The Stock Market Boom of 2015
Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise
more than expected and stay high for some time.
Refer to Stock Market Boom 2015. In the long run, the change in price expectations
created by the stock market boom shifts
a. long-run aggregate supply right.
b. long-run aggregate supply left.
c. short-run aggregate supply right.
d. short-run aggregate supply left.
At the equilibrium real interest rate in the open-economy macroeconomic model, the
amount that people want to save equals the desired quantity of
a. net capital outflow.
b. domestic investment.
c. net capital outflow plus domestic investment.
d. foreign currency supplied.
If you are convinced that stock prices are impossible to predict from available
information, then you probably also believe that
a. the efficient markets hypothesis is not a correct hypothesis.
b. the stock market is informationally efficient.
c. the stock market is informationally inefficient.
d. there is no reason to establish a diversified portfolio of stocks.
When the Federal Reserve sells assets from its portfolio to the public with the intent of
changing the money supply,
a. those assets are government bonds and the Fed’s reason for selling them is to increase
the money supply.
b. those assets are government bonds and the Fed’s reason for selling them is to
decrease the money supply.
c. those assets are items that are included in M2 and the Fed’s reason for selling them is
to increase the money supply.
d. those assets are items that are included in M2 and the Fed’s reason for selling them is
to decrease the money supply.
Julie and John are American residents. Julie buys stock issued by a Japanese company.
John opens a sporting goods store in Mexico. Whose purchase, by itself, increases the
U.S.’s net capital outflow?
a. Julie’s
b. John’s
c. both Julie’s and John’s
d. neither Julie’s nor John’s
If the labor supply curve is very elastic, a tax on labor
a. has a large deadweight loss.
b. raises enough tax revenue to offset the loss in welfare.
c. has a relatively small impact on the number of hours that workers choose to work.
d. results in a large tax burden on the firms that hire labor.
Figure 6-21
Refer to Figure 6-22. The burden of the tax on buyers is
a. $1 per unit.
b. $1.50 per unit.
c. $2 per unit.
d. $3 per unit.
Table 10-7
The table below contains data for the country of Togogo. The base year is 1974.
Refer to Table 10-7. From 1975 to 1976,
a. inflation was 25% and output did not grow.
b. inflation was 25% and output grew.
c. inflation was 50% and output did not grow.
d. inflation was 50% and output grew.
Most economists believe that in the long run, changes in the money supply
a. affect nominal but not real variables. This view that money is ultimately neutral is
consistent with classical theory.
b. affect nominal but not real variables. This view that money is ultimately neutral is
inconsistent with classical theory.
c. affect real but not nominal variables. This view that money is ultimately neutral is
consistent with classical theory.
d. affect real but not nominal variables. This view that money is ultimately neutral is
inconsistent with classical theory.
The Economic Report of the President
a. discusses recent developments in the economy and presents analysis of current policy
issues.
b. is written by the Council of Economic Advisers.
c. is the responsibility of the economists at the Office of Management and Budget.
d. Both a and b are correct.
Some countries have high minimum wages and require a lengthy and costly process to
get permission to open a business
a. Reducing either the minimum wage or the time and cost to open a business would
have no effect on the long-run aggregate supply curve.
b. Reducing the minimum wage and the time and cost to open a business would both
shift the long-run aggregate supply curve to the right.
c. Reducing the minimum wage would shift long-run aggregate supply to the right.
Reducing the time and cost to open a business would have no affect on the long-run
aggregate supply curve.
d. Reducing the minimum wage would have no affect on the long-run aggregate supply
curve. Reducing the time and cost to open a business would shift the long-run aggregate
supply curve to the right.
Recession come at
a. regular intervals. During recessions consumption spending falls relatively more than
investment spending.
b. regular intervals. During recessions investment spending falls relatively more than
consumption spending.
c. irregular intervals. During recessions consumption spending falls relatively more
than investment spending.
d. irregular intervals. During recessions investment spending falls relatively more than
consumption spending.
The average person’s share of the U.S. government debt as a percentage of lifetime
income is
a. less than 2 percent.
b. about 5 percent.
c. about 10 percent.
d. over 12 percent.
Figure 9-15
Refer to Figure 9-15. Producer surplus with trade and without a tariff is
a. G.
b. C + G.
c. A + C + G.
d. A + B + C + G.
Normative statements are not
a. descriptive.
b. prescriptive.
c. claims about how the world should be.
d. made by economists speaking as policy advisers.
In a closed economy, what does (T – G) represent?
a. national saving
b. investment
c. private saving
d. public saving
In 2009, the imaginary nation of Viloxia had a population of 5,000 and real GDP of
500,000. In 2010 it had a population of 5,100 and real GDP of 520,200. During 2009
real GDP in Viloxia grew by
a. 2 percent, which is high compared to average U.S. growth over the last one-hundred
years.
b. 2 percent, which is about the same as average U.S. growth over the last one-hundred
years.
c. 4 percent, which is high compared to average U.S. growth over the last one-hundred
years.
d. 4 percent, which is about the same as average U.S. growth over the last one-hundred
years.
If the quantity of loanable funds demanded exceeds the quantity of loanable funds
supplied,
a. there is a surplus so interest rates will rise.
b. there is a surplus so interest rates will fall.
c. there is a shortage so interest rates will rise.
d. there is a shortage so interest rates will fall.
The principle of comparative advantage does not provide answers to certain questions.
One of those questions is
a. Do specialization and trade benefit more than one party to a trade?
b. Is it absolute advantage or comparative advantage that really matters?
c. How are the gains from trade shared among the parties to a trade?
d. Is it possible for specialization and trade to increase total output of traded goods?
Figure 9-5
Refer to Figure 9-5. With trade, total surplus is
a. $245.
b. $367.50.
c. $607.50.
d. $687.50.
The principle of comparative advantage asserts that
a. not all countries can benefit from trade with other countries.
b. the world price of a good will prevail in all countries, regardless of whether those
countries allow international trade in that good.
c. countries can become better off by exporting goods, but they cannot become better
off by importing goods.
d. countries can become better off by specializing in what they do best.
Figure 7-10
Refer to Figure 7-10. If the equilibrium price is $50, what is the producer surplus?
a. $625
b. $3,750
c. $5,625
d. $10,000
The long-run effect of an increase in government spending is to raise
a. both real output and the price level.
b. real output and lower the price level.
c. real output and leave the price level unchanged.
d. the price level and leave real output unchanged.
Other things the same, as the real interest rate rises
a. domestic investment and net capital outflow both rise.
b. domestic investment and net capital outflow both fall.
c. domestic investment rises and net capital outflow falls.
d. domestic investment falls and net capital outflow rises.
If the nominal exchange rate e is foreign currency per dollar, the domestic price is P,
and the foreign price is P*, then the real exchange rate is defined as
a. e(P*/P).
b. e(P/P*).
c. e + P*/P.
d. e – P/P*.
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.
Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
Labor Hours
Needed to Make 1
Refer to Table 3-2. Aruba’s opportunity cost of one cooler is
a. 0.4 radio and Iceland’s opportunity cost of one cooler is 0.25 radio.
b. 0.4 radio and Iceland’s opportunity cost of one cooler is 4 radios.
c. 2.5 radios and Iceland’s opportunity cost of one cooler is 0.25 radio.
d. 2.5 radios and Iceland’s opportunity cost of one cooler is 4 radios.
On a bank’s T-account, which are part of the banks liabilities?
a. both deposits made by its customers and reserves
b. deposits made by its customers but not reserves
c. reserves but not deposits made by its customers
d. neither deposits made by its customers nor reserves
A decrease in the availability of an important major resource such as oil shifts
a. aggregate supply right.
b. aggregate supply left.
c. aggregate demand right.
d. aggregate demand left.
Which of the following is likely to have the most price inelastic demand?
a. white chocolate chip with macadamia nut cookies
b. Mrs. Field’s chocolate chip cookies
c. milk chocolate chip cookies
d. cookies
The interest rate would fall and the quantity of money demanded would
a. increase if there were a surplus in the money market.
b. increase if there were a shortage in the money market.
c. decrease if there were a surplus in the money market.
d. decrease if there were a shortage in the money market.
Figure 9-20
The figure illustrates the market for rice in Vietnam.
Refer to Figure 9-20. In the absence of trade, total surplus in the Vietnamese rice
market amounts to
a. 9,250.
b. 10,000.
c. 12,000.
d. 13,000.
Figure 9-10. The figure applies to Mexico and the good is rifles.
Refer to Figure 9-10. The area bounded by the points (Q0, P0), (Q2, P1), and (Q1, P1)
represents
a. Mexico’s gains from trade.
b. the amount by which Mexico’s gain in consumer surplus exceeds its loss in producer
surplus due to trade.
c. Mexico’s gain in total surplus due to trade.
d. All of the above are correct.