Two goods are complements if an increase in the price of one good leads to an increase
in demand for the other.
Economists assume that individuals make informed decisions and act in their own
self-interest.
Ceteris paribus means “Let the buyer beware.”
A production possibilities curve shows the combinations of products which can be
produced in an economy which is fully employing and efficiently using its productive
resources.
Credits cards are NOT a part of the M1 or M2 money supply.
Retained earnings are corporate earnings that are paid as dividends to stockholders.
If output is less than aggregate planned expenditures, there will be an unplanned
decrease in inventories.
The quantity of money demanded will increase as interest rates increase.
Real wages increase only when nominal wages increase.
An increase in the wages received by lawyers in general will result in an increase in the
opportunity cost of law school.
Unanticipated inflation is associated with cost increases which are not expected.
In the short run, an increase in the price of a major input such as oil will:
A) decrease the price level and increase the level of output.
B) increase the price level and increase the level of output.
C) increase the price level and decrease the level of output.
D) decrease both the price level and the level of output.
Retained earnings are corporate earnings that are not:
A) paid to owners in the form of dividends.
B) taxed by the government.
C) generated by higher government subsidies.
D) declared to the IRS.
If the nominal interest rate is 4 percent and the inflation rate is 1 percent, then the real
rate of interest is
A) 1 percent.
B) 3 percent.
C) 4 percent.
D) 5 percent.
Suppose iPhones cost 180 euros and 240 dollars in Belgium and the United States,
respectively, while binoculars cost 60 euros and 75 dollars in Belgium and the United
States, respectively. If the exchange rate is 0.8 euros/dollar, the law of one price
________ for iPhones and ________ for binoculars.
A) holds; holds
B) does not hold; holds
C) holds; does not hold
D) does not hold; does not hold
When prices do not change very much, the income-expenditure model can be used to
understand economic fluctuation in the
A) long run.
B) short run.
C) fiscal year.
D) federal budget allocation.
Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza.
We would expect that:
A) the price of pizza will increase.
B) the price of pizza will decrease.
C) the supply will decrease to meet the demand.
D) the demand will increase to meet the supply.
Gross investment minus net investment is equal to
A) depreciation.
B) nominal investment.
C) real investment.
D) consumption.
When a profit-maximizing firm makes a decision to employ a worker, that decision is
based on:
A) the individual contribution the worker makes to profit.
B) how much output the worker can produce.
C) the total output produced by the firm.
D) none of the above
Scenario 12.1: Jennifer has decided to give up her pack-a-day smoking habit and invest
the money she would have spent on cigarettes in a retirement account. At $6.00 a pack,
Jennifer is currently spending $2,190 per year on cigarettes. Jennifer is 25 years old and
plans to retire in 35 years, at age 60. She has chosen a retirement account that will earn
a long-term average return of 5 percent per year. Jennifer is currently earning $40,000
annually. Assume that the average annual inflation rate will be 5 percent per year, that
the cost of cigarettes will increase with inflation, and that Jennifer’s income will also
rise with the inflation rate.This Scenario addresses the economic concept of
A) deposit insurance.
B) present value.
C) financial intermediaries.
D) retained earnings.
Suppose that for a given year money growth is 3 percent, real GDP growth is 1 percent,
and the inflation rate is 2 percent. According to the growth version of the quantity
equation, velocity growth would be
A) 0 percent.
B) 2 percent.
C) 3 percent.
D) 4 percent.
An import is a product
A) produced in and purchased by residents of the home country.
B) produced in and sold to the residents of a foreign country.
C) produced in the home country and sold in another country.
D) produced in a foreign country and purchased by the residents of the home country.
According to the infant industry argument for trade protectionism:
A) trade barriers must be used to protect domestic workers.
B) new industries need to be shielded in the early stages of learning by doing.
C) tariffs imposed to aid new industries should never be removed.
D) new industries are capable of competing with established rivals.
Voluntary Export Restraints (VERs):
A) have the same effect as an import quota.
B) are legal under the WTO rules.
C) violate the spirit of international trade agreements.
D) all of the above
A decrease in the tuition (i.e., price) that a public university charges would result in:
A) an upward movement along the supply curve for college classes.
B) an downward movement along the supply curve for college classes.
C) a shift in the supply of college classes to the left.
D) a shift in the supply of college classes to the right.
Steven lives in a big city where there is a shortage of parking. He has a parking spot in
his driveway where he parks his car. Which of the following statement is most correct?
A) Steven has a lower opportunity cost of owning a car than his neighbor, who must
rent a parking spot.
B) The opportunity cost of using the parking spot is zero, because Steven owns the
house.
C) The opportunity cost of using the parking spot is the price he could charge someone
else for using the spot.
D) The opportunity cost depends on how much Steven’s mortgage payment is.
GDP ignores all of the following EXCEPT
A) household production.
B) the value of leisure time.
C) products produced in other countries that are sold in the United States.
D) changes in the environment that occur in the production of output.
Table 6.3 Refer to Table 6.3. The
unemployment rate equals:
A) 2.8%.
B) 4.2%.
C) 4.4%.
D) 5.0%.
If there was a federal budget surplus it would make it possible to
A) reduce the national debt.
B) increase spending on priorities.
C) decrease taxes in order to improve the equity and efficiency of the tax system.
D) any of the above
Assuming a long-run aggregate supply curve, an increase in the money supply results in
________ in output and ________ in price level.
A) a decrease; a decrease
B) an increase; no change
C) a decrease; no change
D) no change; an increase
Figure 18.3
Refer to Figure 18.3. With a tariff or quota, the equilibrium quantity is:
A) 80.
B) 100.
C) 60.
D) 40.
Draw a graph to illustrate the effect of higher gasoline prices on the demand for large
SUVs. What is the relationship between gasoline and SUVs?
What does it mean for a nation to have an absolute advantage in producing a product?
If nominal GDP is $24 trillion and the money supply is $8 trillion, what is the velocity
of money in the economy?
Why was it so important for Paul Volcker that he convince the public that he was
committed to reduce the inflation rate in the 1980s?
Prior to 1996 the government measured real GDP using 1987 prices. What would the
rapid growth in computers and the fall in computer prices tend to do to the difference
between true GDP growth and measured real GDP growth, relative to using a later
year?
What is a consumption tax? Give two examples.