but the effects on aggregate demand are
long-lived.
b. policy affects aggregate demand with a lag, and the effects on aggregate demand are
long-lived.
c. policy affects aggregate demand with a lag, but the effects are short-lived.
d. policy does not affect aggregate demand.
In June 2009 the BLS reported an adult population of 234.9 million, a labor force of
154 million and employment of 141.6 million. Based on these numbers the
unemployment rate was
a. 93.3/234.9.
b. 12.4/234.9.
c. 93.3/154.
d. 12.4/154.
If a quota on lumber were implemented, then at the original exchange rate there would
be a
a. surplus in the market for foreign-currency exchange, so the real exchange rate
appreciates.
b. surplus in the market for foreign-currency exchange, so the real exchange rate
depreciates.
c. shortage in the market for foreign-currency exchange, so the real exchange rate
appreciates.
d. shortage in the market for foreign-currency exchange, so the real exchange rate
depreciates.
A 2009 article in The Economist noted that some studies have provided evidence
indicating that multipliers are
a. smaller in closed economies than in open economies.
b. larger in closed economies than in open economies.
c. smaller in capitalist economies than in socialist economies.
d. larger in capitalist economies than in socialist economies.
If the supply of loanable funds shifts right, then
a. the real interest rate and the equilibrium quantity of loanable funds both fall.
b. the real interest rate falls and the equilibrium quantity of loanable funds rises.
c. the real interest rate and the equilibrium quantity of loanable funds both rise.
d. the real interest rate rises and the equilibrium quantity of loanable funds falls.
Suppose that an American opens and operates a candy factory in Finland. This is an
example of
a. foreign direct investment. American saving is used to finance Finish investment.
b. foreign direct investment. American saving is used to finance American investment.
c. foreign portfolio investment. American saving is used to finance Finish investment.
d. foreign portfolio investment. American saving is used to finance American
investment.
Scenario 12-1. An economy’s production form takes the form Y = AF(L, K, H, N).
Refer to Scenario 12-1. K represents the quantity of
a. human capital only.
b. physical capital only.
c. human capital and physical capital combined.
d. nonrenewable natural resources.
According to 2009 data on the U.S. population, which of the following groups of
teenagers (ages 16-19) had the lowest labor-force participation rate?
a. white males
b. white females
c. black males
d. black females
Table 16-4.
The First Bank of Roswell
Refer to Table 16-4. If the bank is holding $4,000 in excess reserves, then the reserve
requirement with which it must comply is
a. 4 percent.
b. 6 percent.
c. 12 percent.
d. 14 percent.
Table 6-1
Refer to Table 6-1. Suppose the government imposes a price floor of $5 on this market.
What will be the size of the surplus in this market?
a. 0 units
b. 2 units
c. 8 units
d. 10 units
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. Perry has a comparative advantage in the production of
a. novels and Jordan has a comparative advantage in the production of poems.
b. poems and Jordan has a comparative advantage in the production of novels.
c. novels and Jordan has a comparative advantage in the production of neither good.
d. neither good and Jordan has a comparative advantage in the production of novels.
You receive a paycheck from your employer, and your pay stub indicates that $400 was
deducted to pay the FICA (Social Security/Medicare) tax. Which of the following
statements is correct?
a. This type of tax is an example of a payback tax.
b. Your employer is required by law to pay $400 to match the $400 deducted from your
check.
c. The $400 that you paid is the true burden of the tax that falls on you, the employee.
d. All of the above are correct.
In the open-economy macroeconomic model, if the supply of loanable funds increases,
net capital outflow
a. and the real exchange rate increase.
b. and the real exchange rate decrease.
c. increases and the real exchange rate decreases.
d. decreases and the real exchange rate increases.
Which of the following is included in the investment component of GDP?
a. spending on new residential construction and spending on stocks and bonds
b. spending on new residential construction but not spending on stocks and bonds
c. spending on stocks and bonds but not spending on new residential construction
d. neither spending on stocks and bonds nor spending on new residential construction
A Big Mac in Japan costs 320 yen while it costs $3.60 in the U.S.. The nominal
exchange rate is 80 yen per dollar. Which of the following would both make the real
exchange rate move towards purchasing-power parity?
a. the price of Big Macs in the U.S. falls, the nominal exchange rate falls
b. the price of Big Macs in the U.S. falls, the nominal exchange rate rises
c. the price of Big Macs in the U.S. rises, the nominal exchange rate falls
d. the price of Big Macs in the U.S. rises, the nominal exchange rate rises
If an economy is closed and if it has no government, then
a. national saving = private saving.
b. total income = consumption + investment.
c. saving = total income – consumption.
d. All of the above are correct.
A binding price floor will reduce a firm’s total revenue
a. always.
b. when demand is elastic.
c. when demand is inelastic.
d. never.
President Barrack Obama and Congress cut taxes and raised government expenditures
during the recent financial crisis. According to the aggregate supply and aggregate
demand model which of these policies would tend to reduce unemployment?
a. both the tax cut and the increase in government expenditures
b. the tax cut but not the increase in government expenditures
c. the increase in government expenditures but not the tax cut
d. neither the increase in government expenditures nor the tax cut
President Truman once said the wanted to find a one-armed economist because when he
asked his economists for advice, they always answered, “On the one hand, … On the
other hand, …” Truman’s observation that economists’ advice is not always
straightforward
a. is rooted in the principle that people face tradeoffs.
b. indicates that economists recognize that there are opportunity costs associated with
policy decisions.
c. confirms that economists are not suited to be presidential advisers.
d. More than one of the above is correct.
Clear Brook Farms, a U.S. manufacturer of frozen vegetarian entrees, sells cases of its
product to stores overseas. These sales
a. decrease U.S. exports but increase U.S. net exports.
b. decrease both U.S. exports and U.S. net exports.
c. increase both U.S. exports and U.S. net exports.
d. increase U.S. exports but decrease U.S. net exports.
Which of the following is not a characteristic of a perfectly competitive market?
a. Sellers set the price of the product.
b. There are many sellers.
c. Buyers must accept the price the market determines.
d. All of the above are characteristics of a perfectly competitive market.
According to Friedman and Phelps, the unemployment rate is above the natural rate
when actual inflation
a. is greater than expected inflation.
b. is less than expected inflation.
c. equals expected inflation.
d. low whether its greater than or less than expected.
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. If Perry and Jordan each spends all of his/her time producing the
good in which s/he has a comparative advantage and trade takes place at a price of 1
novel for 7 poems, then
a. Perry and Jordan will both gain from this trade.
b. Perry will gain from this trade, but Jordan will not.
c. Jordan will gain from this trade, but Perry will not.
d. neither Perry nor Jordan will gain from this trade.
Explain how a higher rate of return on saving could, at least in theory, lead to lower
saving.
Substitution bias occurs because the CPI ignores the possibility of consumer
substitution toward goods that have become relatively less expensive.
If consumption is $1800, GDP is $4300, government purchases are $1000, imports are
$700, and investment is $1200, then exports are $300.
The demand for Rice Krispies is more elastic than the demand for cereal in general.
Because taxes distort incentives, they cause markets to allocate resources inefficiently.
An assumption of the production possibilities frontier model is that technology is fixed.
In 1914, Henry Ford began paying his workers $5 per day, about twice the going wage.
As a result, turnover and absenteeism fell and productivity and profits rose.
The catch-up effect says that countries with low income can grow faster than countries
with higher income. However, in statistical studies that include many diverse countries
we do not observe the catch-up-effect unless we control for other variables that affect
productivity. Considering the determinants of productivity, list and explain some things
that would tend to prohibit or limit a poor country’s ability to catch up with the rich
ones.
Demand is inelastic if the price elasticity of demand is greater than 1.
U.S. dollars are an example of commodity money and hides used to make trades are an
example of fiat money.
Timmy can edit 2 pages in one minute and he can type 80 words in one minute. Olivia
can edit 1 page in one minute and she can type 100 words in one minute. Timmy has an
absolute advantage and a comparative advantage in editing, while Olivia has an
absolute advantage and a comparative advantage in typing.
The demand for desserts tends to be more inelastic than the demand for red velvet cake.
Suppose that money supply growth continues to be higher in Turkey than it is in the
United States. What does purchasing-power parity imply will happen to the real and to
the nominal exchange rate?
Most of the burden of a luxury tax falls on the middle class workers who produce
luxury goods rather than on the rich who buy them.
If the average cost of transporting a passenger on the train from Chicago to St. Louis is
$75, it would be irrational for the railroad to allow any passenger to ride for less than
$75.