Figure 2-7
RefertoFigure2-7. Unemployment could cause this economy to produce at which
point(s)?
a. L, M
b. N, O, P, Q
c. N, O, P
d. Q
The CPI is always 1 in the base year.
a. True
b. False
Other things the same, in the long run a country that reduces the minimum wage from
very high levels will have
a. higher unemployment and lower inflation
b. lower unemployment and higher inflation
c. higher unemployment and the same level of inflation
d. lower unemployment and the same level of inflation
The increase in the trade deficit in the 1980’s reflected a decrease in national saving that
is associated with an increase in the government budget deficit.
a. True
b. False
If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is
a. 80, and this indicates that the price level has decreased by 20 percent since the base
year.
b. 80, and this indicates that the price level has increased by 80 percent since the base
year.
c. 125, and this indicates that the price level has increased by 25 percent since the base
year.
d. 125, and this indicates that the price level has increased by 125 percent since the base
year.
Assume that when $100 of new reserves enter the banking system, the money supply
ultimately increases by $800. Assume also that no banks hold excess reserves and that
the entire money supply consists of bank deposits. If, at a point in time, reserves for all
banks amount to $750, then at that same point in time, loans for all banks amount to
$6,000.
a. True
b. False
The unemployment that results from the quantity of labor supplied exceeding the
quantity demanded is called frictional unemployment.
a. True
b. False
A dozen eggs cost $2 in the U.S. and 12 pesos in Argentina. If the real exchange rate is
5/6, what is the nominal exchange rate? Show your work.
Figure 3-14
RefertoFigure3-14.Arturo should specialize in the production of
a. tacos and Dina should specialize in the production of burritos.
b. burritos and Dina should specialize in the production of tacos.
c. both goods and Dina should specialize in the production of neither good.
d. neither good and Dina should specialize in the production of both goods.
The explanations for the slopes of the aggregate demand and short-run aggregate supply
curves are the same as the explanations for the slopes of demand and supply curves for
specific goods and services.
a. True
b. False
When inflation rises, people
a. make less frequent trips to the bank and firms make less frequent price changes.
b. make less frequent trips to the bank while firms make more frequent price changes.
c. make more frequent trips to the bank while firms make less frequent price changes.
d. make more frequent trips to the bank and firms make more frequent price changes.
In general, if a consumer good is produced domestically and consumed domestically, an
increase in its price will have which of the following effects?
a. The consumer price index will increase relatively more than will the GDP deflator.
b. The consumer price index and the GDP deflator will increase by the same amount.
c. The consumer price index will increase relatively less than will the GDP deflator.
d. One cannot generalize about the increase in the consumer price index relative to the
increase in the GDP deflator.
Keynes argued that
a. irrational waves of pessimism cause decreases in aggregate demand and increases in
unemployment.
b. irrational waves of optimism cause decreases in aggregate demand and decreases in
aggregate supply.
c. changes in business and consumer expectations generally stabilize the economy.
d. All of the above are correct.
When the money market is drawn with the value of money on the vertical axis, a
decrease in the price level causes a
a. movement to the right along the money demand curve.
b. movement to the left along the money demand curve.
c. shift to the right of the money supply curve.
d. shift to the left of the money supply curve.
One reason that governments may find it useful to sponsor universities and basic
research is that to a large extent knowledge is generally a private good.
a. True
b. False
Goods that cost one dollar in the U.S. cost one euro in France, the real exchange rate
would be computed as how many French goods per U.S. goods?
a. one
b. the price of the U.S. goods
c. the number of euros that can be bought with one U.S. dollar
d. None of the above is correct.
Figure 4-11
RefertoFigure4-11. The movement from point A to point B on the graph represents
a. an increased willingness and ability on the part of suppliers to supply the good at
each possible price.
b. an increase in the number of suppliers.
c. a decrease in the price of a relevant input.
d. an increase in the price of the good that is being supplied and the suppliers’ responses
to that price change.
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.This country’s inflation rate from 2010 to 2011 was
a. 1.38%.
b. 38.20%.
c. 138.20%.
d. 41.90.
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.In the short run what happens to the price level and real GDP?
a. Both the price level and real GDP rise.
b. Both the price level and real GDP fall.
c. The price level rises and real GDP falls.
d. The price level falls and real GDP rises.
If we were to change the interpretation of the term “loanable funds” in such a way that
government budget deficits would affect the demand for loanable funds, rather than the
supply of loanable funds, then
a. crowding out would not be a consequence of an increase in the budget deficit.
b. higher interest rates would not be a consequence of an increase in the budget deficit.
c. an increase in the budget deficit would cause the demand for loanable funds to
decrease.
d. we would be making only a semantic change in how we analyze the effects of
government budget deficits.
The aggregate-demand curve shows the quantity of domestic goods and services that
households, firms, the government, and customers abroad want to buy at each price
level.
a. True
b. False
If over the next few years inflation is higher in Mexico than in the U.S., then according
to purchasing-power parity which of the following should rise?
a. the U.S. real exchange rate but not the U.S. nominal exchange rate
b. the U.S. nominal exchange rate but not the U.S. real exchange rate
c. the U.S. real exchange rate but not the U.S. nominal exchange rate
d. neither the U.S. real nor the U.S. nominal exchange rate
If there is a shortage of farm laborers, we would expect
a. the wage of farm laborers to increase.
b. the wage of farm laborers to decrease.
c. the price of farm commodities to decrease.
d. a decrease in the demand for substitutes for farm labor.
Which of the following can explain the upward slope of the short-run aggregate supply
curve?
a. nominal wages are slow to adjust to changing economic conditions
b. as the price level falls, the exchange rate falls
c. an increase in the money supply lowers the interest rate
d. an increase in the interest rate increases investment spending
When a company from Germany builds an automobile factory in the United States, the
German firm has engaged in foreign direct investment.
a. True
b. False
A marginal change is a
a. change that involves little, if anything, that is important.
b. large, significant adjustment.
c. change for the worse, and so it is usually a short-term change.
d. small, incremental adjustment.
Which of the following allows you to provide information about the relationship
between two variables?
a. coordinate system.
b. pie chart
c. bar graph
d. time-series graph
Table 24-3
The table below pertains to Iowan, an economy in which the typical consumer’s basket
consists of 4 pounds of pork and 3 bushels of corn.
RefertoTable24-3. If 2012 is the base year, then the CPI for 2013 was
a. 100.0.
b. 116.0.
c. 132.8.
d. 154.0.
Causes of market failure include
a. externalities and market power.
b. market power and incorrect forecasts of consumer demand.
c. externalities and foreign competition.
d. incorrect forecasts of consumer demand and foreign competition.
Which of these terms are used interchangeably?
a. “goods and services” and “inputs”
b. “goods and services” and “factors of production”
c. “inputs” and “factors of production”
d. “land, labor, and capital” and “goods and services”