Unemployment caused by a business cycle recession is called cyclical unemployment.
Examining the conditions that could lead to economic growth is an example of
macroeconomic topic.
The government purchases multiplier will be larger if the marginal income tax rate
decreases.
Any output combination along a production possibility frontier is associated with
overused or unattainable resources.
Although the United States is the second largest exporting country, international trade is
less important to the U.S. than it is to most other countries.
Expanding, contracting, and managing the money supply is easier for a central bank
under the gold standard.
In the circular flow diagram, the value of all the income in the economy is greater than
the value of goods and services produced in the economy.
Rising nominal GDP will increase the demand for money and short-term interest rates.
The Fed has adopted an interest rate target for most of the time since World War II.
If consumers believe the price of tablet computers will increase in the future, this will
cause the demand for tablet computers to decrease now.
When individuals use ________ about an economic variable to make a decision,
expectations are rational.
A) only historical information
B) only information announced by the Fed
C) all available information
D) only information garnered in the private sector
According to the real business cycle model, ________ in aggregate demand ________
GDP.
A) increases; decrease
B) increases; increase
C) increases; do not affect
D) decreases; increase
To decrease the money supply, the Federal Reserve could
A) lower the discount rate.
B) raise income taxes.
C) lower the required reserve ratio.
D) conduct an open market sale of Treasury securities.
E) raise transfer payments.
If the quantity of jelly beans supplied is represented by the equation QS = -20 +4P then
the corresponding price of jelly beans is represented by the equation
A) P = 0.5QS + 80.
B) P = 0.25QS + 5.
C) P = 4QS – 80.
D) P = 2.5 – 4QS.
Gold is an example of
A) commodity money.
B) fiat money.
C) barter money.
D) M1.
The level of real GDP in the long run is called
A) potential GDP.
B) short-run GDP.
C) frictional GDP.
D) low-capacity GDP.
When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in
Texas, the purchase is
A) both a U.S. and an French import.
B) a U.S. import and an French export.
C) a U.S. export and an French import.
D) neither an export nor an import for either country.
All of the following are components of aggregate expenditure except
A) consumption spending.
B) net export spending.
C) actual investment spending.
D) government spending.
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for
a nation.
Refer to Figure 2-4. Consider the following events:
a. an increase in the patent protection period to 75 years
b. a hurricane that destroys a substantial portion of a nation’s capital stock
c. the implementation of a secure and enforceable property rights system
Which of the events listed above could cause a movement from W to Z?
A) a only
B) a and b only
C) a and c only
D) b and c only
E) a, b, and c
Figure 17-9
Refer to Figure 17-9. Fed Chairman Paul Volcker’s response to high inflation of the late
1970s is depicted in the figure above as a movement from
A) A to D to C.
B) C to B to A.
C) C to D to A.
D) C to E to B.
E) A to B to C.
Which of the following is an advantage of starting a new business as a corporation?
A) double taxation
B) ease in setting up
C) low expenses of legally organizing
D) greater ability to raise funds
Which of the following is not an example of an efficiency-equity trade-off faced by
economic agents?
A) According to an article by in the American Journal of Public Health by Edward
Kaplan and Michael Merson of Yale University School of Medicine, the federal
government’s current method of allocating HIV-prevention resources is not
cost-effective. Instead of allocating resources to states in proportion to reported AIDS
cases, resources should flow first to those activities that prevent more infections per
dollar and then to less and less effective combinations of programs and populations
until funds are exhausted, even if it means that some populations would be left without
any prevention services.
B) Concerned about the falling birth rate, the French government has pledged more
money for families with three children, in an effort to encourage working women to
have more babies.
C) The growing demand for corn by ethanol producers has led to a surge in the price of
tortillas, a staple in the Mexican diet. To quell public outcry over rising tortilla prices,
the Mexican government released government corn stocks at prices well below the
market, and pressured states to impose price ceilings on tortillas.
D) Some U.S. colleges cut back on merit scholarships since these programs siphon
money from need-based programs, thus harming lower-income students with greater
financial need.
Automatic stabilizers refer to
A) the money supply and interest rates that automatically increase or decrease along
with the business cycle.
B) government spending and taxes that automatically increase or decrease along with
the business cycle.
C) changes in the money supply and interest rates that are intended to achieve
macroeconomic policy objectives.
D) changes in federal taxes and purchases that are intended to achieve macroeconomic
policy objectives.
Table 10-1
Refer to Table 10-1. Using the table above, what is the approximate average annual
growth rate from 2010 to 2013?
A) 1%
B) 1.5%
C) 2%
D) 3%
What is “brain drain”?
A) the tendency for highly educated workers in high-income countries to move to
low-income countries to volunteer their services
B) increased recruiting efforts that attempt to raise the average level of education in
developed nations
C) foreign direct investment that flows from a developed country to a developing
country
D) the loss of highly educated people from a low-income country as they move to
higher-income opportunities in foreign countries
In 2013, global profits for McDonald’s ________ when measured in local currencies
than they did when measured in dollars. This occurred because the value of the U.S.
dollar increased relative to most other currencies.
A) increased by more
B) decreased by more
C) increased by less
D) decreased by less
If prices in the economy rise, then
A) the purchasing power of a dollar rises.
B) the purchasing power of a dollar stays constant.
C) the purchasing power of a dollar declines.
D) the purchasing power of a dollar cannot be determined.
According to economists Robert Lucas and Thomas Sargent, when are the gains to
accurately forecasting inflation highest?
A) when inflation is high and unstable
B) when inflation is low
C) when inflation is moderate but stable
D) when inflation is high and stable
Table 7-3
Mateo and Celeste produce custom saddles and spurs. Table 7-3 lists the number of
saddles and pairs of spurs Mateo and Celeste can each produce in one month.
Refer to Table 7-3. Select the statement that accurately interprets the data in the table.
A) Mateo has an absolute advantage in making saddles and Celeste has an absolute
advantage in making spurs.
B) Mateo has an absolute advantage in making spurs and Celeste has an absolute
advantage in making saddles.
C) Mateo has an absolute advantage in making spurs.
D) Celeste has an absolute advantage in making saddles.
Table 15-6
Refer to Table 15-6. Suppose the table above illustrates the values of real and potential
GDP and the price level, if the Fed does not vote to change their current policy to be
more contractionary or expansionary. If the Fed wants to keep real GDP at its potential
level in 2015, should the Fed use a contractionary or expansionary policy? Should it
raise or lower its interest rate target? How should it conduct open market operations to
achieve its goal?
Would a larger multiplier lead to longer and more severe recessions or shorter and less
severe recessions? Briefly explain.
Table 8-8
Refer to Table 8-8. Suppose that a simple economy produces only four goods and
services: sweaters, CDs, sugar, and soft drinks. Assume one half of the sugar is used in
making the soft drinks and the other half of the sugar is purchased by households.
Calculate nominal GDP for this simple economy.
What is the relationship among the current account, the financial account, and the
balance of payments?
Why does the substitution bias cause the consumer price index to overstate inflation and
the cost of living? Why does the increase in quality bias cause the consumer price index
to overstate inflation and the cost of living?
What is the principle monetary policy tool used by the Fed. Why?