Monetary neutrality means that a change in the money supply
a. does not change real GDP. Most economists think this is a good description of the
economy in the short run and in the long run.
b. does not change real GDP. Most economists think this is a good description of the
economy in the long run but not the short run.
c. does change real GDP. Most economists think this is a good description of the
economy in the short-run and the long run.
d. does change real GDP. Most economists think this is a good description of the
economy in the long run but not the short run.
If U.S. residents chose to travel overseas less due to concerns about the safety of
foreign travel, then in the open- economy macroeconomic model
a. the demand for dollars in the market for foreign-currency exchange shifts right.
b. the demand for dollars in the market for foreign-currency exchange shifts left.
c. the supply of dollars in the market for foreign-currency exchange shifts right.
d. the supply of dollars in the market for foreign-currency exchange shifts left.
A year ago a country reduced the tax rate on all interest income from 40% to 10%.
During the year private saving was $600 billion as compared to $500 billion the year
before the tax reform. Taxes collected on interest income fell by $150 billion. Assuming
no other changes in government revenues or spending which of the following is
correct?
a. the substitution effect was larger than the income effect; national saving rose
b. the substitution effect was larger than the income effect; national saving fell
c. the income effect was larger than the substitution effect; national saving rose
d. the income effect was larger than the substitution effect; national saving fell
The leverage ratio is calculated as
a. assets minus liabilities.
b. assets divided by bank capital
c. the reciprocal of the required reserve ratio
d. the required reserve ratio multiplied by bank capital.
A decrease in the growth rate of the money supply eventually causes the short-run
Phillips curve to shift right.
a. True
b. False
For an imaginary economy, when the real interest rate is 5 percent, the quantity of
loanable funds demanded is $100,000 and the quantity of loanable funds supplied is
$100,000. Currently, the nominal interest rate is 6 percent and the inflation rate is 2
percent. Currently,
a. the market for loanable funds is in equilibrium.
b. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will rise.
c. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will fall.
d. the quantity of loanable funds demanded exceeds the quantity of loanable funds
supplied, and as a result the real interest rate will rise.
A improvement in production technology will shift the
a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.
Figure 4-1
RefertoFigure4-1. The movement from point A to point B on the graph is caused by
a(n)
a. increase in price.
b. decrease in price.
c. decrease in the price of a substitute good.
d. increase in income.
Which of the following sequences best explains the negative slope of the
aggregate-demand curve?
a. price level ↑ demand for money ↑ equilibrium interest rate ↑ quantity of ⇒ ⇒ ⇒
goods and services demanded ↓
b. price level ↑ demand for money ↓ equilibrium interest rate ↑ quantity of ⇒ ⇒ ⇒
goods and services demanded ↓
c. price level ↓ demand for money ↓ equilibrium interest rate ↑ quantity of ⇒ ⇒ ⇒
goods and services demanded ↓
d. price level ↑ equilibrium interest rate ↑ demand for money ↑ quantity of ⇒ ⇒ ⇒
goods and services demanded ↓
The problem of moralhazardarises because
a. life is full of all sorts of risks.
b. after people buy insurance, they have less incentive to be careful about their risky
behavior.
c. a high-risk person is more likely to apply for insurance than is a low-risk person.
d. insurance companies go to great effort to avoid paying claims to their policy holders.
Which of the following shifts aggregate demand to the right?
a. both an investment tax credit and a decrease in income tax rates
b. an investment tax credit but not a decrease in income tax rates
c. a decrease in income tax rates but not an investment tax credit
d. neither an investment tax credit nor a decrease in income tax rates
The quantity theory of money can explain hyperinflations but not moderate inflation.
a. True
b. False
Which of the following equations is correct?
a. Y= C+ I + G+ NCO
b. NX= NCO
c. NCO= S– I
d. All of the above are correct.
The supply curve for portable charcoal grills shifts
a. only when production technology changes.
b. when a determinant of the supply of portable charcoal grills other than the price of
portable charcoal grills changes.
c. when any determinant of the supply of portable charcoal grills changes.
d. only when the number of sellers of portable charcoal grills changes.
If a country experiences capital flight, which of the following curves shift right?
a. only the demand for loanable funds.
b. only the supply of dollars in the market for foreign-currency exchange.
c. only the net capital outflow curve and the supply of dollars in the market for foreign
currency exchange.
d. the demand for loanable funds, the net capital outflow curve, and the supply of
dollars in the market for foreign currency exchange.
Table29-5.
RefetoTable29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting
from the situation as depicted by the T-account, a customer deposits an additional
$60,000 into his account at the bank. If the bank takes no other action it will
a. have $64,000 in excess reserves.
b. have $4,000 in excess reserves.
c. be in a position to make new loans equal to $6,000
d. None of the above is correct.
Suppose that monetary neutrality and the Fisher effect both hold. An increase in the
money supply growth rate increases
a. the inflation rate and the nominal interest rate by the same number of percentage
points.
b. nominal interest rates but by less than the percentage point increase in the inflation
rate.
c. the inflation rate but not the nominal interest.
d. neither the inflation rate nor the nominal interest rate.
Table 23-4
The table below reports nominal and real GDP for the U.S. from 1929 to 1932.
RefertoTable23-4.What was the growth rate of real GDP for 1931?
a. -6.93%. Real GDP is a better gauge of economic well-being than nominal GDP.
b. -6.93%. Nominal GDP is a better gauge of economic well-being than real GDP.
c. -6.49%. Real GDP is a better gauge of economic well-being than nominal GDP.
d. -6.49%. Nominal GDP is a better gauge of economic well-being than real GDP.
Some of a firm’s workers are made worse off by the introduction of a union.
a. True
b. False
When the Fed buys government bonds,
a. the money supply increases and the federal funds rate increases.
b. the money supply increases and the federal funds rate decreases.
c. the money supply decreases and the federal funds rate increases.
d. the money supply decreases and the federal funds rate decreases.
Minimum wage laws help explain the natural rate of unemployment if they create a
surplus in any labor market.
a. True
b. False
Suppose an economist advises a city’s mayor to begin charging drivers a fee to drive on
a busy highway during congested times. The mayor does not implement the policy
because it would not be popular with voters. Which of the following statements best
describes the scenario?
a. This is a common occurrence. The policymaker knows the best policy but chooses
not to institute it for other reasons.
b. This is a common occurrence. The policymaker usually disregards an economist’s
advice because they do not believe it is the most efficient policy.
c. This is an unlikely occurrence. Most of the time, policymakers follow the advice of
economists and institute the most efficient policies.
d. This would never happen. Policymakers always follow the advice of economists.
If the demand for net exports rises, which of the following happens in the
open-economy macroeconomic model?
a. the exchange rate rises
b. the interest rate falls
c. net capital outflow rises
d. All of the above are correct.
A bank loans Kellie’s Print Shop $350,000 to remodel a building near campus to use as
a new store. On their respective balance sheets, this loan is
a. an asset for the bank and a liability for Kellie’s Print Shop. The loan increases the
money supply.
b. an asset for the bank and a liability for Kellie’s Print Shop. The loan does not increase
the money supply.
c. a liability for the bank and an asset for Kellie’s Print Shop. The loan increases the
money supply.
d. a liability for the bank and an asset for Kellie’s Print Shop. The loan does not increase
the money supply.
Assumptions can simplify the complex world and make it easier to understand.
a. True
b. False
Figure 3-18
RefertoFigure3-18.Bintu has an absolute advantage in the production of
a. bowls and Juba has an absolute advantage in the production of cups.
b. cups and Juba has an absolute advantage in the production of bowls.
c. both goods and Juba has an absolute advantage in the production of neither good.
d. neither good and Juba has an absolute advantage in the production of both goods.
Changes in the composition of demand among industries or regions are called sectoral
shifts.
a. True
b. False
An increase in the U.S. government budget deficit shifts the
a. demand for loanable funds right and decreases investment spending.
b. supply of loanable funds right and increases investment spending.
c. supply of loanable funds left and decreases investment spending.
d. None of the above is correct.
What do we call financial institutions through which savers can indirectly provide funds
to borrowers?
a. stock markets
b. financial institutions
c. financial markets
d. financial intermediaries
Table 23-5
The country of Caspir produces only cereal and milk. Quantities and prices of these
goods for the last several years are shown below. The base year is 2015.
Prices and Quantities
RefertoTable23-5.This country’s inflation rate from 2016 to 2017 was
a. 25.0%.
b. 23.1%.
c. 26.1%.
d. 18.8%.
Figure27-4. The figure shows a utility function for Alex.
RefertoFigure27-4.From the appearance of Alex’s utility function, we know that
a. if Alex owns a house, then he definitely would buy fire insurance provided the cost of
the insurance was reasonable.
b. Alex would voluntarily exchange a portfolio of stocks with a high average return and
a high level of risk for a portfolio with a low average return and a low level of risk.
c. Alex is risk averse.
d. Alex is not risk averse.
In the open-economy macroeconomic model, a decrease in the domestic interest rate
shifts
a. demand in the market for foreign-currency exchange to the right.
b. demand in the market for foreign-currency exchange to the left.
c. supply in the market for foreign-currency exchange to the right.
d. supply in the market for foreign-currency exchange to the left.
An increase in the price of blueberries would lead to a(n)
a. increased supply of blueberries.
b. a movement up and to the right along the supply curve for blueberries.
c. a movement down and to the left along the supply curve for blueberries.
d. Both a and b are correct.
What is the logic behind the theory of purchasing-power parity?
A pair of hiking boots costs $120 in the U.S., if the real exchange rate is 6/5 and the
nominal exchange rate is 2 Brazilian reais per dollar, what is the price of the same
hiking boots in Brazil?
Show your work.
Discuss the labor-force participation trends for men and women since 1950.
U.S. Investment Tax Credit
Suppose that Congress and the President enact legislation that provides a tax rebate to
businesses that purchase capital goods. Assume other countries make no policy
changes.
RefertoU.S.InvestmentTaxCredit.What happens to the exchange rate, U.S. net
exports, and the net exports of foreign countries?
Scenario 3-2
In country A a worker who works 40 hours can produce 200 pounds of rice or 100
pounds of broccoli. In country B a worker who works 40 hours can produce 160 pounds
of rice or 120 pounds of broccoli.
Refer to Scenario3-2. Which country, if either, has a comparative advantage producing
broccoli? Defend your answer using the numbers given.
Economists use the term to refer to a situation in which the market on its own fails to
produce an efficient allocation of resources.
When the consumer price index increases, the value of your money has _____.
According to the quantity theory of money this is caused by an increase in the _____.
Scenario 24-5
Suppose the residents of Mediaville spend all of their income on books, CDs, and
DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for
$900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for
$1,250. Assume that the market basket for the CPI is defined in the base year.
RefertoScenario24-5.Using 2009 as the base year, what is the inflation rate in 2010?
What does the “double coincidence of wants” refer to?
Figure 28-7
RefetoFigure28-7. Without a minimum wage, what is the equilibrium level of
employment? Explain what happens to the level of employment if the minimum wage is
equal to $125.
During the late 19th century, the U.S. price level fell. This unexpected increase in the
real cost of borrowing caused wealth to be redistributed from _____ to _____.
A restaurant chain announces declining revenues. What’s the name of the type of risk
that this news raises for holders of this chain’s bonds? What does this news to do the
interest rate on this chain’s bonds?
Trace the effects on the money supply when the Fed decreases the discount rate.
Explain how the introduction of new goods might bias the calculation of the consumer
price index.
The _____ interest rate tells you how fast the number of dollars in your bank account
will rise over time, and it is the sum of the _____ interest rate and the _____.
Assuming purchasing-power parity holds and that over a period of five years the dollar
had appreciated relative to the currency of Country X, what would explain the
appreciation of the dollar?
In the 1990s, several stocks had very, very high price to earnings ratios. These stocks
appeared overvalued to many observers. What might the people who bought them have
been thinking?
Frank can make 20 hot dogs an hour or 10 pints of potato salad an hour. Earnest can
make 30 hot dogs an hour or 20 pints of potato salad an hour. Who has the comparative
advantage making hot dogs and who has the comparative advantage making potato
salad?
Economists use the term to refer to the ability of a single person (or a small group) to
have a substantial influence on market prices.
Draw a simple T-account for First National Bank which has $5,000 of deposits, a
required reserve ratio of 10 percent, and excess reserves of $300. Make sure your
balance sheet balances.
