If a currency increases in value as a result of government decree rather than market
forces, the process is known as
a. reflation.
b. revaluation.
c. appreciation.
d. value-added.
If marginal revenue and marginal cost are not equal, profit can be maximized by
a. increasing output if MR > MC.
b. decreasing output if MC > MR.
c. moving to the output where the slopes of TR and TC are equal.
d. All of the above are correct.
One of the most important changes in the composition of the labor force in the United
States has been
a. the major increase in the number of women who work outside the home.
b. the drop in the number of men who only work part-time.
c. the steady decline in the number of women who work.
d. the increase in the ratio of male workers to female workers.
e. the major increase in the number of men who work away from the home or farm.
Under a gold standard, a balance of payments surplus automatically
a. raised interest rates.
b. increased exports.
c. increased domestic prices.
d. decreased imports.
Lower levels of education and training are often associated with low levels of
a. production.
b. productivity.
c. inflation.
d. both a and b.
What are the results of a contractionary monetary policy in an open economy with
floating exchange rates and internationally mobile capital?
a. The dollar appreciates, which leads to an increase in exports and a decrease in
imports. The country therefore winds up with a deficit in capital and a surplus in its
balance of trade.
b. The dollar appreciates, which attracts foreign capital. Also, imports rise and exports
decline. The country therefore winds up with a surplus in capital and an increase in its
trade deficit.
c. The dollar depreciates, which attracts foreign capital. Also, exports rise and imports
decline. The country therefore winds up with a deficit in capital and a surplus in its
balance of trade.
d. The dollar depreciates, which leads to a larger real GDP and a larger trade surplus.
A nation’s capital consists mainly of stocks, bonds, and other financial assets.
a. True
b. False
Invention is the discovery of a new process or idea. Innovation is
a. the continuing search for inventions.
b. copying ideas from rival firms.
c. putting an invention to work.
d. basic research.
The primary reason why the oversimplified formula overstates the multiplier is that it
ignores price-level changes, which reduce the multiplier.
a. True
b. False
If interest rates increase, what will happen to the demand for reserves?
a. It will shift outward.
b. It will shift inward.
c. Nothing, the economy will move to a new quantity demanded.
d. It depends on what happens to prices.
If aggregate demand shifts outward over a long period of time, with aggregate supply
held constant, the economy should experience
a. unemployment.
b. recession.
c. budget surpluses.
d. inflation.
In the United States, the money for loans to businesses comes mainly from
a. corporate profits.
b. the federal government.
c. savings held in lending institutions.
d. state and local governments.
If the FOMC orders a purchase of government securities from member banks, where
does the FOMC get the money to pay for the securities?
a. It creates money to pay for the securities by adding the purchase amount to the banks’
reserves.
b. It pays for the securities with new Federal Reserve notes.
c. It borrows the necessary funds from the Treasury.
d. It auctions off part of the securities it already owns.
When comparing industries, a monopolistically competitive industry is less competitive
than an oligopoly.
a. True
b. False
Among the impediments to the international mobility of capital are
a. restrictions on foreign ownership.
b. fear of nationalization or political instability.
c. fluctuations in exchange rates.
d. All of the above are correct.
If you produce a graph with consumption spending on the vertical axis and disposable
income on the horizontal axis, the relation between consumption and income will
a. be inverse.
b. be transcendental.
c. shift unpredictably.
d. be direct.
Which of the following services have experienced declines in relative prices due to
productivity increases?
a. medical services
b. restaurant meals
c. theatrical performances
d. Internet access services
Doctors demand large salaries in part because
a. they are forbidden by U.S. law from receiving economic rent.
b. most doctors have backward-bending labor supply curves.
c. they participate in the secondary labor market.
d. they have made significant investments in human capital.
Most economists think that it is impossible to prevent asset price bubbles.
a. True
b. False
To promote economic efficiency, government should
a. keep all prices as low as possible.
b. keep all prices high so that people will save more money.
c. allow the market to set low prices for abundant goods and high prices for scarce
goods.
d. never interfere with firms’ price setting powers.
Taxes on polluting emissions are
a. more efficient than direct controls.
b. used by all economic societies.
c. less effective than direct regulations.
d. easily enforced through the criminal justice system.
The idea behind the “Big Mac index” is a test of
a. interest rate parity theory.
b. long-run equilibrium theory.
c. purchasing power parity theory.
d. exchange rate equalization theory.
Many economists are in favor of increased immigration of adult foreigners who possess
high levels of skills and education. Why?
a. Economists are very caring individuals.
b. Economists believe this is a way to increase understanding among different ethnic
groups.
c. Economists believe foreigners will work cheaper.
d. Economists believe this will increase aggregate supply.
If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10
percent,
a. demand is elastic.
b. demand is inelastic.
c. elasticity of demand is unitary.
d. None of the above is correct.
Economists believed that the U.S. economy had a (n) ____ in 2006 and 2007.
a. mild recession
b. small recessionary gap
c. small inflationary gap
d. deflationary gap
The income effect of higher wages leads workers to want to work more.
a. True
b. False
Figure 11-1
In Figure 11-1, the slope of the expenditures schedule is .75 and the government wishes
to achieve full employment. It should
a. cut spending by 1,000.
b. increase spending by 1,000.
c. cut taxes by 1,000.
d. increase spending by 250.
e. cut taxes by 250.
Economic problems are made manageable by stripping away some of the unnecessary
details.
a. True
b. False
Which of the following groups has had declining labor force participation over the last
30 years?
a. Women
b. Men
c. Teenagers
d. Americans
Plowback refers to the profits management decides to keep and reinvest in the firm’s
operations.
a. True
b. False
A tax is more likely to promote economic equality if it is
a. regressive.
b. proportional.
c. indirect.
d. progressive.
The Phillips curve assumes that shocks to the economy come from the demand side.
a. True
b. False
Voluntarism in recycling garbage
a. generally has not been successful.
b. works only where there is surveillance.
c. increases the cost of recycling waste.
d. has worked best of all recycling program alternatives.
The profitability of an investment project will increase if
a. tax rates increase.
b. real interest rates increase.
c. real interest rates decrease.
d. business tax deductions decrease.