Bankers must always trade off
a. honesty and dishonesty.
b. stocks and loans.
c. prudence and profits.
d. gold and cash.
e. All of the above are correct.
If the Fed raises the discount rate, what will be the effect on the money supply?
a. It will decrease the money supply.
b. It will increase the money supply.
c. No change in the money supply.
d. Not enough data to give an answer.
Is the equation of exchange an economic model?
a. Yes, it is a simple but powerful model.
b. No, economic models cannot be equations.
c. No, it is merely an arithmetic statement.
d. Yes, it is a cause-and-effect model.
The economic benefits of owning a home are greater when home prices are
a. falling and interest rates are high.
b. rising and interest rates are low.
c. rising and interest rates are high.
d. falling and interest rates are low.
If the government decides to change the level of government spending, what happens to
the value of the multiplier?
a. It becomes larger.
b. It becomes smaller.
c. It does not change.
d. It is impossible to predict.
The fiscal policy planner’s job is made easier because full-employment GDP can be
accurately measured.
a. True
b. False
“Underground” economic activity can best be described as
a. the construction of subway transportation.
b. the building of foundation structures for skyscrapers.
c. the mining and oil industries.
d. barter or cash activity that is not reported as income.
Inflation plays a major role in determining whether a currency is appreciating or
depreciating.
a. True
b. False
The U.S. government will probably return soon to a system of paper money backed by
gold.
a. True
b. False
Monetization of the deficit (or debt) means that
a. the government uses monetary policy to control the economy rather than fiscal
policy.
b. inflation accounting corrects for price increases.
c. the Fed buys newly issued debt and increases the money supply.
d. the amount of money in circulation is equal to the size of the debt.
Economies of scale and scope encourage free competition.
a. True
b. False
Prior to the Great Recession of 2007-2009, labor input in the U.S. was growing at
nearly:
a. 1 percent per year
b. 2 percent per year.
c. 2.5 percent per year.
d. 3 percent per year.
A monopoly restricts output and charges a higher price than other types of firms.
a. True
b. False
Free markets further all of society’s goals.
a. True
b. False
Assume that the government provides a cash transfer to each family regardless of their
market earnings. Given this transfer, which of the following hypotheses about labor
supply is correct?
a. Labor supply will increase because the income effect outweighs the substitution
effect.
b. Labor supply will increase because leisure is an inferior good.
c. The income effect will reduce labor supply; there is no substitution effect.
d. Labor supply will be constant since wages are unaffected.
A monopolist firm may be more innovative than a competitive firm.
a. True
b. False
If the dollar depreciates relative to other currencies, which of the following is true?
a. It takes more foreign currency to buy a dollar.
b. It takes more dollars to buy a foreign currency.
c. U.S. exports will decrease.
d. Foreign purchases of U.S. goods will decrease.
Externalities affect only the buyer and seller involved in an exchange.
a. True
b. False
Interest in environmental problems has intensified, perhaps because
a. for the first time in history in the 1970s people began to die from pollution-related
diseases.
b. rising incomes have caused people to be more concerned with the quality of their
lives.
c. the centrally planned economies are polluted.
d. All of the above are true.
Absolute advantage states that a country has an advantage over another if it can produce
a good with fewer resources.
a. True
b. False
Fiscal and monetary policy can reduce unemployment with no negative side effects.
a. True
b. False
If the market mechanism is efficient, the marginal cost accurately measures the
opportunity cost of a good or service.
a. True
b. False
Big Alice Ice Cream Parlor reduced its price of an ice cream cone from $1 to 90 cents.
Sales consequently increased from 1,000 cones per week to 1,050. The approximate
price elasticity is
a. 0.20.
b. 0.46.
c. 2.16.
d. 5.00.
In 2009, the U.S. economy was experiencing a(n)
a. recessionary gap.
b. inflationary gap.
c. balance of trade deficit.
d. hyperinflation.
At the time of its founding, which tool was thought to be the most useful for the Fed?
a. changing the reserve requirement
b. altering deposit interest rates
c. lending to banks
d. open market operations
Suppose that Captain Canada can produce 100 hockey sticks or 10 gallons of maple
syrup in a typical work week, while Captain Germany can produce 90 hockey sticks or
10 gallons of maple syrup in a typical work week. From these numbers, we can
conclude
a. Captain Canada has a comparative advantage in the production of hockey sticks.
b. Captain Germany has a comparative advantage in the production of maple syrup.
c. Captain Canada has an absolute advantage in the production of hockey sticks.
d. All of the above conclusions are correct.
If European economies experience a period of sustained recession and the United States
does not, what will happen in the United States?
a. an increase in aggregate supply
b. a decrease in aggregate supply
c. a decrease in aggregate demand
d. an increase in aggregate demand
A nation’s capital stock is increased by increases in
a. consumption spending.
b. government spending.
c. investment spending.
d. net exports.
A country devaluing its currency reduces the official value of its currency.
a. True
b. False
A price increase will always cause a firm’s revenue to fall, because they will sell less of
the good.
a. True
b. False