According to purchasing-power parity, if over the course of a year the price level in the
U.S. rises more than in Japan, then which of the following falls?
a. the U.S. real exchange rate, but not the U.S. nominal exchange rate
b. the U.S. nominal exchange rate, but not the U.S. real exchange rate
c. the U.S. nominal exchange rate and the U.S. real exchange rate
d. neither the real exchange rate nor the nominal exchange rate
The problems with using the consumer price index as a measure of the cost of living are
important because
a. even the appearance of high rates of inflation cause voters to become disenchanted.
b. politicians have manipulated the measurement problems to their advantage.
c. many government programs use the CPI to adjust for changes in the overall level of
prices.
d. if the price level is overstated, consumers will be taken advantage of by sellers of
consumer goods.
Which of the following is included in Singapore’s GDP?
a. The value of production by a Singaporean working in the U.S.
b. The value of production by an American working in Singapore
c. The value of production by a Singaporean that crosses the border to work in
Malaysia.
d. All of the above are correct.
Economists have found that union workers earn about 30 to 40 percent more than
similar workers who do not belong to unions.
a. True
b. False
The U.S. economy has never experienced deflation.
a. True
b. False
Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are
sold at $300 each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the
base year, iPhones sold at $400 each and bananas sold at $2 per pound. For 2010,
a. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83.
b. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 130.16.
c. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 130.16.
d. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 76.83.
Ronaldo’s Foods considered building a store in a new location. The owners and their
accountants decided that this was not the profitable thing to do. However, soon after
they made this decision, both the interest rate and the cost of building the store changed.
In which case do these changes bothmake it more likely that they will now build the
store?
a. Interest rates rise and the cost of building the store rises.
b. Interest rates rise and the cost of building the store falls.
c. Interest rates fall and the cost of building the store rises.
d. Interest rates fall and the cost of building the store falls.
Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent.
During that year, the price level went up by 15 percent. Which of the following
statements is correct?
a. Ms. Lane will repay the bank fewer dollars than she initially borrowed.
b. Ms. Lane’s repayment will give the bank less purchasing power than it originally
loaned her.
c. Ms. Lane’s repayment will give the bank greater purchasing power than it originally
loaned her.
d. Ms. Lane’s repayment will give the bank the same purchasing power that it originally
loaned her.
Table 28-7
Below is data about the labor market in the city of Productionville.
RefetoTable28-7.If the local government imposed a minimum wage of $5 in
Productionville, how many people would be unemployed?
a. 0
b. 2,000
c. 3,000
d. 5,000
A decrease in the budget deficit causes domestic interest rates
a. and investment to rise.
b. to rise and investment to fall.
c. to fall and investment to rise.
d. and investment to fall.
Table 3-24
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
RefertoTable3-24.England has an absolute advantage in the production of
a. cheese and Spain has an absolute advantage in the production of bread.
b. bread and Spain has an absolute advantage in the production of cheese.
c. both goods and Spain has an absolute advantage in the production of neither good.
d. neither good and Spain has an absolute advantage in the production of both goods.
Economists at the Department of Justice
a. track the behavior of the nation’s money supply.
b. advise Congress on economic matters.
c. help enforce the nation’s antitrust laws.
d. prepare the federal budget.
Other things the same, an increase in the price level induces people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.
c. more money, so they lend more, and the interest rate falls.
d. more money, so they lend less, and the interest rate rises.
Unions contribute to
a. frictional but not structural unemployment.
b. structural but not frictional unemployment.
c. both frictional and structural unemployment.
d. neither frictional nor structural unemployment.
Table 23-4
The table below reports nominal and real GDP for the U.S. from 1929 to 1932.
RefertoTable23-4.What was the growth rate of real GDP for 1930?
a. -8.62%. Real GDP is a better gauge of economic well-being than nominal GDP.
b. -8.62%. Nominal GDP is a better gauge of economic well-being than real GDP.
c. -9.43%. Real GDP is a better gauge of economic well-being than nominal GDP.
d. -9.43%. Nominal GDP is a better gauge of economic well-being than real GDP.
Suppose an economy experiences an increase in its saving rate. The higher saving rate
leads to a higher growth rate of productivity
a. in the short run, but not in the long run.
b. in the long run, but not in the short run.
c. in both the short run and the long run.
d. in neither the short run nor the long run.
Which of the following would make both the equilibrium real interest rate and the
equilibrium quantity of loanable funds increase?
a. The demand for loanable funds shifts right.
b. The demand for loanable funds shifts left.
c. The supply of loanable funds shifts right.
d. The supply of loanable funds shifts left.
In the circular-flow diagram,
a. firms own the factors of production.
b. the factors of production are labor, land, and capital.
c. the factors of production are also called “output.”
d. All of the above are correct.
If the interest rate is below the Fed’s target, the Fed should
a. buy bonds to increase bank reserves.
b. buy bonds to decrease bank reserves.
c. sell bonds to increase bank reserves.
d. sell bonds to decrease bank reserves.
Other things the same, a decrease in aggregate demand decreases both inflation and
unemployment.
a. True
b. False
An increase in the price level and a reduction in output would result from
a. a fall in stock prices.
b. a decrease in the supply of an important resource.
c. an increase in government expenditures.
d. an increase in taxes.
A country has $50 million of domestic investment and net capital outflow of $15
million. What is saving?
a. $65 million
b. -$65 million
c. $35 million
d. -$35 million
Wealth is redistributed from debtors to creditors when inflation was expected to be
a. high and it turns out to be high.
b. low and it turns out to be low.
c. low and it turns out to be high.
d. high and it turns out to be low.
Suppose an economy produces only ice cream cones. If the price level rises, the value
of currency
a. rises, because one unit of currency buys more ice cream cones.
b. rises, because one unit of currency buys fewer ice cream cones.
c. falls, because one unit of currency buys more ice cream cones.
d. falls, because one unit of currency buys fewer ice cream cones.
If the U.S. government imposes an import quota on beef, U.S. net exports will
a. increase, the real exchange rate of the dollar will appreciate, and domestic sales of
U.S. beef will increase.
b. increase, the real exchange rate of the dollar will depreciate, and domestic sales of
U.S. beef will not change
c. not change, the real exchange rate of the dollar will appreciate, and domestic sales of
U.S. beef will increase.
d. not change, the real exchange rate of the dollar will depreciate, and domestic sales of
U.S. beef will not change.
Table 28-11
2010 Labor Data for Tajnia
RefetoTable28-11.The labor-force participation rate of Tajnia in 2010 is about 33.3
percent.
a. True
b. False
The first three elements of a financial crisis are correctly represented as taking place in
the following order:
a. large decline in some asset prices → insolvencies at financial institutions → decline
in confidence in financial institutions
b. insolvencies at financial institutions → decline in confidence in financial institutions
→ large decline in some asset prices
c. insolvencies at financial institutions → economic downturn → credit crunch
d. insolvencies at financial institutions → credit crunch → economic downturn
Prisoners sometimes determine a single good to be used as money. This good becomes
a. a medium of exchange and a unit of account.
b. a medium of exchange, but not a unit of account.
c. a unit of account, but not a medium of exchange.
d. neither a unit of account nor a medium of exchange.
Public policies
a. may be able to improve either economic efficiency or equality.
b. may be able to improve economic efficiency but cannot improve equality.
c. may be able to improve equality but cannot improve economic efficiency.
d. cannot improve either equality or economic efficiency.
If the demand for a product increases, then we would expect equilibrium price
a. to increase and equilibrium quantity to decrease.
b. to decrease and equilibrium quantity to increase.
c. and equilibrium quantity both to increase.
d. and equilibrium quantity both to decrease.
Suppose you know the value of the consumer price index (CPI) in year 2 as well as the
inflation rate in year 2. Which of the following equations is valid for the CPI in year 1?
a. CPI in year 1 =
b. CPI in year 1 =
c. CPI in year 1 =
d. CPI in year 1 =
Figure30-1
RefetoFigure30-1. If the current money supply is MS1, then
a. equilibrium exists when the value of money is 2.
b. equilibrium exists when the equilibrium is at point D.
c. equilibrium exists when the value of money is 1.
d. there is excess demand if the value of money is 2.
The business cycle is measured by the
a. production of goods and services.
b. number of people employed.
c. the interest rate.
d. Both a and b are correct.
Table 3-37
Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
RefertoTable3-37.Iceland should export
a. coolers and import radios.
b. radios and import coolers.
c. both goods and import neither good.
d. neither good and import both goods.
Table 23-7
The table below contains data for the country of Togogo. The base year is 1974.
RefertoTable23-7.Which of the following is notcorrect?
a. This economy experienced growth from 1974 to 1975.
b. This economy experienced growth from 1975 to 1976.
c. This economy experienced growth from 1976 to 1977.
d. This economy experienced inflation from 1974 to 1975, from 1975 to 1976, and from
1976 to 1977.
According to the Fisher effect, if the central bank raises the rate of money supply
growth, what happens to the nominal and the real interest rate?
Country A and country B both produce shirts and shorts. Country B has an absolute
advantage producing both shirts and shorts. Is there any condition under which the two
countries could gain from trade?
In a fractional reserve economy where the required reserve ratio is 10%, must it be the
case that an initial deposit of $100 increases the total money supply by $1,000?
Explain.
Describe the role of the Federal Deposit Insurance Corporation (FDIC).
Under what conditions might government intervention in a market economy improve
the economy’s performance?
Are there any situations in which running a budget deficit is justified? Explain.
Write the formula to find the present value of $750 to be paid in 5 years if the interest
rate is 3 percent.
Give an example of government intervention that is intended to improve equality.
A country reduces its government budget deficit and also makes political reforms that
lead people to believe this country’s assets are less risky. Given the combination of a
reduced deficit and lower asset risk, what happens to the interest rate?
Define the efficient markets hypothesis.
Figure 2-22
RefertoFigure2-22.How are price and quantity related in this graph?
What is the inflation tax, and how might it explain the creation of inflation by a central
bank?
Your grandfather tells you that his annual income increased at an average rate of eight
percent over his lifetime. He complains, however, that the average inflation rate of three
percent reduced his ability to buy all the things he could have purchased if inflation had
been zero. You respectfully tell your grandfather that he is committing the _____,
because his annual income would have increased at an average rate of only five percent
if inflation had been zero.
Explain what is meant by saying that capital income is taxed twice.
In 1954, Mickey Mantle earned $21,000 playing for the New York Yankees. The CPI in
1954 was 26.9, and the CPI in 2010 was 218.06. What is Mickey Mantle’s 1954 salary
in 2010 dollars?
Suppose you place $500 into a savings account that will pay you 6% interest per year.
What will be the future value of the savings account in 15 years?
Because of its vast oil reserves, Saudi Arabia is a rich country. Saudi Arabia exemplifies
the general fact that differences inare responsible for some of the differences in
standards of living around the world.