The relationship between the level of saving and the level of consumption is called the
savings function.
Labor supply curves are always upward-sloping.
Hyperinflation can be thought of as a monetary policy phenomenon.
The dollar will appreciate if interest rates fall in the United States.
According to Keynesian economics, aggregate supply determines the level of economic
activity in the economy.
The fraction of additional income spent on imports is called the marginal propensity to
import.
The tax cut implemented after the Kennedy Administration stimulated economic
growth.
Recall Application 1, “Shifts in the Natural Rate of Unemployment,” to answer the
following questions:
According to the application, William Dickens’ findings showed that the natural rate of
unemployment has been constant the last 50 years.
Which of the following can increase the number of pizzas a seller is willing to sell at a
given price?
A) The cost of inputs such as pepperoni and cheese goes up.
B) The number of workers working in the pizza factory decreases.
C) The amount of subsidies that pizza makers receive from the government decreases.
D) A new technology is developed that allows producers to make the same sized pizza
using less cheese and dough.
In the short run, increases in the money supply growth rate will
A) decrease real interest rates.
B) increase real interest rates.
C) may increase or decrease real interest rates.
D) have no effect on real interest rates.
Suppose that in October the price of a cup of cafe latte was $1.50 and 400 lattes were
consumed. In November the price of a latte was $2.00 and 600 lattes were consumed.
What might have caused this change?
A) The price of tea (a substitute for cafe lattes) fell.
B) The price of tea (a substitute for cafe lattes) rose.
C) The price of coffee beans (an input of production of cafe lattes) rose.
D) The price of coffee beans (an input of production of cafe lattes) fell.
In macroeconomics, underground activities include:
A) illegal activities.
B) mining.
C) non-market transactions.
D) A and C are correct.
Assume that GDP = $10,000 and the MPC = 0.75. If policy makers want to increase
GDP by 30 percent, by how much should they decrease taxes?
A) $300
B) $750
C) $1,000
D) $3,000
Which of the following represents an action by the Federal Reserve that is designed to
increase the money supply?
A) buying government bonds in the open market
B) an increase in the required reserve ratio
C) a decrease in federal spending
D) an increase in the discount rate
The supply-side motivated tax cuts of 1981 during the Reagan administration were
aimed at
A) increasing aggregate demand.
B) increasing aggregate supply.
C) decreasing aggregate supply.
D) balancing the federal budget.
Suppose that the current price in a market for Pizza is $9. At that price, the quantity
demanded is 519 and the quantity supplied is 400. At the current price, the market is
experiencing:
A) an excess demand of 119 pizzas.
B) an equilibrium.
C) an excess supply of $119.
D) an excess demand of 500 pizzas.
Why does the government’s role of enforcing contracts facilitate exchange?
A) Enforcing contracts allows people to trade with confidence that the contracts they
enter will be met.
B) Enforcing contracts guarantees consumers that the government will bail them out in
case the seller does not fulfill his end of the contract.
C) Enforcing contracts guarantees sellers that the government will bail them out in case
the buyer does not fulfill his end of the contract.
D) Enforcing the contract effectively makes the government the seller’s partner in the
business.
Midwest State University in Nebraska is trying to convince Nebraska taxpayers that the
tax dollars spent at Midwest State University are well spent. One of the university’s
arguments is that for every $1 spent by Midwest State University, an additional $5 of
expenditures are generated within Nebraska. Midwest State University is arguing that
the MPC in this economy is:
A) 0.2.
B) 0.8.
C) 0.75.
D) 5.
An increase in human capital:
A) increases the productivity of labor.
B) decreases the productivity of labor.
C) increases the productivity of labor only if there is a corresponding technological
change.
D) increases the capital-labor ratio.
Explain why a country with a central bank that is not independent of external political
pressure is a country that tends to have higher inflation.
What is a marginal cost?
Suppose the government cuts taxes to stimulate growth in an economy deep in a
recession. How will this tax cut affect investment spending today, if the Ricardian
Equivalence holds?
Explain when a country would face a balance of payments deficit and when it would
face a balance of payments surplus if it was operating under a fixed exchange rate
system.
Demonstrate graphically what happens to the production function if the capital stock
decreases.
What does a decrease in population do to the demand for a product?
Comment on the following statement: “If the firm owns the funds it uses to purchase
investment goods, then the cost of investment is zero.”