All of the following cause structural unemployment EXCEPT:
A) a government-mandated floor on the price of labor set above the equilibrium wage.
B) collective bargaining efforts that secure higher wages for unionized workers than for
nonunionized workers.
C) offering high wages to attract high-quality workers.
D) granting Social Security benefits to laid-off workers.
Table: International Transactions
Look at the table International Transactions. The balance of payments on goods and
services is:
A) $51,000.
B) $48,000.
C) $3,000.
D) “$29,000.
The real exchange rate between the U.S. dollar and the Indian rupee is the:
A) exchange rate between the dollar and the rupee.
B) exchange rate between the dollar and the rupee divided by the price level in India.
C) amount of Indian rupees per dollar multiplied by the relative price levels in the
United States and India.
D) official exchange rate between the dollar and the rupee quoted by the banks in the
United States and India.
Money is:
A) any form of wealth.
B) an asset that can be easily used to purchase goods and services.
C) only currency designated by law.
D) only currency in circulation.
In the income”expenditure model, expansionary monetary policy leads to _____ interest
rates, a(n) _____ in planned investment spending, and a(n) _____ in equilibrium GDP.
A) lower; increase; increase
B) lower; decrease; increase
C) higher; increase; increase
D) higher; decrease; decrease
Holding everything else constant, if the required reserve ratio falls:
A) the money multiplier increases.
B) a $1 loan can lead to a smaller change in the money supply than before the change in
the required reserve ratio.
C) the amount of excess reserves falls also.
D) the money multiplier decreases.
The market for soybeans is initially in equilibrium. Because of mad cow disease,
producers decide to replace bone meal with soybeans in cattle feed. The likely effect is
that:
A) the equilibrium price and quantity of soybeans will rise.
B) the equilibrium price and quantity of soybeans will fall.
C) the equilibrium quantity of soybeans will rise, but we can’t determine what will
happen to the equilibrium price.
D) the equilibrium price of soybeans will rise, but we can’t determine what will happen
to the equilibrium quantity.
Figure: Crowding Out
Look at the figure Crowding Out. If the demand for loanable funds curve shifts to the
right, the result will be a(n) _____ in the interest rate and a(n) _____ in the total amount
of borrowing in the funds market.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Which of the following is a normative statement?
A) International trade leads to expanded consumption opportunities.
B) Higher expenditures on health care will reduce infant mortality rates.
C) To improve our economic security, we should reduce our dependence on oil imports.
D) Increased defense spending will lead to higher budget deficits.
If a bank has deposits of $100,000, loans of $75,000, cash on hand of $10,000, and
$15,000 on deposit at the Federal Reserve, then its reserve ratio is:
A) 5%.
B) 10%.
C) 12.5%.
D) 25%.
The producer price index measures changes in the cost of a market basket of raw
commodities, such as steel, electricity, and coal.
A) True
B) False
The multiplier effect of government purchases of goods and services:
A) has a more direct and bigger impact than an equal amount of tax changes.
B) has a less direct and smaller impact than an equal amount of tax changes.
C) is a type of automatic stabilizer.
D) is useful for recessions but not for inflation.
Suppose you have estimated the supply curve for the local labor market as Qs = W ” 5,
where W is the hourly wage and Qs is the quantity of workers willing to work at each
wage. You have estimated the demand curve for the local labor market as Qd, = 25 ” W,
where W is the hourly wage and Qd is the quantity of workers demanded by employers
at each wage.
a. Solve for the equilibrium wage and quantity of labor.
b. If the government imposes a minimum wage of $18, what are the size of the labor
force, the number of unemployed workers, and the unemployment rate?
If your disposable personal income increases from $10,000 to $15,000 and your
consumption increases from $9,000 to $13,000, your marginal propensity to consume
is:
A) 0.2.
B) 0.4.
C) 0.6.
D) 0.8.
The recession that began in 1929 turned into the Great Depression primarily because of:
A) the banking crisis.
B) the beginning of World War II.
C) taxes that were too low to finance government programs to end the recession.
D) powerful labor unions that demanded high wages and generous benefits.
A change in taxes shifts the aggregate demand curve by less than a change in
government spending for goods and services and has a smaller effect on real GDP.
A) True
B) False
Automatic stabilizers are government spending and taxation changes that cause fiscal
policy to be _____ when the economy contracts.
A) expansionary
B) contractionary
C) neutral
D) ineffective
The Ricardian model of international trade assumes that countries have the usual
bowed-out (concave to the origin) production possibility frontiers.
A) True
B) False
The PPI and the consumer price index are both price indexes.
A) True
B) False
When shadow banks engage in maturity transformation, they raise funds by _____ and
invest in _____.
A) issuing stock; stock of other companies
B) selling bonds; Treasury bills
C) borrowing in short-term credit markets; longer-term speculative investments
D) borrowing in long-term credit markets; short-term speculative investments
If the U.S. dollar changes from $1 = €1 to $0.80 = €1:
A) the dollar has depreciated relative to the euro.
B) the dollar has been fixed by the United States and the euro bloc.
C) the dollar has appreciated relative to the euro.
D) U.S. goods are now cheaper in the eurozone.
The argument that households and firms view an increase in government spending as a
sign that taxes will rise in the future and decrease current spending in anticipation of
higher future taxes is called:
A) debt overhang.
B) the natural rate hypothesis.
C) supply-side economics.
D) Ricardian equivalence.
Total factor productivity:
A) is the amount of output produced from a given amount of factor inputs.
B) is not an essential element in long-run growth.
C) is less important than technological progress.
D) cannot be used to explain how contributions of factors of production affect a
country’s growth.
Positive economics is the branch of economics that makes prescriptions about the way
the economy should work.
A) True
B) False
If overall spending declines and thus the economy contracts, the government could
counter this by:
A) raising tax rates.
B) decreasing government transfers.
C) increasing government spending.
D) decreasing government spending.
Steel manufactured to make a car is not counted in aggregate output, but the car that
results is counted.
A) True
B) False
Figure: Hot Drinks Sold and Temperature
Look at the figure Hot Drinks Sold and Temperature. If we move from point J to point
L in the figure, the outside temperature has ______ degrees and the number of hot
drinks sold has ______.
A) decreased by 30; increased by 30
B) increased by 20; decreased by 20
C) increased by 30; decreased by 30
D) increased by 40; decreased by 40
The rule of 70 tells us that:
A) it takes most countries 70 years to increase real GDP growth.
B) the number of years it takes for a variable to double is equal to 70 divided by the
annual growth rate of the variable.
C) the number of years for real GDP per capita to double is the current growth rate plus
70.
D) only 70 countries can have real GDP growth at any given time.
A choice made _____ is a choice whether to do a little more or a little less of
something.
A) at the fringe
B) in the beginning
C) at the margin
D) after the fact
Figure: Monetary Policy I
Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E2and
the central bank chooses to buy Treasury bills, _____shift to _____ a(n) _____ gap.
A) AD2will; right, causing; inflationary
B) AD2may; AD1, causing; recessionary
C) AD1may; AD2, closing; recessionary
D) AD1will; left, increasing; recessionary
If the government wants to increase the value of its currency in foreign exchange
markets, it can sell its domestic currency in the foreign exchange market.
A) True
B) False
Lena and Jess are roommates. Lena hates to clean the bathroom. Jess will agree to clean
the bathroom only if Lena vacuums the living room. This statement best represents this
economic concept:
A) The real cost of something is what you must give up to get it.
B) “How much” is a decision at the margin.
C) People usually exploit opportunities to make themselves better off.
D) There are gains from trade.
A rise in real GDP that is the same as the rate of population growth leaves the average
standard of living unchanged.
A) True
B) False
The Great Depression was ended in the United States by:
A) the government running budget surpluses throughout the 1930s.
B) the government increasing the money supply throughout the 1930s.
C) central planning of the economy by the government.
D) the huge amounts of government spending required to fight WWII during the early
1940s.