Imagine that someone offers you $Xtoday or $1,500 in 5 years. If the interest rate is 4
percent, then you would prefer to take the $X today if and only if
a. X> 1,055.56.
b. X> 1,120.89.
c. X> 1,232.89.
d. X> 1,338.26.
A decrease in the price of a good will
a. increase demand.
b. decrease demand.
c. increase quantity demanded.
d. decrease quantity demanded.
A U.S. corporation builds a restaurant in China. Its expenditures are U.S.
a. foreign portfolio investment that increase U.S. net capital outflow.
b. foreign portfolio investment that decrease U.S. net capital outflow.
c. foreign direct investment that increase U.S. net capital outflow.
d. foreign direct investment that decrease U.S. net capital outflow.
Labor unions
a. prefer to operate in states with right-to-work laws.
b. are similar to cartels.
c. play a larger role in the current U.S. economy than in European countries such as
Norway and Sweden.
d. attract a membership of about 25 percent of current U.S. workers.
In the markets for goods and services in the circular-flow diagram, households are
buyers and firms are sellers.
a. True
b. False
A statement describing how the world should be
a. is a normative statement.
b. is a positive statement.
c. would only be made by an economist speaking as a scientist.
d. would only be made by an economist employed by the government.
On the basis of theory and empirical evidence, economists have reached several
conclusions about economic growth. Which of the following is notone of these
conclusions?
a. A relatively simple way to increase growth rates permanently is to increase a
country’s saving rate.
b. Growth is generally inhibited rather than promoted by policies like protective tariffs.
c. Well-established property rights that are enforced by fair and efficient courts are
important to economic growth.
d. Countries with few domestic natural resources still have opportunities for economic
growth.
In a fractional-reserve banking system with no excess reserves and no currency
holdings, if the central bank buys $100 million worth of bonds,
a. reserves and the money supply increase by less than $100 million.
b. reserves increase by $100 million and the money supply increases by $100 million.
c. reserves increase by $100 million and the money supply increases by more than $100
million.
d. both reserves and the money supply increase by more than $100 million.
If over a short time a large number of teenagers become old enough to find employment
and a much smaller number of people retire, then productivity
a. and real GDP per person rise.
b. rises but real GDP per person falls.
c. falls but real GDP per person rises.
d. and real GDP per person fall.
National saving is equal to Y– T– C.
a. True
b. False
The only two countries in the world, Alpha and Omega, face the following production
possibilities frontiers.
a. Assume that each country decides to use half of its resources in the production of
each good. Show these points on the graphs for each country as point A.
b. If these countries choose not to trade, what would be the total world production of
popcorn and peanuts?
c. Now suppose that each country decides to specialize in the good in which each has a
comparative advantage. By specializing, what is the total world production of each
product now?
d. If each country decides to trade 100 units of popcorn for 100 units of peanuts, show
on the graphs the gain each country would receive from trade. Label these points B.
Suppose that a worker in Radioland can produce either 4 radios or 1 television per year,
and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each
nation has 100 workers. Also suppose that each country completely specializes in
producing the good in which it has a comparative advantage. If Radioland trades 100
radios to Teeveeland in exchange for 100 televisions each year, then each country’s
maximum consumption of new radios and televisions per year will be
a. 100 radios, 300 televisions in Radioland and 300 radios, 100 televisions in
Teeveeland.
b. 300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in
Teeveeland.
c. 200 radios, 100 televisions in Radioland and 100 radios, 200 televisions in
Teeveeland.
d. 300 radios, 100 televisions in Radioland and 100 radios, 400 televisions in
Teeveeland.
If Country A produces 7,000 units of goods and services using 700 hours of labor, and if
Country B produces 5,500 units of goods and services using 500 units of labor, then
productivity is lower in Country A than in Country B.
a. True
b. False
If U.S. consumers decrease their demand for cell phones from Finland, then other
things the same Finland’s
a. exports and net exports fall.
b. exports fall and net exports rise.
c. imports and net exports fall.
d. imports fall and net exports rise.
You deposit $3,000 into an N“year certificate of deposit that pays 4.5 percent annual
interest, and at the end of the Nyears you have $4,082.59. What is the number of years,
N?
a. 4
b. 5
c. 6
d. 7
Identify the immediate effect of each of the following events on U.S. GDP and its
components.
a. James receives a Social Security check.
b. John buys an Italian sports car.
c. Henry buys domestically produced tools for his construction company.
Historical trends in the prices of most natural resources compared to prices of other
goods indicate that most natural resources have become scarcer over time.
a. True
b. False
Other things the same, the aggregate quantity of goods demanded decreases if
a. real wealth falls.
b. the interest rate rises.
c. the dollar appreciates.
d. All of the above are correct.
If a Starbucks tall latte cost $3.20 in the United States and 3 euros in the Euro area, then
purchasing-power parity implies the nominal exchange rate is how many euros per
dollar?
a. .938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the
U.S. than in the Euro area.
b. .938 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in
the U.S. then in the Euro area.
c. 1.067 If the exchange rate is less than this, it costs more dollars to buy a tall latte in
the U.S. than in the Euro area.
d. 1.067 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in
the U.S. than in the Euro area.
Suppose the money supply grew at an average annual rate of 8%, velocity was constant,
the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%.
According to the Quantity Theory,
a. inflation averaged 8% per year and the real rate of return was 9%.
b. inflation averaged 11% per year and the real rate of return was 17%.
c. inflation averaged 5% per year and the real rate of return was 4%.
d. inflation averaged 1% per year and the real rate of return was 6%.
The law of demand states that, other things equal, when the price of a good rises, the
quantity demanded of the good rises, and when the price falls, the quantity demanded
falls.
a. True
b. False
An increase in the money supply shifts the long-run aggregate supply curve to the right.
a. True
b. False
Figure 3-24
The production possibilities frontiers below show how much Bob and Betty can each
produce in 8hours of time.
RefertoFigure3-24.Betty has
a. an absolute and comparative advantage producing good x.
b. an absolute but not a comparative advantage producing good x.
c. a comparative but not an absolute advantage producing good x.
d. neither a comparative nor an absolute advantage producing good x.
A rational investor will always purchase the bond that pays the highest real interest rate.
a. True
b. False
The reserve requirement is 4 percent, banks hold no excess reserves and people hold no
currency. If the Fed sells $10,000 worth of bonds, what happens to the money supply?
a. it increases by $250,000
b. it increases by $200,000
c. it decreases by $200,000
d. it decreases by $250,000
You put money into an account and earn a real interest rate of 6 percent. Inflation is 3
percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of
interest?
a. 4.8 percent
b. 5.4 percent
c. 7.2 percent
d. 4.2 percent.
The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the
Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the
money supply could increase by no more than $9,000.
a. True
b. False
Most job search in the U.S. economy takes place with the help of the government.
a. True
b. False
For a number of years Canada and many European countries have had higher average
unemployment rates than the United States. The Phillips curve suggests that these
countries
a. have higher average inflation rates than the United States.
b. have longrun Phillips curves to the right of the United States’.
c. may have less generous unemployment compensation or lower minimum wages.
d. All of the above are consistent with the evidence on unemployment rates.
If the consumer price index was 100 in the base year and 106 in the following year, then
the inflation rate was
a. 1.06 percent.
b. 6 percent.
c. 10.6 percent.
d. 106 percent.
The Bureau of Labor Statistics reported in 2005 that there were 59.98 million people
over age 25 whose highest level of education was a high school degree or equivalent,
36.40 million of whom were employed and 1.93 million of whom were unemployed.
What were the labor-force participation rate and the unemployment rate for this group?
a. 60.7% and 3.2%
b. 60.7% and 5.0%
c. 63.9% and 3.2%
d. 63.9% and 5.0%
When the money market is drawn with the value of money on the vertical axis,
a. money demand slopes upward and money supply is horizontal.
b. money demand slopes downward and money supply is horizontal.
c. money demand slopes upward and money supply is vertical.
d. money demand slopes downward and money supply is vertical.
Which of the following is correct?
a. Unemployment insurance raises structural unemployment because it reduces the job
search efforts of the unemployed.
b. Most economists are skeptical of the value of unemployment insurance primarily
because they believe that it results in a poorer match between workers and jobs.
c. Studies show that when the unemployed become ineligible for benefits, the
probability of their finding a job rises markedly.
d. All of the above are correct.