The interest-rate effect
a. depends on the idea that decreases in interest rates increase the quantity of goods and
services demanded.
b. depends on the idea that decreases in interest rates decrease the quantity of goods and
services demanded.
c. is responsible for the downward slope of the money-demand curve.
d. is the least important reason, in the case of the United States, for the downward slope
of the aggregate- demand curve.
Unexpectedly high inflation reduces unemployment in the short run, but as inflation
expectations adjust the unemployment rate returns to its natural rate.
a. True
b. False
Risk
a. can be reduced by placing a large number of small bets rather than a small number of
large bets.
b. can be reduced by increasing the number of stocks in a portfolio.
c. Both A and B are correct.
d. Neither A nor B are correct.
Capital flight shifts the NCO curve to the left.
a. True
b. False
Figure 2-23
RefertoFigure2-23. Unemployment could cause this economy to produce at point B.
a. True
b. False
Between 1993 and 2001 the U.S. economy experienced
a. relatively low inflation and unemployment rates.
b. relatively high inflation and unemployment rates.
c. relatively low inflation rates and relatively high unemployment rates.
d. relatively high inflation rates and relatively low unemployment rates.
When the government redistributes income from the wealthy to the poor,
a. efficiency is improved, but equality is not.
b. equality is improved, but efficiency is not.
c. both efficiency and equality are improved.
d. neither efficiency nor equality are improved.
In a competitive market, the quantity of a product produced and the price of the product
are determined by
a. buyers.
b. sellers.
c. both buyers and sellers.
d. None of the above is correct.
Money allows people to specialize in what they do best, thereby raising everyone’s
standard of living.
a. True
b. False
Which of the following is the largest?
a. the future value of $250 with 3% interest for 2 years
b. the future value of $250 at 2% interest for 3 years
c. the present value of $250 to be paid in two years when the interest rate is 3%
d. the present value of $250 to be paid in three years when the interest rate is 2%
In the 1990s, inflation in the United States was
a. very close to zero.
b. about 3 percent per year.
c. about 6 percent per year.
d. commonly referred to as “public enemy number one.”
A country has a growth rate of 3%. Government spending is 60 billion units of currency
and its tax revenues are 32 billion units of currency. The current national debt is 400
billion units of currency. At which inflation rate is its debt- to-income ratio unchanged?
a. 2%
b. 3%
c. 4%
d. 5%
A depreciation of the U.S. real exchange rate induces U.S. consumers to buy
a. fewer domestic goods and fewer foreign goods.
b. more domestic goods and fewer foreign goods.
c. fewer domestic goods and more foreign goods.
d. more domestic goods and more foreign goods.
The Bureau of Labor Statistics determines which prices are most important to the
typical consumer by surveying consumers.
a. True
b. False
The unemployment rate is computed as the number of unemployed
a. divided by the labor force, all times 100.
b. divided by the number of employed, all times 100.
c. divided by the adult population, all times 100.
d. times the labor-force participation rate, all times 100.
Patents turn new ideas into
a. public goods, and increase the incentive to engage in research.
b. public goods, but decrease the incentive to engage in research.
c. private goods, and increase the incentive to engage in research.
d. private goods, but decrease the incentive to engage in research.
Suppose a country increases trade restrictions. This country would be pursing an
a. inward policy, which most economists believe has beneficial effects on the economy.
b. inward policy, which most economists believe has adverse effects on the economy.
c. outward policy, which most economists believe has beneficial effects on the
economy.
d. outward policy, which most economists believe has adverse effects on the economy.
All else equal, if there are diminishing returns, then which of the following is true if a
country increases its capital by one unit?
a. Output will rise by more than it did when the previous unit was added.
b. Output will rise but by less than it did when the previous unit was added.
c. Output will fall by more than it did when the previous unit was added.
d. Output will fall but by less then it did when the previous unit was added.
Which of the following is correct?
a. Typically more than one-third of the unemployed are new entrants into the job
market.
b. Most spells of unemployment are short.
c. Most unemployment observed at any time is long term.
d. All of the above are correct.
In the economy of Talikastan in 2015, consumption was $5300, GDP was $8800,
government purchases were $1800, imports were $600, and investment was $2000.
What were Talikastan’s exports in 2015?
a. -$900
b. -$600
c. $200
d. $300
If the budget deficit increases, then
a. an increase in the interest rate increases net capital outflow.
b. an increase in the interest rate decreases net capital outflow.
c. a decrease in the interest rate increases net capital outflow.
d. a decrease in the interest rate decreases net capital outflow.
Communist countries worked under the premise that
a. markets were the best way to organize economic activity.
b. central planners were in the best position to determine the allocation of scarce
resources in the economy.
c. households and firms, guided by an “invisible hand,” could achieve the most efficient
allocation of scarce resources.
d. allowing the market forces of supply and demand to operate with no government
intervention would achieve the most efficient allocation of scarce resources.
If a McDonald’s Big Mac cost $4.50 in the United States and 3.60 euros in the Euro
area, then purchasing-power parity implies the nominal exchange rate is how many
euros per dollar?
a. 1.25 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S.
than in the Euro area.
b. 1.25 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S.
then in the Euro area.
c. .80 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S.
than in the Euro area.
d. .80 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S.
than in the Euro area.
If the price level falls, the real value of a dollar
a. rises, so people will want to buy more. This response helps explain the slope of the
aggregate demand curve.
b. rises, so people will want to buy more. This response shifts aggregate demand to the
right.
c. falls, so people will want to buy less. This response helps explain the slope of the
aggregate demand curve.
d. falls, so people will want to buy less. This response shifts aggregate demand to the
left.
U.S. GNP
a. includes production of foreigners working in the U.S. and production of U.S. citizens
working in foreign countries.
b. includes production of foreigners working in the U.S. but excludes production of
U.S. citizens working in foreign countries.
c. excludes production of foreigners working in the U.S. but includes production by
U.S. citizens working in foreign countries.
d. excludes production of foreigners working in the U.S. and production by U.S.
citizens working in foreign countries.
Mutual funds
a. provide diversification. Shareholders assume all of the risk associated with the
mutual fund.
b. provide diversification. Government insurance eliminates the risk of mutual fund
shareholders.
c. do not provide diversification. Shareholders assume all of the risk associated with the
mutual fund
d. do not provide diversification. Government insurance eliminates the risk of mutual
fund shareholders.
If policymakers expand aggregate demand, then in the long run
a. prices will be higher and unemployment will be lower.
b. prices will be higher and unemployment will be unchanged.
c. prices and unemployment will be unchanged.
d. None of the above is correct.
Which of the following events must cause equilibrium quantity to rise?
a. demand increases and supply decreases
b. demand and supply both decrease
c. demand decreases and supply increases
d. demand and supply both increase
An American soldier stationed in North Carolina receives a paycheck from the federal
government for $300, which she uses to purchase a $100 MP3 player made in China by
a Chinese firm and $200 for fruit and vegetables from a local farmers market. As a
result, U.S. GDP increases by
a. $200.
b. $300.
c. $500.
d. $600.
An adverse supply shock shifts the short-run Phillips curve right and the short-run
aggregate-supply curve left.
a. True
b. False
If a country had a trade surplus of $50 billion and then its exports rose by $30 billion
and its imports rose by $20 billion, its net exports would now be
a. $0 billion.
b. $20 billion.
c. $40 billion.
d. $60 billion.
Which of the following statements is correct?
a. A general, persistent decline in stock prices may signal that the economy is about to
enter a boom period because people will be able to buy stock for less money.
b. A general, persistent decline in stock prices may signal that the economy is about to
enter a recession because low stock prices may mean that people are expecting low
corporate profits.
c. A general, persistent decline in stock prices may signal that the economy is about to
enter a recession because low stock prices mean that corporations have had low profits
in the past.
d. Expectations about the business cycle have no impact on stock prices.
According to purchasing-power parity, if prices in the United States increase by a larger
percentage than prices in the United Kingdom, then the
a. real exchange rate rises.
b. nominal exchange rate rises.
c. real exchange rate falls.
d. nominal exchange rate falls.