If a good is normal, then an increase in income will result in a(n)
a. increase in the demand for the good.
b. decrease in the demand for the good.
c. movement down and to the right along the demand curve for the good.
d. movement up and to the left along the demand curve for the good.
Figure 2-5
Refer to Figure2-5. Suppose this economy is producing at point D. Which of the
following statements would best explain this situation?
a. The economy has insufficient resources to produce at a more desirable point.
b. The economy’s available technology prevents it from producing at a more desirable
point.
c. There is widespread unemployment in the economy.
d. Any of the above statements would be a legitimate explanation for this situation.
The country of Elbia has a GDP of $2,000, consumption of $1,300, and government
purchases of $400. Which of the following is equal to $300?
a. domestic investment
b. domestic investment plus net capital outflow
c. domestic investment minus net capital outflow
d. None of the above is correct.
Which of the following is correct?
a. Nominal GDP is always less than real GDP.
b. Nominal GDP is always greater than real GDP.
c. Nominal GDP equals real GDP in the base year.
d. Nominal GDP equals real GDP in all years but the base year.
Suppose a Starbucks tall latte cost $4.00 in the United States and 2.50 euros in the Euro
area. Also, suppose a McDonald’s Big Mac costs $4.50 in the United States and 3.60
euros in the Euro area. If the nominal exchange rate is .80 euros per dollar, which goods
have prices that are consistent with purchasing-power parity?
a. both the tall latte and the Big Mac
b. the tall latte but not the Big Mac
c. the Big Mac but not the tall latte
d. neither the Big Mac nor the tall latte
If U.S. citizens decide to purchase more foreign assets at each interest rate, the U.S. real
interest rate
a. increases, the real exchange rate of the dollar appreciates, and U.S. net capital
outflow decreases.
b. increases, the real exchange rate of the dollar depreciates, and U.S. net capital
outflow increases.
c. decreases, the real exchange rate of the dollar depreciates, and U.S. net capital
outflow decreases.
d. decreases, the real exchange rate of the dollar appreciates, and U.S. net capital
outflow increases.
Other things the same, the effects of an increase in transfer payments on the
government’s budget deficit will lead to
a. greater investment.
b. a higher interest rate.
c. higher public saving.
d. All of the above are correct.
In order for currency to be widely used as a medium of exchange, it is sufficient for the
government to designate it as legal tender.
a. True
b. False
Markovich Corporation is considering building a new plant. It will cost $1 million
today to build it and it will generate revenues of $1.121 million three years from today.
Of the interest rates below, which is the highet interest rate at which Markovich still
would be willing to build the plant?
a. 3 percent
b. 3.5 percent
c. 4 percent
d. 4.5 percent
If the real interest rate were above the equilibrium rate, there would be a shortage of
loanable funds.
a. True
b. False
Which of the following items is included in U.S. GDP?
a. the estimated value of production accomplished at home, such as backyard
production of fruits and vegetables
b. the value of illegally-produced goods and services
c. the value of cars and trucks produced in foreign countries and sold in the U.S.
d. None of the above is included in U.S. GDP.
Tami knows that people in her family die young, and so she buys life insurance. Preston
knows he is a reckless driver and so he applies for automobile insurance.
a. These are both examples of adverse selection.
b. These are both examples of moral hazard.
c. The first example illustrates adverse selection, and the second illustrates moral
hazard.
d. The first example illustrates moral hazard, and the second illustrates adverse
selection.
Table31-1
RefertoTable31-1.What are Bolivia’s net exports?
a. $30 billion
b. $5 billion
c. -$5 billion
d. -$25 billion
Since economists cannot use natural experiments offered by history, they must use
carefully constructed laboratory experiments instead.
a. True
b. False
Choosing not to attend a concert so that you can study for your exam is an example of a
tradeoff.
a. True
b. False
Assuming that the substitution effect is large relative to the income effect, tax reform
designed to increase saving
a. increases the interest rate and decreases spending on capital goods.
b. increases the interest rate and increases spending on capital goods.
c. decreases the interest rate and increases spending on capital goods.
d. decreases the interest rate and decreases spending on capital goods.
A demand curve displaying the relationship between the price of cars and the quantity
demanded of cars should have a slope that is
a. less than 0.
b. between zero and 1.
c. between one and infinity.
d. undefined.
If the interest rate is 8 percent, then the present value of $1,000 to be received in 4 years
is $735.03.
a. True
b. False
Table 24-6
The table below pertains to Napandsnack, an economy in which the typical consumer’s
basket consists of 2 pillows and 15 hotdogs.
RefertoTable24-6. If the base year is 2011, then the consumer price index was
a. 125.0 in 2009, 150.0 in 2010, and 145.0 in 2011.
b. 86.2 in 2009, 96.7 in 2010, and 100.0 in 2011.
c. 86.2 in 2009, 103.4 in 2010, and 100.0 in 2011.
d. 124.1 in 2009, 103.4 in 2010, and 100.0 in 2011.
According to the rule of 70,if a person’s saving doubles in 10 years, what interest rate
were they earning?
a. 3.5
b. 7
c. 14
d. None of the above is correct.
The inflation rate reported in the news is usually calculated from the GDP deflator
rather than the consumer price index.
a. True
b. False
The labor-force participation rate measures the percentage of the
a. total adult population that is in the labor force.
b. total adult population that is employed.
c. labor force that is employed.
d. labor force that is either employed or unemployed.
If people decide that some country is now a more risky place to keep their saving, then
at the original interest rate in that country there is a
a. surplus of loanable funds, so the interest rate increases.
b. surplus of loanable funds, so the interest rate decreases.
c. shortage of loanable funds, so the interest rate increases.
d. shortage of loanable funds, so the interest rate decreases.
Government policies designed to equalize the distribution of economic well-being
include
(i) the welfare system
(ii) unemployment insurance
(iii) progressive income tax
a. (i) only
b. (ii) only
c. (i) and (ii) only
d. (i), (ii), and (iii)
Monetary policy is determined by
a. the president and Congress and involves changing government spending and taxation.
b. the president and Congress and involves changing the money supply.
c. the Federal Reserve and involves changing government spending and taxation.
d. the Federal Reserve and involves changing the money supply.
Which of the following items is included in U.S. GDP?
a. goods produced by foreign citizens working in the United States
b. the difference in the price of the sale of an existing home and its original purchase
price
c. known illegal activities
d. None of the above is included in U.S. GDP.
A U.S. firm opens a factory that produces power tools in Korea.
a. This increases U.S. net capital outflow and decreases Korean net capital outflow.
b. This decreases U.S. net capital outflow and increases Korean net capital outflow.
c. This increases only U.S. net capital outflow.
d. This increases only Korean net capital outflow.
Suppose the central bank decreases the growth rate of the money supply. In the short
run, this policy change will affect
a. both the unemployment rate and the inflation rate.
b. the unemployment rate but not the inflation rate.
c. the inflation rate but not the unemployment rate.
d. neither the inflation rate nor the unemployment rate.
An increase in the price of bread produced domestically will be reflected in
a. both the GDP deflator and the consumer price index.
b. neither the GDP deflator nor the consumer price index.
c. the GDP deflator but not in the consumer price index.
d. the consumer price index but not in the GDP deflator.
For an economy that engages in international trade, GDP is divided into four
components. Which of the following items is notone of those components?
a. consumption.
b. national saving.
c. government purchases.
d. net exports.
When prices are falling, economists say that there is
a. disinflation.
b. deflation.
c. a contraction.
d. an inverted inflation.
Janet is a farmer. Which of the following are included in her human capital?
a. her tractor and what she’s learned from experience
b. her tractor but not what she’s learned from experience
c. what she’s learned from experience but not her tractor
d. neither her tractor nor what she’s learned from experience
Demonstrate that whether you would prefer to have $225 today or wait five years for
$300 depends on the interest rate. Show your work.
Scenario 4-1
Suppose the demand schedule in a market can be represented by the equation
, where is the quantity demanded and is the price. Also, suppose the
supply schedule can be represented by the equation , where is the quantity supplied.
RefertoScenario4-1. What is the equilibrium price in this market?
The fractional reserve characteristic of the banking system allows banks to create
money and also create wealth from bank deposits. Describe why this statement is or is
not true.
An increase in taxes shifts the aggregate curve to the .
If a country makes political reforms so that people now believe this country’s assets are
less risky, what happens to its interest rate, its exchange rate, and its net exports?
Which component of GDP includes spending on new structures and equipment?
Explain how real GDP differs from nominal GDP.
What is a production function? Write an equation for a typical production function, and
explain what each of the terms represents.
Teenage unemployment is higher than unemployment of people ages 20 and over.
Explain why economists would attribute at least part of this difference to
minimum-wage laws.
Consider the nations of India, Indonesia, and Japan. Over the past century, which of
these three nations has experienced, by far, more rapid economic growth than the other
two nations?
Discuss why the Fed rarely changes the reserve requirements.
A country recently had a trade deficit of $2.5 trillion and purchased $3 trillion of
foreign assets. How many of its assets did foreigners purchase?
What word do we use to refer to the amount of goods and services produced for each
hour of a worker’s time?
Table 23-11
The country of Batavia produces only chocolates and watches. Below is a table with
recent information on Batavia production and prices. The base year is 2009.
Prices and Quantities
Refer to Table 23-11.
What was nominal GDP, real GDP, and the GDP deflator for 2011? Show your work.
Figure 25-1
RefertoFigure21-1. In order for the figure to make sense, do we have to assume that
capital is the only determinant of output? Briefly explain.
Suppose that the government increases expenditures by $150 billion while increasing
taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out
or accelerator effects. What is the combined effect of these changes? Why is the
combined change not equal to zero?