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Recall the Application about Austrian economist Henry Hazlitt and the Broken Window
Fallacy to answer the following question(s). Hazlitt questioned whether a hoodlum
breaking a store window was actually good for society.According to the Application,
the argument that the broken window is good for society
A) works in the Keynesian world when the economy is operating below full
employment.
B) works in the classical world when the economy is operating at full employment.
C) works in both the Keynesian and classical worlds regardless of where the economy
is operating relative to full employment.
D) never works in the Keynesian or classical worlds regardless of where the economy is
operating relative to full employment.
Table 2.2
Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2
illustrates her marginal costs of staying open for each additional hour. Suppose that we
observe Krystal staying open 2 hours per day. If she is following the marginal principle,
what must her marginal benefit be?
A) $6
B) $12
C) $15
D) $18
Figure 9.2
Refer to Figure 9.2. A movement from point d to point a could be caused by a
simultaneous ________ and ________.
A) decrease in the money supply; increase in the price of oil
B) increase in the money supply; massive crop failure
C) decrease in taxes; decrease in the money supply
D) decrease in government spending; decrease in the price of oil
Recall Application 1, "Creating the U.S. Federal Fiscal System Through Debt Policy,"
to answer the following questions:
According to the Application, what was the reason why the states started to have fiscal
difficulties in the 1840s?
A) The states were at war.
B) The states experienced a recession.
C) The states undertook overly ambitious infrastructure projects.
D) The federal government stopped sending states their share of tax revenues.
An appreciation of the U.S. dollar will likely cause U.S. net exports to ________ and
U.S. real GDP to ________.
A) decrease; decrease
B) increase; decrease
C) increase; increase
D) decrease; increase
Money supply growth that causes hyperinflation is in turn, caused by:
A) large budget deficits.
B) sustained increases in government spending and taxes.
C) an increase in oil prices.
D) a reduction in the velocity of money.
The real interest rate is:
A) the interest rate as quoted in the market.
B) equal to the nominal interest rate most of the time.
C) always negative.
D) the interest rate adjusted for inflation.
Let C = 150 + 0.5y and I = 45. At the equilibrium level of income, y*, the level of
saving is
A) 45.
B) 75.
C) 105.
D) 150.
Cyclical unemployment occurs
A) because the government labels some people who aren't really in the labor force as
unemployed.
B) with economic fluctuations; it increases during bad times and decreases during good
times.
C) naturally during the normal workings of an economy, as people change jobs, move
across the country, etc.
D) because of a mismatch between the jobs that are available in the economy and the
skills of workers seeking jobs.
If the capital stock remains fixed while the supply of labor increases, it is likely that:
A) the average product of labor will increase.
B) the average product of labor will fall.
C) the marginal productivity of labor will not change.
D) the average productivity of labor will not change.
Which of the following will most likely cause a decrease in the quantity of money
demanded?
A) an increase in the inflation rate
B) an increase in the interest rate
C) an increase in income
D) all of the above
Pat claims to save a great deal of money on groceries by traveling to various
supermarkets to make her purchases at their advertised sale prices. She might visit as
many as five different stores in one day in order to complete her weekly shopping. Her
savings are not as great as she may think they are if she does not consider the:
A) cost of the gasoline in driving from one store to another.
B) mileage she is putting on her car driving from one store to another.
C) value of the time she is spending doing the shopping as opposed to other things.
D) all of the above
Suppose consumption is $10,000 when income is $9,000 and the marginal propensity to
save equals 0.1. When income increases to $9,500, consumption will be:
A) $8,500.
B) $10,450.
C) $10,500.
D) $10,050.
Labor productivity is defined as
A) total output per worker.
B) output per hour of work.
C) output divided by the average hourly wage.
D) price of output divided by cost of output.
Recall the Application about the increase in political independence for the Bank of
England and its effect on anticipated inflation to answer the following question(s). In
1997, the Bank of England became more independent from the government. Although
the government still retained the authority to set overall policy goals, the Bank of
England was free to pursue its policy goals without direct political control. Federal
Reserve economist Mark Spiegel compared interest rates on two different types of
long-term bonds, those that are automatically adjusted for inflation and those that are
not, to see how the British bond market reacted to this policy change.According to this
Application, in 1997, the Chancellor of Exchecquer in Great Britain announced that the
Bank of England would be more independent from the government. Typically, the more
independent a nation's central bank
A) the higher the natural rate of unemployment.
B) the faster the velocity of money.
C) the lower the expected rate of inflation.
D) the steeper the Phillips curve.
