The producer price index is likely to respond more quickly to price changes than the
other indexes, so it is regarded as a warning sign of inflation.
A) True
B) False
Some economists have challenged the efficient markets hypothesis because they believe
that stocks may be incorrectly priced when markets behave irrationally.
A) True
B) False
Scenario: Linear Production Possibility Frontier
Largetown has a linear production possibility frontier, and it produces socks and shirts
with 80 hours of labor. The table shows the number of hours of labor necessary to
produce one pair of socks or one shirt.
Look at the scenario Linear Production Possibility Frontier. If Largetown decides to
devote half of its labor time to the production of socks and half of the time to the
production of shirts, it can produce _____ shirts and _____ pairs of socks.
A) 10; 20
B) 20; 10
C) 30; 30
D) 0; 30
Consider the market for corn. What happens if there is an increased demand for corn
tortillas and at the same time a new corn seed becomes available that dramatically
increases the yield per acre?
A) Price and quantity decrease.
B) The change in price is indeterminate; quantity decreases.
C) The change in price is indeterminate; quantity increases.
D) Price increases; the change in quantity is indeterminate.
Which of the following areas is most likely to suggest a limited role for government?
A) microeconomics
B) macroeconomics
C) behavioral economics
D) labor economics
If a country fixes its exchange rate, it loses its ability to use monetary policy for
macroeconomic stabilization.
A) True
B) False
A positive demand shock will result from:
A) a sudden increase in nominal wages.
B) an increase in the potential GDP.
C) a move by the Federal Reserve to lower the interest rate.
D) consumers and firms becoming more pessimistic.
Financial markets eliminate transactions costs.
A) True
B) False
Sales taxes, property taxes, income taxes, and fees of various kinds:
A) fund government spending at the federal level.
B) provide revenue for state and local governments.
C) are the state governments’ least used types of revenue generation.
D) are implicit liabilities.
With a fixed exchange rate regime, monetary policy is:
A) fully flexible.
B) limited in its ability to shift aggregate demand to the right.
C) limited in its ability to shift aggregate supply to the right.
D) independent of exchange rate issues.
When we put a price on a meal, money is playing the role primarily of:
A) medium of exchange.
B) unit of account.
C) barter token.
D) store of value.
Assume that in the base year (2011), a country’s nominal GDP is $10,000 billion. The
country has had 5% inflation each year since 2006. Real GDP of 2011 is equal to:
A) $10,500 billion.
B) $11,025 billion.
C) $10,000 billion.
D) $9,500 billion.
The economy of the eurozone is:
A) approximately the size of the U.S. economy.
B) bigger than the economies of the rest of the world combined.
C) about the size of the economy of New York state.
D) smaller than the economy of California.
A bar graph:
A) shows the relative amounts attributable to different categories.
B) may be shown by vertical bars to illustrate the comparative sizes of different
observations.
C) may be shown by horizontal bars to illustrate the comparative sizes of different
observations.
D) A, B, and C.
A devaluation can help reduce an inflationary gap.
A) True
B) False
Suppose a bank receives a $5,000 deposit and the reserve ratio is 25%. The bank is
required to keep in reserve:
A) $1,250.
B) $1,000.
C) $200.
D) $500.
U.S. exports increased in 2006 because:
A) NAFTA was repealed.
B) a global currency was established.
C) the dollar depreciated.
D) the dollar appreciated.
Which of the following causes an outflow of funds from a domestic economy?
A) household savings
B) government tax collections
C) government transfer payments
D) imports
Because people usually exploit opportunities to make themselves better off, if the price
of gasoline falls and stays low for an extended period, we expect people to:
A) reduce their reliance on gasoline-powered cars.
B) buy larger and less fuel-efficient cars.
C) use more public transportation.
D) ride bicycles.
Which of the following was NOT one of the problems facing almost all major
economies after the 2008 financial crisis?
A) high unemployment
B) low growth of output
C) high interest rates on public debt
D) inflation
In response to the Great Depression, the classical economists:
A) stressed the use of monetary policy over fiscal policy.
B) tried to tame the “animal spirits” that caused the recession in the first place.
C) stressed the use of fiscal policy over monetary policy.
D) did not advocate any action because of the lack of consensus about the consequences
of policy.
If it costs Betsy $10 to bake a cake and she sells the cake for $25, her profit per unit
(per cake) is $35.
A) True
B) False
Suppose that the United States and European Union are the only trading partners in the
world. If the United States lowers import restrictions from the European Union, we
would expect:
A) the demand for euros to increase, appreciating the euro.
B) the demand for the dollar to increase, appreciating the dollar.
C) the supply of dollars to increase, appreciating the dollar.
D) the supply of euros to increase, depreciating the euro.
Figure: The Money Supply and Aggregate Demand
Look at the figure The Money Supply and Aggregate Demand. Panel (a) illustrates what
happens when the Federal Reserve decides to _____ the money supply and _____
interest rates.
A) decrease; lower
B) increase; raise
C) increase; lower
D) decrease; raise
When governments borrow in financial markets to pay for budget deficits, interest rates
may increase and crowd out private investment spending.
A) True
B) False
Economic models that make unrealistic assumptions may be useful in analyzing some
economic problems.
A) True
B) False
As a result of the S&L crisis, in 1989 Congress:
A) decreased regulation of thrifts.
B) merged all remaining S&Ls with financially sound commercial banks.
C) passed legislation prohibiting any financial institution other than S&Ls to make
mortgages.
D) empowered two government agencies, Fannie Mae and Freddie Mac, to take over
much of the mortgage lending previously done by S&Ls.
Commodity-backed money is more efficient than commodity money because
commodity-backed money ties up fewer resources than commodity money.
A) True
B) False
Crowding out results in a(n):
A) decrease in private investment spending resulting from government deficit spending.
B) increase in accumulation of physical capital, which leads to higher economic
growth.
C) increase in private investment spending resulting from government deficit spending.
D) increase in consumption spending as a result of higher investment spending.
Look at the table Comparative Advantage I. Sweden has a comparative advantage in
producing:
A) cell phones only.
B) herring only.
C) both cell phones and herring.
D) neither cell phones nor herring.
If the government wants to increase the value of its currency in foreign exchange
markets, it can limit the ability of foreigners to buy its currency.
A) True
B) False
A downward shift in the consumption function can be caused by:
A) a decrease in disposable income.
B) an increase in disposable income.
C) expectations of higher permanent income.
D) a decrease in wealth.
Figure: Short- and Long-Run Equilibrium II
Look at the figure Short- and Long-Run Equilibrium II. If the economy is at
equilibrium at E1, the appropriate policy to return the economy to potential output
would be a(n):
A) increase in government spending.
B) decrease in government spending.
C) increase in transfer payments.
D) decrease in taxes.
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. As a
result the official unemployment rate will:
A) not change.
B) increase.
C) decrease.
D) increase temporarily, then fall back to its original level.