Interest payments on the national debt are not a problem because we owe all of it to
ourselves.
As a lender of last resort, the Fed avoids most financial crisis by providing liquidity to
the financial system.
If the exchange rate between dollars and pesos is 10 Mexican pesos per dollar, it is also
$0.10 per Mexican peso.
At any given level of the interest rate, expectations are likely to be more optimistic and
planned investment is likely to be higher when output is growing rapidly than when it is
growing slowly.
The CPI somewhat overstates changes in the cost of living while the GDP chain index
does not.
An increase in the size of the capital stock will shift the production function up.
Inflation must be high in Moscow because it is very expensive to live there.
Recall the Application about how to estimate the shifts in the natural rate of
unemployment to answer the following question(s).
According to the expectations Phillips curve, the unemployment rate and the inflation
rate are inversely related.
Underground activities pertain to all unreported economic activity in the economy.
When some item on a bank’s balance sheet changes, there must be at least one other
change somewhere else to maintain balance.
People will buy more of a normal good when their income decreases.
Using assumptions to make things simpler and focus attention on what really matters is
like using a road map to plan a trip.
Which of the following statements is true?
A) The long-term interest rates are the average of the current short-term interest rate
and the expected future short-term rates.
B) The short-term interest rates are the average of the current long-term interest rate and
the expected future short-term rates.
C) The long-term interest rates are independent of the current short-term interest rate
and the expected future short-term rates.
D) The long-term interest rates are the sum of the current short-term interest rate and
the expected future short-term rates.
Recall Application 3, “Social Norms, Unemployment, and Perceived Happiness,” to
answer the following questions:
According to the application, people’s well-being declined when:
A) they become unemployed.
B) others around them become unemployed.
C) their wages decrease.
D) both A and B are correct.
Suppose that the quantity demanded for cars exceeds the quantity supplied of cars. We
would expect that:
A) the price of cars will increase.
B) the price of cars will decrease.
C) the supply will increase to meet the demand.
D) the demand will decrease to meet the supply.
Ceteris paribus, as real GDP expected growth ________, investment spending
________.
A) increases; decreases
B) increases; increases
C) decreases; increases
D) changes; does not usually change
A $300 billion decrease in both government spending and taxes will
A) decrease GDP by more than $300 billion.
B) decrease GDP by $300 billion.
C) decrease GDP by less than $300 billion.
D) not change the level of GDP.
During the Kennedy Era, the highest tax rate for an individual was:
A) 91 percent.
B) 40 percent.
C) 33 percent.
D) 10 percent.
Figure 19.2
Refer to Figure 19.2. The demand and supply of euros (¬) are and . If the demand
shifts to and supply remains unchanged at :
A) the dollar depreciates and the equilibrium quantity of ¬ increases.
B) the dollar depreciates and the equilibrium quantity of ¬ decreases.
C) the dollar appreciates and the equilibrium quantity of ¬ decreases.
D) the dollar appreciates and the equilibrium quantity of ¬ increases.
Providing unemployment insurance is one way a government can
A) break up monopolies.
B) enforce rules of exchange.
C) create public-works programs.
D) reduce economic uncertainty.
Which of the following is included in M2?
A) commercial paper
B) U.S. Treasury bonds
C) savings accounts
D) stocks
Figure 4.1
Refer to Figure 4.1 that shows Mary and Tom’s individual demand curves for meals per
week at Fratelli’s Italian Restaurant. Assuming Mary and Tom are the only consumers in
the market, if the market quantity demanded is 6, the price must be:
A) $5.
B) $10.
C) $15.
D) $20.
The federal funds rate is the interest rate that
A) the Fed charges to banks that borrow from it.
B) banks charge the Fed for using their reserves.
C) the Fed pays on bank reserves.
D) banks charge each other for borrowed money.
Which of the following countries were severely affected during the Asian Financial
Crisis in 1997-1998?
A) Thailand
B) South Korea
C) Indonesia
D) All of the above are correct.
Figure 4.5 Figure 4.5 illustrates the supply of guitars. If firms expect the price of
guitars to go up after Christmas, then before Christmas this would most likely cause a
movement from:
A) point B to point C.
B) point B to point A.
C) S1 to S0.
D) S1 to S2.
Define the consumption function. What does the slope of the consumption function
measure?
Why does unemployment not go to zero during booms?
Explain what is meant by the money multiplier. Include in your answer a discussion of
what variable(s) affects the size of the money multiplier.
Define transfer payments and explain why they are not included in the government
purchases section of the GDP accounts.
What three factors affect the demand for money?
Explain what role expectations play in determining the Phillips curve.
What is the present value of an asset that pays you $5000 next year and $5000 two
years from now? Assume that the real interest rate is 5 percent for the first year and 10
percent on the second year.
Assume the money market is initially in equilibrium. Now, suppose the Fed sells
government bonds. Graphically illustrate and explain what effect this Fed open-market
sale of bonds will have on the money market.
List two things that can lead to an increase in full-employment output.