An increase in the price level increases the transaction demand for money.
When federal government spending exceeds tax revenues, the federal government runs
a budget surplus.
An increase in taxes will increase total planned expenditures for goods and services.
The balanced-budget multiplier equals 1.
Holding everything else constant, the U.S. real exchange rate with Thailand will
increase if the dollar depreciates.
Tradeoffs involve an exchange of one thing for another because resources are limited
and can be used in different ways.
If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, the real
interest rate is 10 percent.
When applying the marginal principle, you should pick the level at which the activity’s
marginal benefit equals its marginal cost.
The equilibrium price under an import quota is below the price that occurs with an
import ban.
Revenue from federal individual income taxes is larger than revenue from corporate
income taxes.
The ratio of the total shift in aggregate demand to the initial shift in aggregate demand
is known as the multiplier.
For large industrialized countries like the United States, we know that:
A) GDP will always exceed GNP.
B) GNP will always exceed GDP.
C) GDP will always equal GNP.
D) the difference between GDP and GNP will be relatively small.
In November 2008, the MONTHLY rate of inflation in Zimbabwe approached 79
BILLION percent. An inflation rate such as this would
A) seriously disrupt normal commerce.
B) decrease the natural rate of unemployment.
C) be too high to calculate using the CPI.
D) all of the above
Generally speaking, investment ________ when real GDP ________.
A) increases; decreases
B) decreases; increases
C) increases; increases
D) does not change; increases or decreases
The long-run aggregate supply curve is
A) downward sloping.
B) upward sloping.
C) a vertical line at potential output.
D) a horizontal line at the current price level.
The biggest problem caused by a deflation is that
A) prices fall.
B) wages fall.
C) people cannot repay their debts.
D) interest rates rise.
Figure 9.2 Refer to Figure 9.2. A movement from point a to point c could be caused by
a(n)
A) increase in government spending.
B) decrease in the price of oil.
C) increase in taxes.
D) increase in short-run aggregate supply.
For country A, an export is a good produced in
A) country B and purchased by residents of country B.
B) country B and purchased by residents of country A.
C) country A and purchased by residents of country B.
D) country A and purchased by residents of country A.
Recall the Application about how the process of securitization in financial markets led
to a rise in the rate of home ownership in the U.S. housing market to answer the
following question(s).According to this Application, some households were willing to
take on considerable mortgage debt because
A) they were confident they could make money as the values of their homes increased.
B) this was a safe investment in light of the rapidly increasing inflation in the economy.
C) they realized the mortgage debt would be more than offset by the tax deductions
they could take on the interest paid on their mortgage loans.
D) the government’s federal home mortgage insurance program would compensate
them for any loss in value they may realize based on the purchase price of their homes.
Policies taken to move the economy closer to potential output
A) must necessarily be expansionary policies.
B) must necessarily be contractionary policies.
C) are called stabilization policies.
D) are lagging policies or automatic policies.
After World War II, prices were increasing by 19,800% a month in Hungary. This is an
example of a(n):
A) unexpected deflation.
B) hyperdeflation.
C) hyperinflation.
D) disinflation.
Recall Application 4, “The Introduction of Cell Phones and the Bias in the CPI,” to
answer the following questions:
According to the application, the failure to include cell phones in the calculation of the
CPI creates an upward bias on the telecommunications component of the CPI by 0.8 to
1.9 percent. If the measured inflation for telecommunications was 3%, then the actual
inflation was somewhere between:
A) 1.1 to 2.2 percent.
B) 0.8 to 1.9 percent.
C) 3.8 to 4.9 percent.
D) 3.9 to 4.8 percent
The present value of a payment K that is schedule to be received t periods from now is
A) K / (1 + i)t.
B) K – i / (1 + i)t.
C) K / (1 – i)k.
D) K / (K + i)t.
Figure 15.5
Refer to Figure 15.5. If GDP is below potential output, the effect on the money market
is represented by movement from point ________ to point ________.
A) c; a
B) ; d
C) d; c
D) ; a
If the actual unemployment rate is below the natural rate, we would expect that:
A) the inflation rate is zero.
B) the inflation rate is constant.
C) the inflation rate is increasing.
D) the inflation rate is decreasing.
Some economists believe that the Asian crisis in 1997
A) was inevitable since most of the economies were experiencing slow economic
growth.
B) was made worse by the refusal of the IMF to take any actions.
C) could have been avoided if stronger action had been taken by major countries and
international agencies.
D) was necessary to rid those economies of inflation.
Suppose there are only 2 nations A and B, and only two goods, x and y. If nation A
produces only x, it can make 12x per day. If nation A produces only y, it can make 36y
per day. If nation B produces only x, it can make 4x per day. If nation B produces only
y, it can make 12y per day. After trade begins, nation ________ will specialize in the
production of x and nation ________ will specialize in the production of y.
A) A; B
B) B; B
C) B; A
D) No trade will occur.
The example of the VCRs from Korea illustrates dumping due to:
A) predatory pricing.
B) avoidance of environmental laws.
C) price discrimination.
D) retaliatory trade practices.
Why did the U.S. boycott of Mexican tuna caught with nets violate the rules of WTO?
Suppose the government raises the minimum wage in the economy. All else constant,
how will this affect the quantity of labor demanded and the quantity of labor supplied?
Would an economist consider clean air a scarce resource? Explain.
Explain why the short-run aggregate supply curve is a relatively flat, horizontal line.
Could the advent of the Internet completely eliminate frictional unemployment?
What is the difference between assets in M2 and assets found only in M1?
Identify the different actions that the Fed needs to undertake if it seeks to increase the
money supply.
Recall Application 2, “What Have Been the Local Effects of Chinese Imports?” to
answer the following questions:
What is the rationale for protecting infant industries?
Explain the real-nominal principle.