Investment in human capital has opportunity costs, but investment in physical capital
does not.
a. True
b. False
Inflation
a. leads people to use more resources to reduce money holdings. There is no way it can
make labor markets work more efficiently.
b. leads people to use more resources to reduce money holdings. However, it can make
labor markets work more efficiently.
c. leads people to use fewer resources to reduce money holdings. There is no way it can
make labor markets work more efficiently
d. leads people to use fewer resources to reduce money holdings. However, it can make
labor markets work more efficiently.
Two goods are complements when a decrease in the price of one good
a. decreases the quantity demanded of the other good.
b. decreases the demand for the other good.
c. increases the quantity demanded of the other good.
d. increases the demand for the other good.
Because the liquidity-preference framework focuses on the
a. short run, it assumes the price level adjusts to bring the money market to equilibrium.
b. short run, it assumes the interest rate adjusts to bring the money market to
equilibrium.
c. long run, it assumes the price level adjusts to bring the money market to equilibrium.
d. long run, it assumes the interest rate adjusts to bring the money market to
equilibrium.
Equality refers to how the pie is divided, and efficiency refers to the size of the
economic pie.
a. True
b. False
As a money management fee, mutual funds usually charge their customers
a. between 0.5 and 2.0 percent of assets each year.
b. between 1.5 and 3.0 percent of assets each year.
c. nothing, because they receive commissions from the firms whose stock they buy.
d. a flat fee of about $50.
Suppose you purchase a savings bond today for $25. In seven years you may cash in the
savings bond for $50. What is the approximate interest rate paid by the savings bond?
a. 5%
b. 10%
c. 15%
d. 20%
In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo
where he gave away much gold, which was in use as a medium of exchange. We would
predict that this increase in gold
a. raised both the price level and the value of gold in Cairo.
b. raised the price level, but decreased the value of gold in Cairo.
c. lowered the price level, but increased the value of gold in Cairo.
d. lowered both the price level and the value of gold in Cairo.
To decrease the interest rate the Federal Reserve could
a. buy bonds. The fall in the interest rate would increase investment spending.
b. buy bonds. The fall in the interest rate would decrease investment spending.
c. sell bonds. The fall in the interest rate would increase investment spending
d. sell bonds. The fall in the interest rate would decrease investment spending.
An increase in the expected price level shifts short-run aggregate supply to the
a. right, and an increase in the actual price level shifts short-run aggregate supply to the
right.
b. right, and an increase in the actual price level does not shift short-run aggregate
supply.
c. left, and an increase in the actual price level shifts short-run aggregate supply to the
left.
d. left, and an increase in the actual price level does not shift short-run aggregate
supply.
Suppose the demand for calendars increases in November. At the same time, the price
of the ink used in the production of calendars increases. In the market for calendars, the
equilibrium price rises, but the effect on the equilibrium quantity is ambiguous.
a. True
b. False
RefertoFigure4-27. Panel (b) shows which of the following?
a. a decrease in demand and a decrease in quantity supplied
b. a decrease in demand and a decrease in supply
c. a decrease in quantity demanded and a decrease in quantity supplied
d. a decrease in quantity demanded and a decrease in supply
The Federal Reserve was created
a. in 1913 by Congress
b. as a result of the Great Depression
c. according to the standards enforced by NATO
d. by President Kennedy
Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide
and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog
chews. With each $1 worth of rawhide that it buys from Rolling Rawhide, Chewy
Chomp, Inc. produces a dog chew and sells it for $2.50. Neither firm had any inventory
at the beginning of 2014. During that year, Rolling Rawhide produced enough rawhide
for 2000 dog chews. Chewy Chomp, Inc. bought 90% of that rawhide for $1800 and
promised to buy the remaining 10% for $200 in 2015. Chewy Chomp, Inc. produced
1800 dog chews during 2014 and sold each one during that year for $2.50. What was
the economy’s GDP for 2014?
a. $3,800
b. $4,500
c. $4,700
d. $5,000
Figure 27-6. On the graph, x represents risk and y represents return.
RefertoFigure27-6.Point A represents a situation in which
a. all of a person’s savings are allocated to a class of safe assets.
b. the person knows with certainty that his or her return will be 3 percent.
c. the standard deviation of the person’s portfolio is zero.
d. All of the above are correct.
Figure27-1. The figure shows a utility function.
RefertoFigure27-1. Which distance along the vertical axis represents the marginal
utility of an increase in wealth from $600 to $800?
a. the distance between the origin and point B
b. the distance between the origin and point C
c. the distance between point A and point C
d. the distance between point B and point C
ReformingtaxlawstoencouragesavingismovatedbywhichoheTePrincipleofEconomicfr
omChapter1?
a. The cost of something is what you give up to get it (Principle 2).
b. Trade can make everyone better off (Principle 5).
c. Markets are usually a good way to organize economic activity (Principle 6).
d. A country’s standard of living depends on its ability to produce goods and services
(Principle 8).
Almost all economists agree that rent control
a. has no effect on the rental income of landlords.
b. allows the market for housing to work more efficiently.
c. adversely affects the availability and quality of housing.
d. is a very inexpensive way to help the most needy members of society.
John Maynard Keynes believed the ideas of economists to be
a. generally incorrect.
b. powerful.
c. academic and without practical application.
d. rantings of madmen.
Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal,
international tensions, and loss of confidence in policymakers, people become
pessimistic regarding the future and retain that level of pessimism for some time.
RefertoPessimism.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.
The population growth rate tends to be higher in developed countries than in developing
countries.
a. True
b. False
A larger budget deficit
a. raises the interest rate and investment.
b. reduces the interest rate and investment.
c. raises the interest rate and reduces investment.
d. reduces the interest rate and raises investment.
The signals that guide the allocation of resources in a market economy are
a. surpluses and shortages.
b. quantities.
c. government policies.
d. prices.
Country A and country B both increase their capital stock by one unit. Output in
country A increases by 10 while output in country B increases by 8. Other things the
same, diminishing returns implies that country A is
a. richer than Country B. If Country A adds another unit of capital, output will increase
by more than 10 units.
b. richer than Country B. If Country A adds another unit of capital, output will increase
by less than 10 units.
c. poorer than Country B. If Country A adds another unit of capital, output will increase
by more than 10 units.
d. poorer than Country B. If Country A adds another unit of capital, output will increase
by less than 10 units.
In the open-economy macroeconomic model, other things the same, an increase in the
exchange rate raises the quantity of dollars supplied in the market for foreign-currency
exchange.
a. True
b. False
Figure 33-7.
RefertoFigure33-7. Suppose the economy starts at Y. If aggregate demand increases
from AD2to AD3, then the economy moves to
a. V.
b. W.
c. X.
d. Z.
Figure 23-1.
RefertoFigure23-1. Which of the following pairs correctly identify W and Y?
a. markets for factors of production and markets for goods and services
b. firms and households
c. expenditures and income
d. consumption and investment
Pizza is a normal good if the demand
a. for pizza rises when income rises.
b. for pizza rises when the price of pizza falls.
c. curve for pizza slopes upward.
d. curve for pizza shifts to the right when the price of burritos rises, assuming pizza and
burritos are substitutes.
Unemployment insurance causes workers to be less likely to seek guarantees of job
security when they negotiate with employers over the terms of employment.
a. True
b. False
Table 4-6
RefertoTable4-6.Which supply schedules obey the law of supply?
a. Firm A’s only
b. Firm B’s, Firm C’s, and Firm D’s only
c. Firm A’s and Firm C’s only
d. Firm B’s and Firm D’s only
What are inward-oriented policies? Do most economists recommend these types of
policies to poor countries?
If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a
bank account that paid 14%, what is after tax real interest rate? Show you work.
What’s the basis for arguing that deficits are likely to lead to lower living standards in
the future?
Calculate GDP for an economy with exports of $5 trillion, investment of $1.5 trillion,
consumption spending of $11 trillion, imports of $6 trillion, and government purchases
of $3 trillion.
Figure 33-12.
RefertoFigure33-12. Identify periods 1 and 2.
Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the
amounts shown in the table below. Assume that the market basket for the CPI is defined
in the base year.
RefertoScenario24-6.Using 2010 as the base year, what is the CPI in each year?
Should a person who is risk averse hold a portfolio with no stock and only bonds?
Explain.
Why might someone be willing to pay more than the fundamental value for a stock?
Since it is counted as investment, why doesn’t the purchase of earthmoving equipment
from China by a U.S. corporation increase U.S. GDP?
Other things the same, what happens in the longruto the price level and quantity of
output after a contraction in aggregate demand?
In addition to the tax code, other policies reduce the incentives for people to save
Provide an example.
The ease with which an asset can be converted into the economy’s medium of exchange
is known as__________________.
Suppose your bank account pays a 5% interest rate. You are considering purchasing a
share of stock in DH Corporation for $250. The stock will pay you a $10 dividend at the
end of years 1, 2, 3, 4, and 5. You expect to be able to sell the stock at the end of year 5
for $300. Is DH a good investment? Provide evidence to support your answer.
What is a bond buyer promised when she buys a bond?
Jack’s Lock and Key is considering remodeling. It estimates that the remodeling will
cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the
second year, $1,500 the third year and have no effect after then. If the interest rate is
5%, should Jack’s remodel? Defend your answer by showing your work.
Use the sticky-wage theory of aggregate demand to explain the short-run Phillips curve.
What type of statement is a descriptive statement about how the world is?