The lengths of the recession and expansion phases and which sectors of the economy
are most affected will rarely be the same in any two business cycles.
At a short-run macroeconomic equilibrium, real GDP is always equal to potential GDP.
The short-run aggregate supply curve is vertical.
Saving exceeds domestic investment in Japan, which generates a financial account
deficit in Japan’s balance of payments.
An increase in the price level in the United States will shift the aggregate expenditure
line upward.
An increase in net foreign investment is possible through a decrease in national saving
or a decrease in domestic investment.
The marginal propensity to consume is the slope of the consumption function.
If prices rise on average in the U.S. economy, the purchasing power of a dollar declines.
If buyers were required to pay the federal excise tax on gasoline directly to the
government, the demand curve for gasoline would shift up.
When the Federal Reserve increases the money supply, people spend more because they
now have more money.
The Soviet Union’s economic growth rate slowed despite rapid increases in capital per
hour worked.
The inflation rate measures the average prices of goods and services in the economy.
Adverse selection is a situation in which one party to an economic transaction has less
information than the other party.
Economic profit is the difference between a firm’s revenue and its opportunity costs.
Of all industrialized nations, real GDP per capita was the highest in Japan in 2012.
An increase in the real interest rate does which of the following?
A) reduces the demand for loanable funds
B) reduces saving
C) reduces consumption spending
D) increases the demand for loanable funds
In 2013, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its
repair shop, $2,000 on a new copy machine for its sales division, and $600,000 on Ford
Motor company stock. Unsold cars and trucks were valued at $400,000 on January 1,
2013 and unsold cars and trucks were valued at $900,000 on December 31, 2013. What
is Kendall Ford’s total investment spending in 2013?
A) $22,000
B) $322,000
C) $522,000
D) $1,022,000
What is an inside director?
A) a movie director who also appears in the movie
B) a member of a corporate board of directors that is also a manager of the business
C) the CEO that is selected by the corporation’s board of directors
D) a board of director chair who has been in the job for at least three years
If aggregate demand just increased, which of the following may have caused the
increase?
A) an increase in government purchases
B) an increase in the interest rate
C) an increase in the price level
D) an increase in imports
If the government implements a price ceiling on insulin, this will have all of the
following effects on the market for insulin except
A) an increase in consumer surplus.
B) an increase in producer surplus.
C) an increase in deadweight loss.
D) a more efficient equilibrium.
Which type of business has the most government rules and regulations affecting it?
A) sole proprietorship
B) partnership
C) corporation
D) They all have the same set of rules and regulations affecting them.
Figure 2-2
Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that
produces two goods, roses and orchids.
Refer to Figure 2-2. What is the opportunity cost of one dozen orchids?
A) 0.4 dozen roses
B) 2.5 dozen roses
C) 7.25 dozen roses
D) 16 dozen roses
Which of the following best describes the “interest rate effect”?
A) An increase in the price level raises the interest rate and chokes off government
spending.
B) An increase in the price level lowers the interest rate and chokes off government
spending.
C) An increase in the price level raises the interest rate and chokes off investment and
consumption spending.
D) An increase in the price level lowers the interest rate and chokes off investment and
consumption spending.
Figure 11-1
Refer to Figure 11-1. Within a country, the impact of wars and revolutions and their
subsequent destruction of capital is reflected in the per-worker production function in
the figure above by a movement from
A) A to B.
B) B to C.
C) B to A.
D) C to A.
A stock market boom which causes stock prices to rise should cause
A) a decrease in consumption spending.
B) an increase in consumption spending.
C) a decrease in wealth.
D) a decrease in net export spending.
When housing prices ________, as they did beginning in 2006 following the housing
market bubble, consumption spending on furniture, appliances, and home
improvements declined as many households found it ________ to borrow against the
value of their homes.
A) rise; easier
B) rise; harder
C) fall; easier
D) fall; harder
What happens in the primary market?
A) primary inputs like electricity are sold
B) a corporate financial manager will resell previously issued shares of stock
C) newly issued claims are sold by the borrowing firm to the initial buyer
D) already issued claims are sold from one investor to another
Figure 10-6
Refer to Figure 10-6. The market is in equilibrium. If the government budget deficit
rises, which of the following would you expect to see?
A) The quantity of loanable funds demanded by firms will rise above $120 million.
B) The quantity of loanable funds demanded by firms will fall below $120 million.
C) The budget deficit will have no impact on the quantity of loanable funds demanded
by firms.
D) The interest rate will fall below 4 percent.
A corporation is
A) the easiest type of business to set up.
B) the least expensive type of business to set up.
C) the most difficult type of business to set up.
D) the least profitable type of business to set up.
When the Fed decided to buy long-term Treasury securities while selling an equal
amount of shorter-term treasury securities to keep long-term interest rates low, it was
following a strategy known as
A) securitization.
B) operation twist.
C) quantitative easing.
D) indirect finance.
Which of the following is not part of the “individual mandate” provision of the Patient
Protection and Affordable Care Act (ACA)?
A) Individuals are allowed to opt out of the insurance program if they can prove they
have no serious health issues and do so before the act fully takes effect in the year 2014.
B) By 2016, fines for not having health insurance will be the greater of $695 per person
or 2.5 percent of income.
C) Beginning in 2014, individuals who do not acquire health insurance will be subject
to a fine.
D) With limited exceptions, every resident of the United States will be required to have
health insurance that meets certain basic requirements.
Use the information below to explain adjustments that move the economy to a long-run
equilibrium. Assume that firms and workers have adaptive expectations.
The current unemployment rate = 7%.
The natural rate of unemployment = 5.5%.
Last year’s inflation rate = 5%.
This year’s inflation rate = 4%.
What is an economic variable? Give an example of an economic variable.
When potential GDP increases, is it necessarily the case that real GDP increases as
well? Explain.
Use the saving and investment equation to explain why the United States experienced
large current account deficits in the late 1990s.
Suppose you hit a progressive jackpot on a slot machine in a casino in Atlantic City and
are given the choice of the following prizes:
Prize 1: $150,000 to be received right away, with three additional payments of $150,000
to be received each year for the next three years.
Prize 2: $500,000 to be received right away.
If the interest rate is 5 percent, what is the present value of each prize?
Table 8-21
Refer to Table 8-21. Consider the following data for a simple economy: Calculate
nominal GDP and real GDP for 2013, using 2011 as the base year. Show your work.
What do reports that the dollar is “undervalued” mean? How will foreign exchange
markets respond to this information? Support your answer graphically.
What economic impact would the closing of a nearby military base have on a town?
Would people and businesses that did not directly deal with the military personnel be
affected?