Suppose Emilio offers you $500 today or $Xin 10 years. If the interest rate is 6 percent,
then at what value of X would you be indifferent between the two options?
a. X= 809.33
b. X = 855.56
c. X= 895.42
d. X= 916.74
David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price
index was 148.2 in 1994 and 215.3 in 2010. David’s 1994 salary in 2010 dollars is
a. $43,849.05
b. $61,263.43
c. $63,195.34
d. $93,655.50
Figure 4-22
RefertoFigure4-22.At a price of $20, there is a
a. surplus of 4 units.
b. surplus of 8 units.
c. shortage of 4 units.
d. shortage of 8 units.
If a person expects the price of pumpkins to increase next month, then that person’s
current demand for pumpkins will increase.
a. True
b. False
A production possibilities frontier shifts outward when
a. the economy experiences economic growth.
b. the desires of the economy’s citizens change.
c. at least one of the basic principles of economics is violated.
d. opportunity costs are lessened.
Which of the following nations experienced average rates of economic growth of less
than 2 percent over the last 100 years or so?
a. Bangladesh
b. Pakistan
c. United Kingdom
d. All of the above are correct.
If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real
interest rate is 7 percent.
a. True
b. False
In a particular production process, if the quantities of all inputs used double, then the
quantity of output doubles as well. This means that
a. the production process cannot be enhanced by technological advances.
b. no mathematical representation of the relevant production function can be
formulated.
c. the relevant production function has the limits-to-growth property.
d. the relevant production function has the constant-returns-to-scale property.
As it is usually practiced, inflation targeting sets
a. a specific inflation rate for the central bank to target and prohibits it from deviating
from the target even when some shock pushes inflation away from that number.
b. a specific inflation rate for the central bank to target but allows it to deviate from the
target when some shock pushes inflation away from that number.
c. sets some range of inflation rates for the central bank to target and prohibits it from
deviating from that range even when some shock pushes inflation outside the range.
d. sets some range of inflation rates for the central bank to target but allows it to deviate
from that range when some shock pushes inflation outside the range.
Suppose that the central bank unexpectedly increases the growth rate of the money
supply. In the short run the effects of this are shown by
a. moving to the left along the short-run Phillips curve.
b. moving to the right along the short-run Phillips curve.
c. shifting the short-run Phillips curve to the right.
d. shifting the short-run Phillips curve to the left.
Which of the following reduces the interest rate?
a. an increase in government expenditures and an increase in the money supply
b. an increase in government expenditures and a decrease in the money supply
c. a decrease in government expenditures and an increase in the money supply
d. a decrease in government expenditures and a decrease in the money supply
A positive economic statement such as “Pollution taxes decrease the quantity of
pollution generated by firms”
a. would likely be made by an economist acting as a policy advisor.
b. would require values and data to be evaluated.
c. would require data but not values to be evaluated.
d. could not be evaluated by economists acting as scientists.
Although wages, incomes, and interest rates are most often discussed in nominal terms,
what matters most are their real values.
a. True
b. False
In the open-economy macroeconomic model, the
a. exchange rate adjusts to equate private saving with the sum of investment, net
exports, and net capital outflow.
b. exchange rate adjusts to equate national saving with the sum of investment and net
capital outflow.
c. interest rate adjusts to equate private saving with the sum of investment, net exports,
and net capital outflow.
d. interest rate adjusts to equate national saving with the sum of investment and net
capital outflow.
A U.S. firm sells diesel locomotives to a German railroad. Other things the same, this
sale
a. increases U.S. net exports and decreases German net exports.
b. decreases U.S. net exports and increases German net exports.
c. increases U.S. and German net exports.
d. decreases U.S. and German net exports.
Katarina puts money into an account. One year later she sees that she has 6 percent
more dollars and that her money will buy 4 percent more goods.
a. The nominal interest rate was 10 percent and the inflation rate was 6 percent.
b. The nominal interest rate was 6 percent and the inflation rate was 2 percent.
c. The nominal interest rate was 4 percent and the inflation rate was 2 percent.
d. The nominal interest rate was 10 percent and the inflation rate was 4 percent.
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.
RefertoStockMarketBoom2015.Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right
d. aggregate supply shifts left.
In a competitive market, there are so few buyers and so few sellers that each has a
significant impact on the market price.
a. True
b. False
In which of the following instances is the present value of the future payment the
largest?
a. You will receive $1,000 in 5 years and the annual interest rate is 5 percent.
b. You will receive $1,000 in 10 years and the annual interest rate is 3 percent.
c. You will receive $2,000 in 10 years and the annual interest rate is 10 percent.
d. You will receive $2,400 in 15 years and the annual interest rate is 8 percent.
Which of the following is an explanation for the existence of frictional unemployment?
a. efficiency wages
b. minimum-wage laws
c. unions
d. job search
A country has $3 billion of domestic investment and net exports of -$2 billion. What is
its saving?
a. -$1 billion
b. -$2 billion
c. $1 billion
d. $2 billion
In the U.S., from the early 1980s through the early 1990s,
a. both inflation and nominal interest rates rose.
b. both inflation and nominal interest rates fell.
c. the inflation rate fell and the nominal interest rate rose.
d. the inflation rate rose and the nominal interest rate fell.
Table 26-1
RefertoTable26-1. What was Hershey’s earnings per share?
a. $29.90
b. $2.79
c. $1.50
d. $0.36
When you calculate your true costs of going to college, what portion of your
room-and-board expenses should be included?
a. Your full room-and-board expenses should always be included.
b. None of your room-and-board expenses should ever be included.
c. You should include only the amount by which your room-and-board expenses exceed
the income you earn while attending college.
d. You should include only the amount by which your room-and-board expenses exceed
the expenses for rent and food if you were not in college.
The circular-flow diagram explains, in general terms, how the economy is organized
and how participants in the economy interact with one another.
a. True
b. False
Table 3-3
ProductionOpportunities
RefertoTable3-3.Which of the following combinations of cheese and wine could
England notproduce in 40 hours?
a. 12 units of cheese and 7 units of wine
b. 16 units of cheese and 6 units of wine
c. 20 units of cheese and 5 units of wine
d. 26 units of cheese and 4 units of wine
From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made
people feel less wealthy, then it would have shifted
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.
The goal of President Obama’s stimulus package and increased government spending
following the deep economic downturn in 2008 and 2009 was to reduce inflation.
a. True
b. False
If national saving in a closed economy is greater than zero, which of the following must
be true?
a. Either public saving or private saving must be greater than zero.
b. Investment is positive.
c. Y ” C ” G > 0.
d. All of the above are correct.
Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian
citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose
value of services preparing meals is included in U.S. GDP?
a. Sam’s and Ellen’s.
b. Sam’s but not Ellen’s.
c. Ellen’s but not Sam’s.
d. Neither Sam’s nor Ellen’s.
Suppose Country A has a high average wage level and a high level of output per person,
while Country B has a low average wage level and a low level of output per person.
Which country can benefit from trade?
a. Only Country A can benefit.
b. Only Country B can benefit.
c. Both Country A and Country B can benefit.
d. Neither Country A nor Country B can benefit.
Matt’s Utility Function
If Matt’s current wealth is $51,000, then
a. his gain in utility from gaining $1,000 is greater than his loss in utility from losing
$1,000. Matt is risk averse.
b. his gain in utility from gaining $1,000 is greater than his loss in utility from losing
$1,000. Matt is not risk averse.
c. his gain in utility from gaining $1,000 is less than his loss in utility from losing
$1,000. Matt is risk averse.
d. his gain in utility from gaining $1,000 is less than his loss in utility from losing
$1,000. Matt is not risk averse.
Which of the following is included in the consumption component of U.S. GDP?
a. purchases of staplers, paper clips, and pens by U.S. business firms
b. purchases of natural gas by U.S. households
c. purchases of newly constructed homes by U.S. households
d. All of the above are correct.
Which of the following statements about the circular-flow diagram is correct?
a. One must imagine that the economy operates without money in order to make sense
of the diagram.
b. The diagram leaves out details that are not essential for understanding the economic
transactions that occur between households and firms.
c. The government cannot be excluded as a decision maker in a circular-flow diagram.
d. All of the above are correct.