Suppose the price index was 100 in 2004, 118 in 2005, and the inflation rate was lower
between 2005 and 2006 than it was between 2004 and 2005. This means that
a. the price index in 2006 was lower than 118.
b. the price index in 2006 was lower than 136.
c. the price index in 2006 was lower than 139.24.
d. the inflation rate between 2005 and 2006 was lower than 1.18 percent.
To say that government intervenes in the economy to promote efficiency is to say that
government is attempting to
a. create a more fair distribution of income.
b. change the way in which the economic pie is divided.
c. enlarge the economic pie.
d. All of the above are correct.
Country A has a higher money supply growth rate and a long-run Phillips curve that is
farther to the left than country B’s. In the long run as compared to country B, country A
will have
a. lower unemployment and higher inflation
b. higher unemployment and higher inflation
c. lower unemployment and lower inflation
d. None of the above is necessarily correct.
Figure 14-4. The figure shows a utility function for Dexter.
Refer to Figure 14-4. From the appearance of the utility function, we know that
a. Dexter is risk averse.
b. Dexter gains more satisfaction when his wealth increases by X dollars than he loses
in satisfaction when his wealth decreases by X dollars.
c. the property of decreasing marginal utility applies to Dexter.
d. All of the above are correct.
The wealth effect stems from the idea that a higher price level
a. increases the real value of households’ money holdings.
b. decreases the real value of households’ money holdings.
c. increases the real value of the domestic currency in foreign-exchange markets.
d. decreases the real value of the domestic currency in foreign-exchange markets.
The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As
a result,
a. U.S. government purchases increase by $30,000; U.S. net exports decrease by
$30,000; and U.S. GDP is unaffected.
b. U.S. government purchases increase by $30,000; U.S. net exports are unaffected; and
U.S. GDP increases by $30,000.
c. U.S. government purchases, net exports, and GDP are unaffected.
d. U.S. government purchases are unaffected; U.S. net exports decrease by $30,000; and
U.S. GDP decreases by $30,000.
Figure 9-2
Refer to Figure 9-2. Without trade, producer surplus is
a. $210.
b. $245.
c. $455.
d. $490.
In the actual economy, goods and services are purchased by
a. households, but not firms or the government.
b. households and firms, but not the government.
c. households and the government, but not firms.
d. households, firms, and the government.
The classical dichotomy and monetary neutrality are represented graphically by
a. an upward-sloping long-run aggregate-supply curve.
b. a vertical long-run aggregate-supply curve.
c. an upward-sloping short-run aggregate-curve.
d. a downward-sloping aggregate-demand curve.
Zero inflation
a. might be dangerous because it could lead to rapidly increasing prices.
b. would limit the flexibility of the labor market and so could at times raise
unemployment.
c. would make it easy for the Central bank to create negative real interest rates.
d. is impossible to achieve in the real world.
Sam deposits money into an account with a nominal interest rate of 4 percent. He
expects inflation to be 1.5 percent. His tax rate is 20 percent. Sam’s after-tax real rate of
interest
a. will be 2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation
turns out to be lower than 1.5 percent.
b. will be 2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation
turns out to be lower than 1.5 percent.
c. will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation
turns out to be lower than 1.5 percent.
d. will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation
turns out to be lower than 1.5 percent.
Which of the following statements is valid when the market supply curve is vertical?
a. Market quantity supplied does not change when the price changes.
b. Supply is perfectly elastic.
c. An increase in market demand will increase the equilibrium quantity.
d. An increase in market demand will not increase the equilibrium price.
Which of the following statistics is usually regarded as the best single measure of a
society’s economic well-being?
a. the unemployment rate
b. the inflation rate
c. gross domestic product
d. the trade deficit
Table 10-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2009.
Prices and Quantities
Refer to Table 10-6. This country’s inflation rate from 2010 to 2011 was
a. 15.2%.
b. 25.4%.
c. 34.1%.
d. 43.9%.
If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the
money supply to fall by as much as
a. $60,000.00.
b. $66,666.67.
c. $90,900.00.
d. $100,555.56.
If the efficient market hypothesis is correct, then
a. index funds should typically beat managed funds, and usually do.
b. index fund should typically beat managed funds, but usually do not.
c. mutual funds should typically beat index funds, and usually do.
d. mutual funds should typically beat index funds, but usually do not.
In a recent research paper published by the European Central Bank, two economists
concluded that
a. tax revenue would increase in Denmark and Sweden if tax rates on capital income
were reduced in those countries.
b. tax revenue would increase in Denmark and Sweden if tax rates on labor income
were reduced in those countries.
c. tax revenue would increase in the U.S. if tax rates on capital income were reduced in
the U.S.
d. tax revenue would increase in the U.S. if tax rates on labor income were reduced in
the U.S.
Figure 8-9
The vertical distance between points A and C represent a tax in the market.
Refer to Figure 8-9. The total surplus with the tax is
a. $2,000.
b. $3,000.
c. $15,000.
d. $20,000.
Which of the following is not correct?
a. Taxes levied on sellers and taxes levied on buyers are not equivalent.
b. A tax places a wedge between the price that buyers pay and the price that sellers
receive.
c. The wedge between the buyers’ price and the sellers’ price is the same, regardless of
whether the tax is levied on buyers or sellers.
d. In the new after-tax equilibrium, buyers and sellers share the burden of the tax.
A decrease in the money supply creates an excess
a. supply of money that is eliminated by rising prices.
b. supply of money that is eliminated by falling prices.
c. demand for money that is eliminated by rising prices.
d. demand for money that is eliminated by falling prices.
When taxes increase, consumption
a. increases, so aggregate demand shifts right.
b. increases, so aggregate supply shifts right.
c. decreases, so aggregate demand shifts left.
d. decreases, so aggregate supply shifts left.
Productivity
a. is nearly the same across countries, and so provides no help explaining differences in
the standard of living across countries.
b. explains very little of the differences in the standard of living across countries.
c. explains some, but not most of the differences in the standard of living across
countries.
d. explains most of the differences in the standard of living across countries.
In 1995 House Speaker Newt Gingrich threatened to send the United States into default
on its debt. During the day of this announcement, U.S. interest rates rose and the real
exchange rate of the U.S. dollar depreciated. Which of these changes is consistent with
the results of the open-economy macroeconomic model?
a. the increase in U.S. interest rates
b. the depreciation of the real exchange rate of the U.S. dollar
c. Both a and b are consistent.
d. Neither a nor b are consistent.
The inflation rate is calculated
a. by determining the change in the price index from the preceding period.
b. by adding up the price increases of all goods and services.
c. by computing a simple average of the price increases for all goods and services.
d. by determining the percentage increase in the price index from the preceding period.
If a central bank reduced inflation by 2 percentage points and that made output fall by 3
percentage points for 2 years and the unemployment rate rise from 3 percent to 5
percent for 2 years, the sacrifice ratio is
a. 1.
b. 2.
c. 3.
d. None of the above is correct.
A normative economic statement such as “The minimum wage should be abolished”
a. would likely be made by an economist acting as a scientist.
b. would require values and data in order to be evaluated.
c. would require data but not values in order to be evaluated.
d. could not be evaluated by economists acting as policy advisers.
Which of the following is not always correct for a closed economy?
a. National saving equals private saving plus public saving.
b. Net exports equal zero.
c. Real GDP measures both income and expenditures.
d. Private saving equals investment.
In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market
a. boom at that time reflected “irrational exuberance.”
b. decline at that time reflected “irrational funk.”
c. boom at that time reflected “rational exuberance.”
d. decline at that time reflected “rational funk.”
Assume an economy experienced a positive rate of inflation between 2003 and 2004
and again between 2004 and However, the inflation rate was lower between 2004 and
2005 than it was between 2003 and 2004. Which of the following scenarios is
consistent with this assumption?
a. The CPI was 100 in 2003, 110 in 2004, and 105 in 2005.
b. The CPI was 100 in 2003, 120 in 2004, and 135 in 2005.
c. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.
d. The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.
Figure 22-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve
and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the
unemployment rate.
Refer to Figure 22-1. Suppose points F and G on the right-hand graph represent two
possible outcomes for an imaginary economy in the year 2012, and those two points
correspond to points B and C, respectively, on the left-hand graph. Then it is apparent
that the price index equaled
a. 130 in 2011.
b. 115 in 2011.
c. 110 in 2011.
d. 100 in 2011.
Scenario 16-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The
local currency is the dia. Namdian banks collectively hold 100 million dias of required
reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury
Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use
only demand deposits and so the money supply consists of demand deposits.
Refer to Scenario 16-1. Assume that banks desire to continue holding the same ratio of
excess reserves to deposits. What is the reserve requirement and what is the reserve
ratio?
a. 2 percent, 8 percent
b. 8 percent, 10 percent
c. 10 percent, 12.5 percent
d. None of the above is correct.
The introduction of a union into an industry
a. creates a surplus of labor and so raises unemployment.
b. creates a surplus of labor and so reduces unemployment.
c. creates a shortage of labor and so raises unemployment.
d. creates a shortage of labor and so reduces unemployment.