In the long run a reduction in the money supply growth rate affects
a. the inflation rate and the natural rate of unemployment.
b. the inflation rate but not the natural rate of unemployment.
c. neither the inflation rate nor the natural rate of unemployment.
d. the natural rate of unemployment, but not the inflation rate.
Table 24-16
The table below lists annual consumer price index and inflation rates for a country over
the period 2010-2013. Assume the year 2010 is used as the base year.
RefertoTable24-16. Calculate the missing value that belongs in space A.
Country A had a population of 2,000, of whom 1,300 worked an average of 8 hours a
day and had a productivity of 5.Country B had a population of 2,500, of whom 1,700
worked 8 hours a day and had productivity of 4. Country
a. A had the higher level of real GDP and real GDP per person.
b. A had the higher level of real GDP and Country B had the higher level of real GDP
per person
c. B had the higher level of real GDP and Country A had the higher level of real GDP
per person
d. B had the higher level of real GDP and real GDP per person.
If the Fed conducts open-market purchases, then which of the following quantities
increase(s)?
a. interest rates and investment spending
b. interest rates, but not investment spending
c. investment spending, but not interest rates
d. neither interest rates nor investment spending
If the price level increased from 120 to 130, then what was the inflation rate?
a. 1.1 percent.
b. 7.7 percent.
c. 10.0 percent.
d. 8.3 percent.
Which of the following is an asset of a bank and a liability for its customers?
a. deposits of its customers and loans to its customers
b. deposits of its customers but not loans to its customers
c. loans to its customers but not the deposits of its customers
d. neither the deposits of its customers nor the loans to its customers
Suppose the average income of a citizen of Poland is higher than the average income of
a citizen of Romania. You might conclude that
a. Polish firms are faced with stricter government regulations than Romanian firms.
b. total income is divided among fewer workers in Poland since it has a smaller labor
force than Romania.
c. Romania’s climate allows for longer growing seasons and therefore Romania can
produce large quantities of grain and other crops.
d. productivity in Poland is higher than in Romania.
If the dollar depreciates because of speculation or government policy, U.S.
a. aggregate demand shifts left. U.S. aggregate demand also shifts left if other countries
experience an increase in real GDP.
b. aggregate demand shifts left. U.S. aggregate demand shifts right if other countries
experience an increase in real GDP.
c. aggregate demand shifts right. U.S. aggregate demand also shifts right if other
countries experience a decrease in real GDP.
d. aggregate demand shifts right. U.S. aggregate demand shifts left if other countries
experience a decrease in real GDP.
The law of supply states that, other things equal, when the price of a good
a. falls, the supply of the good rises.
b. rises, the quantity supplied of the good rises.
c. rises, the supply of the good falls.
d. falls, the quantity supplied of the good rises.
In a certain economy, when income is $100, consumer spending is $60. The value of the
multiplier for this economy is 4. It follows that, when income is $101, consumer
spending is
a. $60.25.
b. $60.75.
c. $61.33.
d. $64.00.
Suppose the central bank pursues an unexpectedly tight monetary policy. In the
short-run the effects of this are shown by
a. moving to the left along the short-run Phillips curve.
b. moving to the right along the short-run Phillips curve.
c. shifting the short-run Phillips curve to the right.
d. shifting the short-run Phillips curve to the left.
Inflation can be measured by the
a. change in the consumer price index.
b. percentage change in the consumer price index.
c. percentage change in the price of a specific commodity.
d. change in the price of a specific commodity.
If a seller in a competitive market chooses to charge more than the going price, then
a. the sellers’ profits must increase.
b. the owners of the raw materials used in production would raise the prices for the raw
materials.
c. other sellers would also raise their prices.
d. buyers will make purchases from other sellers.
In response to recession, who primarily raised expenditures rather than cut taxes?
a. President George W. Bush and President Barack Obama
b. President George W. Bush but not President Barack Obama
c. President Barack Obama but not President George W. Bush
d. Neither President George W. Bush nor President Barack Obama
Large or persistent inflation is almost always caused by
a. excessive government spending.
b. excessive growth in the quantity of money.
c. foreign competition.
d. higher-than-normal levels of productivity.
Other things the same, an increase in the interest rate makes the quantity of loanable
funds demanded
a. rise, and investment spending rise.
b. rise, and investment spending fall.
c. fall, and investment spending rise.
d. fall, and investment spending fall.
Which of the following is correct if there is a favorable supply shock?
a. the short-run aggregate supply curve and the short-run Phillips curve both shift right.
b. the short-run aggregate supply curve and the short-run Phillips curve both shift left.
c. the short-run aggregate supply curve shifts right and the short-run Phillips curve
shifts left.
d. the short-run aggregate supply curve shifts left and the short-run Phillips curve shifts
right.
Which of the following terms is used to describe a situation in which the price of an
asset rises above what appears to be its fundamental value?
a. “random walk”
b. “random bubble”
c. ‘speculative bubble”
d. ‘speculative hedge”
If there is a surplus in the market for loanable funds, then the interest rate
a. rises, so national saving rises.
b. rises, so national saving falls.
c. falls, so national saving rises.
d. falls, so national saving falls.
Which of the following statements about inputs is correct?
a. A forest is an example of a natural resource; it is also an example of a renewable
resource.
b. There is no distinction between human capital and technological knowledge.
c. Human capital is a non-produced factor of production.
d. Physical capital is a non-produced factor of production.
Scenario 29-2.
The Monetary Policy of Tazi is controlled by the country’s central bank known as the
Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show
that collectively the banks of Tazi hold 300 million tazes of required reserves, 75
million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold
225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits
and so all money is on deposit at the bank.
RefetoScenario29-2.Suppose the Bank of Tazi loaned the banks of Tazi 10 million
tazes. Suppose also that both the reserve requirement and the percentage of deposits
held as excess reserves stay the same. By how much would the money supply change?
a. 250 million tazes
b. 200 million tazes
c. 125 million tazes
d. None of the above is correct.
Other things the same, automatic stabilizers tend to
a. raise expenditures during expansions and recessions.
b. lower expenditures during expansions and recessions.
c. raise expenditures during recessions and lower expenditures during expansions.
d. raise expenditures during expansions and lower expenditures during recessions.
Relativeprice variability is “automatic” when
a. firms change prices only once in a while.
b. firms change prices often.
c. people increase the frequency of their trips to the bank.
d. people decrease the frequency of their trips to the bank.
The division of variables into real and nominal is a dichotomy assumed by
a. classical economists.
b. John Maynard Keynes.
c. the wealth effect.
d. short-run macroeconomic theory.
If the interest rate is 4.5 percent, what is the present value of a payment of $500 to be
made one year from today?
a. $457.14
b. $468.02
c. $478.47
d. None of the above are correct to the nearest cent.
Inward-oriented policies
a. include imposing tariffs and other trade restrictions.
b. have generally increased productivity and growth in the countries that pursued them.
c. promote the production of goods and services that the country produces most
efficiently.
d. All of the above are correct.
The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase
in world prices of oil and foodstuffs were affecting the economy.
RefertoTheEconomyin2008.The short-run effects of rising world commodity prices
are shown by
a. moving to the right along the short-run Phillips curve.
b. moving to the left along the short-run Phillips curve.
c. shifting the short-run Phillips curve right.
d. shifting the short-run Phillips curve left.
Figure 3-8
Refer to Figure3-8. If Chile and Colombia each divides its time equally between
making coffee and making soybeans, then total production is
a. 12 pounds of coffee and 12 pounds of soybeans.
b. 14 pounds of coffee and 9 pounds of soybeans.
c. 16 pounds of coffee and 6 pounds of soybeans.
d. 28 pounds of coffee and 18 pounds of soybeans.
Which U.S. president, when asked why he had proposed a tax cut, responded by saying
“To stimulate the economy. Don”t you remember your Economics 101?”
a. Dwight D. Eisenhower
b. John F. Kennedy
c. Ronald Reagan
d. Bill Clinton
The efficient markets hypothesis says that
a. only individual investors can make money in the stock market.
b. it should be easy to find stocks whose price differs from their fundamental value.
c. stock prices follow a random walk.
d. All of the above are correct.
Which of the following is correct?
a. NCO+ C= NX
b. NCO= NX
c. NX– NCO= S
d. NX+ NCO= C
During the third quarter of this year a firm produces consumer goods and adds some of
those goods to its inventory. During the fourth quarter of this year, the firm sells the
goods at a retail outlet, with the result that the value of its inventory at the end of the
fourth quarter is smaller than the value of its inventory at the end of the third quarter.
These actions affect which component(s) of fourth-quarter GDP?
a. they increase consumption and have no effect on investment
b. they increase consumption and decrease investment
c. they have no effect on either consumption or investment
d. they have no effect on consumption and decrease investment
The price index was 150 in the first year, 160 in the second year, and 165 in the third
year. Which of the following statements is correct?
a. The price level was higher in the second year than in the first year, and it was higher
in the third year than in the second year.
b. The inflation rate was positive between the first and second years, and it was positive
between the second and third years.
c. The inflation rate was lower between the second and third years than it was between
the first and second years.
d. All of the above are correct.
Which of the following is correct?
a. The classical dichotomy separates real and nominal variables.
b. Monetary neutrality is the proposition that changes in the money supply do not
change real variables.
c. When studying long-run changes in the economy, the neutrality of money offers a
good description of how the world works.
d. All of the above are correct.
One of the widely acknowledged problems with using the consumer price index as a
measure of the cost of living is that the CPI
a. fails to account for consumer spending on housing.
b. accounts only for consumer spending on food, clothing, and energy.
c. fails to account for the fact that consumers spend larger percentages of their incomes
on some goods and smaller percentages of their incomes on other goods.
d. fails to account for the introduction of new goods.
How do the nominal exchange rate and the real exchange rate differ?
It takes more money to purchase the same amount of goods when prices _____.
Therefore, the value of your money has ____.
Is the following a positive or normative statement? The Federal Reserve should set an
inflation target and employ policies to meet the target.
The people of Country X save 10 percent of their income, and the people of Country Y
save 25 percent of their income. If these respective saving rates persist forever, will one
country or the other enjoy a higher rate of income growth forever? Explain.
What does the term “marginal change” mean?
Figure 2-15
Refer to Figure2-15. Consider the production possibilities frontier for an economy that
produces only sofas and cars. The opportunity cost of one sofa is
What are the long-run effects on productivity and income of an increase in the saving
rate?
Susan and Calvin paint houses. Susan consistently paints about 400 square feet of a
house’s exterior per hour, while Calvin consistently paints about 300 square feet per
hour. Susan’sexceeds that of Calvin.
Figure 4-31
Consider the market for 2-packs of light bulbs below.
RefertoFigure4-31.At a price of $6, is there a shortage or surplus, and how large is the
shortage/surplus?
Scenario 1-2
Suppose that you have a choice between going to the movies with a friend for two
hours or working at your job. If you go to the movies, you will spend $7 on a ticket and
$5 on popcorn. If you choose to work, you will earn $10 an hour.
RefertoScenario1-2.What is your opportunity cost of going to the movies?
In the long run inflation is explained by __________. For countries that had
hyperinflation this source of inflation arose primarily because the government
__________.
Figure 2-15
Refer to Figure2-15. Consider the production possibilities frontier for an economy that
produces only sofas and cars. The opportunity cost of one car is
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
Refer to Table 23-11.
What was the inflation rate for 2011? Show your work.
Congress and the President allow people to make greater contributions to tax-deferred
savings accounts. Which curve in the market for loanable funds would shift, which
direction would it shift, what would happen to the interest rate, and what would happen
to investment spending?
Suppose that money supply growth continues to be higher in Turkey than it is in the
United States. What does purchasing-power parity imply will happen to the real and to
the nominal exchange rate?
Budget Reform
Due to concerns about a rising level of debt relative to GDP, Congress and the President
cut expenditures and raise taxes.
RefertoBudgetReform. In the market for loanable funds which curve(s) does this
policy change shift? Which direction does it shift?
Last year a country had $700 billion of saving and $900 of investment. This year it had
$1000 billion of saving and $800 billion of investment. By how much did net capital
outflow change? By how much did net exports change? How is it possible for a country
to have saving that is greater than investment?