Money is an example of a scarce factor of production.
Tradeoffs involve an exchange of one thing for another because resources are limited
and can be used in different ways.
Additional factors beyond supply and consumer purchasing desire can affect demand.
Both the nominal rate of interest and the real return on investment increase with the
inflation rate.
The price system works in an economy on a day-to-day basis to match the desires of
consumers with the output from producers.
When two parties engage in voluntary exchange, one must be made worse off.
A principle is a self-evident truth that most people readily understand and accept.
The market system works by getting each person, motivated by his or her own
self-interest, to produce products for other people.
Table 2.1 A group of people has formed a house cleaning and yard
maintenance business. The number of houses or yards that they can clean or maintain in
any given day is depicted in Table 2.1. As the group cleans more houses, the
opportunity cost of doing yard work:
A) falls.
B) rises.
C) stays the same.
D) becomes equal to the opportunity cost of cleaning houses.
Table 5.2 Refer to Table 5.2.
Suppose this economy produces only the three goods A, B, and C. If we use year 1 as
the base year, then real GDP in year 1 is:
A) $6.20.
B) $7.80.
C) $8.50.
D) none of the above.
When the economy is in a recession, the intersection between the:
A) short run AS and the AD occurs at an output level higher than potential output.
B) short run AS and the AD occurs at an output level lower than potential output.
C) long run AS and the AD occurs at an output level higher than potential output.
D) long run AS and the AD occurs at an output level lower than potential output.
Financial intermediaries reduce the risk faced by savers through:
A) lowering negotiation costs.
B) pooling the funds of savers.
C) diversification of investment projects.
D) reducing the liquidity of savers’ funds.
In which of the following markets is a person’s time and effort exchanged for money?
A) consumer market
B) capital market
C) labor market
D) goods market
The balance of payments is divided into three major accounts, the:
A) current account, payments account and the cash account.
B) current account, financial account and the capital account.
C) current account, capital account and the cash account.
D) financial account, payments account and the capital account.
The diagram that shows the flow of income, spending, goods and services between
markets is called the:
A) aggregate demand-aggregate supply diagram.
B) circular flow diagram.
C) income flow diagram.
D) income-production diagram.
M1 excludes which of the following?
A) currency held by the public
B) demand deposits
C) traveler’s checks
D) none of the above
Suppose that in 2011, 4 million plasma TVs were purchased at $950 each, while in
2012, 3 million plasma TVs were purchased at $800 each. What might have caused this
change?
A) The price of LCD TVs (a substitute for plasma TVs) fell.
B) The price of LCD TVs (a substitute for plasma TVs) rose.
C) Plasma TV manufacturing technology increased.
D) Plasma TV manufacturing technology decreased.
Refer to Figure 8A.1. When the economy reaches K, total saving is represented by point
________ and depreciation is represented by point ________.
A) e; Y
B) e; e
C) Y; e
D) Y; Y
Figure 19.1
Referring to Figure 19.1, Mexican goods will become cheaper in the United States if
the exchange rate goes from ________ to ________ pesos to the dollar.
A) 12; 11
B) 12; 13
C) 13; 11
D) 13; 10
If the number of people classified as unemployed is 50,000 and the number of people
classified as employed is 620,000, what is the unemployment rate?
A) 15.6%
B) 9.2%
C) 7.5%
D) 8.1%
Even though banks have been required to keep 10 percent of deposits exceeding $71
million as reserves in 2012, the measured multiplier is only between 2 to 3 because:
A) bank hold excess reserves.
B) people hold some of their loans in cash.
C) A and B are both correct.
D) neither A nor B is the reason.
In a simple economy (without government or foreign trade) where output can be
purchased only by consumers or by firms, saving must equal
A) investment.
B) depreciation.
C) consumption.
D) income.
In the Solow Model, an increase in the depreciation rate will result in:
A) a lower level of capital and output.
B) a lower capital and a higher level of output.
C) a lower output and a higher level of capital.
D) a higher level of capital and output.
A rich nation will trade with a poor nation because the
A) rich nation has the absolute advantage in producing all products.
B) poor nation has the absolute advantage in producing all products.
C) poor nation has the comparative advantage in producing a product.
D) rich nation has the comparative advantage in producing all products.
Table 3.1
Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table
3.1 shows how much of each good Jesse and April can paint in one hour. April’s
opportunity cost of painting one snowboard is painting
A) 1.5 kites.
B) 3 kites.
C) 4 kites.
D) 12 kites.
What factors can shift the natural rate of unemployment?
What is the difference between a production possibilities curve and a consumption
possibilities curve?
What is meant by full-employment output?
What is a tariff?
Suppose the economy is in a recession and the unemployment rate is higher than the
natural rate. Using aggregate supply and aggregate demand, explain how the economy
adjusts back to potential GDP.
Draw a graph to illustrate the effect of an increase in demand on the price and quantity
in a market.