According to the principle of diminishing returns, an additional worker decreases total
output.
To draw the consumption possibilities curve for a particular nation you need to know
the output of the good for which the nation has a comparative advantage and the terms
of trade.
In most cases, a government generates inflation when it creates money to finance its
expenditures.
Taxes and transfer payments automatically reduce fluctuations in real GDP and thereby
stabilize the economy without any need for decisions from Congress or the White
House.
Income taxes are taxes paid on wages and investment income.
For most firms, wages are the smallest cost of production.
Aggregate demand is the total demand for intermediate goods and services in an entire
economy.
If the quantity of a product demanded is greater than the quantity of a product supplied,
there is pressure in the market to push the price downward.
To increase the level of output, the Fed should conduct an open market sale.
Recall Application 1, “Falling Home Prices, the Wealth Effect, and Decreased
Consumer Spending,” to answer the following questions:
According to the application, since 2006, the nationwide decrease in home values
averaged ________ from their peaks.
A) 30 percent
B) 70 percent
C) 80 percent
D) 20 percent
For a nation to have ________ in producing a good it must have a lower opportunity
cost of producing that good than the other country.
A) a comparative advantage
B) an absolute advantage
C) an autarky advantage
D) both a comparative advantage and an absolute advantage
Fed actions that increase the money supply:
A) tend to lead to an appreciation of a nation’s currency.
B) usually have no effect on a currency’s exchange value.
C) tend to lead to a depreciation of a nation’s currency.
D) tend to lead to a depreciation of the currencies of other nations.
Bananas, chocolate bars, chewing gum, orange juice and yogurt are considered to be
________ goods.
A) durable
B) nondurable
C) essential
D) service
The government can facilitate the transfer of unskilled workers to high-skilled jobs by
A) increasing tariffs to help unskilled workers.
B) increasing tariffs to speed the development of jobs requiring skilled labor.
C) providing assistance for education and training for unskilled workers.
D) laying off skilled workers to provide jobs for unskilled workers.
Compared to other countries, inflation in the United States has been
A) generally less severe.
B) generally more severe.
C) always worse.
D) about the same.
A tax on labor causes a larger drop in equilibrium wages when:
A) the labor supply curve is steep than when it is flat.
B) the labor demand curve is steep than when it is flat.
C) the labor supply curve is flat than when it is steep.
D) the labor demand curve is flat than when it is steep.
Figure 18.1 Refer to Figure 18.2. In autarky, the maximum amount of tomatoes that
Pizzaland can produce is:
A) 120.
B) 90.
C) 150.
D) 60.
Figure 4.4
Figure 4.4 illustrates the demand for guitars. Assume that guitars and guitar strings are
complements. A decrease in the price of guitar strings would bring about a movement
from:
A) point B to point C.
B) point B to point A.
C) D1 to D0.
D) D1 to D2.
The face value of money or income is called its ________ value.
A) real
B) marginal
C) nominal
D) external
Which of the following is included in M1, but not included in M2?
A) currency
B) checking deposits
C) travelers checks
D) All assets in M1 are included in M2.
Recall the Application about declining U.S. labor force participation since 1999 to
answer the following question.
According to this Application, one explanation for the decline in the U.S. labor force
participation rate since 1999 is
A) the decline in the overall population.
B) the increasing number of retiring baby boomers.
C) the increase in immigration to the United States.
D) the increase in outsourcing by U.S. companies.
Recall the Application about productivity in the nation of Latvia in the 1990s to
answer the following question(s).
According to this Application, workers in the EU were more productive than workers in
Latvia in the 1990s, yet EU nations still purchased products from Latvia. This is
because Latvia ________ in the production of the products it sold to EU nations.
A) had an absolute advantage
B) had a comparative advantage
C) used fewer resources
D) had a higher opportunity cost
Given the following information about AAA bank:
What is the reserve ratio?
A) 50 percent
B) 40 percent
C) 20 percent
D) 10 percent
The consumption function describes the relationship between
A) prices and demand.
B) investment and interest rates.
C) consumers and firms.
D) consumer spending and income.
What is the opportunity cost of investing $10,000 of your own money in a business you
wish to start?
List and describe the four components of GDP.
Explain why it is difficult to determine expected real rates of interest.
Would consumers benefit more from a tariff or a quota on imports? Explain.
Explain the impact of capital deepening on workers.
What is the difference between the long-run aggregate supply curve and the short-run
aggregate supply curve?
Graphically illustrate the relationship between interest rate changes and the level of
investment.
Explain what will happen to the equilibrium price and quantity of hybrid automobiles if
there are technological advancements in the production of hybrid automobiles while at
the same time consumer preference for hybrid automobiles increases.
List four protectionist policies.
Table 6.14 Based on the information in Table 6.14, calculate the
inflation rate for 2004, 2005, 2006, and 2007.