When Jack’s income increases by $1,000, he spends an additional $850 dollars. This
implies that his marginal propensity to consume is 0.85.
If the multiplier is 5, the marginal propensity to consume must be 0.8.
According to new growth theory, firms accumulate the efficient level of both physical
and knowledge capital.
The NBER’s Business Cycle Dating Committee defines a recession as at least two
consecutive quarters of falling real GDP.
In the circular flow model, households supply resources such as labor services in the
product market.
The large budget deficits of the early 1990s resulted in large current account deficits.
Money will fail to serve as a medium of exchange if it ceases to be a store of value.
One factor which brought on the recession of 2007-2009 was the financial crisis in
2008.
Which of the following would cause the money demand curve to shift to the left?
A) an open market purchase of Treasury securities by the Federal Reserve
B) an increase in the interest rate
C) an increase in the price level
D) a decrease in real GDP
________ account(s) for between 1 and 4 percent of health care costs in the United
States.
A) The aging population
B) Uninsured patients receiving treatments at hospital emergency rooms that could have
been provided less expensively at doctor’s offices
C) The payments to settle malpractice lawsuits and the premiums doctors pay for
malpractice insurance
D) Advances in medical technology
Suppose that the labor movement has a revival in the United States and the majority of
workers join labor unions. As a result we would expect
A) the labor force participation rate to fall.
B) the unemployment rate to fall.
C) the unemployment rate to rise.
D) no change in the unemployment rate or labor force participation rate.
An increase in the equilibrium price for a product will result
A) when the quantity demanded for the product exceeds the quantity supplied.
B) when there is a decrease in supply and an increase in demand for the product.
C) when there is a decrease in supply and a decrease in demand for the product.
D) when there is an increase in demand and an increase in the number of firms
producing the product.
If the U.S. government implements a tariff on Chinese tire imports all of the following
would be made worse off except
A) U.S. consumers.
B) American tire retailers.
C) Chinese tire manufacturers.
D) American tire manufacturing workers.
Table 4-4
Table 4-4 shows the demand and supply schedules for the low-skilled labor market in
the city of Westover.
Refer to Table 4-4. If a minimum wage of $10.50 is mandated there will be a
A) shortage of 30,000 units of labor.
B) surplus of 30,000 units of labor.
C) shortage of 60,000 units of labor.
D) surplus of 60,000 units of labor.
In a competitive market the ________ curve shows the marginal benefit received by
consumers and the ________ curve shows the marginal cost to producers.
A) .demand; supply
B) supply; demand
C) demand; market demand
D) supply; market supply
Productivity gains in the United States since 1990 have been ________ productivity
gains in other leading industrial nations.
A) the same as
B) lower than
C) higher than
D) more variable than
Table 2-6
Table 2-6 shows the output per week of two people, James and Lucy. They can either
devote their time to making bracelets or making necklaces.
Refer to Table 2-6. What is James’s opportunity cost of making a tricycle?
A) 2 tricycles
B) 1/2 of a wagon
C) 1/2 of a tricycle
D) 3/4 of a wagon
Which of the following statements is true?
A) A decrease in the crime rate increases GDP as people will spend more on security.
B) Household production is counted in GDP as it amounts to real production.
C) GDP accounting rules do not adjust for production that pollutes the economy.
D) GDP growth distributes income equally to people in the economy.
The government proposes a tax on halogen light bulbs. Sellers will bear the entire
burden of the tax if the
A) supply curve of halogen bulbs is horizontal.
B) demand curve for halogen bulbs is vertical.
C) demand curve for halogen bulbs is horizontal.
D) demand curve is downward sloping and the supply curve is upward sloping.
Explain and show graphically how a decrease in household saving affects the
equilibrium interest rate and the equilibrium quantity of loanable funds.
Suppose you see a 2008 Ford Mustang GT advertised in the local newspaper for
$15,000. If you knew the car was reliable, you would be willing to pay $17,000 for it. If
you knew the car was unreliable, you would only be willing to pay $12,000 for it.
Under what circumstances should you buy the car?
Discuss the leading causes of the Great Depression. Use the 45-degree line diagram to
show how they caused a decline in GDP.
Why would a higher tax rate lower the government purchases multiplier? What does the
tax rate have to do with the government purchases multiplier?
When the actual inflation rate turns out to be greater than the expected inflation rate,
who gains € the borrower or the lender € and who loses? Explain why.
Table 12-11
Refer to Table 12-11. Using the table above, calculate the unplanned change in
inventories for each level of GDP, and explain what will happen to GDP.
