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Recall Application 3, "The Effectiveness of Committees," to answer the following
questions:
Supporters of stabilization policy argue that attempts to stabilize the economy can
always be effective because of time lags.
In the short run, higher taxes will lead to a higher price level and a higher level of real
GDP.
Trade theory suggests that increased trade leads to increased wage inequality.
There is a general tendency for the currencies of relatively high-inflation countries to
appreciate.
The prime rate is the interest rate at which banks can borrow from the Fed.
Goods and services with custom prices have prices that adjust very quickly.
Figure 4.4
Figure 4.4 illustrates the demand for guitars. Assume that guitars and guitar strings are
complements. An increase in the price of guitar strings would bring about a movement
from:
A) point B to point C.
B) point B to point A.
C) D1 to D0.
D) D1 to D2.
Which of the following is not a public good?
A) national defense
B) space exploration
C) a hamburger
D) levees
In the Humphrey Hawkins Act of 1978, the federal government was broadly charged to
pursue:
A) full employment.
B) balanced trade.
C) price stability.
D) All of the above are correct.
If incomes increase and Honda Civics are considered normal goods, then:
A) the demand for Honda Civics will increase.
B) the quantity demanded for Honda Civics will increase.
C) the demand for Honda Civics will decrease.
D) the quantity demanded for Honda Civics will decrease.
If the consumption function is C = 25 + 0.9y and income increases by $100, then
consumer spending will increase by
A) $10.
B) $25.
C) $90.
D) $115.
In a market-based economy, the government
A) allocates production.
B) decides how much to produce.
C) encourages insurance risk.
D) enforces property rights.
For the purpose of GDP accounting, consumption expenditures include
A) only nondurable goods.
B) only durable goods.
C) both nondurable goods and services.
D) durable goods, nondurable goods, and services.
A government policy action that moves the economy closer to full employment or
potential output is called:
A) an aggregate supply policy.
B) an expansionary policy.
C) a stabilization policy.
D) a contractionary policy.
When an incumbent politician uses expansionary fiscal and monetary policy to increase
the chance of re-election, that politician is generating a(n):
A) political business cycle.
B) a sociological depression.
C) political dynasty.
D) economically sound campaign.
Figure 9.2 Refer to Figure 9.2. A movement from point a to point could be caused by
a(n)
A) increase in government spending.
B) decrease in the price of oil.
C) decrease in taxes.
D) decrease in short-run aggregate supply.
Recall Application 3, "The Links Between Self-Reported Happiness and GDP," to
answer the following questions:
According to the Application 3, over the past 30 years in the U.S., as income per capita
has increased significantly, self-reported levels of happiness among individuals have:
A) increased.
B) declined.
C) remained constant.
D) exactly doubled.
The bank bailout package passed by the U.S. Congress called "TARP" is an acronym
that stands for:
A) Troubled Assets Relief Program
B) Total Accounting Reform Project
C) Troubled Americans Relief Package
D) Troubled Asset Reform Package
Table 6.1
Refer to Table 6.1. The labor force participation rate is:
A) 82 percent.
B) 18 percent.
C) 63 percent.
D) 37.5 percent.
The Fed can directly control all of the following EXCEPT
A) the discount rate.
B) reserve requirements.
C) long-term interest rates.
D) the federal funds rate.
Recall the Application about European soccer stars choosing to play for clubs in
countries with lower tax rates to reduce their taxes to answer the following question(s).
A study conducted by economists Henrik Jacobsen Kleven, Camille Landais,and
Emmanuel Saez found that top tax rates and tax breaks do matter when soccer stars
choose where to locate.
Recall the Application. If country A has a lower overall income tax rate than country B,
and labor can freely and easily move between the two countries, real wages in country
B will tend to ________ and employment in country B will tend to ________.
A) increase; increase
B) decrease; increase
C) increase; decrease
D) decrease; decrease
What is the opportunity cost of investing $10,000 of your own money in a business you
wish to start?
Critically evaluate the statement, "Budget deficits can only be bad for a country."
Describe the channels through which an open market purchase of bonds by the Fed
affects output in a closed economy.
Explain what would happen to the equilibrium price and quantity of pineapples if the
supply of pineapples decreased while the demand for pineapples increased.
As a result of advances in technology, cellular telephones have become cheaper to
produce. Illustrate the effect of this change on the market for cellular telephones.
Explain what is meant by a devaluation of a currency. Under what circumstances would
a country devalue its currency?
What is a gold standard?
