The larger the marginal propensity to consume, the smaller the multiplier.
If the required reserve ratio is 100%, the money multiplier is zero.
The natural rate of unemployment is the unemployment rate during a period of full
employment.
The opportunity cost of getting a master’s degree in engineering equals the tuition plus
the cost of books.
Typically bond prices fall as interest rates rise.
Recall Application 1, “The Chinese Yuan and Big Macs,” to answer the following
questions:
The Application shows that Big Mac prices across the world, when converted to U.S.
dollars, are very similar.
Hyperinflation is caused by an increase in the velocity of money.
Increases in investment exceed increases in output because of the multiplier effect.
The slope of a nonlinear relationship changes as the variables change.
In the long run, the real interest rate depends primarily on the growth rate of the money
supply.
According to the textbook, the Great Depression was prolonged due to the lack of net
fiscal expansion.
The following table lists the basket of goods in the
Consumer Price Index for the nation of Astro (Assume 2010 is the base year.)
Table 6.2
Using the information in Table 6.2, the percent increase in prices over the two year
period from 2010 to 2012 is approximately
A) 26 percent.
B) 31 percent.
C) 38 percent.
D) 98 percent.
If an economy’s marginal propensity to consume is 0.9 and the marginal propensity to
import is 0.1, then an increase in government spending of $2,000 will increase income
by:
A) $2,222.
B) $4,000.
C) $10,000.
D) $20,000.
In the Solow Model, an increase in the saving rate will not result in an increase in:
A) the population.
B) investment.
C) the capital stock.
D) the output.
The phenomenon that occurs when an infant industry becomes better and more efficient
as it produces more of a good is called:
A) learning by doing.
B) learning to walk.
C) comparative advantage.
D) crawling then walking.
Table 5.4
Refer to Table 5.4. Suppose this economy produces only the two goods X and Y.
Nominal GDP in year 3 is:
A) $250.
B) $296.
C) $497.
D) $528.
Suppose that growth in output that can be attributed to growth in labor and capital is
3%. If output grows at a rate of 3%, it must be the case that:
A) labor is not becoming more productive.
B) growth in labor force exceeds growth in capital.
C) growth in capital exceeds growth in labor.
D) the economy is experiencing technological progress.
Table 3.1
Table 3.1 illustrates Willy and Blythe’s hourly production for apples and carrots. From
the table, we can conclude that:
A) Willy has both an absolute and comparative advantage in apple production.
B) Willy has both an absolute and comparative advantage in carrot production.
C) Willy has neither an absolute nor comparative advantage in apple production.
D) Willy has neither an absolute nor a comparative advantage in carrot production.
According to the growth version of the quantity equation, if the money supply increases
by 10 percent while velocity stays constant and real GDP increased by 2 percent, then
the price level:
A) increased by 8 percent.
B) increased by 12 percent.
C) decreased by 8 percent.
D) decreased by 12 percent.
The component of unemployment that is substantially influenced by calendar-related
effects are called:
A) seasonal unemployment.
B) calendar unemployment.
C) weather unemployment.
D) holiday unemployment.
The largest category of federal spending is:
A) discretionary spending.
B) entitlements and mandatory spending.
C) net interest.
D) none of the above
Which of the following statements is correct?
A) The Fed can change GDP by changing the money supply.
B) The Fed can directly change GDP and investment.
C) A high real interest rate stimulates investment.
D) The Fed does not have the power to influence the level of spending in the economy.
Figure 12.1
Refer to Figure 12.1. Suppose the economy is currently at Point A. If interest rates
decrease, the economy moves to Point:
A) C.
B) B.
C) E.
D) The economy stays at Point A.
Suppose you have 2 goods, X and Y. If the price of X decreases and you buy more Y,
then X and Y are:
A) substitutes.
B) normal goods.
C) complements.
D) inferior goods.
Income and revenue from taxes have a specific relationship during recessions. What is
it?
A) incomes rise, tax revenue decreases
B) incomes rise, tax revenue increases
C) incomes fall, tax revenue increases
D) incomes fall, tax revenue decreases
What are import licenses?
A) These are rights, issued by the government, to import goods.
B) These are rights, issued by a foreign government, to import goods.
C) These are rights, issued by the government, to buy foreign exchange used to import
goods.
D) These are rights, issued by the government, to produce goods similar to the imported
goods.
Deciding if a company will produce automobiles by manual labor or with the use of
robots answers the economic question of:
A) Who consumes the products produced?
B) What will be produced?
C) Where will the products produced be consumed?
D) How will we produce it?
Recall Application 2, “How Fast to Sail?” to answer the following questions:
Based on the Application, if the total cost of sailing a ship faster exceeds the total
benefit of sailing the ship faster, then:
A) the captain ship sail the ship faster.
B) the captain should sail the ship slower.
C) should keep the speed the same.
D) None of the answers above are correct.
Explain what is meant by purchasing power parity.
Suppose that the law of one price holds and that a pineapple costs 15 dirham in
Morocco and $1.50 in the United States. If the nominal exchange rate is 10 dirham per
U.S. dollar, what is the real exchange rate?
List and explain the three subgroups of the Federal Reserve System.
What is an opportunity cost?
Define “crowding out.”
What is money? Explain the three functions that money performs.
Using a graph, illustrate the effect that an increase in production costs will have on the
equilibrium price and quantity of a good.
Why are the prices of some intermediate inputs sticky in the short run? What causes the
stickiness in the prices of labor?