As the interest rate falls,
a. the quantity of money demanded falls, which would reduce a shortage.
b. the quantity of money demanded falls, which would reduce a surplus.
c. the quantity of money demanded rises, which would reduce a shortage.
d. the quantity of money demanded rises, which would reduce a surplus.
The cost of an action is measured in terms of foregone opportunities.
a. True
b. False
Suppose that the central bank must follow a rule that requires it to increase the money
supply when the price level falls and decrease the money supply when the price level
rises. If the economy starts from long-run equilibrium and aggregate supply shifts left,
the central bank must
a. decrease the money supply, which will move output back towards its long-run level.
b. decrease the money supply, which will move output farther from its long-run level.
c. increase the money supply, which will move output back towards its long-run level.
d. increase the money supply, which will move output farther from its long-run level.
We would expect the interest rate on Bond A to be lower than the interest rate on Bond
B if the two bonds have identical characteristics except that
a. Bond A was issued by a financially weak corporation and Bond B was issued by a
financially strong corporation.
b. Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the
state of New York.
c. Bond A has a term of 1 year and Bond B has a term of 5 years.
d. All of the above are correct.
The belief that tobacco is a “gateway drug” is consistent with
a. the idea that tobacco and marijuana are substitutes.
b. the idea that an increase in income causes a decrease in the demand for tobacco and
an increase in the demand for marijuana.
c. the idea that lower cigarette prices are associated with less use of marijuana.
d. most of the available evidence.
Adam is looking for a job in marketing. He has had some offers and his prospects are
promising, but he has not yet accepted a job. Amanda lost her job working for Mercury
Bicycles because many customers decided they prefer bicycles manufactured by
Ultimate Bicycles instead. Who is frictionally unemployed?
a. Adam but not Amanda
b. Amanda but not Adam
c. both Adam and Amanda
d. neither Amanda nor Adam
If Congress instituted an investment tax credit, the equilibrium quantity of loanable
funds would
a. rise.
b. fall.
c. be unchanged.
d. move in an uncertain direction.
Which of the following is the correct way to show the effects of a newly imposed
import quota?
a. shift the demand for loanable funds left, the supply of dollars in the market for
foreign- currency exchange left, and the demand for dollars in the market for
foreign-currency exchange right
b. shift the demand for loanable funds left, the supply of dollars in the market for
foreign- currency exchange right, and the demand for dollars in the market for
foreign-currency exchange left
c. shift the demand for dollars in the market for foreign-currency exchange to the right
d. shift the supply of dollars in the market for foreign-currency exchange to the left
Table 3-10
Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
Refer to Table3-10. Assume that Japan and Korea each has 2400 hours available. If
each country divides its time equally between the production of cars and airplanes, then
total production is
a. 40 cars and 8 airplanes.
b. 64 cars and 16 airplanes.
c. 80 cars and 16 airplanes.
d. 128 cars and 32 airplanes.
The story The Wizard of Ozcan be interpreted as an allegory about U.S. monetary policy
in the late 19th century.
a. True
b. False
Which of the two bonds in each example would you expect to generally pay the higher
interest rate? Explain why.
a. a U.S. government bond or a Venezuelan government bond
b. a U.S. government bond or a municipal bond with the same term and issued by a
creditworthy municipality.
c. a 6-month Treasury bill or a 20-year Treasury bond
d. a Microsoft bond or a bond issued by a new recording company
In a period of inflation real interest rates will be greater than nominal interest rates.
a. True
b. False
According to the classical dichotomy, which of the following is notinfluenced by
monetary factors?
a. real GDP.
b. real wages.
c. real interest rates.
d. All of the above are correct.
Which of the following expressions must be equal to national saving for a closed
economy?
a. Y– I– G– NX
b. Y– C– G
c. Y– I– C
d. G+ C– Y
Government policies that improve equality usually increase efficiency at the same time.
a. True
b. False
If the unit of foreign currency is the peso, in which case is the real exchange rate 1.2?
a. the U.S. price is $2, the foreign price is 5 pesos, and the exchange rate is 3 pesos per
dollar.
b. the U.S. price is $3, the foreign price is 18 pesos, and the exchange rate is 5 pesos per
dollar.
c. the U.S. price is $5, the foreign price 12 pesos, and the exchange rate is 2 pesos per
dollar.
d. the U.S. price is $10, the foreign price is 3 pesos, and the exchange rate is 4 pesos per
dollar.
Table 28-5
Labor Force Statistics by Age
Suppose people in the adult population in a small country are classified based on their
age.
RefetoTable28-5. In the proper order, which age group has the highest unemployment
rate and which has the highest participation rate?
a. under 55, under 55
b. under 55, 55 and older
c. 55 and older, under 55
d. 55 and older, 55 and older
The theory of liquidity preference is most helpful in understanding
a. the wealth effect.
b. the exchange-rate effect.
c. the interest-rate effect.
d. misperceptions theory.
The United States has never had deflation.
a. True
b. False
Last year a country’s real GDP grew by 4%, it’s inflation rate was 2.5%, and it’s
government budget deficit was about $250 billion. It’s debt to GDP ratio was
unchanged. About what was it’s debt at the start of last year?
a. 16.7 trillion
b. 10.0 trillion
c. 6.25 trillion
d. 3.85 trillion
People who hold well-diversified portfolios of stocks have greatly reduced or
eliminated
a. firm-specific risk, and so they do not need to worry about their wealth decreasing as a
result of recessions.
b. market risk, and so they do not need to worry about their wealth decreasing as a
result of recessions.
c. firm-specific risk, but still they have reason to worry about their wealth decreasing as
a result of recessions.
d. market risk, but still they have reason to worry about their wealth decreasing as a
result of recessions.
Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves
and baseball bats, but Tom is better at producing both goods. In this case, trade could
a. benefit both Steve and Tom.
b. benefit Steve, but not Tom.
c. benefit Tom, but not Steve.
d. benefit neither Steve nor Tom.
In a competitive market, the quantity of a product produced and the price of the product
are determined by
a. a single buyer.
b. a single seller.
c. one buyer and one seller working together.
d. all buyers and all sellers.
You put money into an account that earns an 8 percent nominal interest rate. The
inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your
after-tax real rate of interest?
a. 2.2 percent
b. 2.7 percent
c. 11.7 percent
d. 7.7 percent
Table 3-24
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Refer to Table3-24. Assume that England and Spain each has 40 labor hours available.
Originally, each country divided its time equally between the production of cheese and
bread. Now, each country spends all its time producing the good in which it has a
comparative advantage. As a result, the total output of cheese increased by
a. 15.
b. 20.
c. 25.
d. 40.
Figure 2-15
Refer to Figure2-15. Consider the production possibilities frontier for an economy that
produces only sofas and cars. The opportunity cost of each car is
a. the slope of the production possibilities frontier.
b. 3/2 sofas.
c. 2/3 of a sofa.
d. Both a and b are correct.
With the value of money on the vertical axis, the money supply curve is
a. upward sloping because people supply a larger quantity of money when the value of
money increases.
b. downward sloping because people supply a larger quantity of money when the value
of money decreases.
c. horizontal because we assume the central bank controls the money supply
d. vertical because we assume the central bank controls the money supply.
The demand for a good or service is determined by
a. those who buy the good or service.
b. the government.
c. those who sell the good or service.
d. both those who buy and those who sell the good or service.
On behalf of your firm, you make frequent trips to Tokyo. You notice that you always
have to pay more dollars to get your hair cut than you pay in the U.S. This observation
is
a. consistent with purchasing-power parity if prices in Japan are rising more rapidly
than prices in the United States.
b. consistent with purchasing-power parity if prices in Japan are rising less rapidly than
prices in the United States.
c. inconsistent with purchasing-power parity, but might be explained by limited
opportunities for arbitrage in haircuts across international borders.
d. None of the above is correct.
Based on the quantity equation, if M= 100, V= 3, and Y= 150, then P =
a. 1.
b. 1.5.
c. 2.
d. 4.5.