When making investment decisions, investors
a. compare the real interest rates offered on different bonds.
b. compare the nominal, but not the real, interest rates offered on different bonds.
c. purchase the highest-priced bond available.
d. All of the above are correct.
Which of the following events could cause an increase in the supply of ceiling fans?
a. The number of sellers of ceiling fans increases.
b. There is an increase in the price of air conditioners, and consumers regard air
conditioners and ceiling fans as substitutes.
c. There is an increase in the price of the motor that powers ceiling fans.
d. All of the above are correct.
If a country has business opportunities that are relatively attractive to other countries,
we would expect it to have
a. both positive net exports and positive net capital outflow.
b. both negative net exports and negative net capital outflow.
c. positive net exports and negative net capital outflow.
d. negative net exports and positive net capital outflow.
Unions
a. and firms paying wages above equilibrium to improve worker effort both create
frictional unemployment.
b. creates frictional unemployment, while firms paying wages above equilibrium to
improve worker effort creates structural unemployment.
c. creates structural unemployment, while firms paying wages above equilibrium to
improve worker effort creates frictional unemployment.
d. and firms paying wages above equilibrium to improve worker effort both create
structural unemployment.
If Israel’s domestic investment exceeds its national saving, then Israel has
a. positive net capital outflows and negative net exports.
b. positive net capital outflows and positive net exports.
c. negative net capital outflows and negative net exports.
d. negative net capital outflows and positive net exports.
A farmer produces oranges and sells them to Fresh Juice, which makes orange juice.
The oranges produced by the farmer are called
a. inventory goods.
b. transitory goods.
c. final goods.
d. intermediate goods.
To increase the money supply, the Fed could
a. sell government bonds.
b. decrease the discount rate.
c. increase the reserve requirement.
d. None of the above is correct.
The national debt
a. exists because of past government budget deficits.
b. is the difference between the government’s spending and revenue in a given year.
c. is the amount households owe on credit cards, mortgages and other loans.
d. is the amount household and firms have borrowed minus the amount they have
saved.
Assuming that ais positive, theories of short-run aggregate supply are expressed
mathematically as
a. quantity of output supplied = natural rate of output + a(actual price level – expected
price level).
b. quantity of output supplied = natural rate of output + a(expected price level – actual
price level).
c. quantity of output supplied = a(actual price level -expected price level) – natural rate
of output.
d. quantity of output supplied = a(expected price level – actual price level) – natural rate
of output.
Frictional unemployment is often thought to explain relatively short spells of
unemployment.
a. True
b. False
Which of the following changes in the price index produces the greatest rate of
inflation: 12 to 15, 20 to 24, or 30 to 35?
a. 12 to 15
b. 20 to 24
c. 30 to 35
d. All of these changes produce the same rate of inflation.
Figure 3-21
Refer to Figure3-21. Suppose Azerbaijan is willing to trade 3 nails to Uzbekistan for
every bolt that Uzbekistan makes and sends to Azerbaijan. Which of the following
combinations of bolts and nails could Uzbekistan then consume, assuming Uzbekistan
specializes in making bolts and Azerbaijan specializes in making nails?
a. 7 bolts and 70 nails
b. 12 bolts and 56 nails
c. 17 bolts and 40 nails
d. 25 bolts and 15 nails
If expected inflation increases, which of the following shifts right?
a. both the short-run and the long-run Phillips curves
b. the short-run but not the long-run Phillips curve
c. the long-run but not the short-run Phillips curve
d. neither the long-run nor the short-run Phillips curve
The economy will move to a point on the short-run Phillips curve where unemployment
is higher if
a. the inflation rate decreases.
b. the government increases its expenditures.
c. the Fed increases the money supply.
d. None of the above is correct.
If the interest rate is 4 percent, then you would be equally happy if you received a gift
of either $100 today or a gift of
a. $110.00 two years from today.
b. $112.49 three years from today.
c. $116.00 four years from today.
d. $123.67 five years from today.
Access to which of the following explains the lower growth rate for the American
economy in the 21st century compared to the previous 250 years?
a. food stamps
b. Social Security disability payments
c. Pell grants
d. All of the above are correct.
The wealth effect stems from the idea that a higher price level
a. increases the real value of households’ money holdings.
b. decreases the real value of households’ money holdings.
c. increases the real value of the domestic currency in foreign-exchange markets.
d. decreases the real value of the domestic currency in foreign-exchange markets.
You are expecting to receive $750 at some time in the future. Which of the following
would unambiguously decrease the present value of this future payment?
a. Interest rates rise and you get the payment sooner.
b. Interest rates rise and you have to wait longer for the payment.
c. Interest rates fall and you get the payment sooner.
d. Interest rates fall and you have to wait longer to get the payment.
If the demand for a good falls when income falls, then the good is called a(n)
a. normal good.
b. regular good.
c. luxury good.
d. inferior good.
Who of the following are included in the Bureau of Labor Statistics’ “employed”
category?
a. certain unpaid workers
b. part-time workers
c. workers on vacation
d. All of the above are correct.
Time inconsistency will cause the
a. short-run Phillips curve to be higher than otherwise.
b. short-run Phillips curve to be lower the otherwise.
c. long-run Phillips curve to be farther to the right than otherwise.
d. long-run Phillips curve to be farther left than otherwise.
A decrease in the budget deficit
a. makes investment spending fall.
b. makes investment spending rise.
c. does not affect investment spending.
d. may increase, decrease, or not affect investment spending if private saving doesn”t
change.
If the CPI rises, the number of dollars needed to buy a representative basket of goods
a. increases, and so the value of money rises.
b. increases, and so the value of money falls.
c. decreases, and so the value of money rises.
d. decreases, and so the value of money falls
Suppose a shift in aggregate demand creates an economic contraction. If policymakers
can respond with sufficient speed and precision, they can offset the initial shift by
shifting
a. aggregate supply right.
b. aggregate supply left.
c. aggregate demand right.
d. aggregate demand left.
More than one-third of the unemployed are recent entrants into the labor force.
a. True
b. False
Which of the following could explain a decrease in the equilibrium interest rate and an
increase in the equilibrium quantity of loanable funds?
a. The demand for loanable funds shifted rightward.
b. The demand for loanable funds shifted leftward.
c. The supply of loanable funds shifted rightward.
d. The supply of loanable funds shifted leftward.
The simple circular-flow diagram is a model that includes only some key players in the
real economy. Which of the following key players are omitted from the simple
circular-flow model?
a. households
b. firms
c. government
d. markets for factors of production
In addition to advising the president, one duty of the Council of Economic Advisers is
to
a. prepare the federal budget.
b. write government regulations.
c. advise Congress on economic matters.
d. write the annual EconomicReportofthePresident.
Which of the following statements is correct?
a. In order to calculate the inflation rate for the year 2011, we need to know the values
of the consumer price index for the years 2009, 2010, and 2011.
b. Changes in the consumer price index are often thought to be useful in predicting
changes in the producer price index.
c. Despite its name, the “consumer price index” really measures the overall cost of the
goods and services bought by consumers, business firms, and units of government.
d. If the prices of all goods and services changed proportionately over time, then the
consumer price index would reflect no substitution bias.
The prairie dog has always been considered a problem for American cattle ranchers.
They dig holes that cattle and horses can step in, and they eat grass necessary for cattle.
Recently, ranchers have discovered that there is a demand for prairie dogs as pets. In
some areas, prairie dogs can sell for as high as $150 each. Cattlemen are now fencing
off prairie dog towns on their land so these towns will not be disturbed by their cattle.
Draw a rancher’s production possibilities frontier showing increasing opportunity cost
of cattle production in terms of prairie dog production. Using a separate graph for each
situation, show what would happen to the initial production possibilities frontier in each
of the following situations:
a. The outcome is efficient, with ranchers choosing to produce equal numbers of cattle
and prairie dogs.
b. As a protest against the government introducing the gray wolf back into the wild in
their state, ranchers decide to withhold 25 percent of the available grassland for grazing.
c. The price of prairie dogs increases to $200 each, so ranchers decide to allot additional
land for prairie dogs.
d. The government grants new leases to ranchers, giving them 10,000 new acres of
grassland each for grazing.
e. A drought destroys most of the available grass for grazing of cattle, but not for prairie
dogs since they also eat plant roots.
Adam Smith wrote that a person should never attempt to make at home what it will cost
him more to make than to buy.
a. True
b. False
An increase in the price of imported coffee shows up
a. in the consumer price index and in the GDP deflator.
b. in the consumer price index, but not in the GDP deflator.
c. in the GDP deflator, but not in the consumer price index.
d. in neither the consumer price index nor in the GDP deflator.
Table 28-7
Below is data about the labor market in the city of Productionville.
RefetoTable28-7.If the local government imposed a minimum wage of $7 in
Productionville, how many people would be unemployed?
a. 0
b. 2,000
c. 5,000
d. 10,000
Assume a central bank follows a rule that requires it to take steps to keep the price level
constant. If the price level rose because of an increase in aggregate demand and a
decrease in aggregate supply that kept output unchanged, then
a. the central bank would have to decrease the money supply which would decrease
output.
b. the central bank would have to decrease the money supply which would increase
output.
c. the central bank would have to increase the money supply which would decrease
output.
d. the central bank would have to increase the money supply which would increase
output.
If the government of Canada increased its budget deficit, then domestic investment
a. and net exports would rise.
b. would rise and net exports would fall.
c. would fall and net exports would rise.
d. and net exports would fall.
Budget Reform
Due to concerns about a rising level of debt relative to GDP, Congress and the President
cut expenditures and raise taxes.
RefertoBudgetReform. This policy change causes net capital outflow to change. How
is this change in net capital outflow shown in the market for foreign-currency
exchange? What happens to the exchange rate?
Does a more steeply sloped Phillips curve make the sacrifice ratio smaller or larger than
otherwise?
Jackie saves $100 and receives $106 the next year. During the same year, the price of
the basket of goods that she purchases increases from $100 to $104. What is nominal
interest rate on Jackie’s saving? What is the real interest rate on Jackie’s saving? What
was the inflation rate?
Using the aggregate demand and aggregate supply model, a decrease of what curve is
by itself consistent with the changes in prices and output that occurred during the onset
of the Great Depression?
Suppose that the price of one ear of corn was $0.05 in 1920, that the CPI in 1920 was
10, and that in 1990 the CPI was 180. What is the price of a 1920 ear of corn in 1990
dollars?
Suppose that the government spends more on a missile defense program. What does this
do to aggregate demand? How is your answer affected by the presence of the multiplier,
crowding-out, taxes, and investment-accelerator effects?
List two of the three types of fiscal programs that the President and Congress
emphasized in response to the 2008- 2009 recession.
Almost half of all spells of unemployment end when the unemployed person.
Describe the role of bank leverage in bank insolvency during times of falling asset
prices.
You find that your paycheck for the year is higher this year than last. Does that mean
that your real income has increased? Explain carefully.
Describe the shape of the utility function of a risk averse person.
If there is a decline in business confidence and the Fed desires to return unemployment
towards its natural rate, what should it do? If business confidence eventually returns to
normal but the Fed does not reverse its policy, what eventually happens to the inflation
rate?
What is a mutual fund?
Table 3-41
Refer to Table3-41. If the two countries specialize and trade with each other, which
country will import radios?
The financial system is important because it helps to match one person’s with another
person’s .
In recent years Venezuela and Ukraine have had much higher nominal interest rates
than the United States while Japan has had lower nominal interest rates. What would
you predict is true about money growth in these other countries? Why?
Suppose the supply and demand of corn both increase. As a result, what will happen to
the equilibrium price and equilibrium quantity in the market?