A likely example of complementary goods for most people would be
a. canoes and paddles.
b. snow mobiles and sofas.
c. coffee and tea.
d. tennis balls and basketballs.
The country of Yokovia does not trade with any other country. Its GDP is $20 billion.
Its government collects $2 billion in taxes. Consumption equals $15 billion and
investment equals $2 billion. What is public saving in Yokovia, and what is the value of
the goods and services purchased by the government of Yokovia?
a. -$2 billion and $1 billion.
b. $1 billion and $1 billion.
c. -$1 billion and $3 billion.
d. -$2 billion and $3 billion.
Figure 34-12
Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at
point A. To stabilize output at $1000, the government should _____ purchases by
$_____.
Market power and externalities are two possible causes of market failure.
a. True
b. False
When the consumer price index falls, the typical family has to spend fewer dollars to
maintain the same standard of living.
a. True
b. False
A country has $45 million of domestic investment and net capital outflow of -$60
million. What is its saving?
a. $15 million
b. -$15 million
c. $105 million
d. -$105 million
Which of the following best states economists’ understanding of the facts concerning
the relationship between natural resources and economic growth?
a. A country with no or few domestic natural resources is destined to be poor.
b. Differences in natural resources have virtually no role in explaining differences in
standards of living.
c. Some countries can be rich mostly because of their natural resources and countries
without natural resources need not be poor, but can never have very high standards of
living.
d. Abundant domestic natural resources may help make a country rich, but even
countries with few natural resources can have high standards of living.
The idea of menu costs suggests that
a. firms alter prices less frequently as inflation increases.
b. firms alter prices more frequently as inflation increases.
c. firms always alter prices when costs increase.
d. firms alter prices as interest rates rise.
If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the
real interest rate is
a. -5 percent.
b. 1.67 percent.
c. 5 percent.
d. 11 percent.
Which of the following is notcorrect?
a. GNP equals net national product plus losses from depreciation.
b. For most countries, including the United States, GDP and GNP are nearly the same.
c. GDP and GNP typically move in opposite directions.
d. Personal income equals disposable personal income plus personal taxes plus certain
nontax payments.
In which case can we be sure real GDP rises in the short run?
a. foreign economies expand and government purchases rise.
b. foreign economies expand and government purchases fall.
c. foreign economies contract and government purchases fall.
d. foreign economies contract and government purchases rise.
If the supply of and demand for loanable funds both shift left, which of the following
necessarily happens?
a. the equilibrium interest rate falls
b. the equilibrium interest rate rises
c. the equilibrium quantity of loanable funds rises
d. the equilibrium quantity of loanable funds falls
When an economy’s government goes from running a budget deficit to running a budget
surplus, the economy’s long-run growth prospects are improved.
a. True
b. False
Other things the same, an increase in taxes with no change in government purchases
makes national saving
a. rise. The supply of loanable funds shifts right.
b. rise. The demand for loanable funds shifts right.
c. fall. The supply of loanable funds shifts left.
d. fall. The demand for loanable funds shifts left.
A U.S. citizen buys bonds issued by a construction equipment manufacturer in Poland.
Her expenditures are U.S.
a. foreign portfolio investment that increase U.S. net capital outflow.
b. foreign portfolio investment that decrease U.S. net capital outflow.
c. foreign direct investment that increase U.S. net capital outflow.
d. foreign direct investment that decrease U.S. net capital outflow.
Inflation measures the increase in the quantity of goods and services produced from
each hour of a worker’s time.
a. True
b. False
Lenders sell bonds and borrowers buy them.
a. True
b. False
Which of the following nations experienced average rates of economic growth of a bit
under 2% over the last 100 years or so?
a. Mexico
b. Brazil
c. the United States
d. All of the above are correct.
In the United States, real interest rates were
a. high in the 1970s and 1990s.
b. low in the 1970s and 1990s.
c. high in the 1970s and low in the 1990s.
d. low in the 1970s and high in the 1990s.
Duties of the Council of Economic Advisers include
a. advising the president and writing the annual EconomicReportofthePresident.
b. implementing the president’s tax policies.
c. tracking the behavior of the nation’s money supply.
d. All of the above are correct.
The highest form of competition is called
a. arbitrage.
b. monopolistic competition.
c. equilibrium.
d. perfect competition.
The natural rate of unemployment is any type of unemployment that does not go away
on its own even in the long run.
a. True
b. False
Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10
empty seats on a flight. The marginal cost of flying a passenger is
a. $50.
b. $500.
c. $50,000.
d. This cannot be determined from the information given.
Given a nominal interest rate of 6 percent, in which of the following cases would you
earn the highest after-tax real rate of interest?
a. Inflation is 2.5 percent; the tax rate is 25 percent.
b. Inflation is 3 percent; the tax rate is 20 percent.
c. Inflation is 2 percent; the tax rate is 30 percent.
d. The after-tax real interest rate is the same for all of the above.
Which of the following is an example of U.S. foreign direct investment and by itself
increases U.S. net capital outflow?
a. A U.S. electronics company opens and operates a new factory in India.
b. A Swiss bank buys bonds issued by a U.S. company.
c. A U.S. pension fund buys bonds issued by the Japanese government.
d. A French restaurant opens and operates a restaurant in New York.
A country’s real GDP rose from $500 to $530 while its nominal GDP rose from $600 to
$700. What was this country’s inflation rate?
a. 16.7%.
b. 10.0%.
c. 15.0%.
d. -9.1%.
If domestic residents of other countries purchase $600 billion of U.S. assets and U.S
residents purchase $500 billion of foreign assets, then U.S. net capital outflow is
a. $100 billion and the U.S. has a trade surplus.
b. $100 billion and the U.S has a trade deficit.
c. -$100 billion and the U.S. has a trade surplus.
d. -$100 billion and the U.S. has a trade deficit.
According to the definitions of private and public saving, if Y, C, and Gremained the
same, an increase in taxes would
a. raise both private and public saving.
b. raise private saving and lower public saving.
c. lower private saving and raise public saving.
d. lower private and public saving.
In the openeconomy macroeconomic model, if a country’s supply of loanable funds
shifts right, then
a. net capital outflow rises, so the exchange rate rises.
b. net capital outflow rises, so the exchange rate falls.
c. net capital outflow falls, so the exchange rate rises.
d. net capital outflow falls, so the exchange rate falls.
The term price takers refers to buyers and sellers in
a. perfectly competitive markets.
b. monopolistic markets.
c. markets that are regulated by the government.
d. markets in which buyers cannot buy all they want and/or sellers cannot sell all they
want.
Table 23-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2013.
RefertoTable23-6.From 2012 to 2013, this country’s output grew
a. 28.2%.
b. 29.0%.
c. 29.6%.
d. 73.9%.
Which of the following bond buyers did notbuy the bond that best met his or her
objective?
a. Jackie wanted a bond with a high interest rate and was willing to take a lot of risk.
She purchased a junk bond.
b. Andrew wanted a bond that would allow him to legally avoid paying federal income
taxes. He purchased a municipal bond.
c. Suzy wanted to purchase a bond whose seller was unlikely to default. She purchased
a bond that Standards and Poor’s rated a low credit risk.
d. Cecilia held long-term bonds rather than short-term bonds to avoid risk.
Minimum-wage laws and unions are similar to each other but different from efficiency
wages in that minimum-wage law and unions
a. cause unemployment, but efficiency wages do not.
b. cause the quantity of labor supplied to exceed the quantity of labor demanded, but
efficiency wages do not.
c. cause wages to be above the equilibrium level.
d. prevent firms from lowering wages in the presence of a surplus of workers.
What happens to each of the following if the supply of loanable funds shifts left?
a. the interest rate
b. net capital outflow
c. the exchange rate
In the production function Y = AF(L,K,H,N), Y represents the quantity of output; L
represents the quantity of labor; K represents the quantity of physical capital; and H
represents the quantity of human capital. What does N represent?
What type of statement is a prescriptive statement about how the world ought to be?
What happens to the quantity of loanable funds supplied when the interest rate rises?
Explain why this change happens.
Rational people make decisions “at the margin” by comparing .
A higher interest rate makes more attractive. Therefore the quantity of loanable funds
supplied increases.
U.S. Investment Tax Credit
Suppose that Congress and the President enact legislation that provides a tax rebate to
businesses that purchase capital goods. Assume other countries make no policy
changes.
RefertoU.S.InvestmentTaxCredit.In the market for loanable funds which curve shifts
and which direction does it shift?
What is the political business cycle and how does it relate to whether the central bank
should have discretion or use a rule?
In the production function Y = AF(L,K,H,N), Y represents the quantity of output; L
represents the quantity of labor; K represents the quantity of physical capital; and N
represents the quantity of natural resources. What does H represent?
Under what conditions is an economy’s production possibilities frontier also its
consumption possibilities frontier?
Table 23-12
A country produces only ice cream and cake in the quantities and prices listed below.
Use 2011 as the base year.
RefertoTable23-12. Calculate the GDP deflator for 2012 and 2013.
Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company’s cost will
be $30,070 if it produces an additional heart rate monitor. The company is currently
producing 600 heart rate monitors.
RefertoScenario1-6.What is the company’s marginal cost?
Why might tax cuts be more appropriate than increasing government expenditures to
counter recessions? Is there any evidence for this thinking?
Who said about classical economic theory: “the long run is a misleading guide to
current affairs. In the long run we are all dead”?
Figure 33-13.
RefertoFigure33-13. Identify the price and output levels consistent with long-run
equilibrium.
Money neutrality states that a change in the money supply affects _____ variables only.
Most economists believe that money neutrality is a good description of how money
affects the economy in the _____.
Table 4-14
The table below shows the quantities demanded of milk per month by four families at
various prices.
RefertoTable4-14.If the four families listed are the only demanders in this market and
the price of a gallon of milk increases from $4.00 to $5.00, what is the change in the
market quantity demanded?
In a closed economy private saving is $500 billion and the government budget deficit is
$100 billion. What is investment?
If the real interest rate is 6.8% and the inflation rate is 3.9%, what is the nominal
interest rate?
National saving is the sum of and . In a closed economy it is equal to in equilibrium.
In the United States over the past century, real GDP per person has grown by about
percent per year.