A bank which must hold 100 percent reserves opens in an economy that had no banks
and a currency of $150. If customers deposit $50 into the bank, what is the value of the
money supply?
a. $50
b. $100
c. $150
d. $200
Which of the following is a good gauge of economic progress?
a. the level of real GDP per person, but not the growth rate of real GDP per person
b. the level of real GDP per person and the growth rate of real GDP per person
c. the growth rate of real GDP per person, but not the level of real GDP per person
d. neither the level nor the growth rate of real GDP per person
When a single person (or small group) has the ability to influence market prices, there
is
a. competition.
b. market power.
c. an externality.
d. a lack of property rights.
Suppose a stock market boom makes people feel wealthier. The increase in wealth
would cause people to desire
a. increased consumption, which shifts the aggregate-demand curve right.
b. increased consumption, which shifts the aggregate-demand curve left.
c. decreased consumption, which shifts the aggregate-demand curve right.
d. decreased consumption, which shifts the aggregate-demand curve left.
The theory of purchasingpower parity states that a unit of a country’s currency should
be able to buy the same quantity of goods in foreign countries as it does in the domestic
economy.
a. True
b. False
If C+I+G>Y, then net exports and net capital outflow are both greater than zero.
a. True
b. False
Table 3-21
Assume that Jamaica and Norway can switch between producing coolers and producing
radios at a constant rate. The following table shows the number of coolers or number of
radios each country can produce in one day.
Refer to Table3-21. Suppose Jamaica decides to increase its production of radios by
12. What is the opportunity cost of this decision?
a. 3 coolers
b. 6 coolers
c. 12 coolers
d. 24 coolers
Suppose the money market, drawn with the value of money on the vertical axis, is in
equilibrium. If the money supply increases, then at the old value of money there is an
a. excess demand for money that will result in an increase in spending.
b. excess demand for money that will result in a decrease in spending.
c. excess supply of money that will result in an increase in spending.
d. excess supply of money that will result in a decrease in spending.
The price index was 170 in the first year, 180 in the second year, and 195 in the third
year. The inflation rate was about
a. 5.6 percent between the first and second years, and 7.7 percent between the second
and third years.
b. 5.9 percent between the first and second years, and 8.3 percent between the second
and third years.
c. 10 percent between the first and second years, and 15 percent between the second and
third years.
d. 80 percent between the first and second years, and 95 percent between the second
and third years.
A rightward shift of a demand curve is called a(n)
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
Suppose you know the value of the consumer price index (CPI) in year 1 as well as the
inflation rate in year 2.
Which of the following equations is valid for the CPI in year 2?
a. CPI in year 2 =
b. CPI in year 2 =
c. CPI in year 2 =
d. CPI in year 2 =
An economist working for the Central Bank of Fredonia estimates a Phillips curve for
Fredonia and reports the following points on the estimated curve.
Which of the following statements is correct?
a. These points are consistent with the theoretical long-run Phillips curve, but not with
the short-run Phillips curve.
b. These points are consistent with the theoretical short-run Phillips curve, but not with
the long-run Phillips curve.
c. These points are consistent with both the theoretical short-run and long-run Phillips
curves.
d. These points are not consistent with either the theoretical short-run or long-run
Phillips curves.
Real GDP
a. is the current dollar value of all goods produced by the citizens of an economy within
a given time.
b. measures economic activity and income.
c. is used primarily to measure long-run changes rather than short-run fluctuations.
d. All of the above are correct.
Suppose that an American opens and operates a candy factory in Finland. This is an
example of
a. foreign direct investment. American saving is used to finance Finish investment.
b. foreign direct investment. American saving is used to finance American investment.
c. foreign portfolio investment. American saving is used to finance Finish investment.
d. foreign portfolio investment. American saving is used to finance American
investment.
U.S. GDP was almost $14 billion in 2009.
a. True
b. False
Other things the same, if foreigners desire to purchase more U.S. bonds, then the
demand for loanable funds shifts left.
a. True
b. False
Adverse selection is illustrated by people who take greater risks after they purchase
insurance.
a. True
b. False
Which of the following games might a risk-averse person play?
a. a game where she has a 50 percent chance of winning $1 and a 50 percent chance of
losing $1
b. a game where she has a 50 percent chance of winning $100 and a 50 percent chance
of losing $100
c. a game where she has a 60 percent chance of winning $1 and a 40 percent chance of
losing $1
d. a game where she has a 40 percent chance of winning $1 and a 60 percent chance of
losing $1
According to the long-run Phillips curve, in the long run monetary policy influences
a. inflation but not the unemployment rate; this is consistent with classical theory.
b. inflation but not the unemployment rate; this is inconsistent with classical theory.
c. the unemployment rate but not inflation; this is consistent with classical theory.
d. the unemployment rate but not inflation; this is inconsistent with classical theory.
Some countries have high minimum wages and require a lengthy and costly process to
get permission to open a business
a. Reducing either the minimum wage or the time and cost to open a business would
have no effect on the long- run aggregate supply curve.
b. Reducing the minimum wage and the time and cost to open a business would both
shift the long-run aggregate supply curve to the right.
c. Reducing the minimum wage would shift long-run aggregate supply to the right.
Reducing the time and cost to open a business would have no affect on the long-run
aggregate supply curve.
d. Reducing the minimum wage would have no affect on the long-run aggregate supply
curve. Reducing the time and cost to open a business would shift the long-run aggregate
supply curve to the right.
The amount of goods and services produced from each unit of labor input is called
a. opportunity cost.
b. productivity.
c. externality.
d. marginal benefit.
Table 3-12
Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim
can switch between setting up and testing computers at a constant rate. The following
table applies.
Refer to Table3-12. Which of the following points would notbe on Jim’s production
possibilities frontier, based on a 40-hour week?
a. (0 computers set up, 60 computers tested)
b. (40 computers set up, 30 computers tested)
c. (60 computers set up, 12 computers tested)
d. (72 computers set up, 6 computers tested)
When the money market is drawn with the value of money on the vertical axis, the price
level increases if
a. either money demand or money supply shifts right.
b. either money demand or money supply shifts left.
c. money demand shifts right or money supply shifts left.
d. money demand shifts left or money supply shifts right.
Fundamental analysis shows that stock in Stainless Appliance Company has a present
value below its price.
a. This stock is overvalued; you should consider adding it to your portfolio.
b. This stock is overvalued; you shouldn’t consider adding it to your portfolio.
c. This stock is undervalued; you should consider adding it to your portfolio.
d. This stock is undervalued; you shouldn’t consider adding it to your portfolio.
Other things the same, if a country increased its saving rate, in 40 years or so it would
likely have
a. higher productivity, and a higher growth rate of real GDP.
b. higher productivity, but not a higher growth rate of real GDP.
c. the same productivity and growth of real GDP it began with.
d. None of the above is correct.
Table 2-5
Refer to Table2-5. Table 2-5 shows one set of production possibilities. What is the
opportunity cost of increasing the production of corn from 400 bushels to 800 bushels?
a. 200 bushels of wheat
b. 400 bushels of wheat
c. 600 bushels of wheat
d. 800 bushels of wheat
A COLA automatically raises the wage when the CPI rises.
a. True
b. False
Suppose over some period of time the money supply tripled, velocity was unchanged,
and real GDP doubled. According to the quantity equation the price level is now
a. 6 times its old value.
b. 3 times its old value.
c. 1.5 times its old value.
d. 0.75 times its old value
An adverse supply shock will shift short-run aggregate supply
a. right, making prices rise.
b. left, making prices rise.
c. right, making prices fall.
d. left, making prices fall.
When U.S. national saving rises, domestic investment also necessarily rises.
a. True
b. False
Other things the same, a decrease in the price level motivates people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.
c. more money, so they lend more, and the interest rate rises.
d. more money, so they lend less, and the interest rate falls.
Suppose buyers of coffee and sugar regard the two goods as complements. Then an
increase in the price of coffee will cause a(n)
a. decrease in the demand for sugar and a decrease in the quantity supplied of sugar.
b. decrease in the supply of sugar and a decrease in the quantity demanded of sugar.
c. decrease in the equilibrium price of sugar and an increase in the equilibrium quantity
of sugar.
d. increase in the equilibrium price of sugar and a decrease in the equilibrium quantity
of sugar.
Figure 4-31
Consider the market for 2-packs of light bulbs below.
RefertoFigure4-31.What are the values of the equilibrium price and quantity?
What is meant by the term “lender of last resort?” In what circumstances might the Fed
be a lender of last resort?
Economists use the term to refer to an increase in the overall level of prices in the
economy.
Define opportunity cost. What is the opportunity cost to you of attending college? What
was your opportunity cost of coming to class today?
If businesses become more pessimistic about the future, what fiscal policies could the
government take to stabilize the economy?
Suppose a recession overseas reduces a country’s exports. Which curve(s) in the
aggregate demand and aggregate supply model would be affected, and which way
would it (they) shift?
An increase in the price level means that a dollar buys __________ goods and services
so the value of a dollar __________.
Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the
amounts shown in the table below. Assume that the market basket for the CPI is defined
in the base year.
RefertoScenario24-6.Using 2011 as the base year, what is the inflation rate in 2011?
Why do higher real interest rates lead to lower net capital outflow?
If the government reduces transfer payments, what happens to the budget deficit? What
curve does this change in the market for loanable funds, which direction does it shift,
and what happens to the equilibrium interest rate?
Explain the concept of market failure.
Economists use the term to refer to the ability to produce a good using fewer inputs
than another producer.
The interest rate charged by the Fed to member banks is called the.
Budget Reform
Due to concerns about a rising level of debt relative to GDP, Congress and the President
cut expenditures and raise taxes.
RefertoBudgetReform. What does this policy change do to net capital outflows?
Defend your answer.
List three characteristics of a bond that would make its interest rate higher than
otherwise.
Table 3-41
RefertoTable3-41.What is Russia’s opportunity cost of one compass?
Figure 2-3
RefertoFigure2-3.What do the ovals represent in the figure?
Explain the short-run effects on output and the price level from a decrease in the
aggregate-demand curve.