A fall in the market interest rate makes any investment project:
A) less profitable if the funds were borrowed and more profitable if it came from
retained earnings.
B) less profitable whether the funds were borrowed or came from retained earnings.
C) more profitable whether the funds were borrowed or came from retained earnings.
D) more profitable only if the funds were borrowed.
_____ manifests when the price of a good increases and the quantity demanded
decreases
A) Efficiency
B) The law of demand
C) The supply schedule
D) The production possibilities frontier
In a severe financial crisis, if the public fears that a bank’s assets aren’t worth enough to
cover its debts, a lender of last resort is not likely to be able to prevent bankruptcy of
the bank.
A) True
B) False
Which of the following countries is NOT characterized by abundant farmland and
mineral deposits?
A) United States
B) Canada
C) Argentina
D) Japan
A devaluation can help reduce shortages of domestic currency.
A) True
B) False
When the price level increases, firms in perfectly competitive markets usually have an
increase in profit per unit and increase output.
A) True
B) False
Suppose that a bank wishes to make a 5% rate of return on a one-year loan but expects
inflation over the course of the loan to be roughly 3%. Which of the following is
TRUE?
A) As long as the bank charges a nominal interest rate of at least 5%, it will earn its
expected return.
B) If the bank charges an interest rate of 8% or higher, it will earn the expected return.
C) If the bank charges 8% and the inflation rate is less than 3%, then the bank will have
earned a higher rate of return than expected.
D) If the bank charges 8% and the inflation rate is more than 3%, then the bank will
have earned a higher rate of return than expected.
Suppose in a single year, Brazil can produce 100 tons of beef or 1,000 boxes of tulips.
Suppose in the world market, one ton of beef costs eight boxes of tulips. Brazil will
import beef.
A) True
B) False
In the circular-flow diagram, households:
A) supply goods.
B) supply services.
C) supply resources.
D) buy resources.
Which annual rate of inflation is hyperinflation?
A) 5%
B) 13%
C) 25%
D) 2,000%
Consider the simple economy of Behr, whose government does not tax its citizens. The
consumption function of Behr is given byC= 500 + 0.80Y, where Yis income. The
marginal propensity to consume in Behr is:
A) 0.75.
B) 500.
C) 0.80.
D) 1.
When the economy is on the short-run aggregate supply curve and to the left of the
long-run aggregate supply curve, actual aggregate output will eventually equal potential
output as _____ fall(s) and the _____ aggregate _____ curve shifts to the _____.
A) nominal wages; long-run; supply; left
B) the aggregate price level; long-run; supply; left
C) nominal wages; short-run; supply; right
D) the aggregate price level; short-run; demand; right
An important advantage of bonds as a financial asset is that they:
A) are standardized and therefore are easier to sell than loans.
B) offer higher rates of return than stocks.
C) allow the owner to receive a share of the company’s profits in the form of dividends.
D) are guaranteed to be risk free.
In a credit crunch, interest rates are unusually low.
A) True
B) False
Which of the following monetary policies would be destabilizing?
I. an expansionary policy during an expansion
II. an expansionary policy during a recession
III. a contractionary policy during an expansion
A) I only
B) II only
C) III only
D) I, II, and III
Which of the following schools of thought believe that expansionary monetary policy
affects only prices, not output?
I. classical macroeconomics
II. Great Moderation consensus
A) I only
B) II only
C) I and II
D) Neither I nor II
Suppose that the U.S. government doubles its spending on health care. The _____ curve
shifts _____, output _____, and prices _____.
A) short-run aggregate supply; right; increases; decrease
B) short-run aggregate supply; left; decreases; increase
C) aggregate demand; left; decreases; decrease
D) aggregate demand; right; increases; increase
The United States must give up the production of 300 motorcycles to produce 15
additional SUVs with the same resources. The opportunity cost of producing 100
motorcycles is _____ SUV(s).
A) 1
B) 5
C) 7
D) 15
All of the following are sources of federal tax revenue EXCEPT:
A) the personal income tax.
B) sales taxes.
C) social insurance taxes.
D) the corporate profits tax.
The inflation rate for the current year is the price level in the current year minus the
price level in the previous year.
A) True
B) False
Look at the table Production Possibilities Schedule II. If the economy is producing at Y,
the opportunity cost of producing at Z is _____ units of consumer goods per period.
A) 1
B) 6
C) 8
D) 14
Honduras exports clothing to the United States, and the United States exports
bulldozers to Honduras. Proponents of the Heckscher”Ohlin model would explain this
pattern of trade by stating that:
A) Honduras has an advantage in the technology used in clothing production, while the
United States has an advantage in the technology used in bulldozer production.
B) Honduras’s climate is more conducive to producing clothing, while the United
States’ climate is more conducive to producing bulldozers.
C) Honduras has a relatively large endowment of factors of production for making
clothing, while the United States has a relatively large endowment of factors of
production for making bulldozers.
D) Honduras has a factor intensity in capital and the United States has a factor intensity
in labor.
During periods of deflation _____ will be hurt and _____ will be helped.
A) firms; borrowers
B) borrowers; lenders
C) consumers; firms
D) home buyers; home sellers
All of the following are major drawbacks of a fixed exchange rate EXCEPT that:
A) exchange controls must be imposed at the cost of administrative red tape and
corruption.
B) resources must be diverted to the accumulation of large foreign exchange reserves.
C) monetary policy cannot be used to stabilize output and the inflation rate.
D) commerce among countries is more uncertain and riskier.
If the price of hamburger decreased, it would probably result in _____ in the demand
for hamburger buns.
A) a decrease
B) an increase
C) no change
D) random fluctuations
Suppose that Allison has an accounting degree, but she lost her job two months ago
when her company merged with another firm. Allison hasn’t been able to find another
accounting job, so she has taken a part-time job as a sales clerk at a clothing store. The
Bureau of Labor Statistics classifies Allison as:
A) a marginally attached worker.
B) a discouraged worker.
C) underemployed.
D) unemployed.
Most human capital is provided by private spending for private education.
A) True
B) False
Economists use _____ as a model to explain how savers and borrowers come together
to determine the equilibrium rate of interest.
A) the money market
B) the market for loanable funds
C) aggregate demand and aggregate supply
D) the financial system
A government encounters a recessionary gap and uses expansionary fiscal policy to
correct the problem. It may:
A) find the policy ineffective, especially if the level of public debt is already very high,
since additional government borrowing may put pressure on future budgets.
B) find the policy ineffective if it has to borrow to increase government spending.
C) cause its budget balance to move toward a surplus.
D) decrease the level of public debt in the short run.
To balance its budget, the government of Zimbabwe borrowed large amounts of money
in world markets.
A) True
B) False
In the importing country, the most likely effect of a tariff is to:
A) raise the price and decrease the quantity demanded.
B) raise the price and increase the quantity demanded.
C) raise the price without affecting the quantity demanded.
D) decrease the quantity supplied.
An increase in supply is caused by:
A) an increase in input prices.
B) a decrease in the number of sellers in the market.
C) suppliers’ expectations of higher prices in the future.
D) an advancement in the technology for producing the good.
A regulation that specifies the maximum amount of a good or service that may be
imported during a specified period is a(n):
A) import quota.
B) tariff.
C) nontariff barrier.
D) export quota.
Between 1864 and 1913, American banking was dominated by:
A) a federally regulated system of national banks.
B) an unregulated system of state banks, each issuing its own currency.
C) the Federal Reserve System in Washington, D.C.
D) European banks that supplied coins and paper money for the U.S. economy.
Figure: Expanded Circular-Flow Model
Look at the figure Expanded Circular-Flow Model. What is the value of disposable
income?
A) $1,020
B) $1,000
C) $870
D) $850