Figure 3-21
Refer to Figure3-21. If Uzbekistan and Azerbaijan each spends all its time producing
the good in which it has a comparative advantage and trade takes place at a price of 12
bolts for 36 nails, then
a. neither Uzbekistan nor Azerbaijan will gain from this trade.
b. Uzbekistan will gain from this trade, but Azerbaijan will not.
c. Azerbaijan will gain from this trade, but Uzbekistan will not.
d. both Uzbekistan and Azerbaijan will gain from this trade.
Tara deposits money into an account with a nominal interest rate of 6 percent. She
expects inflation to be 2 percent. Her tax rate is 20 percent. Tara’s aftertax real rate of
interest
a. will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation
turns out to be higher than 2 percent.
b. will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation
turns out to be higher than 2 percent.
c. will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation
turns out to be higher than 2 percent.
d. will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation
turns out to be higher than 2 percent.
Economists build economic models by
a. generating data.
b. conducting controlled experiments in a lab.
c. making assumptions.
d. reviewing statistical forecasts.
When economists are trying to explain the world, they are scientists, and when they are
trying to help improve the world, they are policy advisers.
a. True
b. False
If the exchange rate is 1.25 New Zealand dollars per U.S dollar, the price of apples is $2
a pound in the U.S. and 1 New Zealand dollar per pound in New Zealand, what is the
real exchange rate?
a. 2.50
b. 2
c. 1.25
d. .75
Table 3-9
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
Refer to Table3-9. Which of the following combinations of mixers and toasters could
Miguel not produce in 80 hours?
a. 5 mixers and 6 toasters.
b. 6 mixers and 5 toasters.
c. 7 mixers and 2 toasters.
d. 4 mixers and 8 toasters.
Table 4-3
RefertoTable4-3. If these are the only four buyers in the market, then when the price
increases from $1.00 to $1.50, the market quantity demanded
a. decreases by 1.75 units.
b. increases by 2 units.
c. decreases by 7 units.
d. decreases by 24 units.
Table 24-5
The table below pertains to Wrexington, an economy in which the typical consumer’s
basket consists of 20 pounds of meat and 10 toys.
RefertoTable24-5.If the base year is 2004, then the CPI
a. increased from 2004 to 2005 and increased from 2005 to 2006.
b. increased from 2004 to 2005 and decreased from 2005 to 2006.
c. decreased from 2004 to 2005 and increased from 2005 to 2006.
d. decreased from 2004 to 2005 and decreased from 2005 to 2006.
Kyle is planning to take a roadtrip. After he makes his plans, he has to make some
unexpected auto repairs. Also, he sees the price of gas has gone up. Which of these two
events should Kyle consider in deciding if it is still worthwhile to go on the trip?
a. the unexpected repairs and the increase in the price of gas
b. the unexpected increase for repairs, but not the increase in the price of gas
c. the increase in the price of gas, but not the unexpected repairs
d. neither the unexpected increase in the price of gas nor the unexpected repairs
When conducting an open-market purchase, the Fed
a. buys government bonds, and in so doing increases the money supply.
b. buys government bonds, and in so doing decreases the money supply.
c. sells government bonds, and in so doing increases the money supply.
d. sells government bonds, and in so doing decreases the money supply.
When Mexico suffered from capital flight in 1994, Mexico’s net exports
a. decreased.
b. did not change.
c. increased.
d. decreased until the peso appreciated, then increased.
The production possibilities frontier shows the trade-offs that the producer faces but
does not identify the choice the producer will make.
a. True
b. False
Most spells of unemployment are short, and most unemployment observed at any given
time is long-term.
a. True
b. False
A judge requires Harry to make a payment to Sally. The judge says that Harry can pay
her either $10,000 today or $12,000 two years from today. Of the following interest
rates, which is the highestone at which Harry would be better off paying the money
today?
a. 4 percent
b. 6 percent
c. 9 percent
d. 11 percent
Table 29-1.
The information in the table pertains to an imaginary economy.
RefetoTable29-1.What is the value of M1 in billions of dollars?
a. $1,915 billion
b. $1,900 billion
c. $2,665 billion
d. $2,825 billion
A policy that induces people to save more shifts
a. the supply of loanable funds and raises interest rates.
b. the supply of loanable funds and reduces interest rates.
c. the demand for loanable funds and raises interest rates.
d. the demand for loanable funds and reduces interest rates.
As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm
is
a. borrowing directly.
b. borrowing indirectly.
c. lending directly.
d. lending indirectly.
Suppose that the country of Aquilonia has an inflation rate of about 6 percent per year
and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP
of about 500 billion units of currency and current nominal national debt of 100 billion
units of domestic currency. Which of the following government spending and taxation
figures will keep the debt to income ratio constant?
a. government spending equal to 50 billion units and tax collections equal to 48 billion
units
b. government spending equal to 50 billion units and tax collections equal to 41 billion
units
c. government spending equal to 50 billion units and tax collections equal to 40 billion
units
d. government spending equal to 50 billion units and tax collections equal to 32 billion
units
The word “economy” comes from the Greek word oikonomos, which means
a. “environment.”
b. “production.”
c. “one who manages a household.”
d. “one who makes decisions.”
The effects of a decline in the value of financial assets, such as stocks, on consumption
and the economy might be offset by
a. increasing government spending.
b. decreasing the money supply.
c. increasing taxes.
d. undertaking no policy action.
Which of the following changes would increase the present value of a future payment?
a. a decrease in the size of the payment
b. an increase in the time until the payment is made
c. a decrease in the interest rate
d. All of the above are correct.
In the simple circular flow diagram, the flow of money from the markets for goods and
services to the firms is called
a. spending.
b. revenue.
c. income.
d. wages, rent, and profit.
Figure 4-21
RefertoFigure4-21.At a price of $4, there is a
a. surplus of 1 unit.
b. surplus of 3 units.
c. shortage of 1 unit.
d. shortage of 3 units.
Sam has no job but keeps applying to get a job with a business that is unionized. He is
qualified and he finds the pay attractive, but the firm is not hiring. Sam is
a. structurally unemployed. Structural unemployment exists even in the long run.
b. structurally unemployed. Structural unemployment does not exist in the long run.
c. frictionally unemployed. Frictional unemployment exists even in the long run.
d. frictionally unemployed. Frictional unemployment does not exist in the long run.
The real interest rate tells you
a. how fast the number of dollars in your bank account rises over time.
b. how fast the purchasing power of your bank account rises over time.
c. the number of dollars in your bank account today.
d. the purchasing power of your bank account today.
If the Fed wants to reverse the effects of a favorable supply shock on unemployment, it
should
a. increase the money supply growth rate which raises the inflation rate.
b. increase the money supply growth rate which reduces the inflation rate.
c. decrease the money supply growth rate which raises the inflation rate.
d. decrease the money supply growth rate which reduces the inflation rate.
In the long run, an increase in the money supply growth rate
a. increases inflation and shifts the short-run Phillips curve right.
b. increases inflation and shifts the short-run Phillips curve left.
c. decreases inflation and shifts the short-run Philips curve right.
d. decreases inflation and shifts the short-run Phillips curve left.
If total spending rises from one year to the next, then the economy must be producing a
larger output of goods and services.
a. True
b. False
Other things the same, if prices fell when firms and workers were expecting them to
rise, then
a. employment and production would rise.
b. employment would rise and production would fall.
c. employment would fall and production would rise.
d. employment and production would fall.
Matilda just graduated from college. In order to devote all her efforts to college, she
didn’t hold a job. She is going to tour around the country on her motorcycle for a month
before she starts looking for work. Other things the same, the unemployment rate
a. increases, and the labor-force participation rate decreases.
b. and the labor-force participation rate both increase.
c. increases, and the labor-force participation rate is unaffected.
d. and the labor-force participation rate are both unaffected.
Monetary neutrality means that a change in the money supply
a. does not change real variables. Most economists think this is a good description of
the economy in the short run and in the long run.
b. does not change real variables. Most economists think this is a good description of
the economy in the long run but not the short run.
c. does not change nominal variables. Most economists think this is a good description
of the economy in the short-run and the long run.
d. does not change nominal variables. Most economists think this is a good description
of the economy in the long run but not the short run.
Table 3-5
Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
Refer to Table3-5. Which of the following represents Iceland’s production possibilities
frontier when 100 labor hours are available?
a.
b.
c.
d.
When the price level rises unexpectedly, some businesses may mistake part of the
increase for an increase in the price of their product relative to others and so decrease
their production.
a. True
b. False