If policymakers impose import restrictions on clothing, the U.S. trade deficit will
shrink.
a. True
b. False
When an economy is operating at a point on its production possibilities frontier, then
a. consumers are content with the mix of goods and services that is being produced.
b. there is no way to produce more of one good without producing less of the other.
c. equal amounts of the two goods are being produced.
d. All of the above are correct.
Suppose households attempt to increase their money holdings. To stabilize output by
countering this increase in money demand, the Federal Reserve would
a. increase government spending.
b. increase the money supply.
c. decrease government spending.
d. decrease the money supply.
Table 28-2
Labor Data for Aridia
RefetoTable28-2.The number of adults not in the labor force of Aridia
a. increased both from 2010 to 2011 and from 2011 to 2012.
b. increased from 2010 to 2011 but decreased from 2011 to 2012.
c. decreased from 2010 to 2011 but increased from 2011 to 2012.
d. decreased both from 2010 to 2011 and from 2011 to 2012.
Samuelson and Solow argued that a combination of low unemployment and low
inflation
a. was impossible given the historical data as summarized by the Phillips curve.
b. could be achieved with an “appropriate” fiscal policy.
c. could be achieved with an “appropriate” monetary policy.
d. could be achieved with an “appropriate” mix of monetary and fiscal policies.
Monetary Policy in Flosserland
In Flosserland, the Department of Finance is responsible for monetary policy.
Flosserland has had an inflation rate of 25% for many years.
RefertoMonetaryPolicyinFlosserland.Suppose that the Flosserland Department of
Finance undertakes a public relations campaign to convince people that it will soon
change monetary policy to reduce inflation to 12.5%. If Flosserlanders believe their
government then which, if any, curve(s) shift left?
a. the short-run and the long-run Phillips curve
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 short-run nor the long-run Phillips curve
The identity that shows that total income and total expenditure are equal is
a. GDP= Y.
b. Y= DI+ T + NX.
c. GDP= GNP– NX.
d. Y= C+ I+ G+ NX.
If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound
of U.S. beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar,
then Chilean beef costs
a. 1,250 pesos per pound.
b. 800 pesos per pound
c. 250 pesos per pound.
d. None of the above is correct.
For an imaginary economy, the consumer price index was 115.00 in 2004, 126.50 in
2005, and 136.62 in 2006.
Which of the following statements is correct?
a. For this economy, the base year must be 2004.
b. If the basket of goods that is used to calculate the CPI cost $75.00 in the base year,
then that basket of goods cost $115.00 in 2004.
c. This economy’s rate of inflation for 2006 is 10.12 percent.
d. None of the above is correct.
When you purchase school supplies at the book store using cash, you are using money
as a medium of exchange.
a. True
b. False
Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory.
Whose transaction would be an act of investment in the language of macroeconomics?
a. only Larry’s
b. only Curly Corporation’s
c. Larry’s and Curly Corporation’s
d. neither Larry’s nor Curly Corporation’s
In response to the sharp decline in stock prices in October 1987, the Federal Reserve
a. increased interest rates, and the economy avoided a recession.
b. increased interest rates, but the economy was unable to avoid a recession.
c. decreased interest rates, and the economy avoided a recession.
d. decreased interest rates, but the economy was unable to avoid a recession.
A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a
company in the U.K. Which of these countries has an increase in net capital outflow?
a. The U.S. and the U.K.
b. The U.S. but not the U.K.
c. The U.K. but not the U.S.
d. Neither the U.S. nor the U.K.
In the circular-flow diagram,
a. taxes flow from households to firms, and transfer payments flow from firms to
households.
b. income payments flow from firms to households, and sales revenue flows from
households to firms.
c. resources flow from firms to households, and goods and services flow from
households to firms.
d. inputs and outputs flow in the same direction as the flow of dollars, from firms to
households.
The residents of Ireland earn $200 million of income from abroad. Residents of other
countries earn $300 million in Ireland. Therefore, Ireland’s
a. net factor payments from abroad are positive, and its GDP is larger than its GNP.
b. net factor payments from abroad are positive, and its GNP is larger than its GDP.
c. net factor payments from abroad are negative, and its GDP is larger than its GNP.
d. net factor payments from abroad are negative, and its GNP is larger than its GDP.
Any policy change that reduced the natural rate of unemployment would
a. shift the long-run Phillips curve to the left.
b. shift the long-run aggregate-supply curve to the right.
c. improve the functioning of the labor market.
d. All of the above are correct.
Figure 2-6
Refer to Figure2-6. If this economy devotes all of its resources to the production of
blankets, then it will produce
a. 0 blankets and 360 pillows.
b. 200 blankets and 240 pillows.
c. 320 blankets and 120 pillows.
d. 360 blankets and 0 pillows.
Figure 3-7
Refer to Figure3-7. If the production possibilities frontiers shown are each for 4 hours
of work, then which of the following combinations of bowls and cups could Bintu and
Juba together make in a given 4-hour production period?
a. 1 bowl and 14 cups
b. 2 bowls and 11 cups
c. 3 bowls and 10 cups
d. 5 bowls and 5 cups
As the interest rate increases, the present value of future sums decreases, so firms will
find fewer investment projects profitable.
a. True
b. False
Potential buyers of ABC Corporation bonds are concerned about ABC Corporation
declaring bankruptcy. Potential buyers of XYZ Corporation bonds are not concerned
that XYZ Corporation may declare bankruptcy. Which of the following statements is
correct?
a. Other things equal, the interest rate on XYZ Corporation bonds will be high relative
to the interest rate on ABC Corporation bonds.
b. An ABC Corporation bond must have a longer term than an XYZ Corporation.
c. XYZ Corporation bonds carry less default risk than do ABC Corporation bonds.
d. All of the above are correct.
When the money market is drawn with the value of money on the vertical axis, as the
price level decreases the quantity of money
a. demanded increases.
b. demanded decreases.
c. supplied increases.
d. supplied decreases.
Which of the following is correct? In the 1990’s
a. the Fed maintained low inflation because it had to follow a policy rule.
b. the Fed maintained low inflation even without being required to follow a policy rule.
c. the Fed was not required to follow a policy rule and let inflation move higher.
d. the Fed was required to follow a policy rule, but it provided the Fed enough
discretion that inflation moved higher.
The final element of a financial crisis is
a. an economic downturn.
b. a decline in confidence in financial institutions.
c. declining prices of real estate or other assets.
d. a vicious circle.
Which of the following is notcorrect?
a. When a union is present in a labor market, wages may not be determined by the
equilibrium of supply and demand.
b. Like any cartel, a union is a group of sellers acting together in the hope of exerting
their joint market power.
c. When unions raise wages above equilibrium, the quantity of labor supplied decreases,
and the quantity of labor demanded increases.
d. Most workers in the U.S. economy are not members of a union.
The Federal Open Market Committee
a. must submit its policies to the President and Senate for approval.
b. operates with almost complete discretion over monetary policy.
c. is required to target short-term interest rates in a mechanical way based on an
equation that takes into account both price stability and output fluctuations.
d. is required to set and publicize targets for money supply growth.
Figure35-1.The left-hand graph shows a short-run aggregate-supply (SRAS) curve and
two aggregate-demand (AD) curves. On the right-hand diagram, U represents the
unemployment rate.
RefertoFigure35-1.What is measured along the vertical axis of the right-hand graph?
a. the interest rate
b. the inflation rate
c. the wage rate
d. the growth rate of the nominal money supply
The value of a stock is based on the
a. present values of the dividend stream and final price. As a result, the value of a stock
rises when interest rates rise.
b. present values of the dividend stream and final price. As a result, the value of a stock
falls when interest rates rise.
c. future values of the dividend stream and final price. As a result, the value of a stock
rises when interest rates rises.
d. future values of the dividend stream and final price. As a result, the value of a stock
falls when interest rates rise.
What is the future value of $450 at an interest rate of 9 percent two years from today?
a. $534.65
b. $546.35
c. $565.18
d. $574.13
Egypt has exports of $500 million and imports of $750 million. Egypt
a. sells more overseas then it buys from overseas; it has a trade deficit.
b. sells more overseas then it buys from overseas; it has a trade surplus.
c. buys more from overseas then it sells overseas; it has a trade deficit.
d. buys more from overseas then it sells overseas; it has a trade surplus.
Gramp’s Potato Chips produces 2560 bags of potato chips a day. Each employee at
Gramp’s works 8 hours. If the company’s productivity is 20 bags per hour, how many
people does Gramp’s employ?
a. 8
b. 16
c. 24
d. None of the above is correct.
In the long run, an increase in the growth rate of the money supply leads to an increase
in the real interest rate, but no change in the nominal interest rate.
a. True
b. False