The crisis in Mexico in 1994, Asia in 1997 and Argentina in 2002 were all caused by
weak fundamentals.
If the price level falls faster than the wage rate, then the real wage decreases.
Unlike Classical economists, Keynes believed that the economy could be trapped in a
depression and not return to full employment without government intervention.
Fixed exchange rates facilitate international transactions.
Recall Application 2, “Economic Equality May Sustain Economic Growth,” to answer
the following questions:
According to the Application, increasing the country’s openness to trade with result in a
lower sustained growth for an economy.
Economists will always reach the same conclusion in their positive analyses.
The higher the marginal propensity to consume, the steeper is the slope of the
consumption function.
The tax surcharge enacted during the Vietnam War failed to reduce aggregate demand
because the tax surcharge was only temporary.
Table 6.13 Refer to
Table 6.13. If 1999 is the base year, the inflation rate between 1999 and 2000 is:
A) 0.0%.
B) 21.7%.
C) 30.7%.
D) 3.78%.
In the income-expenditure model, for each price level there is a different equilibrium
output level. If we plot one such equilibrium output and price combination, we obtain
A) the aggregate demand curve.
B) a point on the aggregate demand curve.
C) the slope of the entire aggregate demand curve.
D) the slope of the planned expenditures line.
Table 2.3
Refer to Table 2.3. Increasing the number of workers from 2 to 3 will increase output
per day by
A) 60 units.
B) 90 units.
C) 150 units.
D) 240 units.
In the short run, an increase in the money supply will cause output:
A) to remain the same.
B) to decrease.
C) to increase.
D) to become zero.
Keynes referred to the sharp, often irrational, changes in the outlook of investors as the
________ of investors.
A) animal spirits
B) primal needs
C) chaotic behavior
D) crowd psychology
Recall the Application about the factors involved in causing recessions, and the causes
of recessions in the United States from 1893 to 1990 to answer the following
question(s).According to this Application, the recession of 1929 was primarily due to
A) a decrease in aggregate demand caused by the private sector.
B) a decrease in aggregate demand resulting from decreases in government spending.
C) a decrease in aggregate supply due to rising gold prices.
D) an increase in aggregate supply resulting from European bank collapses.
Figure 18.1
Refer to Figure 18.1. The United States has a comparative advantage in the production
of
A) bicycles.
B) hang gliders.
C) both bicycles and hang gliders.
D) neither bicycles nor hang gliders.
If the MPC is 0.9, then the spending multiplier is:
A) 10.
B) 9.
C) -9.
D) 8.
When constructing a production function between labor and output, which is drawn on
the x-axis?
A) output
B) labor
C) capital
D) technology
Custom prices are also known as:
A) sticky prices.
B) auction prices.
C) flexible prices.
D) equilibrium prices.
If the government collects taxes using a constant income tax rate t, then a recession will
make T-G smaller because:
A) taxes collected increases as Y decreases.
B) taxes collected increases as Y increases.
C) taxes collected decreases as Y decreases.
D) taxes collected decreases as Y increases.
The largest component of GDP is
A) government spending.
B) consumption expenditures.
C) private investment expenditures.
D) net exports.
Financial intermediaries are institutions that facilitate the movement of funds from
savers to investors because they
A) eliminate the costs of negotiating such transactions.
B) eliminate risks.
C) provide liquidity.
D) guarantee positive returns on investments.
According to the principle of diminishing returns, if all factors of production but one
are held constant and if that one factor is doubled, then eventually output will most
likely
A) double too.
B) less than double.
C) more than double.
D) remain unchanged.
Landon demands more sushi as his income increases. From this we can conclude that,
for Landon,
A) sushi is a normal good.
B) sushi is an inferior good.
C) sushi is a complementary good.
D) sushi is a substitute good.
When the consumption function is expressed as C = 200 + .75(1-t)y where t =0.2, then
if income is 1000, then total consumption is:
A) 750.
B) 1000.
C) 800.
D) 600.
In the long run, the aggregate supply curve is:
A) vertical at the full employment level of GDP.
B) downward sloping.
C) horizontal at the full employment level of GDP.
D) upward sloping.
Recall the Application about the impact tariffs have on lower income households to
answer the following question(s). Economists have found that tariffs in the United
States fall most heavily on lower-income consumers. In the United States, tariffs are
very high on textiles, apparel items and footwear, and within these categories the
highest tariffs fall on the cheapest products. In general, to protect U.S. industries, tariffs
are highest on labor-intensive goods.
According to this Application, tariffs in the United States are very high on textiles,
apparel items and footwear. These tariffs disproportionately impact lower-income
households because
A) lower-income households tend to purchase more of these items than do
higher-income households.
B) these products represent a higher fraction of consumption of lower-income
households than higher-income households.
C) the tariffs are only applicable to lower-income households.
D) higher-income households tend to purchase products produced in the United States,
which are not subject to tariffs.
Explain the concept of “learning by doing” with respect to infant industry protection.
What is the difference between price discrimination and predatory pricing?
What does a negative net investment mean? How will it affect the country’s economic
growth?
What is the opportunity cost of your college degree?
Would an economist consider clean air a scarce resource? Explain.
Describe the channels through which an open market sale of bonds by the Fed affects
output in a closed economy.
Explain how patents have been beneficial for markets.