Table: The Production Possibilities for Cars and Leather Boots
Look at the table The Production Possibilities for Cars and Leather Boots. Given the
opportunity costs of production:
A) there is no basis for trade.
B) Mexico should specialize in boots.
C) the United States should specialize in cars.
D) the United States should specialize in both goods, and Mexico should not produce
either good.
If the supply and demand curves intersect at $47, then any price above that would result
in:
A) a shortage.
B) a surplus.
C) equilibrium.
D) an increase in demand.
If the marginal propensity to consume is 0.80, the multiplier for government purchases
of goods and services will be 1.25.
A) True
B) False
An open economy:
A) trades only with its neighbors.
B) trades goods but not services or assets with other countries.
C) does not trade goods, services, or assets with other countries.
D) trades goods and services with other countries.
Suppose that the economy is in long-run macroeconomic equilibrium and aggregate
demand increases. As the economy moves to short-run macroeconomic equilibrium,
there is a(n) _____ gap with _____.
A) recessionary; high inflation
B) recessionary; low inflation
C) inflationary; high unemployment
D) inflationary; low unemployment
The GDP deflator is:
A) also known as the wholesale price index.
B) equal to 100 in the base year.
C) the ratio of real GDP for year X divided by nominal GDP for year X times 100.
D) a measure that tracks price changes for consumer goods.
Assume that the marginal propensity to consume is 0.8 and potential output is $800
billion. If real GDP is $700 billion:
A) there is an inflationary gap.
B) there is a recessionary gap.
C) the economy is in long-run equilibrium.
D) government transfers should be decreased.
If the consumer price index is 120 in year 1 and 150 in year 2, then the rate of inflation
from year 1 to year 2 is:
A) 10%.
B) 20%.
C) 25%.
D) 30%.
You win a prize at your sorority and you are given the following two payoff options:
Option 1 is to receive $100 one year from today and $100 two years from today. Option
2 is to receive $180 today. If the annual interest rate is 5%, the present value of option 1
is:
A) $176.56.
B) $185.94.
C) $190.48.
D) $195.24.
For a marginal propensity to consume of 0.9, the multiplier effect of an increase of $100
billion in government purchases of goods and services is smaller than the multiplier
effect of a tax cut of $100 billion.
A) True
B) False
A decrease in the price of eggs will result in:
A) an increase in the demand for eggs.
B) an increase in the supply of eggs.
C) a shift in the supply curve for eggs.
D) a movement along the demand curve for eggs.
Which of the following assets is the LEAST liquid?
A) a U.S. government bond
B) 100 shares of Apple stock
C) money in a checking account
D) a 2010 Toyota Camry
The total value of all final goods and services produced in the economy in a given year,
calculated with the prices current in the year in which the output is produced, is real
GDP.
A) True
B) False
The table Fish and Coconut Production Possibilities shows the maximum amount of
fish or coconuts that Tom and Hank can produce when each produces only one of the
goods. The table implies that Hank has an absolute advantage in the production of both
goods.
A) True
B) False
The purpose of Regulation Q, which prevented banks from paying interest on checking
accounts, was to prevent unhealthy competition between banks.
A) True
B) False
Alex expects the inflation rate to be 4%. If Alex borrows money at a nominal interest
rate of 5%, his real interest rate is:
A) greater than the nominal interest rate.
B) less than the nominal interest rate.
C) equal to the nominal interest rate.
D) negative.
Households supply goods and services in the product markets.
A) True
B) False
A cut in taxes _____, shifting the aggregate demand curve to the _____.
A) decreases government transfers and consumption; right
B) increases disposable income and consumption; right
C) decreases the marginal propensity to save, increasing consumption; left
D) increases corporate profits and investment; left
Many of China’s trading partners feel that the yuan is undervalued.
A) True
B) False
Suppose that the unemployment rate rises as the inflation rate declines. This situation is
consistent with a movement along the _____ Phillips curve.
A) vertical
B) horizontal
C) positively sloped
D) negatively sloped
The onset of the Great Depression:
A) was not a shock to anyone, since most economists predicted the roaring ’20s were
bound to end in disaster.
B) caused a disagreement between the Hoover administration and conventional
economists because Hoover wanted the government to intervene much more quickly
than most others.
C) came as a considerable shock to the conventional wisdom of economics at that time
and opened the door for critiques of mainstream thought by economists like John
Maynard Keynes.
D) was in 1918 at the end of World War I.
The concept of comparative advantage is based upon:
A) absolute labor productivity.
B) relative labor costs.
C) dollar prices of labor.
D) relative opportunity costs.
Policy can offset the effects of all of the following shocks EXCEPT:
A) a positive demand shock by decreasing government spending.
B) a negative demand shock by cutting taxes.
C) a negative supply shock by increasing money supply.
D) a positive demand shock by increasing taxes.
Because people usually exploit opportunities to make themselves better off, to
encourage young people to go to college in their home state, state universities can:
A) charge higher tuition to in-state students.
B) award special scholarships to out-of-state students.
C) offer high-interest loans to in-state students.
D) offer lower tuition to in-state students.
Suppose the marginal propensity to consume changes from 0.75 to 0.9. How will this
affect the consumption function?
A) The slope will get steeper.
B) Autonomous consumption will increase.
C) The function will shift downward.
D) The slope will get steeper and autonomous consumption will increase.
If the marginal propensity to save decreases, the multiplier will increase.
A) True
B) False
Which would NOT be classified as a MACROECONOMIC question?
A) How many people are employed in the economy as a whole?
B) What determines the overall level of prices?
C) What determines the overall trade in goods, services, and financial assets between
the United States and the rest of the world?
D) What determines a university’s cost of offering a new course?
Investment spending is spending on:
A) productive physical capital.
B) stocks.
C) mutual funds.
D) corporate bonds.
In the case of U.S. trade protection, quota rents for the most important import licenses
are earned by:
A) foreign governments.
B) the U.S. government.
C) U.S. producers of the good.
D) importers who pay the highest price to get the licenses.
Discouraged workers is another term for the unemployed.
A) True
B) False