Which of the following would understate the consumer price index?
a. Substitution bias.
b. Deteriorating quality of products.
c. Improving quality of products.
d. Law of demand bias.
The price of a good will rise when:
a. there is a shortage of the good.
b. there is a surplus of the good.
c. demand for the good decreases.
d. the supply of the good increases.
Assume that an economy’s real GDP multiplier is 4. If this economy is in equilibrium at
$2,000 billion, then which one of the following actions will bring it to a
full-employment equilibrium of $1,500 billion?
a. $500 billion spending cut.
b. $500 billion spending increase.
c. $125 billion spending cut.
d. $125 billion spending increase.
e. $2,000 billion spending cut.
Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is
10 percent. If it accepts a $1,000 cash deposit, then, excluding the $1,000 initial
deposit, the banking system can increase the money supply by:
a. $900.
b. $910.
c. $1,000.
d. $9,000.
e. $10,000.
Suppose rice can be produced in country X at a lower cost than in country Y, while tuna
can be produced in country Y at a lower cost than in country X. International
competition will:
a. destroy the rice market in both countries.
b. drive X to specialize in rice and Y to specialize in tuna.
c. drive Y to specialize in rice and X to specialize in tuna.
d. cause both X and Y to reject international specialization.
e. result in lower total output of rice and tuna.
A business cycle is the period of time in which:
a. a business is established and ceases operations.
b. there are four phases: peak, recession, trough and recovery.
c. the price level varies with real GDP.
d. expansion and contraction of economic activity are equal.
e. none of these are true.
Suppose the economy is on the intermediate range of the aggregate supply curve.
Which of the following would reduce both real GDP and the price level?
a. A decrease in aggregate supply.
b. An increase in aggregate supply.
c. A decrease in aggregate demand.
d. An increase in aggregate demand.
Exhibit 18-2 Production possibilities curves for U.S. and Mexico
As
shown in Exhibit 18-2, the United States has a comparative advantage over Mexico in:
a. wheat, but not in cloth.
b. cloth, but not in wheat.
c. both wheat and cloth.
d. neither wheat nor cloth
The number of presidentially appointed members who sit on the Federal Reserve Board
of Governors is:
a. none.
b. seven.
c. nine.
d. twelve.
Which of the following would be an appropriate discretionary fiscal policy to use when
the economy is in a recession?
a. Increased government spending.
b. Higher taxes.
c. A balanced-budget reduction in both spending and taxes.
d. An expansion in the money supply.
When the tax rate is constant when a person’s income rises, the tax is a:
a. regressive tax.
b. poll tax.
c. progressive tax.
d. constant tax.
e. proportional tax.
The CPI (using a 2000 base year) for 1965 is 26.0. Suppose a household’s annual
take-home pay in 1965 was $8,320. What would be an equivalent home pay in 2000?
a. $10,483.
b. $21,632.
c. $23,680.
d. $32,000.
When individuals are unemployed because they lack the qualifications to fill available
jobs, this is called:
a. frictional unemployment.
b. natural unemployment.
c. cyclical unemployment.
d. structural unemployment.
The civilian labor force consists of all the:
a. people in the economy who are not retired.
b. people in the economy over 16 years of age.
c. adults in the economy between 18 and 65 years old who are able to work.
d. noninstitutionalized adults in the economy who hold jobs or are looking for them.
e. citizens in the economy who are graduates of high school.