A reduction in personal income taxes increases Aggregate Demand through
a. an increase in investment spending.
b. an increase in national savings.
c. an increase in private savings.
d. an increase in personal consumption.
Which of the following rises when the U.S. price level falls?
a. interest rates
b. the value of the dollar in the market for foreign-currency exchange
c. real wealth
d. All of the above are correct.
If a firm produces a good and then adds it to its inventory rather than selling it, for the
purposes of GDP accounting the firm is considered to have “purchased” the good so it
will count as part of that period’s investment expenditures.
a. True
b. False
Mexico is
a. a poor country, and over the past century its rate of economic growth has been higher
than that of the United States.
b. a poor country, and over the past century its rate of economic growth has been lower
than that of the United States.
c. a middle-income country, and over the past century its rate of economic growth has
been higher than that of the United States.
d. a middle-income country, and over the past century its rate of economic growth has
been lower than that of the United States.
Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example
of
a. investment for Susan and U.S. foreign direct investment.
b. investment for Susan and U.S. foreign portfolio investment.
c. U.S. foreign direct investment and U.S. domestic investment.
d. U.S. foreign portfolio investment and U.S. domestic investment.
If there are sticky wages, and the price level is greater than what was expected, then
a. the quantity of aggregate goods and services supplied falls, which is shown by a shift
of the short-run aggregate supply curve to the left.
b. the quantity of aggregate goods and services supplied falls, as shown by a movement
to the left along the short-run aggregate supply curve.
c. the quantity of aggregate goods and services supplied rises, as shown by a shift of the
short-run aggregate supply curve to the right.
d. the quantity of aggregate goods and services supplied rises, as shown by a movement
to the right along the short-run aggregate supply curve.
The country of Meditor, a small country with a closed economy, uses the merit as its
currency. Recent national income statistics showed that it had GDP of $600 million
merits, no government transfer payments, taxes of $150 million merits, a budget surplus
of $40 billion merits, and investment of $100 billion merits. What were its consumption
and government expenditures on goods and services?
a. $460 million merits and $150 million merits
b. $310 million merits and $190 million merits
c. $350 million merits and $190 million merits
d. $390 million merits and $110 million merits
Emeril is the owner of a restaurant. He decides to raise the wages of his workers even
though he faces an excess supply of labor. His decision
a. might increase profits if it attracts a better pool of workers to apply for jobs at his
restaurant.
b. will reduce the excess supply of labor.
c. is an example of the benefits of a minimum-wage law.
d. All of the above are correct.
If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000
yen costs $200.
a. True
b. False
The “invisible hand” works to promote general wellbeing in the economy primarily
through
a. government intervention.
b. the political process.
c. people’s pursuit of selfinterest.
d. altruism.
The term “productivity”
a. means the same thing as “efficiency.”
b. is seldom used by economists, as its meaning is not precise.
c. refers to the quantity of goods and services produced from each unit of labor input.
d. refers to the variety of goods and services from which households can choose when
they shop.
At an annual interest rate of 14 percent, about how many years will it take $100 to
double in value?
a. 3
b. 4
c. 5
d. 7
In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What
was Alpha Cabinet Company’s productivity?
a. 1/8 cabinet per hour
b. 8 hours per cabinet
c. 40 cabinets
d. None of the above is correct.
When a country suffers from capital flight, the demand for loanable funds in that
country shifts
a. right, which increases interest rates in that country.
b. right, which decreases interest rates in that country.
c. left, which increases interest rates in that country.
d. left, which decreases interest rates in that country.
Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5
empty rooms for tonight. If the marginal cost of operating one room for one night is
$40, the hotel manager should rent one of the empty rooms only if a customer is willing
to pay
a. more than $40, as the average benefit will exceed the marginal cost.
b. more than $40, as the marginal benefit will exceed the marginal cost.
c. more than $80, as the average benefit will exceed the marginal cost.
d. more than $80, as the marginal benefit will exceed the marginal cost.
International trade
a. raises the standard of living in all trading countries.
b. lowers the standard of living in all trading countries.
c. leaves the standard of living unchanged.
d. raises the standard of living for importing countries and lowers it for exporting
countries.
Samuelson and Solow argued that when unemployment is high,
a. aggregate demand is high, which puts upward pressure on wages and prices.
b. aggregate demand is high, which puts downward pressure on wages and prices.
c. aggregate demand is low, which puts upward pressure on wages and prices.
d. aggregate demand is low, which puts downward pressure on wages and prices.
Figure35-1.The left-hand graph shows a short-run aggregate-supply (SRAS) curve and
two aggregate-demand (AD) curves. On the right-hand diagram, U represents the
unemployment rate.
RefertoFigure35-1.Suppose points F and G on the right-hand graph represent two
possible outcomes for an imaginary economy in the year 2012, and those two points
correspond to points B and C, respectively, on the left- hand graph. Also suppose we
know that the price index equaled 120 in 2011. Then the numbers 115 and 130 on the
vertical axis of the left-hand graph would have to be replaced by
a. 155 and 175, respectively.
b. 138 and 156, respectively.
c. 137.5 and 154.75, respectively.
d. 135 and 150, respectively.
Between 1880 and 1896 the average level of prices in the U.S. economy
a. fell 23 percent.
b. fell 4 percent.
c. rose 23 percent.
d. rose 50 percent.
If the U.S. imposed an import quota on corn, then in the U.S.
a. exports and imports would rise.
b. exports and imports would fall.
c. exports would rise and imports would fall.
d. exports would fall and imports would rise.
Using the rule of 70, about how much would $100 be worth after 50 years if the interest
rate were 7 percent?
a. $400
b. $800
c. $1,600
d. $3,200
Efficiency wages
a. increase productivity and reduce unemployment.
b. increase productivity but increase unemployment.
c. decrease productivity but reduce unemployment.
d. decrease productivity and increase unemployment.
The price level rises if either
a. money demand or money supply shifts rightward.
b. money demand shifts rightward or money supply shifts leftward.
c. money demand shifts leftward or money supply shifts rightward.
d. money demand or money supply shifts leftward.
Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving =
$15,000.
RefetoScenario26-1.For this economy, private saving amounts to
a. $22,000.
b. $18,000.
c. $15,000.
d. $37,000.
The Federal Funds rate is the interest rate
a. banks charge each other for short-term loans.
b. the Fed charges depository institutions for short-term loans.
c. the Fed pays on deposits.
d. interest rate on 3 month Treasury bills.
Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros
per dollar, the dollar
a. depreciates so U.S. goods become less expensive relative to foreign goods.
b. depreciates so U.S. goods become more expensive relative to foreign goods.
c. appreciates so U.S. goods become less expensive relative to foreign goods.
d. appreciates so U.S. goods become more expensive relative to foreign goods.
During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation
was 1 percent, but people had been expecting 1.5 percent. This difference between
actual and expected inflation
a. transferred wealth from the borrower to you and caused your after-tax real interest
rate to be 0.5 percentage points higher than what you had expected.
b. transferred wealth from the borrower to you and caused your after-tax real interest
rate to be more than 0.5 percentage points higher than what you had expected.
c. transferred wealth from you to the borrower and caused your after-tax real interest
rate to be 0.5 percentage points lower than what you had expected.
d. transferred wealth from you to the borrower and caused your after-tax real interest
rate to be more than 0.5 percentage points lower than what you had expected.
Every month, the Bureau of Labor Statistics surveys 160,000 business establishments to
help determine the number of jobs the economy has gained or lost.
a. True
b. False
Figure 3-14
RefertoFigure3-14.Arturo has an absolute advantage in the production of
a. burritos and a comparative advantage in the production of tacos.
b. burritos and a comparative advantage in the production of burritos.
c. neither good and a comparative advantage in the production of tacos.
d. neither good and a comparative advantage in the production of burritos.
Which of the following does purchasing-power parity imply?
a. the foreign price level times the nominal exchange rate (given as amount of foreign
currency per dollar) equals the U.S. price level.
b. The price of domestic goods relative to foreign goods cannot change.
c. The nominal exchange rate is the ratio of foreign prices to U.S. prices.
d. All of the above are correct.
An excess supply of money is eliminated by a falling price level
a. True
b. False
Wages set above the equilibrium wage by
a. firms to increase morale are called collective bargaining wages.
b. lawmakers to decrease cyclical unemployment are called minimum wages laws.
c. firms to increase productivity are called efficiency wages.
d. lawmakers to decrease the length of a job search are called efficiency wages.
Explain how a higher rate of return on saving could, at least in theory, lead to lower
saving.
A higher interest rate makes less attractive. Therefore the quantity of loanable funds
demanded decreases.
What component of GDP is particularly volatile over the business cycle and can be
targeted by tax cuts?
Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company’s cost will
be $30,070 if it produces an additional heart rate monitor. The company is currently
producing 600 heart rate monitors.
RefertoScenario1-6.What is the company’s average cost?
Suppose the U.S. government institutes a “Buy American” campaign, in order to
encourage spending on domestic goods. What effect will this have on the U.S. trade
balance?
How does the study of economics depend upon the phenomenon of scarcity?
Explain the adjustment process in the money market that creates a change in the price
level when the money supply increases.
Keynes thought that the behavior of the economy in the short run was influenced by
what he called “animal spirits.” By this he meant that business people sometimes felt
good about the economy, and carried out lots of investment, and at other times felt bad
about the economy, and so cut back on their investment spending. Explain how such
fluctuations in investment would lead to fluctuations in real GDP and prices.
Explain why fiscal policy actions typically work with a lag.
According to the quantity theory of money, an increase in the money supply causes the
price level to _____ and the value of money to _____.
List the three major problems in using the CPI as a measure of the cost of living.
Some countries have inflation around or in excess of 8 percent. Suppose that the
sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent?
In your answer, define the sacrifice ratio and explain how you found the cost of
inflation reduction.
Table 23-11
The country of Batavia produces only chocolates and watches. Below is a table with
recent information on Batavia production and prices. The base year is 2009.
Prices and Quantities
RefertoTable23-11.
What was nominal GDP, real GDP, and the GDP deflator for 2008?
One year ago Sam purchased bonds for $100,000. He just sold them for $120,000.
During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how
much did Sam gain in real terms?
Under what circumstances does purchasing-power parity explain how exchange rates
are determined, and why is it not completely accurate?
Who is credited for the original development of the model of aggregate demand and
aggregate supply?
A country recently had a trade deficit of 350 billion euros. Its residents also purchased
400 billion euros of foreign assets. What was the value of this country’s assets
purchased by foreigners?
Figure 4-30
RefertoFigure4-30.In this market for tablet computers, more suppliers enter the market
and the price of laptops, a substitute good, increases, while all other factors remain
constant. Which curve(s) shift(s) and in which direction?