The unemployment rate is defined as the number of
a. unemployed individuals divided by the number of employed individuals.
b. employed individuals divided by the number of individuals in the working-age
population.
c. unemployed individuals divided by the number of individuals in the working-age
population.
d. unemployed individuals divided by the number of individuals employed plus the
number of unemployed.
An open capital market affects a nation’s economic growth by
a. channeling capital into productive projects and away from wasteful projects.
b. rewarding investors who find the most productive projects and invest in them.
c. making the lowest-cost capital available from around the world.
d. all of the above.
The price of a gallon of gasoline was $2.01 in May 2004 compared to 39 cents in 1973.
However, the Consumer Price Index was 44.4 in 1973 compared to 189.1 in May 2004
(1980 1984 = 100). In terms of the purchasing power of the dollar in 2004, the 1973
price of gasoline was
a. $0.39.
b. $0.44.
c. $1.66.
d. $2.15.
The interest rate is determined by the
a. altruism or greed of bankers.
b. demand for loanable funds.
c. supply for loanable funds.
d. supply and demand for loanable funds.
Which of the following would be a debit in the U.S. balance of payments?
a. the purchase of air service from a U.S. airline by a Japanese traveler
b. the purchase of a German car by an American
c. a short-term loan to a Japanese manufacturer by a U.S. bank
d. the purchase of U.S. grain by a Japanese firm
Figure 17-13
In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is
imposed in the United States, how many baseballs will be purchased in the United
States?
a. 4,000
b. 6,000
c. 8,000
d. 10,000
e. 12,000
If the interest rate is 7 percent, what is the present value of $100 received two years
from now.
a. $107
b. $114.49
c. $87.34
d. $93.45
If the Fed unexpectedly shifts to a more expansionary monetary policy, which of the
following will most likely occur in the short run?
a. a decrease in the real interest rate
b. an increase in unemployment
c. a decrease in real GDP
d. an increase in the nominal interest rate
If the public decides to hold more currency and fewer deposits in banks, bank reserves
a. decrease and the money supply eventually decreases.
b. decrease but the money supply does not change.
c. increase and the money supply eventually increases.
d. increase but the money supply does not change.
When the Fed unexpectedly reduces the money supply, it will cause a decrease in
aggregate demand because
a. real interest rates will rise, lowering business investment and consumer spending.
b. the dollar will depreciate on the foreign exchange market, leading to an increase in
net exports.
c. lower interest rates will cause the value of assets (for example, stocks) to rise.
d. the national debt will increase, causing consumers to reduce their spending.
Which of the following statements is correct?
a. Interest would not exist in a nonmonetary economy.
b. The present value of a future dollar payment is directly related to the interest rate.
c. The present value of a fixed dollar payment to be received in the future will decline
as the length of the time before the payment will be received increases.
d. During an extended inflationary period, the money (or nominal) interest rate will
usually be lower than the real rate of interest.
Figure 9-1
In Figure 9-1, which of the following correctly labels the curves in the aggregate
demand/aggregate supply model?
a. (1) is LRAS, (2) is SRAS, and (3) is AD.
b. (1) is SRAS, (2) is LRAS, and (3) is AD.
c. (1) is AD, (2) is SRAS, and (3) is LRAS.
d. (1) is LRAS, (2) is AD, and (3) is SRAS.
The reduction of structural unemployment in the United States’ economy may require
a. an increase in the minimum wage.
b. a reduction in government spending.
c. an decrease in interest rates.
d. increased spending on worker retraining.
As the price of land decreases along its demand curve, the relative price of land
a. increases because the prices of other resources have also decreased.
b. decreases because the prices of other resources have also decreased.
c. increases because the prices of other resources have increased.
d. decreases because the prices of other resources are held constant.
e. remains constant because the prices of other resources also increase.
Profit-maximizing firms will expand their employment of each variable resource until
a. the Marginal Revenue Product (MRP) of the resource is just equal to the price of the
resource.
b. other firms realize they can’t compete.
c. the MRP of the resource is below the cost of the resource.
d. the MRP of the resource is above the cost of the resource.
Use the figure below to answer the following question(s).
Figure 18-1
Figure 18-1 illustrates supply and demand for U.S. dollars and British pounds in the
foreign exchange market. If the dollar price of pounds is $1.80, which of the following
is true?
a. There is an excess supply of pounds, and the dollar price of pounds will rise.
b. There is an excess demand for pounds, and the dollar price of pounds will rise.
c. There is an excess supply of pounds, and the dollar price of pounds will fall.
d. There is an excess demand for pounds, and the dollar price of pounds will fall.
When economists say the quantity demanded of a product has increased, they mean the
a. demand curve has shifted to the left.
b. demand curve has shifted to the right.
c. price of the product has fallen, and consequently, consumers are buying more of it.
d. price of the product has risen, and consequently, consumers are buying less of it.
Which of the following is a major implication of the invisible hand concept?
a. When directed by competitive market prices, the actions of self-interested individuals
will tend to promote overall economic prosperity.
b. Prosperity cannot be achieved unless the selfish nature of people can be changed.
c. Competition is harmful to the health of an economy because it results in wasteful
duplication.
d. Government-operated firms tend to have higher efficiency and lower costs than
private sector firms.
According to the new classical view, budget deficits will
a. cause real interest rates to rise, which will decrease aggregate demand, output, and
employment.
b. lead to an expansion in spending, which will stimulate both real output and
employment.
c. fail to stimulate aggregate demand because people will save more in order to pay the
higher future taxes implied by the expansion in government debt.
d. lead to inflation because the deficits expand the money supply.
Which of the following is true?
a. The close link between personal income and provision of productive resources to
others provides individuals with a strong incentive to develop skills.
b. Income can be taxed away from some and transferred to others without altering the
incentive to engage in productive activities.
c. Holding technology constant, the size of the economic pie available for distribution
among economic participants is fixed.
d. In a democratic setting, the government’s tax and spending policies can redistribute
income without influencing the size of the economic pie.
e. Both b and d are correct.
Since 1980, the female/male annual earnings ratio of full-time workers has been ____,
while the labor force participation rate of women has been ____ during this same
period.
a. rising; declining
b. rising; increasing
c. falling; increasing
d. falling; declining
Compared to those in low-income countries, the residents of countries with high per
person incomes nearly always
a. live longer.
b. have a lower illiteracy rate.
c. have a lower infant mortality rate.
d. all of the above.
According to non-Keynesians, how will an increase in government spending financed
by borrowing during a recession affect recovery?
a. Higher future taxes and interest rates will be required to finance the larger debt and
this will weaken the recovery.
b. Repayment of the debt can always be shifted to the future, making it possible to keep
tax rates low and thereby strengthen the recovery.
c. Higher interest payments will increase future government spending, and thereby
promote a stronger the recovery.
d. The increase in government spending will exert a multiplier effect on the economy,
leading to a stronger recovery.
What happens to the aggregate demand curve when the Fed reduces the money supply?
a. It shifts leftward, lowering real GDP and the price level.
b. It shifts leftward, raising real GDP and the price level.
c. It shifts leftward, lowering real GDP but raising the price level.
d. It shifts rightward, raising real GDP and the price level.
e. It shifts rightward, lowering real GDP but raising the price level.
Which of the following most clearly illustrates the concept of “derived demand”?
a. An increase in the price of steak causes the demand for poultry to increase.
b. An increase in the demand for new houses leads to an increase in the demand for
construction workers.
c. An increase in consumer income leads to an increase in the demand for services
provided by the government.
d. An increase in the demand for new cars causes the demand for used automobiles to
rise.
As the marginal propensity to consume (MPC) increases, the spending multiplier
a. increases.
b. decreases.
c. remains constant.
d. becomes indefinable.
Which of the following restricts the volume of international trade?
a. quotas
b. well-enforced property rights
c. a stable international monetary framework
d. an increase in the rate of economic growth
Compared to a reduction in tax rates, a one-time tax rebate will exert
a. a weaker impact on aggregate demand because the increase in the incentive to earn
and impact on long-term income will be smaller for the temporary tax cut.
b. a stronger impact on aggregate demand because both the increase in the incentive to
earn and impact on long-term income will be larger for the temporary tax cut.
c. an identical impact on aggregate demand because the size of the budget deficit will
be the same regardless of whether the tax cut is temporary or permanent.
d. an identical impact on aggregate demand because the incentive effects of a tax cut
will be the same regardless of whether it is temporary or permanent.
If the nation’s investment opportunities are highly attractive relative to those available
abroad, the nation will tend to
a. experience an outflow of capital and a trade deficit.
b. experience an outflow of capital and a trade surplus.
c. experience an inflow of capital and a trade deficit.
d. experience an inflow of capital and a trade surplus.
Figure 3-20
Refer to Figure 3-20. If 40 units of the good are being bought and sold, then
a. cost to sellers is equal to the value to buyers.
b. the value to buyers is greater than the cost to sellers.
c. the cost to sellers is greater than the value to buyers.
d. producer surplus would be greater than consumer surplus.
A production possibilities curve graphically represents the maximum quantities of two
products produced when all resources in the economy are efficiently utilized. An
economy that operates inside this production possibilities curve
a. is using its resources inefficiently.
b. lacks the necessary technology to produce efficiently.
c. lacks the resources to produce goods efficiently.
d. is utilizing its available resources as efficiently as possible.
The rapid growth in stock prices during the 1920s was due in large part to
a. the expansionary monetary policy of the Federal Reserve.
b. the wartime demand for military equipment and supplies.
c. the artificially high value of the dollar, which eventually led to the stock market crash
of 1929.
d. the technological innovations of the decade, which spurred economic growth.