According to purchasing power parity what should the nominal exchange rate between
the U.S. and another country be equal to?
a. 1
b. the real exchange rate between the U.S. and that country
c. the price level in the U.S. divided by the price level in the other country
d. the price level in the other country divided by the price level in the U.S.
For a very long time Treeland has had an inflation rate of 9%. Suddenly its inflation rate
drops to 3%. The drop in the inflation rate
a. could be due to slower money supply growth. We would expect unemployment to be
higher.
b. could be due to slower money supply growth. We would expect unemployment to be
lower.
c. could be due to higher money supply growth. We would expect unemployment to be
higher.
d. could be due to higher money supply growth. We would expect unemployment to be
lower.
The traditional view of the production process is that capital is subject to
a. diminishing returns, so that other things the same, real GDP in poor countries should
grow at a faster rate than in rich countries.
b. diminishing returns, so that other things the same, real GDP in poor countries should
grow at a slower rate than in rich countries.
c. increasing returns, so that other things the same, real GDP in poor countries should
grow at a faster rate than in rich countries.
d. increasing returns, so that other things the same, real GDP in poor countries should
grow at a slower rate than in rich countries.
Figure 8-6
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are
a. $16 and 300.
b. $10 and 600.
c. $10 and 300.
d. $6 and 300.
Figure 6-18
Refer to Figure 6-18. How much tax revenue does this tax generate for the
government?
a. $75
b. $125
c. $175
d. $300
Which of the following correctly explains the crowding-out effect?
a. An increase in government expenditures decreases the interest rate and so increases
investment spending.
b. An increase in government expenditures increases the interest rate and so reduces
investment spending.
c. A decrease in government expenditures increases the interest rate and so increases
investment spending.
d. A decrease in government expenditures decreases the interest rate and so reduces
investment spending.
Figure 9-13
Refer to Figure 9-13. Consumer surplus after trade is
a. $3,600.
b. $5,400.
c. $7,200.
d. $8,100.
In the long run, an increase in the saving rate
a. doesn”t change the level of productivity or income.
b. raises the levels of both productivity and income.
c. raises the level of productivity but not the level of income.
d. raises the level of income but not the level of productivity.
During the financial crisis it was proposed that firms be provided with a tax credit for
investment projects. Such a tax credit would
a. shift both the demand for loanable funds and the supply of dollars in the market for
foreign-currency exchange right
b. shift the demand for loanable funds right and shift the supply of dollars in the market
for foreign-currency exchange left
c. shift the demand for loanable funds left and shift the supply of dollars in the market
for foreign-currency exchange right
d. shift both the demand for loanable funds and the supply of dollars in the market for
foreign-currency exchange left
Between 1929 and 1933, NNP measured in current prices fell from $96 billion to $48
billion. Over the same period, the relevant price index fell from 100 to 7
a. What was the percentage decline in nominal NNP from 1929 to1933?
b. What was the percentage decline in real NNP from 1929 to 1933? Show your work.
Policymakers use taxes
a. to raise revenue for public purposes but not to influence market outcomes.
b. both to raise revenue for public purposes and to influence market outcomes.
c. when they realize that price controls alone are insufficient to correct market
inequities.
d. only in those markets in which the burden of the tax falls clearly on the sellers.
When Congress reduces spending in order to balance the government’s budget, it needs
to consider
a. both the short-run effects on aggregate demand and aggregate supply, and the
long-run effects on saving and growth.
b. only the short-run effects on aggregate demand and aggregate supply.
c. only the long-run effects on saving and growth.
d. only the long-run effects on aggregate demand and aggregate supply.
If the U.S. imposed an import quota on construction equipment, then the sales of U.S.
construction equipment producers would
a. rise and the exports of other U.S. industries would rise.
b. rise and the exports of other U.S. industries would fall.
c. fall and the exports of other U.S. industries would rise.
d. fall and the exports of other U.S. industries would fall.
Suppose that businesses and consumers become much more optimistic about the future
of the economy. To stabilize output, the Federal Reserve could
a. buy bonds to raise interest rates.
b. buy bonds to lower interest rates.
c. sell bonds to raise interest rates.
d. sell bonds to lower interest rates.
The money supply is 4,000, nominal GDP is 8,000, and real GDP is 4,000, Which of the
following is 2?
a. the price level and velocity
b. the price level but not velocity
c. the price level and velocity
d. neither the price level nor velocity
A country’s trade balance
a. must be zero.
b. must be greater than zero.
c. is greater than zero only if exports are greater than imports.
d. is greater than zero only if imports are greater than exports.
Which of the following is not correct?
a. A union is a worker association that bargains with employers over wages, benefits,
and working conditions.
b. Unions play a much larger role in the U.S. labor market now than they did in the past.
c. Unions play a large role in many European countries.
d. A union is a type of cartel.
Which part of real GDP fluctuates most over the course of the business cycle?
a. consumption expenditures
b. government expenditures
c. investment expenditures
d. net exports
At an annual interest rate of 20 percent, about how many years will it take $100 to triple
in value?
a. 5
b. 6
c. 8
d. 9
Which of the following shifts aggregate demand to the left?
a. an increase in the price level
b. an increase in the money supply
c. a decrease in the price level
d. a decrease in the money supply
When the money market is drawn with the value of money on the vertical axis, an
increase in the money supply causes the equilibrium value of money
a. and equilibrium quantity of money to increase.
b. and equilibrium quantity of money to decrease.
c. to increase, while the equilibrium quantity of money decreases.
d. to decrease, while the equilibrium quantity of money increases.
You are planning a graduation trip to Nepal. Other things the same, if the dollar
appreciates relative to the Nepalese rupee, then
a. the dollar buys fewer rupees. Your purchases in Nepal will require fewer dollars.
b. the dollar buys fewer rupees. Your purchases in Nepal will require more dollars.
c. the dollar buys more rupees. Your purchases in Nepal will require fewer dollars.
d. the dollar buys more rupees. Your purchases in Nepal will require more dollars.
Which of the following is correct?
a. The Federal Reserve has 14 regional banks. The Board of Governors has 12 members
who serve 7-year terms.
b. The Federal Reserve has 14 regional banks. The Board of Governors has 7 members
who serve 14-year terms.
c. The Federal Reserve has 12 regional banks. The Board of Governors has 12 members
who serve 7-year terms.
d. The Federal Reserve has 12 regional banks. The Board of Governors has 7 members
who serve 14-year terms.
In 2009 Barack Obama responded to recession
a. only by cutting taxes.
b. by cutting taxes and reducing government expenditures.
c. only by raising government expenditures.
d. by cutting taxes and by raising government expenditures.
In which of the following countries has economic growth been sufficiently strong in
recent history to propel that country from being among the poorest in the world to being
among the richest in the world?
a. India
b. Mexico
c. Senegal
d. Singapore
Two bonds have the same term to maturity. The first was issued by a state government
and the probability of default is believed to be low. The other was issued by a
corporation and the probability of default is believed to be high. Which of the following
is correct?
a. Because they have the same term to maturity the interest rates should be the same.
b. Because of the differences in tax treatment and credit risk, the state bond should have
the higher interest rate.
c. Because of the differences in tax treatment and credit risk, the corporate bond should
have the higher interest rate.
d. It is not possible to say if one bond has a higher interest rate than the other.
Which of the following are effects of an increase in government spending financed by a
tax increase?
a. the tax increase reduces consumption; the change in the interest rate reduces
residential construction
b. the tax increase reduces consumption; the change in the interest rate raises residential
construction
c. the tax increase raises consumption; the change in the interest rate reduces residential
construction
d. the tax increase raises consumption; the change in the interest rate reduces residential
construction
If Gina sells a shirt for $40, and her producer surplus from the sale is $32, her cost must
have been
a. $72.
b. $32.
c. $8.
d. We would have to know the consumer surplus in order to make this determination.
When a country allows trade and becomes an exporter of a good,
a. consumer surplus and producer surplus both increase.
b. consumer surplus and producer surplus both decrease.
c. consumer surplus increases and producer surplus decreases.
d. consumer surplus decreases and producer surplus increases.
Which of the following statements is not correct?
a. A seller would be eager to sell her product at a price higher than her cost.
b. A seller would refuse to sell her product at a price lower than her cost.
c. A seller would be indifferent about selling her product at a price equal to her cost.
d. Since sellers cannot set the price for their product, they must be willing to sell their
product at any price.
What would happen to the equilibrium price and quantity of lattés if consumers’
incomes rise and lattés are a normal good?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.
Which of the following statements is incorrect for an open economy?
a. A country can have a trade deficit, trade surplus, or balanced trade.
b. A country that has a trade deficit has positive net capital outflow.
c. Net exports must equal net capital outflow.
d. National saving equals domestic investment plus net capital outflow.
According to the efficient market hypothesis
a. changes in the prices of stocks are predictable. Evidence shows that managed funds
typically do better than indexed funds.
b. changes in the prices of stocks are predictable. Evidence shows that indexed funds
typically do better than managed funds.
c. changes in the prices of stocks are not predictable. Evidence shows that managed
funds typically do better than indexed funds.
d. changes in the prices of stocks are not predictable. Evidence shows that indexed
funds typically do better than managed funds.
Table 10-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2009.
Prices and Quantities
Refer to Table 10-6. In 2008, this country’s GDP deflator was
a. 75.
b. 100.
c. 133.3.
d. This cannot be calculated from the information given.
Figure 8-11
Refer to Figure 8-11. Neither a shift of the demand curve nor a shift of the supply
curve is shown on the figure. However, we know that, when the tax is imposed,
a. the demand curve will shift.
b. the supply curve will shift.
c. either the demand curve or the supply curve will shift.
d. None of the above are correct; the tax causes neither the demand curve nor the supply
curve to shift.