Economists call an institution designed to oversee the banking system and regulate the
quantity of money in the economy
a. a central bank.
b. a charter bank.
c. a national bank.
d. a state bank.
The value of the housing services provided by the economy’s owner-occupied houses is
a. included in GDP, and the estimated rental values of the houses are used to place a
value on these housing services.
b. included in GDP, and the actual mortgage payments made on the houses are used to
estimate the value of these rental services.
c. excluded from GDP since these services are not sold in any market.
d. excluded from GDP since the value of these housing services cannot be estimated
with any degree of precision.
Which of the following numbers is notassociated with shares of a company’s stock?
a. term
b. dividend
c. price
d. price-earnings ratio
A reduction in the marginal tax-rate includes a substitution effect that tends to increase
saving.
a. True
b. False
Unemployment data are collected
a. from unemployment insurance claims.
b. through a regular survey of about 60,000 households.
c. through a regular survey of about 200,000 firms.
d. All of the above are correct.
If unemployment is below its natural rate, what happens to move the economy to
long-run equilibrium?
a. Inflation expectations rise which shifts the short-run Phillips curve to the right.
b. Inflation expectations rise which shifts the short-run Phillips curve to the left.
c. Inflation expectations fall which shifts the short-run Phillips curve to the right.
d. Inflation expectations fall which shifts the short-run Phillips curve to the left.
On May 25, 1980 three pals graduated from high school, pooled together $3,000 and
put the money into an account promising to pay 8% for the next 30 years. On May 25,
2010 they withdrew all the money from the account. To the nearest dollar, how much
did they withdraw?
a. $25,962
b. $27,297
c. $30,188
d. None of the above are correct to the nearest dollar.
Buskin’s Corporation has issued 2 million shares of stock. Its earnings were $10
million, of which it retained 40 percent. What was the dividend per share?
a. $2.
b. $3.
c. $5.
d. $8.
If policymakers decrease aggregate demand, then in the short run the price level
a. falls and unemployment rises.
b. and unemployment fall.
c. and unemployment rise.
d. rises and unemployment falls.
If the interest rate is above the Fed’s target, the Fed should
a. buy bonds to increase bank reserves.
b. buy bonds to decrease bank reserves.
c. sell bonds to increase bank reserves.
d. sell bonds to decrease bank reserves.
Frictional unemployment is often the result of changes in the demand for labor among
different firms.
a. True
b. False
Suppose there are only two people in the world. Each person’s production possibilities
frontier also represents his or her consumption possibilities when
a. neither person faces trade-offs.
b. the frontiers are straight lines.
c. the frontiers are bowed out.
d. they choose not to trade with one another.
The multiplier effect is exemplified by the multiplied impact on
a. the money supply of a given increase in government purchases.
b. tax revenues of a given increase in government purchases.
c. investment of a given increase in interest rates.
d. aggregate demand of a given increase in government purchases.
The labor-force participation rate tells us the fraction of the population that is able to
participate in the labor market.
a. True
b. False
Figure 2-19
In the following graph the x-axis shows the number of times a commuter rail train stops
at a station per hour and the y-axis shows the number of commuter rail passengers per
hour.
Commuter Rail Passengers by Frequency of Service
Refer to Figure2-19. A policymaker observes this graph and concludes that increasing
the frequency of commuter rail service is a certain way to get more commuters to
choose the commuter rail instead of driving their own cars. You warn the policymaker
about making a reverse causality mistake with which of the following statements?
a. Higher gas prices are causing more people to choose the commuter rail over driving.
b. The service frequency was increased in response to an increase in the number of
passengers per hour.
c. There is a positive relationship between frequency of stops and number of
passengers.
d. None of the above is correct.
The theory of efficiency wages provides a possible explanation as to why
a. workers form unions.
b. firms should try to reduce surpluses of labor.
c. firms may be inclined to keep their workers’ wages above the equilibrium level.
d. firms may be inclined to keep their workers’ wages below the equilibrium level.
Table 3-23
Assume that the farmer and the rancher can switch between producing pork and
producing tomatoes at a constant rate.
Refer to Table3-23. Assume that the farmer and the rancher each has 24 labor hours
available. If each person spends all his time producing the good in which he has a
comparative advantage and trade takes place at a price of 1 pound of pork for 2 pounds
of tomatoes, then
a. the farmer and the rancher will both gain from this trade.
b. the farmer will gain from this trade, but the rancher will not.
c. the rancher will gain from this trade, but the farmer will not.
d. neither the farmer nor the rancher will gain from this trade.
A nation with a trade surplus will necessarily have saving that is greater than domestic
investment.
a. True
b. False
Which of the following Fed actions would both decrease the money supply?
a. buy bonds and raise the reserve requirement
b. buy bonds and lower the reserve requirement
c. sell bonds and raise the reserve requirement
d. sell bonds and lower the reserve requirement
Other things the same,when the price level rises, interest rates
a. rise, which means consumers will want to spend more on homebuilding.
b. rise, which means consumers will want to spend less on homebuilding.
c. fall, which means consumers will want to spend more on homebuilding.
d. fall, which means consumers will want to spend less on homebuilding.
In liquidity preference theory, an increase in the interest rate, other things the same,
decreases the quantity of money demanded, but does not shift the money demand curve.
a. True
b. False
Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A
year later, Bob withdraws his $105. If inflation was 2 percent during the year the money
was deposited, then Bob’s purchasing power has increased by 3 percent.
a. True
b. False
If a government has a budget surplus, then public saving
a. is positive and increases national saving.
b. is positive but decreases national saving.
c. is negative and decreases national saving.
d. is negative but increases national saving.
Figure 4-7
RefertoFigure4-7. If the demand curve for Good X shifts from Db to Da, then
a. firms would be willing to supply more of Good X than before at each possible price.
b. people are willing to buy less of Good X than before at each possible price.
c. people’s incomes must have increased.
d. the price of Good X has increased.
Consider the following rule for monetary policy: r = 2 percent + + 1/2(y – y*)/y* +
1/2(- *), where is the nominal interest rate, yis real GDP, y* is an estimate of the
natural rate of output, π is the inflation rate, and π* is the inflation target. Which of the
following statements is notcorrect?
a. If aggregate demand shifts right from long-run equilibrium, this rule unambiguously
implies that the Fed increases the nominal interest rate.
b. If aggregate supply shifts right from long-run equilibrium at the inflation target, we
cannot tell without more information whether the Fed should increase or decrease the
nominal interest rate.
c. If output is at its natural level, but inflation is above its target, the Fed must increase
the nominal interest rate.
d. If inflation is at its targeted level, but output is above its natural rate, the Fed must
decrease the federal funds rate.
Other things the same, if a country raises its saving rate, then in the long run
a. both the level and growth rate of real GDP are unchanged.
b. the level of real GDP is higher but the growth rate of real GDP is unchanged.
c. both the level and growth rate of real GDP are higher.
d. None of the above are correct.
If the Federal Reserve increases the money supply, then initially people want to
a. sell bonds so the interest rate rises.
b. sell bonds so the interest rate falls.
c. buy bonds so the interest rate rises.
d. buy bonds so the interest rate falls.
Which of the following statements is correct?
a. The expected future profitability of a corporation influences the demand for that
corporation’s stock.
b. When a corporation sells stock as a means of raising funds it is engaging in debt
finance.
c. The owners of bonds sold by the Microsoft Corporation are part owners of that
corporation.
d. All bonds are, by definition, perpetuities.
What basket of goods and services is used to construct the CPI?
a. a random sample of all goods and services produced in the economy
b. the goods and services that are typically bought by consumers as determined by
government surveys
c. only food, clothing, transportation, entertainment, and education
d. the least expensive and the most expensive goods and services in each major
category of consumer expenditures
Suppose a Starbucks tall latte cost $4.00 in the United States, 5.00 euros in the euro
area and $2.50 Australian dollars in Australia. Nominal exchange rates are .80 euros per
dollar and 1.4 Australian dollars per U.S. dollar. Where does purchasing-power parity
hold?
a. both the euro area and Australia
b. the euro area but not Australia
c. Australia but not the euro area
d. neither the euro area or Australia
From 1970 to 1998 the U.S. dollar
a. gained value compared to the German mark because inflation was higher in
Germany.
b. gained value compared to the German mark because inflation was lower in Germany.
c. lost value compared to the German mark because inflation was higher in Germany.
d. lost value compared to the German mark because inflation was lower in Germany.