Most modern economic analysis is normative in nature, but involves questions with
positive aspects.
To determine an appropriate congestion tax, an economist has to assume that people
respond to incentives.
In the most simple model of the circular flow diagram, the two main entities are
households and the government.
U.S. banks are required by law to keep most of their assets as reserves.
National income is the income that individuals and firms earn from their production.
The marginal propensity to consume is the change in consumption divided by the
change in income.
The real GDP per capita allows economic comparison between countries.
The natural rate of unemployment does not change over time.
Firms that make their customers better off get more repeat business and make earn more
profits.
Unemployment insurance tends to lead to the unemployed worker spending less time
unemployed.
When an American buys a factory in China, the transaction is registered a positive in
the U.S. financial account.
Wages are classified as custom prices, because they do not adjust very quickly.
In 2006, the U.S. net international investment position was negative $2.5 trillion. This
means that the amount of:
A) U.S. holdings of foreign assets exceeded the foreign holdings of U.S. assets by $2.5
trillion.
B) U.S. holdings of foreign assets were less than the foreign holdings of U.S. assets by
$2.5 trillion.
C) U.S. holdings of foreign assets were $2.5 trillion.
D) the foreign holdings of U.S. assets were $2.5 trillion.
Figure 19.3 Refer to Figure 19.3. The market for yen is currently at Point A. An
increase in Japanese interest rates causes the equilibrium to move to point ________.
A) C
B) A
C) B
D) D
Suppose Darrell has $4,000 in currency which he deposits in his bank. If the reserve
ratio is 25 percent, this will lead to a maximum increase of ________ in M1 throughout
all banks.
A) $0
B) $4,000
C) $6,000
D) $12,000
Figure 4.3 illustrates the demand for tacos. Assume that tacos and beer are
complements. A decrease in the price of beer would bring about a movement from
A) point a to point c.
B) point c to point a.
C) D2 to D0.
D) D0 to D2.
Republicans have historically been primarily concerned with fighting inflation.
Assuming this is true, then after a Republican electoral victory, the public could
anticipate which of the following economic actions to fight inflation?
A) an increase in taxes and an increase in government spending
B) open market purchases and a decrease in taxes
C) open market sales and a decrease in government spending
D) a decrease in the discount rate and an increase in reserve requirements
The marginal principle implies that an individual should produce or consume where
A) marginal benefit exceeds marginal cost.
B) marginal benefit is less than marginal cost.
C) marginal benefit equals marginal cost.
D) total benefit equals total cost.
Table 6.11 Refer to
Table 6.11. If 1999 is the base year, the price index in 2000 is:
A) 100.
B) 121.7.
C) 138.7
D) 1998.
The aggregate demand curve slopes downward because at a higher price level:
A) the purchasing power of consumers’ assets declines and consumption increases.
B) producers can get more for what they produce, and they increase production.
C) the purchasing power of consumers’ wealth declines and consumption decreases.
D) the purchasing power of consumers’ wealth increases and consumption increases.
Refer to Application 2, “Recovering From a Recession,” to answer the following
questions:
According to the application, the recession that started in 1973 took ________ to
recover to its previous peak.
A) 2 years
B) 18 months
C) 3.5 years
D) 6 months
Daily Output of Scotland and Poland
Table 18.1 Refer to Table 18.1. The opportunity cost of
an accordion in Scotland is:
A) 2 bagpipes.
B) 1/2 bagpipe.
C) 6 bagpipes.
D) 1/3 bagpipe.
If increases in defense spending by the government “crowd out” private investment
spending, this will lead to
A) higher levels of real income and wages in the future.
B) no effects on real income and wages in the future.
C) lower levels of real income and wages in the future.
D) higher levels of real income and lower levels of wages in the future.
Table 2.4 Refer to Table 2.4. The
marginal product of the 3rd tank of fertilizer is:
A) 29.33 truckloads of fruit.
B) 1.67 truckloads of fruit.
C) 20 truckloads of fruit.
D) 5 truckloads of fruit.
Suppose the government’s initial debt is $425 billion. If for the next three years the
government runs deficits of $150, $125, and $200 billion, the government’s total debt at
the end of the three years will be
A) -$50 billion.
B) $50 billion.
C) $475 billion.
D) $900 billion.
Spending money on a fixed budget is an example of:
A) the principle of opportunity cost.
B) how to survive with unlimited financial resources.
C) a bad thing to do because you run out of money.
D) living on the edge.
Assume that tortilla chips and salsa are complements. When the price of tortilla chips
decreases
A) the demand for salsa increases.
B) the demand for salsa decreases.
C) the supply of salsa decreases.
D) the demand for tortilla chips decreases.
The level of the stock market and the level of investment spending tend to be related
because the higher the share price is:
A) the higher the present value of any given future payment.
B) the more capital can be raised by issuing new stock.
C) the higher the retained earnings are going to be.
D) the cheaper it would be to sell corporate bonds.
Figure 9.1
Refer to Figure 9.1. An increase in the money supply causes:
A) the economy to move from Point A to Point B, but will not shift the aggregate
demand curve.
B) the aggregate demand curve to shift from to .
C) the aggregate demand curve to shift from to .
D) neither a shift of the aggregate demand curve nor a change in real GDP.
Which of the following is not an example of a final good or service?
A) coffee beans Starbucks purchases to make coffee
B) the gasoline you bought at the pump
C) the economics class that you are taking to complete your degree
D) the popcorn you bought before watching the new Harry Potter movie
How do the nominal exchange rate and the real exchange rate differ?
Consider the following weekly production possibilities of gloves and hats in Panama
and Russia:
What is the possible range of terms of trade between Panama and Russia?
What does the Say’s Law imply about the possibility of an economy in a recession or a
boom?
When people exchange things, trading what they have for what they want, it is called a
________ economy.
Suppose Japanese auto manufacturers voluntarily reduce exports to the U.S. Who will
benefit from a voluntary export restraint? Who will get hurt from a voluntary export
restraint? Explain.