If consumer confidence rises, then aggregate demand shifts
a. right, making inflation higher than otherwise.
b. right, making inflation lower than otherwise.
c. left, making inflation higher than otherwise.
d. left, making inflation lower than otherwise.
Suppose John and Wayne are the only two demanders of cowboy movies. Each month,
John buys six cowboy movies when the price is $10 each, and he buys four cowboy
movies when the price is $15 each. Each month, Wayne buys four cowboy movies
when the price is $10 each, and he buys two cowboy movies when the price is $15
each. Which of the following points is on the market demand curve?
a. quantity demanded = 2; price = $15
b. quantity demanded = 4; price = $25
c. quantity demanded = 10; price = $10
d. quantity demanded = 16; price = $25
Suppose that there is an increase in the costs of production that shifts the short-run
aggregate supply curve left. If there is no policy response, then eventually
a. because unemployment is low, wages will be bid up and short-run aggregate supply
will shift right.
b. because unemployment is low, wages will be bid down and short-run aggregate
supply will shift right.
c. because unemployment is high, wages will be bid up and short-run aggregate supply
will shift right.
d. because unemployment is high, wages will be bid down and short-run aggregate
supply will shift right.
By keeping the basket of goods and services the same when computing the CPI, the
Bureau of Labor Statistics isolates the effects of price changes from the effect of any
quantity changes that might be occurring at the same time.
a. True
b. False
Double taxation means that both
a. the profits of corporations and the dividends shareholders receive are taxed, which is
not currently the case in the United States.
b. the profits of corporations and the dividends shareholders receive are taxed, which is
currently the case in the U.S.
c. wage income and employee benefits are taxed, which is not currently the case in the
United States.
d. wage income and employee benefits are taxed, which is currently the case in the
United States.
If all workers and all jobs were the same such that all workers were equally well suited
for all jobs, then there would be no frictional unemployment.
a. True
b. False
The natural rate of unemployment is the
a. unemployment rate that would prevail with zero inflation.
b. rate associated with the highest possible level of GDP.
c. difference between the long-run and short-run unemployment rates.
d. amount of unemployment that the economy normally experiences.
The most obvious benefit of specialization and trade is that they allow us to
a. work more hours per week than we otherwise would be able to work.
b. consume more goods than we otherwise would be able to consume.
c. spend more money on goods that are beneficial to society, and less money on goods
that are harmful to society.
d. consume more goods by forcing people in other countries to consume fewer goods.
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.In 2016, this country’s
a. real GDP was $880, and the GDP deflator was 111.4.
b. real GDP was $780, and the GDP deflator was 88.6.
c. real GDP was $880, and the GDP deflator was 112.8.
d. real GDP was $780, and the GDP deflator was 112.8.
The market demand curve
a. is the sum of all individual demand curves.
b. is the demand curve for every product in an industry.
c. shows the average quantity demanded by individual demanders at each price.
d. is always flatter than an individual demand curve.
Which of the following sequences best represents the crowding-out effect?
a. government purchases ↑ GDP ↑ supply of money ↓⇒ ⇒
equilibrium interest rate ↑ quantity of goods and services demanded ↓⇒ ⇒
b. government purchases ↓ GDP ↓ demand for money ↓⇒ ⇒
equilibrium interest rate ↓ quantity of goods and services demanded ↓⇒ ⇒
c. government purchases ↑ GDP ↑ demand for money ↑⇒ ⇒
equilibrium interest rate ↑ quantity of goods and services demanded ↓⇒ ⇒
d. taxes ↑ GDP ↓ demand for money ↓ equilibrium interest rate ↑⇒ ⇒ ⇒
quantity of goods and services demanded ↓⇒
A decrease in the tax rate is more likely to increase the standard of living if the income
effect of a change in the interest rate is
a. small and an increase in private saving tends to have a small impact on the capital
stock.
b. small and an increase in private saving tends to have a large impact on the capital
stock.
c. large and an increase in private saving tends to have a small impact on the capital
stock.
d. large and an increase in private saving tends to have a large impact on the capital
stock.
If the exchange rate rises, which of the following falls in the open-economy
macroeconomic model?
a. desired net exports and desired net capital outflow
b. desired net exports but not desired net capital outflow
c. desired net capital outflow but not desired net exports
d. neither desired net exports nor desired net capital outflow
The introduction of a union into an industry creates a
a. surplus of labor and so raises unemployment.
b. surplus of labor and so reduces unemployment.
c. shortage of labor and so raises unemployment.
d. shortage of labor and so reduces unemployment.
When the Fed sells government bonds, the reserves of the banking system
a. increase, so the money supply increases.
b. increase, so the money supply decreases.
c. decrease, so the money supply increases.
d. decrease, so the money supply decreases.
Individual demand curves are summed horizontally to obtain the market demand curve.
a. True
b. False
Consider a small economy in which consumers buy only two goods: pretzels and
cookies. In order to compute the consumer price index for this economy for two or
more consecutive years, we assume that
a. the percentage change in the price of pretzels is equal to the percentage change in the
price of cookies from year to year.
b. the number of pretzels bought by the typical consumer is equal to the number of
cookies bought by the typical consumer in each year.
c. neither the number of pretzels nor the number of cookies bought by the typical
consumer changes from year to year.
d. neither the price of pretzels nor the price of cookies changes from year to year.
If all workers and all jobs were the same such that all workers were equally well suited
for all jobs, then there would be no
a. cyclical unemployment.
b. frictional unemployment.
c. natural rate of unemployment.
d. structural unemployment.
Other things the same, as the maturity of a bond becomes longer, the bond will pay
a. a lower interest rate because it has less risk.
b. a lower interest rate because it has more risk.
c. a higher interest rate because it has more risk.
d. the same interest rate, because there is no relationship between term and risk.
For a given level of inflation expectations, if the central bank increases the money
supply growth rate, then in the short run
a. the economy moves down along the short-run Phillips curve.
b. the economy moves up along the short-run Phillips curve.
c. the Phillips curve shifts right.
d. the Phillips curve shifts left.
The exchange-rate effect is based, in part, on the idea that
a. a decrease in the price level reduces the interest rate.
b. an increase in the price level causes investors to move some of their funds overseas.
c. an increase in the price level causes domestic goods to become less expensive
relative to foreign goods.
d. a decrease in the price level reduces spending on net exports.
Which of the following is nota reason that paying efficiency wages may increase a
firm’s profit?
a. Efficiency wages increase worker health and therefore increase worker productivity.
b. Efficiency wages decrease worker turnover and therefore decrease hiring and training
costs.
c. Efficiency wages decrease worker shirking and therefore increase worker
productivity.
d. Efficiency wages are below the equilibrium wage rate but still attract a sufficient
number of workers.
Suppose the world had only two countries and domestic residents of country A
purchased $50 billion of assets from country B and country B purchased $30 billion of
assets from country A. What would the net capital outflows of both countries be?
a. $50 billion for country A and $30 billion for country B
b. $30 billion for country A and $50 billion for country B
c. $20 billion for country A and -$20 billion for country B
d. -$20 billion for country A and $20 billion for country B
Underground economic activity as a percentage of GDP was highest in
a. Bolivia.
b. Mexico.
c. Australia.
d. the United States.
Government deficits mean that
a. national saving is negative so public saving is negative.
b. national saving is negative so public saving is lower than otherwise.
c. public saving is negative so national saving is negative.
d. public saving is negative so national saving is lower than otherwise.
Moral hazard is illustrated by people who take greater risks after they purchase
insurance.
a. True
b. False
Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the
county passes a law that raises the price of a bottle of beer by $1. As a result, people
drive to other counties to drink alcohol, which results in an increase in drunk driving.
This illustrates the principle that people respond to incentives.
a. True
b. False
Depending on the size of the multiplier and crowding-out effects, the rightward shift in
aggregate demand from a tax cut could be larger or smaller than the tax cut.
a. True
b. False
U.S. public policy discourages saving because
a. other things the same, taxes increase the return from savings.
b. means tested programs such as Medicaid provide lower benefits to those who did not
save.
c. none of parents’ bequest to their children is taxed.
d. some forms of capital income are taxed twice.
If the CPI was 110 this year and 100 last year, then
a. the cost of the CPI basket of goods and services increased by 10 percent this year.
b. the price level increased by 110 percent this year.
c. the inflation rate for this year was 10 percent higher than the inflation rate for last
year.
d. All of the above are correct.
If the nominal exchange rate eis foreign currency per dollar, the domestic price is P, and
the foreign price is P*, then the real exchange rate is defined as
a. e(P*/P).
b. e(P/P*).
c. e+ P*/P.
d. e– P/P*.