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Recall Application 3, "The Ends of Hyperinflations," to answer the following questions:
According to the Application, which of the following was Sargent's explanation for why
hyperinflations occurred?
A) contractionary fiscal policy coupled with contractionary monetary policy.
B) money creation and higher taxes.
C) expansionary fiscal policy financed by money creation.
D) higher spending and higher taxes.
If firms have rational expectations and if they set prices and wages on this basis, then:
A) there are likely to be unexploited profit opportunities for extended periods.
B) they will perceive their prices have risen relative to other prices, and this leads them
to produce more output.
C) on average, prices and wages will be set at levels that ensure equilibrium in the
goods and labor markets.
D) they will still not know the demand curve for their output and the supply curve of
labor that they face.
A decrease in the supply of labor will ________ real wages and ________ employment.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Recall the Application about cultural factors in England and their relevance to the
Industrial Revolution to answer the following question(s). In studying the economic
history of England before the Industrial Revolution, Professor Gregory Clark found that
children of the more affluent members of English society were more likely to survive
than those of the less affluent. Coupled with the slow growth of population over several
centuries, this differential survival of the wealthy had the effect of creating downward
mobility for the rich, as their sons and daughter increasingly populated the society.
According to the Application, the cultural changes in England allowed individuals to
take advantage of
A) new developments in science and technology.
B) the increase in agrarian lifestyles.
C) the decrease in population caused by the number of citizens who were leaving for
the New World.
D) the elimination of trade barriers resulting from the formation of the European Union.
If an increase in income results in an increase in the demand for Honda Civics, then
Honda Civics are considered:
A) normal goods.
B) inferior goods.
C) substitute goods.
D) complementary goods.
If an American firm Citigroup earns profits while operating a business in London, then
the value of the profit is entered as a ________ in the U.S. ________ account.
A) negative; current account
B) positive; current account
C) negative; financial account
D) negative capital account
Returns on Investment
Table 12.2
If Table 12.2 represents all the investments available to the economy, the nominal
interest rate is 10 percent and there is no inflation, what will be the level of investment
in the economy?
A) $0
B) $200
C) $300
D) $500
Suppose that a technological decline makes labor less productive. What is likely to
happen to wages and to potential output?
A) Wages increase and potential output increases.
B) Wages increase and potential output decreases.
C) Wages decrease and potential output increases.
D) Wages decrease and potential output decreases.
By raising the discount rate, the Federal Reserve ________ banks from borrowing more
reserves.
A) encourages
B) discourages
C) prohibits
D) short-changes
Returns on Investment
Table 12.2
If Table 12.2 represents all the investments available to the economy, the nominal
interest rate is 2.5 percent and there is no inflation, what will be the level of investment
in the economy?
A) $0
B) $200
C) $600
D) $900
Gross domestic product measures:
A) the total spending on currently-produced final goods and services in the country.
B) the total market value of all currently-produced final output in the country.
C) the total income earned from current production of final goods and services in the
country.
D) all of the above.
The price of iPhones has fallen dramatically. Which of the following is likely to
happen?
A) The quantity of iPhones supplied will decrease.
B) The quantity of iPhones supplied will increase.
C) The supply of iPhones will decrease.
D) The supply of iPhones will increase.
GDP is supposed to measure the goods ________ the United States.
A) purchased in
B) produced in
C) imported to
D) exported to
Suppose that a new study is released stating that consumption of orange juice (a
substitute for apple juice) reduces the risk of cancer, and a major freeze destroys half of
the country's apple crop. What happens to the price and quantity of apple juice?
A) The price of apple juice might rise or fall and the quantity of apple juice falls.
B) The price of apple juice might rise or fall and the quantity of apple juice rises.
C) The price of apple juice falls and the quantity of apple juice falls.
D) The quantity of apple juice might rise or fall, and the price of apple juice rises.
If the government has large budget deficits that cannot be financed by borrowing, the
government:
A) prints more money, causing inflation and hyperinflation.
B) prints less money, causing inflation and hyperinflation.
C) collects more taxes, causing inflation and hyperinflation.
D) collects less taxes, causing inflation and hyperinflation.
With the equation M=my, where M is the level of imports and y is real GDP, "m":
A) is assumed as a constant.
B) is assumed to be greater than unity.
C) increases when y decreases.
D) increases when y increases.
