According to classical macroeconomic theory, changes in the money supply affect
a. real GDP and the price level.
b. real GDP but not the price level.
c. the price level, but not real GDP.
d. neither the price level nor real GDP.
Kelly puts money in a savings account. One year later she has two percent more dollars
and can buy three percent more goods. Kelly earned a real interest rate of
a. two percent and prices fell one percent.
b. two percent and prices rose one percent.
c. three percent and prices rose one percent.
d. three percent and prices fell one percent.
Which of the following would notshift the demand curve for mp3 players?
a. a decrease in the price of mp3 players
b. a fad that makes mp3 players more popular among 12-25 year olds
c. an increase in the price of digital music downloads, a complement for mp3 players
d. a decrease in the price of satellite radio, a substitute for mp3 players
It is possible that the cost of inflation reduction might be quite large compared to the
annual costs of moderate inflation.
a. True
b. False
When the “invisible hand” guides economic activity, prices of products reflect
a. only the values that society places on those products.
b. only the costs to society of producing those products.
c. both the values that society places on those products and the costs to society of
producing those products.
d. none of the above; when the “invisible hand” guides economic activity, prices of
products are set by the government in a manner that is thought to be “fair.”
Tax laws do not give preferential treatment to some kinds of retirement saving.
a. True
b. False
In medieval Europe an important technological advance was the use of the padded
horse collar for plowing. Once this idea was thought of, other people used it. This
illustrates that knowledge is generally a
a. public good.
b. societal good.
c. private good.
d. normal good.
Economists, like mathematicians, physicists, and biologists,
a. make use of the scientific method.
b. try to address their subject with a scientist’s objectivity.
c. devise theories, collect data, and then analyze these data in an attempt to verify or
refute their theories.
d. All of the above are correct.
On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.
a. The $80 is a real variable. The quantity of shoes is a nominal variable.
b. The $80 is a nominal variable. The quantity of shoes is a real variable.
c. Both the $80 and the quantity of shoes are nominal variables.
d. Both the $80 and the quantity of shoes are real variables.
When the quality of a good improves while its price remains the same, the purchasing
power of the dollar
a. increases, so the CPI overstates the change in the cost of living if the quality change
is not accounted for.
b. increases, so the CPI understates the change in the cost of living if the quality change
is not accounted for.
c. decreases, so the CPI overstates the change in the cost of living if the quality change
is not accounted for.
d. decreases, so the CPI understates the change in the cost of living if the quality change
is not accounted for.
One year a country has positive net exports. The next year it still has positive but larger
net exports
a. its trade surplus fell.
b. its trade surplus rose.
c. its trade deficit fell.
d. its trade deficit rose
Prior to the collapse of communism, communist countries worked on the premise that
economic well-being could be best attained by
a. a market economy.
b. a strong reliance on prices and individuals’ selfinterests.
c. a system of large privately-owned firms.
d. the actions of government central planners.
Which of the following countries had the highest growth rate over about the last 100
years?
a. Japan
b. China
c. Germany
d. United States
Which of the following would increase the price level?
a. an increase in the money supply.
b. an increase in taxes.
c. a decrease in the expected price level.
d. a decrease in the natural rate of unemployment.
According to computer estimates using a traditional macroeconomic model, the Obama
administration found that the multiplier for tax cuts and government expenditures were
respectively
a. .99 and 1.59.
b. 1.59 and .99
c. 1.3 and 1.7
d. 1.7 and 1.3
Of the following countries, which grew most slowly, in terms of real GDP per person,
over about the last 120 years?
a. Brazil
b. Mexico
c. China
d. United States
Monetary Policy in Flosserland
In Flosserland, the Department of Finance is responsible for monetary policy.
Flosserland has had an inflation rate of 25% for many years.
RefertoMonetaryPolicyinFlosserland.Suppose the Flosserland Department of Finance
has run a public relations campaign claiming it will reduce inflation to 12.5% and
actually reduces inflation to that level. Suppose at first that the public thought inflation
would only drop to 18%, but eventually become convinced that the inflation rate will
stay at 12.5%.
a. unemployment rises in the short run, and remains higher than it’s original value in the
long run.
b. unemployment rises in the short run, and is the same as it’s original value in the long
run.
c. unemployment falls in the short run, and is lower than it’s original value in the long
run.
d. unemployment falls in the short run, and is the same as it’s original value in the long
run.
Other things the same,as the price level falls, a country’s exchange rate
a. and interest rates rise.
b. and interest rates fall.
c. falls and interest rates rise.
d. rises and interest rates fall.
When in France you notice that prices are posted in euros, this best illustrates money’s
function as
a. a store of value.
b. a medium of exchange.
c. a unit of account.
d. a method of barter.
Frictional unemployment is inevitable because
a. sectoral shifts are always happening.
b. there is a federal minimum-wage law in the U.S.
c. some people do not want to be employed.
d. unions are very popular in the U.S.
Figure 2-6
Refer to Figure2-6. If this economy moves from point F to point G, then which of the
following statements is correct?
a. This economy has moved from a point of inefficient production to a point of efficient
production.
b. This economy has experienced economic growth.
c. This economy has experienced an increase in employment.
d. None of the above is correct.
The quantity supplied of a good is the amount that
a. buyers are willing and able to purchase.
b. sellers are able to produce.
c. buyers and sellers agree will be brought to market.
d. sellers are willing and able to sell.
In some East Asian countries, average income, as measured by real GDP per person,
has recently grown at an average annual rate that implies output will double about every
a. 10 years.
b. 15 years.
c. 20 years.
d. 25 years.
For an imaginary economy, when the real interest rate is 7 percent, the quantity of
loanable funds demanded is $500 and the quantity of loanable funds supplied is $500.
Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent.
Currently,
a. the market for loanable funds is in equilibrium.
b. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will rise.
c. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will fall.
d. the quantity of loanable funds demanded exceeds the quantity of loanable funds
supplied, and as a result the real interest rate will rise.
The sale of stocks
a. and bonds to raise money is called debt finance.
b. and bonds to raise money is called equity finance.
c. to raise money is called debt finance, while the sale of bonds to raise funds is called
equity finance.
d. to raise money is called equity finance, while the sale of bonds to raise funds is called
debt finance.
Economists make assumptions to
a. mimic the methodologies employed by other scientists.
b. minimize the number of experiments that yield no useful data.
c. minimize the likelihood that some aspect of the problem at hand is being overlooked.
d. focus their thinking on the essence of the problem at hand.
Net capital outflow represents the quantity of dollars supplied in the foreign-currency
exchange market.
a. True
b. False
If the U.S. raised its tariff on tires, then at the original exchange rate there would be a
a. surplus in the market for foreign-currency exchange, so the real exchange rate would
appreciate.
b. surplus in the market for foreign-currency exchange, so the real exchange rate would
depreciate.
c. shortage in the market for foreign-currency exchange, so the real exchange rate
would appreciate.
d. shortage in the market for foreign-currency exchange, so the real exchange rate
would depreciate.
Suppose a basket of goods and services has been selected to calculate the CPI and 2012
has been selected as the base year. In 2012, the basket’s cost was $50; in 2014, the
basket’s cost was $51; and in 2016, the basket’s cost was $52. The value of the CPI in
2014 was
a. 98.0.
b. 102.0.
c. 104.0.
d. 151.0.
A country produces two goods, soda and chips. It currently exports soda and imports
chips. If it were to impose a tariff on chips,
a. both imports of chips and exports of sodas would rise.
b. imports of chips would rise, but exports of sodas would fall.
c. imports of chips would fall, but exports of sodas would rise.
d. both imports of chips and exports of sodas would fall.
Which of the following statements is correct?
a. The CPI can be used to compare dollar figures from different points in time.
b. The percentage change in the CPI is a measure of the inflation rate, but the
percentage change in the GDP deflator is not a measure of the inflation rate.
c. Compared to the consumer price index (CPI), the GDP deflator is the more common
gauge of inflation.
d. The GDP deflator better reflects the goods and services bought by consumers than
does the CPI.
Which of the following would increase in response to a increase in the price of ironing
boards?
a. the quantity of irons demanded at each possible price of irons
b. the equilibrium quantity of irons
c. the equilibrium price of irons
d. None of the above is correct.
If the government repeals an investment tax credit and increases income taxes,
a. real GDP rises, and the price level could rise, fall, or stay the same.
b. real GDP falls, and the price level could rise, fall, or stay the same.
c. real GDP and the price level rise.
d. real GDP and the price level fall.
RefertoFigure35-7. Starting from C and 3, in the long run, a decrease in money supply
growth moves the economy to
a. A and 1.
b. back to C and 3.
c. D and 4.
d. F and 5.