Price indexes allow comparisons of dollar figures over time and provide us a sense of
how the economy is changing.
a. True
b. False
If purchasing-power parity holds, then the value of the
a. real exchange rate is equal to one.
b. nominal exchange rate is equal to one.
c. real exchange rate is equal to the nominal exchange rate.
d. real exchange rate is equal to the difference in inflation rates between the two
countries.
The real interest rate tells you how fast the purchasing power of your bank account rises
over time.
a. True
b. False
When the price level falls the quantity of
a. consumption goods demanded rises, while the quantity of net exports demanded falls.
b. consumption goods demanded and the quantity of net exports demanded both rise.
c. consumption goods demanded and the quantity of net exports demanded both fall.
d. consumption goods demanded falls, while the quantity of net exports demand rises.
If the multiplier is 3, then the MPCis
a. 1/3.
b. 3/4.
c. 4/3.
d. 2/3.
Table 3-7
Assume that the farmer and the rancher can switch between producing meat and
producing potatoes at a constant rate.
Refer to Table3-7. Which of the following combinations of meat and potatoes could
the farmer produce in 24 hours?
a. 1 pound of meat and 8 pounds of potatoes.
b. 2 pounds of meat and 2 pounds of potatoes.
c. 1 pounds of meat and 5 pounds of potatoes.
d. 3 pounds of meat and 2 pounds of potatoes.
When income increases the slope of an individual’s demand curve, the demand curve
a. turns positive.
b. becomes undefined.
c. remains negative.
d. becomes infinite.
In the United States in 2010 real GDP per person was about $47,000, while in some
poor countries real GDP per person was less than $5,000.
a. True
b. False
A Korean steel company produces steel in the United States, with some of its steel
being exported to other nations and some of it being sold within the United States. If the
prices of this steel increase, then
a. the GDP deflator and the CPI will both increase.
b. the GDP deflator will increase and the CPI will be unchanged.
c. the GDP deflator will be unchanged and the CPI will increase.
d. the GDP deflator and the CPI will both be unchanged.
The Obama administration believed that transfer payments to the unemployed would
have a larger impact on aggregate demand than tax cuts.
a. True
b. False
When economists make
a. positive statements, they are speaking not as scientists but as policy advisers.
b. positive statements, they are speaking not as scientists but as forecasters.
c. normative statements, they are speaking not as scientists but as policy advisers.
d. normative statements, they are speaking not as policy advisers but as model-builders.
The Fed decreases reserves if it conducts open market
a. purchases or auctions term credit.
b. purchases but not if it auctions term credit
c. sales or auctions term credit
d. sales but not if it auctions term credit
In an imaginary economy, consumers buy only sandwiches and magazines. The fixed
basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a
magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer
price index in 2007 was 125, then how much did a magazine cost in 2007?
a. $0.83
b. $2.25
c. $2.50
d. $3.00
A nation’s saving rate is not a primary determinant of its long-run economic prosperity.
a. True
b. False
If Argentina suffers from capital flight, Argentinean domestic investment and
Argentinean net exports will both decline.
a. True
b. False
In the absence of right-to-work laws, workers
a. that went on strike could be permanently replaced.
b. might be required to join the union if they worked for a unionized firm.
c. would not be able to unionize.
d. would not be able to strike.
If a person is risk averse, then she has
a. diminishing marginal utility of wealth, implying that her utility function gets flatter
as wealth increases.
b. diminishing marginal utility of wealth, implying that her utility function gets steeper
as wealth increases.
c. increasing marginal utility of wealth, implying that her utility function gets flatter as
wealth increases.
d. increasing marginal utility of wealth, implying that her utility function gets steeper as
wealth increases.
Which of the following scenarios is consistent with typical estimates of the sacrifice
ratio?
a. Inflation is reduced from 4 percent to 1 percent, and annual output falls by 10
percent.
b. Inflation is reduced from 6 percent to 4 percent, and annual output falls by 10
percent.
c. Inflation is reduced from 8 percent to 5 percent, and annual output falls by 9 percent.
d. Inflation is reduced from 3 percent to 2 percent, and annual output falls by 3 percent.
Other things the same, bonds are likely to have higher interest rates if they have
a. tax exemptions and short terms.
b. tax exemptions and long terms.
c. no tax exemptions and short terms.
d. no tax exemptions and long terms.
The interest rate that the Federal Reserve pays banks on the reserves they hold is called
the
a. open-market rate.
b. discount rate.
c. preference rate.
d. None of the above are correct.
Figure 35-2
Use the pair of diagrams below to answer the following questions.
RefertoFigure35-2. If the economy starts at C and 1, then in the short run, an increase
in the money supply growth rate moves the economy to
a. A and 1
b. B and 2
c. C and 3
d. None of the above is correct.
Suppose the interest rate is 7 percent. Consider four payment options: Option A: $500
today.
Option B: $550 one year from today. Option C: $575 two years from today. Option D:
$600 three years from today. Which of the payments has the lowestpresent value today?
a. Option A
b. Option B
c. Option C
d. Option D
Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales
a. increase Saudi net exports and net capital outflow.
b. decrease Saudi net exports and net capital outflow.
c. increase Saudi net exports and decrease Saudi net capital outflow.
d. decrease Saudi net exports and increase Saudi net capital outflow.
Suppose that a new government is elected in Eurnesia. The new government takes steps
toward improving the court system and reducing government corruption. The citizens of
Eurnesia find these efforts credible and outsiders believe these changes will be effective
and long lasting. These changes will probably
a. raise real GDP per person and productivity in Eurnesia.
b. raise real GDP per person but not productivity in Eurnesia.
c. raise productivity but not real GDP per person in Eurnesia.
d. raise neither productivity nor real GDP per person in Eurnesia.
Which of the following is a true statement?
a. International data leave few doubts that a nation’s GDP per person is associated with
its citizens’ standard of living.
b. Rich and poor countries often have vastly different standards of living, but similar
levels of real GDP per person.
c. The value of leisure time is included in the calculation of GDP per person.
d. International data indicate that measures on the distribution of income are closely
associated with GDP per person.
If a central bank were required to target inflation at zero, then when there was a positive
aggregate supply shock the central bank
a. would have to increase the interest rate. This would move unemployment closer to
the natural rate.
b. would have to increase the interest rate. This would move unemployment further
from the natural rate.
c. would have to decrease the interest rate. This would move unemployment closer to
the natural rate.
d. would have to decrease the interest rate. This would move unemployment further
from the natural rate.
You are tearing down a building and find $1 in change that someone lost when working
on the building 140 years ago. If, instead of being careless with the $1 in change, this
person had deposited it into a bank and earned 2 percent interest every year for 140
years, how much would be in the account today according to the rule of 70?
a. $4
b. $8
c. $16
d. $32
Figure 4-12
RefertoFigure4-12.If these are the only two sellers in the market, then the market
quantity supplied at a price of $8 is
a. 14 units.
b. 15 units.
c. 16 units.
d. 29 units.
The income of a typical worker in a country is most closely linked to which of the
following?
a. population
b. productivity
c. market power
d. government policies
John just graduated law school and has two competing job offers. The first is in Phoenix
and pays a salary of $150,000. He has a similar job offer in Cleveland that pays
$90,000. Which pair of CPIs would make the two salaries have the same purchasing
power?
a. 70 in Phoenix and 42 in Cleveland
b. 68 in Phoenix and 34 in Cleveland
c. 42 in Phoenix and 70 in Cleveland
d. 34 in Phoenix and 68 in Cleveland
A minimum wage that is below the equilibrium wage rate does not raise unemployment.
a. True
b. False
Typically in countries with lower levels of real GDP person, a smaller percentage of the
population is literate.
a. True
b. False