If the U.S. real exchange rate is greater than 1, then there is the possibility of
arbitraging by buying foreign goods to sell in the U.S.
a. True
b. False
Which of the following is an example of a normative – as opposed to a positive –
statement?
a. The discount rate is the interest rate the Federal Reserve charges banks to borrow
funds.
b. The US income tax rate increases with the amount of income earned.
c. The government should increase the tax on gasoline.
d. The US unemployment rate increased to 10 percent in 2009.
In comparison to the situation in the late 1970s, the United States experienced lower
nominal interest rates and higher real interest rates in the late 1990s.
a. True
b. False
Table 24-2
The table below pertains to Pieway, an economy in which the typical consumer’s basket
consists of 15 bushels of peaches and 10 bushels of pecans.
RefertoTable24-2. The cost of the basket in 2013 was
a. $200.
b. $225.
c. $235.
d. $237.5.
Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on
to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an
alternative, he can spend an additional $3,000 replacing the engine. With a new engine
the car would sell for $13,000. Rick should
a. complete the repairs and sell the car for $13,000.
b. sell the car now for $10,000.
c. never try such an expensive project again.
d. be indifferent between (i) selling the car now and (ii) replacing the engine and then
selling it.
In a certain economy, toys and greeting cards are produced, and the economy currently
operates on its production possibilities frontier. Which of the following events would
allow the economy to produce more toys and more greeting cards, relative to the
quantities of those goods that are being produced now?
a. The economy experiences economic growth.
b. There is a technological advance in the toy industry, but the greeting card industry
experiences no such advance.
c. There is a technological advance in the greeting card industry, but the toy industry
experiences no such advance.
d. All of the above are correct.
Right-to-work laws
a. guarantee workers the right to form unions.
b. give workers in a unionized firm the right to choose whether to join the union.
c. prevent employers from hiring permanent replacements for workers who are on
strike.
d. prevent workers from being fired because of increases in wages brought about by
collective bargaining.
Norma receives an increase in her nominal income. She complains that the current
inflation rate of six percent erodes the real purchasing power of her additional nominal
income. This is true
a. only if the increase in her nominal income is less than six percent.
b. only if the increase in her nominal income is more than six percent.
c. since inflation always reduces purchasing power.
d. only if her real income increases.
In a market economy, scarcity of resources is most clearly reflected in
a. supply.
b. demand.
c. market prices.
d. the stock of the resource.
An increase in the budget deficit makes domestic interest rates
a. rise because the supply of loanable funds shifts left.
b. fall because the supply of loanable funds shifts left.
c. rise because the demand for loanable funds shifts right.
d. fall because the demand for loanable funds shifts right.
If stock prices follow a random walk, it means
a. long periods of declining prices are followed by long periods of rising prices.
b. the greater the number of consecutive days of price declines, the greater the
probability prices will increase the following day.
c. stock prices are unrelated to random events that shock the economy.
d. stock prices are just as likely to rise as to fall at any given time.
Which of the following countries had the lowest level of real GDP per person in 2010?
a. Bangladesh
b. Indonesia
c. Mexico
d. China
If there is a surplus of loanable funds, then
a. the quantity of loanable funds demanded is greater than the quantity of loanable
funds supplied and the interest rate is above equilibrium.
b. the quantity of loanable funds demanded is greater than the quantity of loanable
funds supplied and the interest rate is below equilibrium.
c. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is above equilibrium.
d. the quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is below equilibrium.
When the Fed buys government bonds,
a. the money supply increases and the federal funds rate increases.
b. the money supply increases and the federal funds rate decreases.
c. the money supply decreases and the federal funds rate increases.
d. the money supply decreases and the federal funds rate decreases.
Which of the following statements is (are) correct?
a. Relative to some other scientists, economists find it more difficult to conduct
experiments.
b. Theory and observation are important in economics as well as in other sciences.
c. To obtain data, economists often rely upon the natural experiments offered by history.
d. All of the above are correct.
If the central bank raises the rate at which it increases the money supply, then in the
short run unemployment is
a. above its natural rate. The short-run Phillips curve shifts right as the economy moves
back to its natural rate of unemployment.
b. above its natural rate. The long-run Phillips curve shifts left as the economy moves
back to its natural rate of unemployment.
c. below its natural rate. The short-run Phillips curve shifts right as the economy moves
back to its natural rate of unemployment.
d. below its natural rate. The long-run Phillips curve shifts left as the economy moves
back to its natural rate of unemployment.
Suppose Susan can wash three windows per hour or she can iron six shirts per hour.
Paul can wash two windows per hour or he can iron five shirts per hour.
a. Susan has an absolute advantage over Paul in washing windows.
b. Susan has a comparative advantage over Paul in washing windows.
c. Paul has a comparative advantage over Susan in ironing shirts.
d. All of the above are correct.
You put money into an account that earns a 5 percent nominal interest rate. The
inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your
after-tax real rate of interest?
a. 3.6 percent.
b. 2.4 percent.
c. 2.0 percent.
d. 4.4 percent.
A rational decision maker takes an action if and only if
a. the average benefit of the action exceeds the average cost.
b. the average cost of the action exceeds the average benefit.
c. the marginal benefit of the action exceeds the marginal cost.
d. the marginal cost of the action exceeds the marginal benefit.
If inflation is higher than expected, then lenders receive interest payments whose real
values are less than they expected.
a. True
b. False
Other things equal, when the price of a good falls, the
a. quantity supplied of the good increases.
b. supply decreases.
c. quantity supplied of the good decreases.
d. demand increases.
What must be given up to obtain an item is called
a. out-of-pocket cost.
b. comparative worth.
c. opportunity cost.
d. absolute value.
If a central bank reduced inflation by 4 percentage points and this made output fall by 5
percent for one year and 3 percent for another year and the unemployment rate rise 2.5
percent above its natural rate for one year and 1.5 percent above its natural rate for
another year, the sacrifice ratio was
a. 1.
b. 2.
c. 3.
d. None of the above is correct.
Any point on a country’s production possibilities frontier represents a combination of
two goods that an economy
a. will never be able to produce.
b. can produce using all available resources and technology.
c. can produce using some portion, but not all, of its resources and technology.
d. may be able to produce in the future with more resources and/or superior technology.
If a determinant of demand other than price changes, the demand curve shifts.
a. True
b. False
Table 4-1
RefertoTable4-1.If the market consists of Michelle, Laura, and Hillary and the price
falls by $1, the quantity demanded in the market increases by
a. 2 units.
b. 3 units.
c. 4 units.
d. 5 units.
The assumption of a closedeconomy
a. applies to the world economy.
b. applies to most national economies.
c. requires us to assume that the government’s budget is always balanced.
d. All of the above are correct.
Canada and the U.S. both produce wheat and computer software. Canada is said to have
the comparative advantage in producing wheat if
a. Canada requires fewer resources than the U.S. to produce a bushel of wheat.
b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for
the U.S.
c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for
Canada.
d. the U.S. has an absolute advantage over Canada in producing computer software.
Cyclical unemployment is closely associated with
a. long-term economic growth.
b. short-run ups and downs of the economy.
c. fluctuations in the natural rate of unemployment.
d. changes in the minimum wage.
In the United States, if the price of imported oil rises so that the prices of gasoline and
heating oil rise, then the
a. GDP deflator rises much more than does the consumer price index.
b. consumer price index rises much more than does the GDP deflator.
c. GDP deflator and the consumer price index rise by about the same amount.
d. consumer price index rises slightly more than does the GDP deflator.