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 move higher.
You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar
appreciates relative to the Chilean peso, then other things the same
a. it takes fewer dollars to build the factory. By itself building the factory increases U.S.
net capital outflow.
b. it takes fewer dollars to build the factory. By itself building the factory decreases
U.S. net capital outflow.
c. it takes more dollars to build the factory. By itself building the factory increases U.S.
net capital outflow.
d. it takes more dollars to build the factory. By itself building the factory decreases U.S.
net capital outflow.
When looking at a graph of nominal and real interest rates you notice that nominal rates
always lie above real rates. From this you conclude
a. there were serious episodes of deflation in the time frame represented on the graph.
b. consumer prices were always rising in the time frame represented on the graph.
c. the economy never experienced a recession in the time frame represented on the
graph.
d. GDP was always increasing for the time frame represented on the graph.
Figure 9-2
Refer to Figure 9-2. This country
a. has a comparative advantage in baskets.
b. should export baskets.
c. is a price taker in the world economy.
d. All of the above are correct.
The Federal Open Market Committee meets approximately
a. every three weeks
b. every six weeks
c. every 3 months
d. every 6 months.
Economists hold many positions advising the president and Congress including
a. being a member of the Council of Economic Advisers.
b. helping to enforce antitrust laws at the Department of Justice.
c. conducting research at the Congressional Budget Office.
d. All of these are possible positions that economists hold.
Assume the money market is initially in equilibrium. If the price level increases, then
according to liquidity preference theory there is an excess
a. supply of money until the interest rate increases.
b. supply of money until the interest rate decreases.
c. demand for money until the interest rate increases.
d. demand for money until the interest rate decreases.
Which of the following is not a rationing mechanism used by landlords in cities with
rent control?
a. waiting lists
b. race
c. price
d. bribes
Figure 5-3
Refer to Figure 5-3. Which demand curve is perfectly inelastic?
a. A
b. B
c. C
d. D
Public policies
a. may be able to improve either economic efficiency or equality.
b. may be able to improve economic efficiency but cannot improve equality.
c. may be able to improve equality but cannot improve economic efficiency.
d. cannot improve either equality or economic efficiency.
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.
Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000
and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler’s income
elasticity of demand for hot dogs is
a. 2.33, and hot dogs are a normal good.
b. -2.33, and hot dogs are an inferior good.
c. 0.43, and hot dogs are a normal good.
d. -0.43, and hot dogs are an inferior good.
Which of the following is not correct?
a. Deficits give people the opportunity to consume at the expense of their children, but
deficits do not require them to do so.
b. Deficits and surpluses could be used to avoid fluctuations in the tax rate.
c. The only times deficits have increased have been during times of war or economic
downturns.
d. Reducing the budget deficit rather than funding more education spending could, all
things considered, make future generations worse off.
Which of the following shifts aggregate demand to the right?
a. an increase in the money supply
b. an increase in net exports due to something other than a change in domestic prices
c. an investment tax credit
d. All of the above are correct.
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. Perry has an absolute advantage in the production of
a. novels and Jordan has an absolute advantage in the production of poems.
b. poems and Jordan has an absolute advantage in the production of novels.
c. novels and Jordan has an absolute advantage in the production of neither good.
d. neither good and Jordan has an absolute advantage in the production of novels.
Other things the same, when an economy increases its saving rate
a. consumption and production rise now.
b. consumption rises now and production rises later
c. consumption falls now and production rises later.
d. consumption falls now and production falls later.
Figure 3-6
Maxine’s Production Possibilities Frontier Daisy’s Production Possibilities
Frontier
Refer to Figure 3-6. If the production possibilities frontier shown for Maxine is for 3
hours of work, then how long does it take Maxine to make one pie?
a. 1/4 hour
b. 1/3 hour
c. 3 hours
d. 4 hours
Suppose prices of personal computers fall significantly and consumers respond by
buying more personal computers. The consumer price index
a. reflects this price decrease accurately.
b. understates this price decrease due to the substitution bias.
c. overstates this price decrease due to the income bias.
d. overstates this price decrease due to the substitution bias.
Economists speaking like policy advisers make
a. claims about how the world is.
b. descriptive statements.
c. normative statements.
d. More than one of the above is correct.
If T represents the size of the tax on a good and Q represents the quantity of the good
that is sold, total tax revenue received by government can be expressed as
a. T/Q.
b. T+Q.
c. TxQ.
d. (TxQ)/Q.
Economics is the study of
a. production methods.
b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government.
A country has national saving of $70 billion, government expenditures of $20 billion,
domestic investment of $30 billion, and net capital outflow of $40 billion. What is its
supply of loanable funds?
a. $30 billion
b. $40 billion
c. $50 billion
d. $70 billion
The logic of the multiplier effect applies
a. only to changes in government spending.
b. to any change in spending on any component of GDP.
c. only to changes in the money supply.
d. only when the crowding-out effect is sufficiently strong.
Figure 9-4. The domestic country is Nicaragua.
Refer to Figure 9-4. Consumer surplus in Nicaragua without trade is
a. $375.
b. $2,000.
c. $2,250.
d. $8,700.
Table 11-2
The table below pertains to Iowan, an economy in which the typical consumer’s basket
consists of 3 pounds of pork and 4 bushels of corn.
Refer to Table 11-2. If 2008 is the base year, then the inflation rate in 2009 was
a. 26.5 percent.
b. 36.1 percent.
c. 39 percent.
d. 47 percent.
In the United States, if the price of imported oil rises so that the prices of gasoline and
heating oil rise, then the
a. GDP deflator rises much more than does the consumer price index.
b. consumer price index rises much more than does the GDP deflator.
c. GDP deflator and the consumer price index rise by about the same amount.
d. consumer price index rises slightly more than does the GDP deflator.
Figure 3-9
Uzbekistan’s Production Possibilities Frontier Azerbaijan’s Production
Possibilities Frontier
Refer to Figure 3-9. 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 Azerbaijan then consume, assuming Uzbekistan
specializes in making bolts and Azerbaijan specializes in making nails?
a. 8 bolts and 56 nails
b. 14 bolts and 44 nails
c. 18 bolts and 32 nails
d. 20 bolts and 26 nails
Trade policies
a. alter the trade balance because they alter imports of the country that implemented
them.
b. alter the trade balance because they alter net capital outflow of the country that
implemented them.
c. do not alter the trade balance because they cannot alter the national saving or
domestic investment of the country that implements them.
d. do not alter the trade balance because they cannot alter the real exchange rate of the
currency of the country that implements them.
In the late 1970s, proponents of rational expectations argued that
a. the Fed should not attempt to aggressively fight inflation.
b. the sacrifice ratio was smaller than previously thought.
c. the short run was relatively long.
d. None of the above is correct.
If the Fed sells government bonds to the public, then reserves
a. increase and the money supply increases.
b. increase and the money supply decreases.
c. decrease and the money supply increases.
d. decrease and the money supply decreases.