Capital gains are taxed at a different rate than income and this reduces revenues the
government receives. All else equal, what would happen if capital gains taxes were
eliminated?
A) The government would not be able to spend money on any programs.
B) Everyone would have to pay less in taxes.
C) The deficit would increase because of lack of revenues.
D) They would have to be replaced by a consumption tax.
The process by which changes in wages and prices causing further changes in wages
and prices is called:
A) a wage – price spiral.
B) the vicious cycle.
C) the snowball effect.
D) the business cycle.
Figure 19.2
Referring to Figure 19.2, an appreciation of the dollar is represented by a movement
from point
A) a to d.
B) c to d.
C) a to c.
D) to c.
Recall Application 2, “The Value of an Annuity,” to answer the following questions:
Based on the Application, would an individual who expects to live forever choose a
lump sum payment of $500,000 over an annuity payment of $35,000?
A) Always.
B) Yes, but only if the interest rates are low enough.
C) Never.
D) Yes, but only if the interest rates are high enough.
Which of the following is the best example of a person NOT having clear property
rights?
A) a city parks worker who inherits his uncle’s town house
B) a dairy farmer who pays off the mortgage on his farm
C) a medical student who lives on campus for his first year of studies
D) a retired college professor who builds a bungalow on her oceanfront property
Suppose that the Surgeon General releases a study suggesting that orange juice
consumption reduces the risk of cancer. We would predict that the equilibrium quantity
of orange juice will ________ and the equilibrium price of orange juice will ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
According to this Application, economists Carol Corrado and Charles Hulten found that
A) the combined contributions from tangible capital and intangible capital contributed
more to economic growth than technological progress.
B) the combined contributions from tangible capital and intangible capital contributed
less to economic growth than technological progress.
C) the contributions from traditional capital are still the primary source of economic
growth.
D) labor no longer plays a significant role as a source of economic growth.
Recall the Application about the possibility that the Federal Reserve’s loose monetary
policy was responsible for the housing boom during the 2000s to answer the following
question(s).
According to this Application, economist John Taylor believes that if the Fed had not
followed “easy money” policy during the early 2000s,
A) housing starts would have been much lower and the housing boom and bust would
have been avoided.
B) housing starts would have been much higher and the housing boom would have
continued.
C) housing starts would have stabilized, leading to a mild housing boom with no bust.
D) housing starts would have declined quicker, accelerating the timing and severity of
the housing bust.
Which of the following is an example of a fiat money?
A) a $20 bill
B) cigarettes
C) gold
D) jewelry
The ratio of nominal GDP to the money supply is the:
A) money multiplier.
B) velocity of money.
C) real GDP.
D) GDP deflator.
Jessica, aged three, decides to dress up like Sleeping Beauty for Halloween. What is her
opportunity cost of this decision?
A) the cost of the costume
B) the fact that she can’t dress up like Barbie, her second choice
C) zero, because three-year-olds do not have opportunity costs
D) impossible to say, because Jessica does not understand what an opportunity cost is
Recall the Application about the impact that home equity values have on consumer
spending and wealth to answer the following question(s). From 1997 to mid-2006,
housing prices rose nationally by approximately 90 percent and consumer wealth
increased by $6.5 trillion, but in the summer of 2006, housing prices began to fall.
Home equity is the single largest component of net wealth for most families in the
United States, and changes in the value of home equity affect consumer spending.
According to this Application, what is home equity?
A) the value of homes less the value of the property on which the homes are sitting
B) the value of homes plus the value of the content in the homes
C) the average retail value of homes listed for sale
D) the difference between the value of homes and the amount of mortgage debt on the
property
Which of the following outcomes hinder economic growth?
A) uncertain financial environment
B) reduced savings and investment
C) decreased exports
D) All of the above are outcomes that hinder economic growth.
When consumers spend and buy things regardless of their level of income, this is
known as
A) bad financial management.
B) living the good life.
C) autonomous consumption spending.
D) using credit to its maximum.
Table 11.1 Refer to Table 11.1. The marginal propensity to consume is:
A) 0.85.
B) 0.45.
C) 0.65.
D) 0.75.
Suppose there are only 2 nations A and B, and only two goods, x and y. If nation A
produces only x, it can make 20x per day. If nation A produces only y, it can make 15y
per day. If nation B produces only x, it can make 15x per day. If nation B produces only
y, it can make 15y per day. After trade begins nation ________ will specialize in the
production of x and nation ________ will specialize in the production of y.
A) A; A
B) A; B
C) B; B
D) B; A
Refer to Figure 8A.2. An increase in the saving rate is represented by
A) shifting from 2Y to dK.
B) shifting from 1Y to 2Y.
C) a movement from K1 to e1.
D) a movement from e2 to e1.
The index most widely used by the government and the private sector to measure
changes in the cost of living is the
A) Producer Price Index.
B) Consumer Price Index.
C) the GDP deflator.
D) the chain-weighted price index.
A decrease in the government spending will cause a:
A) movement along the aggregate demand curve upwards.
B) movement along the aggregate demand curve downwards.
C) shift in the aggregate demand curve upward and to the right.
D) shift in the aggregate demand curve downward and to the left.