In an open economy, the demand for loanable funds comes from both domestic
investment and net capital outflow.
a. True
b. False
Which of the following is notcorrect?
a. A risk averse person might be willing to hold stocks.
b. Other things the same, a portfolio with the stocks of a large number of companies has
less risk.
c. Other things the same, the larger a portion of savings a person invests in stocks, the
greater his expected return.
d. Diversification can eliminate market risk but not firm-specific risk.
If you buy a burger and fries at your favorite fast food restaurant,
a. then neither GDP nor consumption will be affected because you would have eaten at
home had you not bought the meal at the restaurant.
b. then GDP will be higher, but consumption spending will be unchanged.
c. then GDP will be unchanged, but consumption spending will be higher.
d. then both GDP and consumption spending will be higher.
If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the
real interest rate is
a. -7.5 percent.
b. -2.5 percent.
c. 2.5 percent.
d. 7.5 percent.
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 rational decisionmaker takes an action if and only if
a. the marginal benefit of the action exceeds the marginal cost of the action.
b. the marginal cost of the action exceeds the marginal benefit of the action.
c. the marginal cost of the action is zero.
d. the opportunity cost of the action is zero.
In a market economy, prices are the signals that guide the allocation of scarce resources.
a. True
b. False
The banking system currently has $10 billion of reserves, none of which are excess.
People hold only deposits and no currency, and the reserve requirement is 10 percent. If
the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1
billion worth of bonds, then by how much does the money supply change?
a. It falls by $12 billion.
b. It falls by $19 billion.
c. It falls by $21 billion.
d. None of the above is correct.
Table 23-8
A country produces only meat and potatoes in the quantities and prices listed below.
Use 2011 as the base year.
RefertoTable23-8. In 2012, GDP deflator is
a. 122.
b. 134.
c. 92.
d. 113.
Which of the following is included in both M1 and M2?
a. savings deposits
b. demand deposits
c. small time deposits
d. money market mutual funds
Table 3-10
Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
Refer to Table3-10. We could use the information in the table to draw a production
possibilities frontier for Japan and a second production possibilities frontier for Korea.
If we were to do this, measuring airplanes along the horizontal axis, then
a. the slope of Japan’s production possibilities frontier would be 5 and the slope of
Korea’s production possibilities frontier would be -3.
b. the slope of Japan’s production possibilities frontier would be 0.2 and the slope of
Korea’s production possibilities frontier would be -0.33.
c. the slope of Japan’s production possibilities frontier would be 0.2 and the slope of
Korea’s production possibilities frontier would be 0.33.
d. the slope of Japan’s production possibilities frontier would be 5 and the slope of
Korea’s production possibilities frontier would be 3.
In 1979, Fed Chair Paul Volcker
a. instituted an accommodative monetary policy to address adverse supply shocks.
b. believed that inflation had not yet reached unacceptable levels.
c. believed decreasing inflation would temporarily decrease output growth.
d. All of the above are correct.
The opening of a new American-owned factory in Algeria would tend to increase
Algeria’s GDP more than it increases Algeria’s GNP because
a. some of the income from the factory accrues to people who do not live in Algeria.
b. gross domestic product is income earned within a country by both residents and
nonresidents, whereas gross national product is the income earned by residents of a
country while producing both at home and abroad.
c. all of the income from the factory is included in Algeria’s GDP.
d. All of the above are correct.
Allied Business Consultants employs five researchers that each work 8 hour days. In
one day the researchers prepared 10 reports for its 2 largest clients. What was Allied
Business Consultants’ productivity?
a. 10 reports
b. 5 reports per client
c. 1.25 reports per hour
d. 1/4 report per hour
The real exchange rate measures the
a. price of domestic currency relative to foreign currency.
b. price of domestic goods relative to the price of foreign goods.
c. rate of domestic and foreign interest.
d. None of the above is correct.
A country with negative net exports has a trade surplus.
a. True
b. False
In a closed economy, if Y and T remained the same, but G rose and C fell but by less
than the rise in G, what would happen to public and national saving?
a. public and national saving would rise
b. public and national saving would fall
c. public saving would rise and national saving would fall
d. public saving would fall and national saving would rise
When public saving falls by $2b and private saving falls by $1b in a closed economy,
a. investment falls by $1b.
b. investment falls by $3b.
c. investment increases by $1b.
d. investment falls by $2b.
Table 23-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2013.
RefertoTable23-6.In 2011, this country’s nominal GDP was
a. $260.
b. $440.
c. $620.
d. $760.
Income generated by a nation’s domestic production
a. is less than its domestic production.
b. is equal to its domestic production.
c. is greater than its domestic production.
d. could be less than, equal to, or greater than its domestic production.
The first element of a financial crisis is
a. inflation.
b. a decline in confidence in financial institutions.
c. a relaxation of rules and regulations that pertain to the financial system.
d. a large decline in some asset prices.
Which of the following is correct?
a. The Continental Congress used the inflation tax to help finance the American
Revolution.
b. The inflation is today a principal source of revenue for the U.S. government.
c. There is no way a person can avoid the inflation tax.
d. Governments can only raise revenues through taxation.
When quantity demanded decreases at every possible price, the demand curve has
a. shifted to the left.
b. shifted to the right.
c. not shifted; rather, we have moved along the demand curve to a new point on the
same curve.
d. not shifted; rather, the demand curve has become flatter.
Suppose that velocity rises while the money supply stays the same. It follows that
a. PxYmust rise.
b. PxYmust fall.
c. PxYmust be unchanged.
d. the effects on PxYare uncertain.
A country has private saving of $100 billion, public saving of -$30 billion, domestic
investment of $50 billion, and net capital outflow of $20 billion. What is its supply of
loanable funds?
a. $50 billion
b. $70 billion
c. $90 billion
d. $120 billion
Other things the same, if the price level falls, domestic interest rates
a. rise, so domestic residents will want to hold more foreign bonds.
b. rise, so domestic residents will want to hold fewer foreign bonds.
c. fall, so domestic residents will want to hold more foreign bonds.
d. fall, so domestic residents will want to hold fewer foreign bonds.
Frictional unemployment can be the consequence of
a. workers leaving existing jobs to find ones they like better.
b. one industry declining while another is growing.
c. changes in the working conditions offered by competing firms.
d. All of the above are correct.
Which list contains, in this order, a country whose real GDP per person grew faster and
one whose real GDP per person grew slower than real GDP per person in the U.S. over
about the last 100 years?
a. Bangladesh, India
b. China, United Kingdom
c. Japan, Brazil
d. Pakistan, Mexico
A barber shop produces 192 haircuts a day. Each barber in the shop works 8 hours per
day and produces the same number of haircuts per hour. If the shop’s productivity is 2
haircuts per hour of labor, then how many barbers does the shop employ?
a. 8
b. 12
c. 16
d. None of the above is correct.
Other things the same, an increase in the U.S. interest rate
a. raises net capital outflow which decreases the quantity of loanable funds demanded.
b. raises net capital outflow which increases the quantity of loanable funds demanded.
c. lowers net capital outflow which decreases the quantity of loanable funds demanded.
d. lowers net capital outflow which increases the quantity of loanable funds demanded.
If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the
dividend per share is $2, then the price-earnings ratio is 10.
a. True
b. False
According to traditional Keynesian analysis, if the economy is in a recession, the
government can move it back towards full employment by
a. cutting taxes and increasing expenditures. The effect of the tax cut is larger.
b. cutting taxes and increasing expenditures. The effect of the tax cut is smaller.
c. raising taxes and decreasing expenditures. The effect of the tax increase is larger.
d. raising taxes and decreasing expenditures. The effect of the tax increase is smaller.
If inflation expectations rise, the short-run Phillips curve shifts
a. right, so that at any inflation rate unemployment is higher in the short run than
before.
b. left, so that at any inflation rate unemployment is higher in the short run than before.
c. right, so that at any inflation rate unemployment is lower in the short run than before.
d. left, so that at any inflation rate unemployment is lower in the short run than before.
Figure 35-6
Use the graph below to answer the following questions.
RefertoFigure35-6. If the economy starts at C and the money supply growth rate
decreases, in the short run the economy moves to
a. B.
b. C.
c. F.
d. None of the above is consistent with a decrease in the money supply growth rate.
How does moral hazard matter in the market for insurance?
Suppose technology advances within a nation. Which curves in the aggregate demand
and aggregate supply model would be affected, and which way would they shift?
Explain the effect of right-to-work laws on the collective bargaining power of labor
unions.
Scenario 3-1
The production possibilities frontiers below show how much Greg and Catherine can
each produce in 8 hours of time.
Refer to Scenario3-1. What is Greg’s opportunity cost of producing ice cream? Explain
how you derived your answer.
Proponents of requiring the government to balance its budget argue that debt burdens
future generations. Explain one claim they make to support this argument.
A bank has $30,000 in deposits and has $5,400 in reserves. What is its reserve ratio?
Scenario 24-5
Suppose the residents of Mediaville spend all of their income on books, CDs, and
DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for
$900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for
$1,250. Assume that the market basket for the CPI is defined in the base year.
RefertoScenario24-5.Using 2009 as the base year, what is the CPI in each year?
What is the theory of efficiency wages? Provide four reasons that employers might pay
efficiency wages.
Unemployment insurance benefits are an example of .
Suppose your bank account pays a 4% interest rate. You are considering purchasing a
share of stock in ABC Corporation for $500. The stock will pay you a $10 dividend at
the end of years 1, 2, and 3. You expect to be able to sell the stock at the end of year 3
for $550. Is ABC a good investment? Provide evidence to support your answer.
Figure 4-28
RefertoFigure4-28.Using the points on the figure, describe the change that would
occur if a news report stated that the price of this good was expected to increase next
week.
List two ways a risk adverse person may attempt to reduce risks.
Discuss the statistical evidence concerning the efficient markets hypothesis.
In the circular flow diagram what are the three types of payments from firms to factors
of production? Is the sum of these payments greater than, less than, or equal to GDP?
Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24.
Is this comparatively high or low? What are two explanations for the size of this
company’s price to earnings ratio?