High and unexpected inflation has a greater cost
a. for those who borrow than for those who save.
b. for those who hold a little money than for those who hold a lot of money.
c. for those whose wages increase by as much as inflation than for those who are paid a
fixed nominal wage.
d. for savers in high income tax brackets than for savers in low income tax brackets.
The supply of a good or service is determined by
a. those who buy the good or service.
b. the government.
c. those who sell the good or service.
d. both those who buy and those who sell the good or service.
Currently, U.S. currency is
a. fiat money with intrinsic value.
b. fiat money with no intrinsic value.
c. commodity money with intrinsic value.
d. commodity money with no intrinsic value.
Most economists agree that eliminating unemployment insurance would increase the
amount of unemployment in the economy.
a. True
b. False
The government has just passed a law requiring that all residents earn the same annual
income regardless of work effort. This law is likely to
a. increase efficiency and increase equality.
b. increase efficiency but decrease equality.
c. decrease efficiency but increase equality.
d. decrease efficiency and decrease equality.
If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15
percent, this action by itself initially makes the money supply
a. and wealth increase by $200.
b. and wealth decrease by $200.
c. increase by $200 while wealth does not change.
d. decrease by $200 while wealth decreases by $200.
Which of the following can tax cuts influence?
a. Aggregate demand
b. Aggregate supply
c. Investment spending
d. All of the above
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed
could move the rate back towards its target by
a. buying bonds. This buying would reduce reserves.
b. buying bonds. This buying would increase reserves.
c. selling bonds. This selling would reduce reserves.
d. selling bonds. This selling would increase reserves.
Given the following information, what are the values of M1 and M2?
a. M1 = $4,310 billion, M2 = $6,285 billion.
b. M1 = $2,050 billion, M2 = $9,985 billion.
c. M1 = $2,110 billion, M2 = $8,485 billion.
d. M1 = $3,610 billion, M2 = $9,985 billion.
Suppose you put $500 into a bank account today. Interest is paid annually and the
annual interest rate is 3 percent. The future value of the $500 after 1 year is
a. $485.44.
b. $496.50.
c. $509.28.
d. $515.00.
Suppose Jim and Tom can both produce baseball bats. If Jim’s opportunity cost of
producing baseball bats is lower than Tom’s opportunity cost of producing baseball bats,
then
a. Tom must have an absolute advantage in the production of baseball bats.
b. Jim must have an absolute advantage in the production of baseball bats.
c. Tom has a comparative advantage in the production of baseball bats.
d. Jim has a comparative advantage in the production of baseball bats.
Figure34-5.On the figure, MS represents money supply and MD represents money
demand.
RefertoFigure34-5.A shift of the money-demand curve from MD1to MD2could be a
result of
a. a decrease in taxes.
b. an increase in government spending.
c. an increase in the price level.
d. All of the above are correct.
Other things the same,when the price level rises, interest rates
a. rise, so firms increase investment.
b. rise, so firms decrease investment.
c. fall, so firms increase investment.
d. fall, so firms decrease investment.
Figure 33-7.
RefertoFigure33-7. If the economy starts at Y, then a recession occurs at
a. V.
b. W.
c. X.
d. Z.
Which of the following is not an example of the principle that trade can make everyone
better off?
a. Americans buy tube socks from China.
b. Residents of Maine drink orange juice from Florida.
c. A homeowner hires the kid next door to mow the lawn.
d. All of the above are examples of the principle that trade can make everyone better
off.
The present value of a payment of $500 to be made two years from today is greater if
the interest rate is 7% than if it is 6%.
a. True
b. False
Figure 28-4
RefetoFigure28-4.If the government imposes a minimum wage of $7, how many
workers will be unemployed?
a. 0
b. 2,000
c. 4,000
d. 6,000
On the graph that depicts the theory of liquidity preference,
a. the demand-for-money curve is vertical.
b. the supply-of-money curve is vertical.
c. the interest rate is measured along the horizontal axis.
d. the price level is measured along the vertical axis.
In 1931 the price of a movie ticket was $0.25. The consumer price index was 15.2 in
1931, and 210 in 2008. Using 2008 prices, the real price of a movie in 1931 was
a. $13.82.
b. $52.50.
c. $1.81.
d. $3.45.
A particular stock pays an annual dividend of $2 per share and the annual dividend
yield is 2.5 percent. The price of a share of this stock is
a. $2.05.
b. $5.00.
c. $80.00
d. $50.00.
Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie’s opportunity
cost of one apple pie is 1/2 gallon of ice cream and Brendan’s opportunity cost of one
apple pie is 1/4 gallon of ice cream, Ellie has a comparative advantage in the production
of ice cream.
a. True
b. False
Which of the following is included in the investment component of GDP?
a. Elaine pays her college tuition bill.
b. John’s law firm buys him a new computer.
c. Laura buys a bond that McDonald’s sells to raise funds.
d. All of the above are correct.
Which of the following is correct?
a. In a closed economy, equilibrium in the market for loanable funds occurs where
saving = investment.
b. Investment is the source for the supply of loanable funds.
c. If there is a surplus in the market for loanable funds, the interest rate rises.
d. All of the above are correct
A budget deficit
a. changes the supply of loanable funds.
b. changes the demand for loanable funds.
c. changes both the supply of and demand for loanable funds.
d. does not influence the supply of or the demand for loanable funds.
If Brazil buys $100 million of tractors from the U.S., then U.S. net exports will
decrease.
a. True
b. False
Table 23-3
The table below contains data for the country of Crete for the year 2010.
RefertoTable23-3.What was Crete’s GDP in 2010?
a. $4623
b. $5731
c. $6037
d. $6839
Today’s supply curve for gasoline could shift in response to a change in
a. today’s price of gasoline.
b. the expected future price of gasoline.
c. the number of buyers of gasoline.
d. All of the above are correct.
Household spending on education is counted in which component or subcomponent of
GDP?
a. consumption of durable goods
b. consumption of nondurable goods
c. consumption of services
d. investment
Which of the following would shift the long-run Phillips curve to the right?
a. expansionary fiscal policy
b. an increase in the inflation rate
c. increases in unemployment compensation
d. None of the above is correct.
If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S.
and 6 pesos in Argentina what is the real exchange rate?
a. 2
b. 3/2
c. 2/3
d. 1/2
Which of the following is an example of something economists study?
a. Mitch chooses to work overtime to earn extra income for his family.
b. Megan sells her physics textbook from last semester to her roommate for half the
price of a new textbook.
c. The unemployment rate in the United States has fallen by two percentage points in
the last few years.
d. All of the above are correct.
As real GDP falls,
a. money demand rises, so the interest rate rises.
b. money demand rises, so the interest rate falls
c. money demand falls, so the interest rate rises.
d. money demand falls, so the interest rate falls.
No particular stock is a better buy than any other stock if
a. stock prices are driven by investors’ “animal spirits.”
b. the random-walk theory of stock prices is incorrect.
c. the efficient markets hypothesis is correct.
d. actively managed mutual funds always outperform index funds.
The second largest category, by relative importance, in the CPI calculation is
a. housing.
b. apparel.
c. transportation.
d. medical care.
A does not engage in international trade in goods and services and it does not engage in
international borrowing and lending.
Does an increase in the inflation rate increase or decrease the amount of money people
choose to hold at any given price level? What would an increase in the inflation rate do
to money demand? What would this change in money demand do to the price level?
Invisible hand is a term used by the economist in his 1776 book
AnInquiryintotheNatureandCausesoftheWealthofNations.
A decrease in taxes will shift aggregate demand to the _____, cause consumption to
_____, and cause output to _____. Due to the crowding-out effect, investment will
_____.
What evidence does the Volcker disinflation provide concerning the importance of
inflation expectations to the costs of disinflation?
To offset increased pessimism by households, the government may _____ government
spending and/or _____ taxes.
The term refers to the size of the economic pie, and the term refers to how the pie is
divided.
“Market prices give no reason to believe that natural resources are a limit to economic
growth.” Explain this statement.
Scenario 4-1
Suppose the demand schedule in a market can be represented by the equation
, where is the quantity demanded and is the price. Also, suppose the
supply schedule can be represented by the equation , where is the quantity supplied.
RefertoScenario4-1. Suppose the price is currently equal to 10 in this
market. Is there a shortage or surplus in this market, and how large is the
shortage/surplus?
Suppose a country experiences an increase in its capital stock. Which curve(s) in the
aggregate demand and aggregate supply model would be affected, and which way
would it (they) shift?
Is it possible that deficits do not burden future generations?
Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will
happen to unemployment in the short run? What will happen to unemployment in the
long run? Justify your answer using the Phillips curves.
What does an unexpected decrease in the growth rate of the money supply do to
inflation and unemployment in the short-run? What does it do to inflation and
unemployment in the long run?
Which kind of lag is important for monetary policy? Which kind of lag is important for
fiscal policy?
Scenario 3-1
The production possibilities frontiers below show how much Greg and Catherine can
each produce in 8 hours of time.
Referto Scenario 3-1. What is Greg’s opportunity cost of producing cake? Explain how
you derived your answer.
Government expenditures increase. What happens to the price level and output? Explain
how the change in the price level and output effect the inflation rate and the
unemployment rate.