To which of the problems in the construction of the CPI is the invention of pocket-sized
computers most relevant?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. income bias
If the Fed announced a policy to reduce inflation and people found it credible, the
short-run Phillips curve would shift
a. right and the sacrifice ratio would fall.
b. right and the sacrifice ratio would rise.
c. left and the sacrifice ratio would fall.
d. left and the sacrifice ratio would rise.
For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5
trillion and the government runs a surplus of $1 trillion. What are private saving and
national saving?
a. $1.5 trillion and $2.5 trillion, respectively
b. $2.5 trillion and $1.5 trillion, respectively
c. $2.5 trillion and $2.5 trillion, respectively
d. $1.5 trillion and $1.5 trillion, respectively
Table 29-8
RefetoTable29-8. The required reserve ratio is 12 percent and First National Bank sells
$120 of its short-term securities to the Federal Reserve. This action will
a. increase First National’s reserves by $120. Its excess reserves are $240.
b. decrease First National’s reserves by $120. Its excess reserves are $0.
c. increase First National’s loans by $120. Its reserves decrease by $120.
d. decrease First National’s loans by $120. Its reserves increase by $120.
Which of the following statements is correct?
a. In the short run, unemployment and inflation are positively related. In the long run
they are largely unrelated problems.
b. Inflation and unemployment are positively related in the short run and in the long
run.
c. In the short run, unemployment and inflation are negatively related. In the long run
they are largely unrelated problems.
d. Inflation and unemployment are negatively related in the short run and in the long
run.
If an economy is closed andif it has no government, then
a. national saving = private saving.
b. total income = consumption + investment.
c. saving = total income – consumption.
d. All of the above are correct.
If a central bank reduced inflation by 3 percentage points and in the short run this made
output fall by 3 percentage points for 3 years and the unemployment rate rise from 3
percent to 9 percent for three years, the sacrifice ratio is
a. 1.
b. 2.
c. 3.
d. None of the above is correct.
Which of the following statements regarding GDP is correct?
a. GDP includes factory production, but not any harm that may be inflicted on the
environment.
b. GDP accounts for all activities taking place outside markets.
c. GDP provides detailed information about the distribution of income.
d. GDP is a good measure of economic well-being for all purposes.
At which interest rate is the present value of $80.25 one year from today equal to $75
today?
a. 4 percent
b. 5 percent
c. 6 percent
d. 7 percent
If the reserve ratio is 7.5 percent, the money multiplier is
a. 7.5.
b. 10.3.
c. 13.3.
d. 11.3.
Good that cost one half dollar in the U.S. cost one euro in Germany, the real exchange
rate would be computed as how many German goods per U.S. goods?
a. one half
b. one half the price of the U.S. goods
c. one half the number of euros it takes to buy a U.S. dollar
d. None of the above is correct.
Suppose the government were to replace the income tax with a consumption tax so that
interest on savings was not taxed. The result would be that the interest rate
a. and investment both would increase.
b. and investment both would decrease.
c. would increase and investment would decrease.
d. would decrease and investment would increase.
Given that Monika’s income exceeds her expenditures, Monika is best described as a
a. saver or as a supplier of funds.
b. saver or as a demander of funds.
c. borrower or as a supplier of funds.
d. borrower or as a demander of funds.
Which of the following can policy do?
a. alter incentives
b. alter trade-offs
c. change opportunity costs
d. All of the above are correct.
Table 4-1
RefertoTable4-1.If the market consists of Laura and Hillary only and the price falls by
$1, the quantity demanded in the market increases by
a. 2 units.
b. 3 units.
c. 4 units.
d. 5 units.
Who is included in the labor force by the Bureau of Labor Statistics?
a. Tina, who worked most of the week in a steel factory
b. Kelly, who is temporarily laid off but expects to be recalled
c. DJ, who does not have a job but is looking for work
d. All of the above are correct.
Unlike national income, personal income
a. includes retained earnings, indirect business taxes, corporate income taxes and social
insurance contributions, and excludes interest and transfer payments received by
households from the government.
b. excludes retained earnings, indirect business taxes corporate income taxes, social
insurance contributions and interest and transfer payments received by households from
the government.
c. excludes retained earnings, indirect business taxes, corporate income taxes and social
insurance contributions, and includes interest and transfer payments received by
households from the government.
d. includes retained earnings, indirect business taxes, corporate income taxes, social
insurance contributions, and interest and transfer payments received by households
from the government.
Social Security payments are indexed for inflation using the CPI. A recent newspaper
editorial claimed that Social Security recipients are harmed by years of low inflation
because they do not receive as large an increase in their payments as they do in years of
high inflation. Which of the following statements is correct?
a. The newspaper editorial is correct under all circumstances.
b. The newspaper editorial is correct if the market basket consumed by Social Security
recipients is the same as the market basket used to compute the CPI.
c. The newspaper editorial could be correct if the prices of the goods consumed by
Social Security recipients change at a different rate than the prices of the goods in the
market basket used to compute the CPI
d. The newspaper editorial is incorrect under all circumstances.
Table 3-24
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Refer to Table3-24. At which of the following prices would both England and Spain
gain from trade with each other?
a. 16 units of bread for 16 units of cheese
b. 16 units of bread for 24 units of cheese
c. 16 units of bread for 48 units of cheese
d. England and Spain could not both gain from trade with each other at any price.
Which of the following is an example of a capital input?
a. a computer
b. a share of stock
c. an hour of a worker’s time
d. $50,000
Most, but not all, athletic apparel sold in the United States is imported from other
nations. If the price of athletic apparel increases, the GDP deflator will
a. increase less than will the consumer price index.
b. increase more than will the consumer price index.
c. not increase, but the consumer price index will increase.
d. increase, but the consumer price index will not increase.
When the price of a good or service changes,
a. the demand curve shifts in the opposite direction.
b. the supply curve shifts in the opposite direction.
c. the supply curve shifts in the same direction.
d. there is a movement along a given supply curve.
Which of the following events would cause a movement upward and to the right along
the supply curve for mangos?
a. The number of sellers of mangos increases.
b. There is an advance in technology that reduces the cost of producing mangos.
c. The price of fertilizer decreases, and fertilizer is an input in the production of
mangos.
d. The price of mangos rises.
The Employment Act of 1946
a. implies that the government should avoid being a cause of economic fluctuations.
b. implies that the government should respond to changes in the private economy to
stabilize aggregate demand.
c. reflected the ideas promoted in Keynes’s influential book,
TheGeneralTheoryofEmployment,Interest,andMoney.
d. All of the above are correct
Of the following interest rates, which is the highestone at which the present value of
$200 ten years from today is greater than $150?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
The difference between a supply schedule and a supply curve is that a supply schedule
a. incorporates demand and a supply curve does not.
b. incorporates profit and a supply curve does not.
c. can shift, but a supply curve cannot shift.
d. is a table, and a supply curve is drawn on a graph.
Oceania buys $100 of wine from Escudia and Escudia buys $80 of wool from Oceania.
Suppose this is the only trade that these countries do. What are the net exports of
Oceania and Escudia, in that order?
a. $80 and $100
b. $-20 and $20
c. $20 and -$20
d. None of the above is correct.
In an imaginary economy, consumers buy only razors and cologne. The fixed basket
consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010.
A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year,
which of the following statements is correct?
a. For the typical consumer, the number of dollars spent on razors is equal to the
number of dollars spent on cologne in each of the two years.
b. The consumer price index is 310 in 2010.
c. The rate of inflation is 29.17% in 2010.
d. None of the above is correct.
For both parties to gain from trade, the price at which they trade must lie between the
two opportunity costs.
a. True
b. False
The Fed can reduce the federal funds rate by
a. decreasing the money supply. To decrease the money supply it could sell bonds.
b. decreasing the money supply. To decrease the money supply it could buy bonds.
c. increasing the money supply. To increase the money supply it could sell bonds.
d. increasing the money supply. To increase the money supply it could buy bonds.
President Gerald Ford referred to inflation as
a. a blight on our nation’s economy.
b. a necessary evil to combat high unemployment.
c. public enemy number one.
d. a fly in the ointment.
A decrease in taxes ____ aggregate demand through larger _____ by households.
Compare the Board of Governors and the Federal Open Market Committee.
Last year country A’s residents purchased $700 billion of goods and services from and
sold $500 billion of goods and services to residents of foreign countries. Its domestic
investment was $1,100. What was country A’s saving? Show your work.
When there is an excess demand for money, households will interest-bearing bonds,
causing interest rates to _____.
Calculate GDP for a country with investment of $2 trillion, government purchases of $3
trillion, capital depreciation of $1.5 trillion, consumption of $10 trillion, exports of $3.4
trillion, and imports of $3.9 trillion.
When economists disagree about whether the government should tax a household’s
income or its consumption, they are expressing a difference in
Suppose that consumers become pessimistic about the future health of the economy.
What will happen to aggregate demand and to output? What might the president and
Congress have to do to keep output stable?
Table 2-6
Refer to Table2-6. Consider the production possibilities table for an economy that
produces only mobile phones and pizzas. Describe the shape of the production
possibilities frontier.
According to the Phillips curve diagram, if a central bank disinflates what ultimately
happens to the unemployment rate?
Figure 2-3
RefertoFigure2-3.What is the name of the model depicted in the figure?
If because they expect the central bank to disinflate, people reduce their inflation
expectations, then is the sacrifice ratio larger or smaller the otherwise? Defend your
answer by referring to the Phillips curve.
The theory that most economists rely on to explain inflation is called the .
From the standpoint of the economy as a whole, the role of insurance is not to eliminate
the risks inherent in life. Then what is its purpose?
In many circumstances, prisoners are not allowed to possess cash. Does this mean there
is no money in prison? Explain.
Define GDP. Remember to be specific about what it includes.