If a country has negative net capital outflows, then its net exports are
a. positive and its saving is larger than its domestic investment.
b. positive and its saving is smaller than its domestic investment.
c. negative and its saving is larger than its domestic investment.
d. negative and its saving is smaller than its domestic investment.
Which of the following statements best characterizes a basic difference between market
economies and centrally-planned economies?
a. Society relies more upon prices to allocate resources when the economy is
centrally-planned than when it is market-based.
b. The self-interest of households is reflected more fully in the outcome of a
centrally-planned economy than in the outcome of a market economy.
c. Government plays a larger role in the economic affairs of a market economy than in
the economic affairs of a centrally-planned economy.
d. None of the above are correct.
If a country has a trade surplus then
a. S > I and Y > C + I + G.
b. S > I and Y < C + I + G.
c. S < I and Y > C + I + G.
d. S < I and Y < C + I + G.
If the exchange rate were 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US
dollars would cost
a. 125 Egyptian pounds
b. 50 Egyptian pounds
c. 5 Egyptian pounds
d. None of the above is correct.
If a production function has constant returns to scale, output can be doubled if
a. labor alone doubles.
b. all inputs but labor double.
c. all of the inputs double.
d. None of the above is correct.
A rise in the budget deficit
a. shifts both the supply of loanable funds in the market for loanable funds and the
supply of dollars in the market for foreign-currency exchange right.
b. shifts both the supply of loanable funds in the market for loanable funds and the
supply of dollars in the market for foreign-currency exchange left.
c. shifts both the demand for loanable funds in the market for loanable funds and the
demand for dollars in the market for foreign-currency exchange right.
d. shifts both the demand for loanable funds in the market for loanable funds and the
demand for dollars in the market for foreign-currency exchange left.
A permanent reduction in inflation would
a. permanently reduce shoeleather costs and permanently lower unemployment
b. permanently reduce shoeleather costs and temporarily raise unemployment
c. temporarily reduce shoeleather costs and temporarily lower unemployment
d. temporarily reduce shoeleather costs and temporarily raise unemployment
Figure 19-4
Refer to Figure 19-4. Suppose that the government goes from a budget surplus to a
budget deficit. The effects of the change could be illustrated by
a. shifting the demand curve in panel a to the right and the demand curve in panel c to
the left.
b. shifting the demand curve in panel a to the left and the supply curve in panel c to the
left.
c. shifting the supply curve in panel a to the right and the demand curve in panel c to
the right.
d. shifting the supply curve in panel a to the left and the supply curve in panel c to the
left.
An increase in the expected price level shifts short-run aggregate supply to the
a. right, and an increase in the actual price level shifts short-run aggregate supply to the
right.
b. right, and an increase in the actual price level does not shift short-run aggregate
supply.
c. left, and an increase in the actual price level shifts short-run aggregate supply to the
left.
d. left, and an increase in the actual price level does not shift short-run aggregate
supply.
Which of the following would make both the equilibrium real interest rate and the
equilibrium quantity of loanable funds increase?
a. The demand for loanable funds shifts right.
b. The demand for loanable funds shifts left.
c. The supply of loanable funds shifts right.
d. The supply of loanable funds shifts left.
A country sells more to foreign countries than it buys from them. It has
a. a trade surplus and positive net exports.
b. a trade surplus and negative net exports.
c. a trade deficit and positive net exports.
d. a trade deficit and negative net exports.
Monetary Policy in Highland
Highland has had inflation of 15% for many years. Highland establishes a new central
bank, the Bank of Highland, with the hopes of reducing the inflation rate.
Refer to Monetary Policy in Highland. The Bank of Highland reduced inflation to its
announced goal of 5%. However, people were expecting inflation to fall to 7% and
there was a favorable supply shock. In the short run which of the following made
unemployment lower than otherwise?
a. both people expecting inflation to fall to 7% instead of 5%, and the favorable supply
shock
b. neither people expecting inflation to fall to 7% instead of 5%, and the favorable
supply shock
c. only the favorable supply shock
d. only people expecting inflation to fall to 7% instead of 5%
People will want to hold more money if the price level
a. or if the interest rate increases.
b. or if the interest rate decreases.
c. increases or if the interest rate decreases.
d. decreases or if the interest rate increases.
Government purchases include spending on goods and services by
a. the federal government, but not by state or local governments.
b. federal and state governments, but not by local governments.
c. federal, state, and local governments.
d. federal, state, and local governments, as well as household spending by employees of
those governments.
The country of Growpaw does not trade with any other country. Its GDP is $20 billion.
Its government purchases $3 billion worth of goods and services each year, collects $6
billion in taxes, and provides $2 billion in transfer payments to households. Private
saving in Growpaw is $4 billion. What is investment in Growpaw?
a. $5 billion
b. $4 billion
c. $3 billion
d. $2 billion
Differences in scientific judgement between economists is similar to all of the following
except
a. astronomers debating whether the sun or earth was at the center of the solar system.
b. meteorologists debating the existence of global warming.
c. two politicians arguing about the fairness of the tax code.
d. explorers debating whether or not the earth was flat before the time of Christopher
Columbus.
The slope of the supply of loanable funds is based on the logic that an increase in
interest rates
a. makes saving more attractive.
b. makes saving less attractive.
c. makes investment more attractive.
d. makes investment less attractive.
Suppose the state of Massachusetts passes a law that increases the tax on alcoholic
beverages. As a result, residents in Massachusetts start purchasing their alcohol in
surrounding states. Which of the following principles does this best illustrate?
a. People respond to incentives
b. Rational people think at the margin
c. Trade can make everyone better off
d. Markets are usually a good way to organize economic activity
“When workers already have a large quantity of capital to use in producing goods and
services, giving them an additional unit of capital increases their productivity only
slightly.” This statement
a. represents an unconventional view of the production process.
b. is an assertion that capital is subject to increasing returns.
c. is made under the assumption that the quantities of human capital, natural resources,
and technology are being held constant.
d. All of the above are correct.
When Microsoft establishes a distribution center in France, U.S. net capital outflow
a. increases because Microsoft makes a portfolio investment in France.
b. decreases because Microsoft makes a portfolio investment in France.
c. increases because Microsoft makes a direct investment in capital in France.
d. decreases because Microsoft makes a direct investment in capital France.
Figure 6-15
Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. How
much will sellers receive per unit after the tax is imposed?
a. $3
b. between $3 and $5
c. between $5 and $7
d. $7
Where can an economy not produce?
a. inside its production possibilities frontier
b. on its production possibilities frontier
c. outside its production possibilities frontier
d. at the endpoints of its production possibilities frontier
Figure 5-12
Refer to Figure 5-12. If rectangle D is larger than rectangle A, then
a. demand is elastic between prices P1 and P2.
b. a decrease in price from P2 to P1 will cause an increase in total revenue.
c. the magnitude of the percent change in price between P1 and P2 is smaller than the
magnitude of the corresponding percent change in quantity demanded.
d. All of the above are correct.
Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of
improved international relations and increased confidence in policy makers, people
become more optimistic about the future and stay this way for some time.
Refer to Optimism. Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right.
d. aggregate supply shifts left.
A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign
assets, how many of its assets did foreigners purchase?
a. $0
b. $200 billion
c. $400 billion
d. $800 billion
For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2
trillion and the government runs a deficit of $1 trillion. What are private saving and
national saving?
a. $4 trillion and $1 trillion, respectively
b. $4 trillion and $-1 trillion, respectively
c. $2 trillion and $1 trillion, respectively
d. $2 trillion and $-1 trillion, respectively
For the U.S. economy, money holdings are a
a. large part of household wealth, and so the interest-rate effect is large.
b. large part of household wealth, and so the wealth effect is large.
c. small part of household wealth, and so the interest-rate effect is small.
d. small part of household wealth, and so the wealth effect is small.
Suppose Spencer and Kate are the only two demanders of lemonade. Each month,
Spencer buys six glasses of lemonade when the price is $1.00 per glass, and he buys
four glasses when the price is $1.50 per glass. Each month, Kate buys four glasses of
lemonade when the price is $1.00 per glass, and she buys two glasses when the price is
$1.50 per glass. Which of the following points is on the market demand curve?
Point Price Quantity
A $1.00 4
B $1.00 10
C $1.50 2
D $1.50 6
a. B only
b. B and D only
c. A and C only
d. D only
A policymaker in favor of stabilizing the economy would be likely to believe
a. recessions are a waste of resources.
b. economies must suffer through the booms and busts of the business cycle.
c. the long policy lags make implementing policy changes in response to recession too
risky.
d. policy exacerbates the magnitude of economic fluctuations.
Which of the following decreases in response to the interest-rate effect from an increase
in the price level?
a. both investment and consumption
b. consumption but not investment
c. investment but not consumption
d. neither investment nor consumption
Foreign-produced goods and services that are purchased domestically are called
a. imports.
b. exports.
c. net imports.
d. net exports.