When considering a two-input production function, one of which is increasing while the
other is fixed, at some point called the point of diminishing returns, output will increase
at a decreasing rate.
Slope is calculated as rise / run.
Some outside lags in fiscal policy are due to the difficulty in recognizing the true state
of the economy.
If Tom can produce 20 multiple choice questions or 30 true/false questions in an hour,
and Mary can produce 15 multiple choice questions or 15 true/false questions in an
hour, then Tom has a comparative advantage in writing true/false questions.
An example of analysis that involves variables and how they affect one another would
include the relationship of the price of CDs to the quantity of CDs purchased.
Since a budget deficit places a burden on future generations, it can never be justified.
Aggregate demand determines output in the short run if prices are flexible.
Talking about alternatives is the first step in a process that helps us make better choices
about how we use our resources.
If a country bans the importation of a particular good, the market equilibrium is shown
by the intersection of the demand and domestic supply curves.
Recall Application 2, “Economic Equality May Sustain Economic Growth,” to answer
the following questions:
According to the Application, intangible capital is a significant source of economic
growth.
A variable is a measure that can take on different values.
Increases in the real wage will lead workers to supply more hours of labor.
If the Say’s Law holds true, then the economy would never experience a shortage of
demand for goods and services.
Recall Application 2, “The Market for Meteorites,” to answer the following questions:
According to the Application, all meteorites are rare and expensive.
A central bank strongly committed to fighting inflation will cause increasing
unemployment if the economy is currently producing above full employment.
A means tested program calculates the benefits of the recipient based on:
A) the recipient’s income.
B) the recipient’s tax payments.
C) the government’s income.
D) the government’s budget.
If individuals form rational expectations, an announced policy of reducing the rate of
growth in the money supply that is credible will result in:
A) lower expectations of inflation.
B) unchanged expectations of inflation.
C) increased expectations of inflation.
D) possibly any of the above depending on the current inflation rate.
The current account is the sum of:
A) net exports + net income from abroad + net transfer payments from abroad.
B) net exports + net transfer payments from abroad.
C) net income from abroad + net transfer payments from abroad.
D) exports + imports.
The heads of central banks are typically very conservative about inflation because:
A) they can influence expectations of government spending and those, in turn, influence
nominal wages.
B) they can influence expectations of inflation and those, in turn, influence actual
behavior.
C) they can influence the budget deficit and, in turn, promote hyperinflation.
D) they can influence rational expectations and those, in turn, influence irrational
expectations.
If the supply of labor decreases, which of the following events will occur?
A) The wage rate will fall and firms will increase employment.
B) The wage rate will fall and firms will decrease employment.
C) The wage rate will increase and firms will decrease employment.
D) The wage rate will increase and firms will increase employment.
Recall Application 6, “Culture, Evolution, and Economic Growth,” to answer the
following questions:
According to the application, the main difference in the findings between Professor
Clark’s research to those of Galor and Moav was that the sources of evolution according
to:
A) Clark was cultural, while for Galor and Moav it was genetic.
B) Clark was cultural, while for Galor and Moav it was political.
C) Clark was political, while for Galor and Moav it was genetic.
D) Clark was genetic, while for Galor and Moav it was cultural.
Figure 19.2
Referring to Figure 19.2, the effect of an increase in U.S. interest rates is represented by
a movement from point
A) a to d.
B) c to .
C) a to .
D) d to c.
If imports are expressed as M = my where M is the level of imports and y is the level of
GDP, then the government spending multiplier equals:
A) 1/(1-(b-m).
B) 1/(1-m).
C) b/(b-m).
D) m/(1-(b-m).
The GDP for the nation of Economia is currently above potential output. If the
adjustment to the long-run equilibrium occurs rapidly, the government of Economia is
likely to pursue a policy of
A) decreasing government spending to decrease aggregate demand.
B) decreasing the money supply to decrease aggregate demand.
C) decreasing government spending to increase aggregate demand.
D) taking no action and allowing the economy to adjust naturally.
If you expect that the inflation rate is 5 percent and the inflation actual inflation rate
turned out to be exactly 5 percent, then:
A) the inflation rate was fully anticipated and there is no unanticipated inflation.
B) the inflation rate was fully unanticipated.
C) the anticipated and unanticipated inflation rate equals 5 percent.
D) the anticipated inflation rate equals zero.
An increase in the marginal propensity to consume will:
A) shift the consumption function upwards.
B) shift the consumption function downwards.
C) cause the consumption function to be flatter.
D) cause the consumption function to be steeper.
If the current level of GDP exceeds full employment, the level of GDP can be reduced
by
A) reducing taxes.
B) increasing spending.
C) reducing the money supply.
D) lowering interest rates.
In the short run, if the stock of capital ________ there will be more depreciation.
A) grows
B) declines
C) remains stable
D) grows, declines, or remains stable
A higher rate of return to saving has:
A) income and substitution effects that both decrease saving.
B) an income effect that discourages saving and a substitution effect that encourages
saving.
C) income and substitution effects that both increase saving.
D) an income effect that encourages saving and a substitution effect that discourages
saving.
Define the theory of rational expectations. Explain the following statement: “An
economist who believes in rational expectations argues that all markets, on average,
will settle at equilibrium levels.”
Discuss an important difference between the government spending multiplier and the
tax multiplier.
What method is used as the standard way to measure the effect of debt in an economy?
Explain how an increased federal budget deficit resulting from a recession can actually
help stabilize an economy.
If the Federal Reserve is interested in conducting contractionary policy, what types of
policies should it consider?