The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in
Bosnia is 1,200 markas while in the U.S. it is $1,000. The real exchange rate is
a. 9/5
b. 5/4
c. 4/5
d. None of the above are correct.
If purchasing-power parity holds, when a country’s central bank decreases the money
supply, its
a. price level rises and its currency appreciates relative to other currencies in the world.
b. price level falls and its currency appreciates relative to other currencies in the world.
c. price level rises and its currency depreciates relative to other currencies in the world.
d. price level falls and its currency depreciates relative to other currencies in the world.
The producer price index measures the cost of a basket of goods and services
a. typically produced in the economy.
b. produced for a typical consumer.
c. sold by producers.
d. bought by firms.
When a country experiences capital flight its
a. net capital outflow increases and its real exchange rate rises.
b. net capital outflow increases and its real exchange rate falls.
c. net capital outflow decreases and its real exchange rate rises.
d. net capital outflow decreases and its real exchange rate falls.
Explain how each of the following changes the money supply.
a. the Fed buys bonds
b. the Fed auctions credit
c. the Fed raises the discount rate
d. the Fed raises the reserve requirement
A country sells more to foreign countries than it buys from them. It has
a. a trade surplus and positive net exports.
b. a trade surplus and negative net exports.
c. a trade deficit and positive net exports.
d. a trade deficit and negative net exports.
Figure27-1. The figure shows a utility function.
RefertoFigure27-1. Suppose the person to whom this utility function applies begins
with $600 in wealth. Starting from there,
a. she would be willing to accept a coinflip bet that would result in her winning $200 if
the result was “heads” or losing $200 if the result was “tails.”
b. the pain of losing $200 of her wealth would equal the pleasure of adding $200 to her
wealth.
c. the pain of losing $200 of her wealth would exceed the pleasure of adding $200 to
her wealth.
d. the pleasure of adding $200 to her wealth would exceed the pain of losing $200 of
her wealth.
According to the efficient markets hypothesis, at any moment in time, the market price
is the best estimate of the company’s value based on publicly available information.
a. True
b. False
Consider the following two situations. Irene accepts a job where she will be driving in
dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he
visits the gym less frequently. Which of these person’s actions illustrates moral hazard?
a. both Irene’s and Victor’s
b. Irene’s but not Victor’s
c. Victor’s but not Irene’s
d. neither Victor’s nor Irene’s
If Congress increases taxes to balance the federal budget, then to prevent
unemployment and a recession the Fed will
a. reduce interest rates by increasing the money supply.
b. increase interest rates by decreasing the money supply.
c. increase interest rates by increasing the money supply.
d. reduce interest rates by decreasing the money supply.
If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the
inflation rate is
a. -9.5 percent.
b. -4.5 percent.
c. 4.5 percent.
d. 9.5 percent.
The Bureau of Labor Statistics’ “employed” category includes those who worked as
paid employees, worked in their own business, or worked as unpaid workers in a family
member’s business.
a. True
b. False
If Pdenotes the price of goods and services measured in terms of money, then
a. 1/Prepresents the value of money measured in terms of goods and services.
b. Pcan be interpreted as the inflation rate.
c. the supply of money influences the value of P, but the demand for money does not.
d. All of the above are correct.
In markets, prices move toward equilibrium because of
a. the actions of buyers and sellers.
b. government regulations placed on market participants.
c. increased competition among sellers.
d. buyers’ ability to affect market outcomes.
The Federal Reserve will tend to tighten monetary policy when
a. interest rates are rising too rapidly.
b. it thinks the unemployment rate is too high.
c. the growth rate of real GDP is quite sluggish.
d. it thinks inflation is too high today, or will become too high in the future.
Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion;
and taxes = $0.9 trillion.
RefertoScenario26-2.For this economy, national saving is equal to
a. $1.1 trillion.
b. $2.9 trillion.
c. $1.2 trillion.
d. $1.7 trillion.
According to liquidity preference theory, the opportunity cost of holding money is
a. the interest rate on bonds.
b. the inflation rate.
c. the cost of converting bonds to a medium of exchange.
d. the difference between the inflation rate and the interest rate on bonds.
If a company making frozen orange juice expects the price of its product to be higher
next month, it will supply more to the market this month.
a. True
b. False
When they are confronted with an adverse shock to aggregate supply, policymakers
face a difficult choice in that
a. if they contract aggregate demand, the unemployment rate will increase further.
b. if they expand aggregate demand, the inflation rate will increase further.
c. they face a less favorable trade-off between inflation and unemployment than they
did before the shock.
d. All of the above are correct.
Which of the following is notcorrect?
a. If you buy a bond from a corporation, you can sell the bond to someone else before it
matures.
b. Termrefers to the scheduling of periodic interest rate payments on a bond.
c. A bond is an IOU.
d. There are millions of different bonds in the U.S. economy.
The price of a stock will rise if
a. the managers of a stock exchange decide the price should be higher.
b. the demand for the stock rises.
c. the supply of the stock rises.
d. None of the above are correct.
If orange juice and apple juice are substitutes, an increase in the price of orange juice
will shift the demand curve for apple juice to the left.
a. True
b. False
In which of the following decades was there both high inflation and rapid money supply
growth in the US?
a. the 1970’s and the 1990’s
b. the 1970’s but not the 1990’s
c. the 1990’s but not the 1970’s
d. neither the 1970’s nor the 1990’s
The country of Gerance produces two goods, cars and wine. Last year, it produced
1,000 cars and 15,000 cases of wine. This year, it produced 1,300 cars and 20,000 cases
of wine. Given no other information, which of the following events could notexplain
this change?
a. Gerance experienced a reduction in unemployment.
b. Gerance experienced an improvement in car-making technology.
c. Gerance acquired more resources.
d. Any of these events could explain the change.
On a production function, as capital per worker increases, output per worker
a. increases. This increase is larger at larger values of capital per worker.
b. increases. This increase is smaller at larger values of capital per worker.
c. decreases. This decrease is larger at larger value of capital per worker.
d. decreases. This decrease is smaller at larger value of capital per worker.
Which famous company executive introduced an innovative pay system that is
consistent with the theory of efficiency wages?
a. Lee Iococca
b. Steve Jobs
c. Mark Zuckerberg
d. Henry Ford
The wealth effect helps explain the slope of the aggregate-demand curve. This effect is
a. relatively important in the United States because expenditures on consumer durables
is very responsive to changes in wealth.
b. relatively important in the United States because consumption spending is a large
part of GDP.
c. relatively unimportant in the United States because money holdings are a small part
of consumer wealth.
d. relatively unimportant because it takes a large change in wealth to cause a significant
change in interest rates.
A previously well-respected and trusted president of a corporation is accused of fraud.
At the same time interest rates unexpectedly fall. Which of the above would tend to
make the price of the stock rise?
a. the announcement and the fall in interest rates
b. the announcement but not the fall in interest rates
c. the fall in interest rates, but not the announcement
d. neither the announcement nor the fall in interest rates
If the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the
inflation rate is
a. -6 percent.
b. 3 percent.
c. 6 percent.
d. 12 percent.
A firm in the United Kingdom hires a firm in the U.S. to train its managers. By itself
this transaction
a. increases U.S. imports and decreases U.S. net exports.
b. increases U.S. imports and increases U.S. net exports.
c. increases U.S. exports and decreases U.S. net exports.
d. increases U.S. exports and increases U.S. net exports.
Managed mutual funds usually outperform mutual funds that are supposed to follow
some stock index.
a. True
b. False
National income differs from net national because
a. it includes profits of corporations.
b. of a statistical discrepancy.
c. it includes transfer payments.
d. it excludes depreciation.