A central bank that accommodates an aggregate supply shock
a. increases the money supply, making the inflation rate rise.
b. increases the money supply, making the inflation rate fall.
c. decreases the money supply, making the inflation rate rise.
d. decreases the money supply, making the inflation rate fall.
A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota
Manufacturing then uses these funds to buy machinery from Canada. Which of the
following decreases?
a. U.S. net exports but not US net capital outflow
b. U.S. net capital outflow but not U.S. net exports
c. U.S. net exports and U.S. net capital outflow
d. neither U.S. net exports nor U.S. net capital outflow
Which of the following policy alternatives would be an appropriate response to a sharp
increase in investment spending, assuming policymakers want to stabilize output?
a. increase taxes
b. increase the money supply
c. increase government expenditures
d. All of the above are correct.
The Fisher effect says that
a. the nominal interest rate adjusts one for one with the inflation rate.
b. the growth rate of the money supply is negatively related to the velocity of money.
c. real variables are heavily influenced by the monetary system.
d. All of the above are correct.
Figure 6-4
Refer to Figure 6-4. A government-imposed price of $12 in this market is an example
of a
a. binding price ceiling that creates a shortage.
b. non-binding price ceiling that creates a shortage.
c. binding price floor that creates a surplus.
d. non-binding price floor that creates a surplus.
When the wage is above the equilibrium level,
a. the labor market is functioning more efficiently than it otherwise would function.
b. there is a shortage of labor.
c. the quantity of labor supplied exceeds the quantity of labor demanded.
d. job search is the primary explanation for the unemployment that is observed.
Figure 21-4. On the figure, MS represents money supply and MD represents money
demand.
Refer to Figure 21-4. Suppose the current equilibrium interest rate is r3. Which of the
following events would cause the equilibrium interest rate to decrease?
a. The Federal Reserve increases the money supply.
b. Money demand decreases.
c. The price level decreases.
d. All of the above are correct.
Which of the following, other things the same, would make the price level decrease and
real GDP increase?
a. long-run aggregate supply shifts right
b. long-run aggregate supply shifts left
c. aggregate demand shifts right
d. aggregate demand shifts left
Figure 2-1
Refer to Figure 2-1. Which arrow represents the flow of income payments?
a. A
b. B
c. C
d. D
Figure 3-3
Arturo’s Production Possibilities Frontier Dina’s Production Possibilities Frontier
Refer to Figure 3-3. Arturo and Dina would not be able to gain from trade if Dina’s
opportunity cost of one taco changed to
a. 1/2 burrito.
b. 3/4 burrito.
c. 4/3 burritos.
d. 2 burritos.
If Shawn can produce more donuts in one day than Sue can produce in one day, then
a. Shawn has a comparative advantage in the production of donuts.
b. Sue has a comparative advantage in the production of donuts.
c. Shawn has an absolute advantage in the production of donuts.
d. Sue has an absolute advantage in the production of donuts.
Which of the following is not a short-run effect of rent control on the housing market?
a. reduced rents
b. a large shortage
c. a small increase in quantity demanded
d. a small decrease in quantity supplied
Communist countries worked under the premise that
a. markets were the best way to organize economic activity.
b. central planners were in the best position to determine the allocation of scarce
resources in the economy.
c. households and firms, guided by an “invisible hand,” could achieve the most efficient
allocation of scarce resources.
d. allowing the market forces of supply and demand to operate with no government
intervention would achieve the most efficient allocation of scarce resources.
In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo
where he gave away much gold, which was in use as a medium of exchange. We would
predict that this increase in gold
a. raised both the price level and the value of gold in Cairo.
b. raised the price level, but decreased the value of gold in Cairo.
c. lowered the price level, but increased the value of gold in Cairo.
d. lowered both the price level and the value of gold in Cairo.
Which type(s) of economies interact with other economies?
a. only closed economies
b. only open economies
c. closed economies and open economies
d. neither closed nor open economies
A bank loans Greg’s Ice Cream $250,000 to remodel a building near campus to use as a
new store. On their respective balance sheets, this loan is
a. a liability for the bank and an asset for Greg’s Ice Cream. The loan increases the
money supply.
b. a liability for the bank and an asset for Greg’s Ice Cream. The loan does not increase
the money supply.
c. an asset for the bank and a liability for Greg’s Ice Cream. The loan increases the
money supply.
d. an asset for the bank and a liability for Greg’s Ice Cream. The loan does not increase
the money supply.
On a production function, as capital per worker increases, output per worker
a. increases. This increase is larger at larger values of capital per worker.
b. increases. This increase is smaller at larger values of capital per worker.
c. decreases. This decrease is larger at larger value of capital per worker.
d. decreases. This decrease is smaller at larger value of capital per worker.
Rent control
a. serves as an example of how a social problem can be alleviated or even solved by
government policies.
b. serves as an example of a price ceiling.
c. is regarded by most economists as an efficient way of helping the poor.
d. is the most efficient way to allocate scarce housing resources.
The Bureau of Labor Statistics reported in 2005 that there were 23 million people over
age 25 who had at least a bachelor’s degree, 40.59 million of whom were employed and
0.98 million of whom were unemployed. What were the labor-force participation rate
and the unemployment rate for this group?
a. 76.3% and 1.8%
b. 76.3% and 2.4%
c. 78.1% and 1.8%
d. 78.1% and 2.4%
Given a nominal interest rate of 8 percent, in which of the following cases would you
earn the highest after-tax real interest rate?
a. Inflation is 5 percent; the tax rate is 20 percent.
b. Inflation is 4 percent; the tax rate is 30 percent.
c. Inflation is 3 percent; the tax rate is 40 percent.
d. The after-tax real interest rate is the same for all of the above.
A bank which must hold 100 percent reserves opens in an economy that had no banks
and a currency of $100. If customers deposit $50 into the bank, what is the value of the
money supply?
a. $50
b. $100
c. $150
d. $200
Which of the following would transfer wealth from old to young?
a. Increases in the budget deficit.
b. Decreased building of highways and bridges.
c. More generous education subsidies.
d. Indexation of Social Security benefits to inflation.
What will happen to the equilibrium price and quantity of new cars if the price of
gasoline rises, the price of steel rises, public transportation becomes cheaper and more
comfortable, and auto-workers negotiate higher wages?
a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.
Suppose the government has imposed a price floor on cellular phones. Which of the
following events could transform the price floor from one that is binding to one that is
not binding?
a. Cellular phones become less popular.
b. Traditional land line phones become more expensive.
c. The components used to produce cellular phones become less expensive.
d. Firms expect the price of cellular phones to fall in the future.
If the price level is higher than expected, firms might raise their production in the short
run if
a. the nominal wage they pay their employees was set based on the expected price level.
b. prices are costly to adjust and they have set their price at some time in the past but
are not ready to change it.
c. they believe that the price of their product has risen relative to the price of other
products, when in fact the rise in the price of their product reflects an increase in the
general price level.
d. All of the above are correct.
Which of the following is likely more important for explaining the slope of the
aggregate-demand curve of a small economy than it is for the United States?
a. the wealth effect
b. the interest-rate effect
c. the exchange-rate effect
d. the real-wage effect
Which of the following is the most likely result from an increase in a country’s
government budget surplus?
a. higher interest rates
b. lower imports
c. lower net capital outflows
d. lower domestic investment
What would happen to the equilibrium price and quantity of peanut butter if the price of
peanuts went up, the price of jelly fell, fewer firms decided to produce peanut butter,
and health officials announced that eating peanut butter was good for you?
a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.
A movement upward and to the left along a demand curve is called a(n)
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
National income differs from net national because
a. it includes profits of corporations.
b. of a statistical discrepancy.
c. it includes transfer payments.
d. it excludes depreciation.
Table 15-5
2010 Labor Data for Tajnia
Refer to Table 15-5. The total adult population of Tajnia in 2010 is 30,000.
Workers with high skills and much experience are not typically affected by the
minimum wage.
Like real GDP, investment fluctuates, but it fluctuates much less than real GDP.
A price ceiling set below the equilibrium price causes a shortage in the market.
Suppose that instead of a supply-demand diagram, you are given the following
information:
Qs = 100 + 3P
Qd = 400 – 2P
From this information compute equilibrium price and quantity. Now suppose that a tax
is placed on buyers so that
Qd = 400 – 2(P + T).
If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price
received by sellers and P + T is the price paid by buyers.) Compare these answers for
equilibrium price and quantity with your first answers. What does this show you?
Government expenditures on capital goods such as roads could increase aggregate
supply. Such effects on aggregate supply are likely to matter more in the short run than
in the long run.
How do we find the real exchange rate from the nominal exchange rate?
An economy’s income is the same as its expenditure because every transaction has a
buyer and a seller.
An excess supply of money is eliminated by a decrease in the value of money.
Some data that at first might seem puzzling: The share of GDP devoted to investment
was similar for the United States and South Korea from 1960-1991. However, during
these same years South Korea had a 6 percent growth rate of average annual income per
person, while the United States had only a 2 percent growth rate. If the saving rates
were the same, why were the growth rates so different?
An excess supply of money is eliminated by a falling price level
The effects of foreign competition on the U.S. textile industry would be studied by a
microeconomist rather than a macroeconomist.
Historical episodes allow economists to illustrate and evaluate current economic
theories.
Suppose the U.S. government institutes a “Buy American” campaign, in order to
encourage spending on domestic goods. What effect will this have on the U.S. trade
balance?
The lower the price, the lower the producer surplus, all else equal.
In the Friedman-Phelps analysis, when inflation is less than expected, the
unemployment rate is less than the natural rate.
The primary effect of rent control in the short run is to reduce rents.
Cross-price elasticity is used to determine whether goods are substitutes or
complements.
A firm might offer efficiency wages to reduce worker turnover and thereby reduce
production costs.