Which of the following is an argument in favor of a balanced budget rule?
a. Some economists believe that rules are better than discretion.
b. Per-capita debt is small relative to lifetime income.
c. The effect of deficit spending on future generations depends in part on what the
government buys.
d. Other government policies also redistribute income across generations.
Figure 4-8
RefertoFigure4-8.Suppose the figure shows the market demand for laptop computers.
Suppose the price of wireless printers, a complementary good, decreases. Which of the
following changes would occur?
a. a movement along D2 from point A to point B
b. a movement along D2 from point B to point A
c. a shift from D1 to D2
d. a shift from D2 to D1
A country with a relatively low level of real GDP per person is considering adopting
two policies to promote economic growth. The first is to decrease barriers to trade. The
second is to restrict foreign portfolio investment. Which of these policies do most
economists say promote growth?
a. both the first and the second
b. the first but not the second
c. the second but not the first
d. neither the first nor the second
Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports
a. increase and U.S. net capital outflow decreases.
b. decrease and U.S. net capital outflow increases.
c. and U.S. net capital outflow both increase.
d. and U.S. net capital outflow both decrease.
Figure 2-17
RefertoFigure2-17. The movement from point B to point C could have been caused by
a. inflation.
b. a change in income.
c. a change in the price of grapes.
d. a change in the cost of producing grapes.
Table 3-20
Assume that Brad and Theresa can switch between producing wheat and producing beef
at a constant rate.
Refer to Table3-20. At which of the following prices would both Brad and Theresa
gain from trade with each other?
a. 12 bushels of wheat for 6 pounds of beef
b. 12 bushels of wheat for 8 pounds of beef
c. 12 bushels of wheat for 12 pounds of beef
d. Brad and Theresa could not both gain from trade with each other at any price.
According to liquidity preference theory, the money-supply curve would shift rightward
a. if the money demand curve shifted right.
b. if the Federal Reserve chose to increase the money supply.
c. if the interest rate increased.
d. All of the above are correct.
With respect to the consumer price index, which of the following serves as an example
of how the substitution bias arises? Between 2010 and 2011, the price of a pound of
peanuts
a. rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
b. falls from $0.90 to $0.72 while the price of a loaf of bread falls from $2.00 to $1.60.
c. remains constant, as does the price of a loaf of bread.
d. None of the above serves as an example of how the substitution bias arises.
In a closed economy, public saving is the amount of
a. income that households have left after paying for taxes and consumption.
b. income that businesses have left after paying for the factors of production.
c. tax revenue that the government has left after paying for its spending.
d. spending that the government undertakes in excess of the taxes it collects.
Which of the following statements is correct for the long run?
a. Output is determined by the amount of capital, labor, and technology; the interest rate
adjusts to balance the supply and demand for money; the price level adjusts to balance
the supply and demand for loanable funds.
b. Output is determined by the amount of capital, labor, and technology; the interest rate
adjusts to balance the supply and demand for loanable funds; the price level adjusts to
balance the supply and demand for money.
c. Output is determined by the amount of capital, labor, and technology; the interest rate
adjusts to balance the supply and demand for loanable funds; the price level is relatively
slow to adjust.
d. Output responds to the aggregate demand for goods and services; the interest rate
adjusts to balance the supply and demand for loanable funds; the price level adjusts to
balance the supply and demand for money.
The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.
a. True
b. False
Categories of U.S. consumer spending, ranked from largest to smallest, are
a. housing, food & beverages, education & communication, and transportation.
b. education & communication, housing, food & beverages, and transportation.
c. food & beverages, housing, transportation, and medical care.
d. housing, transportation, food & beverages, and medical care.
U.S. GDP and U.S. GNP are related as follows:
a. GNP = GDP + Value of exported goods – Value of imported goods.
b. GNP = GDP – Value of exported goods + Value of imported goods.
c. GNP = GDP + Income earned by foreigners in the U.S. – Income earned by U.S.
citizens abroad.
d. GNP = GDP – Income earned by foreigners in the U.S. + Income earned by U.S.
citizens abroad.
Which of the following would notbe a consequence of an increase in the U.S.
government budget deficit?
a. the U.S. trade balance rises
b. the U.S. interest rate rises
c. domestic investment in the U.S. falls
d. the real exchange rate of the U.S. dollar appreciates
One can argue that the average American today is “richer” than the richest American
100 years ago, given that 100 years ago,
a. people’s nominal incomes were, on average, much lower than they are today.
b. personal fortunes were not accurately measured.
c. many of the goods and services that we now take for granted were not available.
d. international trade had not yet begun to flourish.
An Italian company builds and operates a pasta factory in the United States. This is an
example of Italian
a. foreign direct investment that increases Italian net capital outflow.
b. foreign direct investment that decreases Italian net capital outflow.
c. foreign portfolio investment that increases Italian net capital outflow.
d. foreign portfolio investment that decreases Italian net capital outflow.
Table 3-15
Refer to Table3-15. Assume that the farmer and the rancher each has 40 labor hours
available. If each person divides his time equally between the production of meat and
potatoes, then total production is
a. 5 pounds of meat and 4 pounds of potatoes.
b. 6 pounds of meat and 7.5 pounds of potatoes.
c. 7.5 pounds of meat and 6 pounds of potatoes.
d. 10 pounds of meat and 8 pounds of potatoes.
Because people move into and out of the labor force so often, statistics on
unemployment are difficult to interpret.
a. True
b. False
When a union is present in a labor market, wages are not determined by the equilibrium
of supply and demand.
a. True
b. False
When the Consumer Price Index increases from 100 to 120
a. more money is needed to buy the same amount of goods, so the value of money falls.
b. more money is needed to buy the same amount of goods, so the value of money rises.
c. less money is needed to buy the same amount of goods, so the value of money falls.
d. less money is needed to buy the same amount of goods, so the value of money rises.
On the Internet you find the following offers for opening an online account. Which of
them is the best offer if you have $5,000 to save for two years?
a. an interest rate of 5 percent, with the bank charging you a $50 processing fee at the
time you open your account
b. an interest rate of 4 percent, with the bank giving you a $65 bonus at the time you
open your account
c. an interest rate of 3.5 percent, with the bank giving you a $100 bonus to open your
account
d. an interest rate of 4.5 percent, with no processing fee and no bonus
Last year, you earned a nominal wage of $10 per hour and the price level was 120. This
year your nominal wage is $11 per hour, but you are unable to purchase the same
amount of goods as last year. The price level this year must be
a. 135
b. 132
c. 125
d. 121
Suppose that more British decide to vacation in the U.S. and that the British purchase
more U.S. Treasury bonds. Ignoring how payments are made for these purchases,
a. the first action by itself raises U.S. net exports, the second action by itself raises U.S.
net capital outflow.
b. the first action by itself raises U.S. net exports, the second action by itself lowers
U.S. net capital outflow.
c. the first action by itself lowers U.S. net exports, the second action by itself raises
U.S. net capital outflow.
d. the first action by itself lowers U.S. net exports, the second action by itself lowers
U.S. net capital outflow.
A decrease in government spending and the enactment of an investment tax credit
would definitely cause
a. the quantity of loanable funds traded to increase.
b. the interest rate to increase.
c. the quantity of loanable funds traded to decrease.
d. the interest rate to decrease.
Which of the following is true?
a. Kremer argued that with greater population, society would generate more ideas so
that growth of real GDP per person could continue. Malthus argued that increasing
population would outstrip agricultural production.
b. Kremer argued that increases in population would reduce the amount of human and
physical capital per worker so that eventually the standard of living would decline.
Malthus argued that increases in technology would allow increased output growth so
that even with population growth, society would enjoy a higher standard of living.
c. Malthus argued that with greater population, society would generate more ideas so
that growth of real GDP per person could continue. Kremer argued that increasing
population would outstrip agricultural production.
d. Malthus argued that increases in population would reduce the amount of human and
physical capital per worker so that eventually the standard of living would decline.
Kremer argued that increases in technology would allow increased output growth so
that even with population growth, society would enjoy a higher standard of living.
When the money market is drawn with the value of money on the vertical axis, if the
price level is above the equilibrium level, there is an
a. excess demand for money, so the price level will rise.
b. excess demand for money, so the price level will fall.
c. excess supply of money, so the price level will rise.
d. excess supply of money, so the price level will fall.
Adam Smith asserted that a person should never attempt to make at home
a. what it will cost him more to make than to buy.
b. any good in which that person does not have an absolute advantage.
c. any luxury good.
d. any necessity.
Waldo works eight hours and produces 7 units of goods per hour. Emerson works six
hours and produces 10 units of goods per hour.
a. Waldo’s productivity and output are greater than Emerson’s.
b. Waldo’s productivity is greater than Emerson’s but his output is less.
c. Emerson’s productivity and output are greater than Waldo’s.
d. Emerson’s productivity is greater than Waldo’s but his output is less.
A person received 4% nominal interest. The inflation rate was -2% and the tax rate was
25%. This person received an after-tax real interest rate of 5%.
a. True
b. False
Constant returns to scale is the point on a production function where increasing inputs
will no longer increase output.
a. True
b. False
Other things the same,as the price level rises, the real value of money
a. and the exchange rate rise.
b. and the exchange rate fall.
c. rises and the exchange rate falls.
d. falls and the exchange rate rises.
In a competitive market, the price of a product
a. is determined by buyers, and the quantity of the product produced is determined by
sellers.
b. is determined by sellers, and the quantity of the product produced is determined by
buyers.
c. and the quantity of the product produced are both determined by sellers.
d. None of the above is correct.
The Fed can influence the money supply by changing the interest rate it pays banks on
the reserves they are holding.
a. True
b. False
The same size decrease in the amount of capital stock per worker will cause output per
worker to fall by more in a country with a relatively high level of capital per worker
than in a country with a relatively low level of capital per worker.
a. True
b. False