Recall Application 1, “The Chinese Yuan and Big Macs,” to answer the following
questions:
According to the application, the law of one price holds for Big Macs.
The highest tax rate for individuals during the Kennedy Administration was lower than
the highest tax rate today.
By providing workers with more machines, equipment and buildings to use in the
production of goods, production would decrease.
A restriction on imports is likely to cause further restrictions on trade.
One reason why the U.S. government experienced a surplus during Clinton’s era was
that the U.S. economy was growing.
An increase in the marginal propensity to consume will tend to cause:
A) the demand line to become flatter and a given change in investment to have a
smaller effect on output.
B) the demand line to become steeper and a given change in investment to have a
smaller effect on output.
C) the demand line to become steeper and a given change in investment to have a
greater effect on output.
D) none of the above.
Table 2.2 Julianne runs a business and needs to
decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying
open for each additional hour. Suppose that Julianne’s marginal benefit of staying open
per hour is $28. If she is following the marginal principle, how many hours should
Julianne stay open?
A) 1 hour
B) 3 hours
C) 6 hours
D) 7 hours
The aggregate supply curve shows the relationship between prices and the:
A) level of real GDP demanded.
B) level of nominal GDP demanded.
C) level of real GDP produced.
D) level of nominal GDP produced.
Table 2.2 Julianne runs a business and needs to
decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying
open for each additional hour. Suppose that Julianne’s marginal benefit of staying open
per hour is $20. If she is following the marginal principle, how many hours should
Julianne stay open?
A) 4 hours
B) 5 hours
C) 6 hours
D) 7 hours
What assumption was used by the authors of the book when analyzing the traffic
congestion problem in London?
A) They assumed that all cars are of the same make and model.
B) They assumed that traffic congestion is the same during daytime and during
nighttime.
C) They assumed that every car has the same effect on the travel time of other cars.
D) They assumed that travel via public transportation is less costly that travel by car.
Suppose real GDP was 120 in year 1 and 156 in year 2. The growth rate of real GDP is
A) 5.6 percent.
B) 18 percent.
C) 30 percent.
D) 36 percent.
A depreciation of the U.S. dollar will likely cause U.S. exports to ________ and U.S.
imports to ________.
A) decrease; decrease
B) increase; decrease
C) increase; increase
D) decrease; increase
Recall the Application about the Fed’s expanded involvement in the economy following
the financial crisis in 2008 to answer the following question(s).Recall the Application.
Prior to the financial crisis, the Fed primarily held ________ as assets.
A) mortgage-backed securities
B) cash
C) corporate stocks and bonds.
D) Treasury securities
Friedman and Keynes:
A) disagreed on the speed at which wages change.
B) agreed on the impact of fiscal policy on the economy.
C) disagreed on how the Fed changes money supply.
D) agreed on the short-run impact of monetary policy.
When the economy experiences a recession, the:
A) labor demand decreases and the equilibrium wage drops.
B) labor demand increases and the equilibrium wage drops.
C) the supply increases and the equilibrium wage increases.
D) the supply decreases and the equilibrium wage decreases.
If the economy is in long run equilibrium at full employment, the level of overall
economic activity is not affected by changes in the price level due to:
A) the fact that prices increase more slowly than input costs.
B) the fact that prices and input costs change simultaneously and in the same direction.
C) the existence of sticky prices.
D) the fact that firms’ profits increase with the price level.
Suppose that a laptop computer costs 840 British pounds in the United Kingdom and
$1,400 in the United States. If the nominal exchange rate is 0.6 pounds per U.S. dollar,
then the real exchange rate is:
A) 5/3 British laptop computer per U.S. laptop computer.
B) 1 British laptop computer per U.S. laptop computer.
C) 3/5 British laptop computer per U.S. laptop computer.
D) none of the above.
The increase in the U.S trade deficit with Mexico after NAFTA went into effect was
most likely the result of:
A) predatory dumping by U.S. companies.
B) the devaluation of the peso.
C) the appreciation of the peso.
D) predatory dumping by Mexican companies.
In the income-expenditure model, the 45-degree line
A) is the locus of all the points for which output equals expenditures.
B) marks all equilibrium output levels.
C) shows total expenditures at various price levels.
D) is also called the planned expenditures line.
Suppose Jennifer has $42,000 in currency which she deposits in her bank. If the reserve
ratio is 50 percent, this will lead to a maximum increase of ________ in M1 throughout
all banks.
A) $0
B) $21,000
C) $42,000
D) $84,000
Macroeconomics is concerned with:
A) only long-run trends in economic activity.
B) only short-run fluctuations in the business cycle.
C) both long-run trends and short-term fluctuations in aggregate economic activity.
D) only with changes in the overall price level.
The sum of the current account + the capital account + the financial account equals:
A) zero.
B) the balance of payments.
C) statistical discrepancy.
D) net international investment.
What does the World Trade Organization do?
Suppose that C = + 0.6y and a shock decreases Ca by $50 billion. Assuming there is
no government involvement, by how much will equilibrium GDP decrease?
When a firm hired its tenth worker, its factory output increased by four units per month.
Would you expect the firm’s output to increase by eight more units per month if the firm
hired two more workers?
How do automatic stabilizers work to mitigate fluctuations in the level of economic
activity?
In addition to saving and investment, what other public policies might a country adopt
to increase labor productivity?
What did Adam Smith mean when he wrote that individuals rationally act in their own
self-interest?
In a closed economy with no government, explain why saving must equal planned
investment in equilibrium.
Suppose you buy paid $40,000 for a new BMW from your local dealership. The car was
built completely in Germany. Suppose that the dealer paid $25,000 for the car, how
would your purchase be recorded in U.S. GDP accounts? By how much would U.S.
GDP increase as a result of your purchase?
Suppose an economy is currently producing at a level above full employment. Explain
what will likely happen to wages and prices.
Explain three ways we can use microeconomics analysis.