The opportunity cost of holding money
a. decreases when the interest rate decreases, so people desire to hold more of it.
b. decreases when the interest rate decreases, so people desire to hold less of it.
c. increases when the interest rate decreases, so people desire to hold more of it.
d. increases when the interest rate decreases, so people desire to hold less of it.
Assume for the United States that the opportunity cost of each airplane is 50 cars.
Which of these pairs of points could be on the United States’ production possibilities
frontier?
a. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars)
b. (200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars)
c. (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars)
d. (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars)
The nominal exchange rate is 90 Pakistani rupees per dollar. The price of a shirt in
Pakistan is 1800 rupees. The same shirt sells for $25 in the U.S.
A. What is the real exchange rate? Show your work.
B. Can arbitragers make a profit?
C. If your answer to C is yes, where would they buy and where would they sell?
In the late 1970s, proponents of rational expectations argued that
a. the Fed should not attempt to aggressively fight inflation.
b. the sacrifice ratio was smaller than previously thought.
c. the short run was relatively long.
d. None of the above is correct.
Figure34-5.On the figure, MS represents money supply and MD represents money
demand.
RefertoFigure34-5.A shift of the money-demand curve from MD2to MD1is consistent
with which of the following sets of events?
a. The government cuts taxes, resulting in an increase in people’s incomes.
b. The government reduces government spending, resulting in a decrease in people’s
incomes.
c. The Federal Reserve increases the supply of money, which decreases the interest rate.
d. All of the above are correct.
It is claimed that a secondary advantage of mutual funds is that
a. an investor can avoid investment charges and fees.
b. they give ordinary people access to loanable funds for investing.
c. they usually outperform stock market indexes.
d. they give ordinary people access to the skills of professional money managers.
Figure 2-11
Refer to Figure2-11. Which of the following events would explain the shift of the
production possibilities frontier from A to B?
a. The economy’s citizens developed an enhanced taste for books.
b. The economy experienced a technological advance in the production of books.
c. More capital became available in the economy.
d. More labor became available in the economy.
Economic models are built with
a. recommendations concerning public policies.
b. facts about the legal system.
c. assumptions.
d. statistical forecasts.
If a country made it easier for people to establish and prove the ownership of their
property, real GDP per person would likely rise.
a. True
b. False
The misery index is calculated as the
a. inflation rate plus the unemployment rate.
b. unemployment rate minus the inflation rate.
c. actual inflation rate minus the expected inflation rate.
d. natural unemployment rate times the inflation rate
Table 3-39
Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
RefertoTable3-39.Korea should specialize in the production of
a. cars and import airplanes.
b. airplanes and import cars.
c. both goods and import neither good.
d. neither good and import both goods.
Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a
price that exceeds its present value.
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.
If someone in the United States buys a surfboard produced in Australia, then that
purchase is included in both the consumption component of U.S. GDP and the net
exports component of U.S. GDP.
a. True
b. False
The Bureau of Labor Statistics divides the adult population into three categories:
employed, unemployed, and not in the labor force.
a. True
b. False
Which of the following does notaffect an individual’s demand curve?
a. expectations
b. income
c. prices of related goods
d. the number of buyers
One effect of the government-imposed seat belt law in the U.S. has been
a. a dramatic decrease in the number of pedestrian deaths.
b. safer driving.
c. an increase in the number of accidents.
d. a dramatic decrease in the number of driver deaths.
According to monetary neutrality and the Fisher effect, an increase in the money supply
growth rate eventually increases
a. inflation and nominal interest rates, but does not change real interest rates.
b. inflation, nominal interest rates, and real interest rates.
c. inflation and real interest rates, but does not change nominal interest rates.
d. nominal interest rates and real interest rates, but does not change inflation.
Which of the following would be included as investment in the GDP accounts?
a. the government buys goods from another country
b. someone buys stock in an American company
c. a firm increases its capital stock
d. All of the above are correct.
Norma complains that she is not receiving the full benefit of her six percent raise,
because inflation is two percent. You tell her that nominal incomes tend to rise with
inflation, therefore
a. she really is worse off.
b. her real income increased eight percent.
c. menu costs have reduced her purchasing power.
d. she is committing the inflation fallacy.
According to the Phillips curve, policymakers can reduce inflation by
a. contracting aggregate demand. This contraction results in a temporarily higher
unemployment rate.
b. contracting aggregate demand. This contraction results in a temporarily lower
unemployment rate.
c. expanding aggregate demand. This expansion results in a temporarily lower
unemployment rate.
d. expanding aggregate demand. This expansion results in a temporarily higher
unemployment rate.
If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1
five years ago would cost $1.50 in today’s prices.
a. True
b. False
Suppose a nation is currently producing at a point inside its production possibilities
frontier. We know that
a. the nation is producing beyond its capacity, so inflation will occur.
b. the nation is not using all available resources or is using inferior technology or both.
c. the nation is producing an efficient combination of goods.
d. there will be a large opportunity cost if the nation tries to increase production of any
good.
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10
empty seats on a flight. The airline should sell a ticket to a standby passenger only if the
passenger is willing to pay
a. more than $200.
b. more than $300.
c. more than $500.
d. This cannot be determined from the information given.
The efficiency-wage theory of worker health is
a. more relevant for explaining unemployment in less developed countries than in rich
countries.
b. more relevant for explaining unemployment in rich countries than in less developed
countries.
c. equally relevant for explaining unemployment in less developed countries and in rich
countries.
d. not relevant for explaining unemployment.
The fact that people are willing to pay much more for a diamond, which is not needed
for survival, than they are willing to pay for a cup of water, which is needed for
survival, is an example of irrational behavior.
a. True
b. False
Which of the following shifts aggregate demand to the right?
a. Congress reduces purchases of new weapons systems.
b. The Fed buys bonds in the open market.
c. The price level falls.
d. Net exports fall.
Persistent increases in the overall level of prices have been the norm.
a. True
b. False
As the price level rises, the value of money
a. increases, so people must hold less money to purchase goods and services.
b. increases, so people must hold more money to purchase goods and services.
c. decreases, so people must hold more money to purchase goods and services.
d. decreases, so people must hold less money to purchase goods and services.
People will want to hold less money if the price level
a. increases or if the interest rate increases.
b. decreases or if the interest rate decreases.
c. increases or if the interest rate decreases.
d. decreases or if the interest rate increases.
RefertoFigure2-9,Panel(a).The opportunity cost of moving from point K to point L is
a. 0 cups of coffee.
b. 1 donut.
c. 2 donuts.
d. 4 cups of coffee.
Laura says that the present value of $700 to be received one year from today if the
interest rate is 6 percent is less than the present value of $700 to be received two years
from today if the interest rate is 3 percent. Cassie says that $700 saved for one year at 6
percent interest has a smaller future value than $700 saved for two years at 3 percent
interest.
a. Both Laura and Cassie are correct.
b. Both Laura and Cassie are incorrect.
c. Only Laura is correct.
d. Only Cassie is correct.