Macro

Assume that you invest $550 in a certificate of deposit that has an annual interest rate of 4.5 percent. According to the rule of 72, what will your investment be worth after 16 years?

$1,100

The table given below shows the components of money supply in an economy.Table 12.1 The table given below shows the components of money supply in an economy.Table 12.1 Money Component Amount (in millions) Currency $550 Travelers' Checks $20 Savings Deposits $180 NOW Accounts $185 Small-Denomination Time Deposits $620 Retail Money Market Mutual Funds $605 ATS Accounts $180 Demand Deposits $210 Refer to Table 12.1 and calculate the value of M1.

$1,145 million

Suppose the price index is 100 in the base year and the price of a pound of oranges in that year is $1.96. Now, if the price index changes to 105 in the following year, how much would a pound of oranges cost?

$2.06

The table given below lists the price per unit and output of computers and calculators (the only two goods produced by a nation) for the years 1995 and 2003.Table 5.6 Production Data Prices per Unit Quantity Production 1995 2003 1995 2003 ComputersCalculators $2,000$60 $1,600 $70 100900 100900 Refer to Table 5.6. Calculate the nominal GDP for 1995.

$254,000

The table given below reports the quantity of bread loaves demanded and supplied at different per unit prices.Table 3.3 The table given below reports the quantity of bread loaves demanded and supplied at different per unit prices.Table 3.3 Price per Loaf ($) Quantity Demanded Quantity Supplied 5 30 102 4 48 84 3 66 66 2 84 48 1 102 30 According to Table 3.3, equilibrium in the market for bread occurs at the price of:

$3 per unit

Scenario 5.1Suppose that personal income is $250 billion. Furthermore, assume that retained corporate earnings are $2 billion, social security taxes are $15 billion, social security benefit checks equal $16 billion, the capital consumption allowance is $32 billion, and corporate taxes amount to $40 billion.Refer to Scenario 5.1. Gross national product of this nation will be:

$323 billion.

Suppose that personal income is $250 billion. Furthermore, assume that retained corporate earnings are $2 billion, social security taxes are $15 billion, social security benefit checks equal $16 billion, the capital consumption allowance is $32 billion, and corporate taxes amount to $40 billion.Gross national product of this nation will be:

$323 billion.

Suppose the marginal propensity to import for country A is 0.4. Calculate the change in the total value of imports of the country if national income increases by $100,000.

$40,000

Suppose a bank has $850 million in vault cash and a deposit in the Fed of $100 million. If the bank's required reserves equal $500 million, then the bank has excess reserves of:

$450 million.

The table given below reports the value of sales at each stage of production of an economics book.Table 5.1 The Production of an Economics Book Production Stage Sales Value Purchase of Timber $1.25 Processing of Timber into Paper $7.75 Printing $24.50 Retail Sales of Economics Book $38.00 Refer to Table 5.1. What is the value-added by processing timber into paper? Correct!

$6.50

Jane wins $100,000 in a lottery and immediately uses her winnings to open up a donuts shop. Her direct cost is $50,000, and she puts the remaining money in a savings account earning 10 percent annual interest. Alternatively, Jane could have placed all her lottery winnings in the 10 percent savings account. Jane's total cost of opening up a donuts shop is:

$60,000.

What is the approximate per capita income of the US if the population is 3,405,813 and its GDP is $24 million?

$7.05

Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, what is the firm's profit from the investment? Table 9.2 Cost of machine $300,000 Annual output from machine $335,000 Annual interest rate on loans 9%

$8,000

In a given year, country A exported $12 million worth of goods to country B and $6 million worth of goods to country C; country B exported $4 million worth of goods to country A and $7 million worth of goods to country C; and country C exported $5 million worth of goods to country A and $2 million worth of goods to country B.Country A has net exports of:

$9 million.

In a given year, country A exported $12 million worth of goods to country B and $6 million worth of goods to country C; country B exported $4 million worth of goods to country A and $7 million worth of goods to country C; and country C exported $5 million worth of goods to country A and $2 million worth of goods to country B. Country C has net exports of:

-$6 million.

Scenario 10.1Imagine an economy that does not have international trade and is initially in equilibrium. Later the government increases the level of spending by $350 million because it received a gift from abroad. In this economy, only 65 cents of every dollar is spent, and the rest is saved.Refer to Scenario 10.1. What is the marginal propensity to save for this economy?

0.35

Scenario 20.2Suppose labor productivity differences are the only determinants of comparative advantage, and both Egypt and produce only corn and cocoa. In Egypt, 10 bushels of corn or 15 pounds of cocoa can be produced in a day. In Ghana, one day of labor can be used to produce either 2 bushels of corn or 8 pounds of cocoa.Based on Scenario 20.2, which of the following terms of trade would benefit both countries?

1 pound of cocoa is equal to 0.5 bushels of corn

If the U.S. dollar price of the New Zealand dollar (NZD) is $0.5709, then the NZD price of one U.S. dollar will be:

1.75 NZD.

The table given below represents the output per hour of cookies and chilies in Ohio and Iowa.Table 2.4 Output per Hour Cookies Chilies Ohio 6 24 Iowa 12 96 Refer to Table 2.4. The opportunity cost of a chili in Ohio is:

1/4 unit of a cookie.

If the average annual growth rate of a developing country is 7.2 percent, real GDP will double in _____.

10 years

The Federal Reserve System divides the U.S. into _____ districts.

12

Suppose the current price of DVDs is $16, while its base-year price is $11.50. The value of the price index for the current year is approximately:

139

Scenario 7.2Suppose it has been recently predicted that in the year 2020, the total number of residents in the United States will be 315.5 million, the number of residents under 16 years of age will be 85 million, the number of institutionalized adults will be 17 million, the number of adults not actively looking for work will be 39 million, and the number of unemployed will be 21.5 million.Refer to the data in Scenario 7.2. What will be the size of the labor force in the United States in the year 2020?

174.5 million

Bob and Bill can make 16 toys each if they devote 8 working hours in a day. Further, Bob can repair 4 cars and Bill can repair 2 cars, if they devote 8 working hours in a day. What is the opportunity cost of repairing one car to Bob?

4 toys

Average growth of per capita GDP of the post-1980 globalizers increased from 1.4 percent per year in the 1960s to _____ percent in the 1990s.

5.0

If real GDP in Korea amounted to 448.3 trillion wons in 1999 and 473.7 trillion wons in 2000, compute the growth experienced by this country in 2000?

5.66%

If real GDP for Mexico was 19.8 trillion pesos at the end of 1999 and 21.3 trillion pesos at the end of 2000, then Mexico's economy grew at an annual rate of _____.

7.57%

If a bond pays 11.5 percent interest a year and a bank deposit pays 3.5 percent, the opportunity cost of holding the deposit is:

8 percent.

Assume that the U.S. labor force consists of 185 million workers and that 17.5 million are officially unemployed. Calculate the unemployment rate.

9.5 percent

Which of the following statements about taxation is incorrect?

A change in taxes does not affect consumption.

Which of the following statements is a defining feature of a corporation?

A corporation has a legal identity that is separate from that of its owners.

Which of the following stands true for technological innovation?

A decline in spending on research and development may indicate less of a commitment to increasing productivity.

Which of the following is most likely to lead to an economic contraction?

A decrease in aggregate demand

Which of the following will increase the demand for U.S. products in the international market?

A depreciation of the U.S. dollar

Which of the following will cause net exports to rise?

A depreciation of the domestic currency

The figure given below shows the demand and supply curves in the market for coffee. S1 and D1 are the original demand and supply curves.Figure 3.5Based on Figure 3.5, which of the following conditions would most likely move the point of equilibrium from A to B?

A drought in Colombia, a major coffee producer, that affects the coffee harvest.

What is a currency board?

A fixed exchange rate that, by law, exchanges domestic currency for a specified foreign currency at a fixed exchange rate.

Which of the following correctly describes a foreign exchange market?

A global market in which people exchange one currency for another

Which of the following economic changes will decrease household expenditures?

A higher domestic price level

Which of the following is least likely to be included in a definition of basic human needs?

A minimal level of savings

Which of the following persons would be considered unemployed?

A recent college graduate looking for her first job

Which of the following will cause an inward shift in the demand for steaks at a restaurant?

A recession leading to a significant fall in the income levels of consumers

Which of the following is true about automatic stabilizers?

An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations.

Which of the following will result in an outward shift of the production possibilities curve [PPC]?

An improvement in the quality of resources

Which of the following statements is true of government spending?

An increase in government spending raises the equilibrium level of income by a multiple of the original spending increase.

In terms of price indexes, what is a COLA?

An increase in wages designed to match consumer price increases

Sonia works at a restaurant where tips are pooled and divided equally. Anna works at a different restaurant where she keeps the tips her customers leave for her. Which of the following is true?

Anna works harder, because her tips are her private property.

Unemployment data in the U.S. are published by the:

Bureau of Labor Statistics.

Which of the following is least likely to contribute to the volatility of investment spending?

Changes in government spending

_____ is the theory that was popular before _____ changed the face of economics post Great Depression in the 1930s.

Classical economics; Keynes

The Federal Reserve System was created in 1913, through the Federal Reserve Act, by the:

Congress.

Which of the following components of GDP accounts for the bulk of national expenditures in the United States?

Consumption

Which of the following is most likely to result if the Congress passes the living wage law?

Cost-push inflation

Assume that at the current market price of $4 per unit of a good, you are willing and able to buy 20 units. Last year at a price of $4 per unit, you would have purchased 30 units. What is most likely to have happened over the last year?

Demand has decreased

If increases in total spending are not offset by increases in the supply of goods and services, the average price level will rise. Which of the following factors is responsible for this rise?

Demand-pull inflation

_____ refers to the changes in government spending and taxation that are aimed at achieving a policy goal.

Discretionary fiscal policy

Which of the following is the ultimate goal of monetary policy?

Economic growth with price stability

The European Economic Community was created in 1957 by:

France, West Germany, Italy, Belgium, the Netherlands, and Luxemburg.

Which of the following is related to the concept of trade-off used in economics?

Giving up one good or activity in order to obtain some other good or activity

Which of the following is not considered a criticism of globalization?

Globalization promotes only trade based on comparative, and not absolute advantage.

Which of the following is considered a determinant of long-run economic growth?

Growth in productive resources

Which of the following could contribute to cost-push inflation?

Higher wage demands by trade unions

In spite of having no natural resources, a country like _____ was able to make itself one of the wealthiest countries in the world because it allowed private ownership.

Hong Kong

Which of the following sectors in the economy accounted for about 70% of the spending in the U.S. during 2009?

Households

Given below is the production possibilities schedule for a small island nation in South Pacific that produces capital and consumer goods.Table 2.3 Production Possibilities Schedule Capital Goods Consumer Goods 10 0 9 1 7 2 4 3 0 4 Refer to Table 2.3. Identify the correct statement.

If the economy produces 4 units of capital goods, it can manage to produce only 3 units of consumer goods.

Consider GDP calculated according to the expenditures approach. Which of the following components of GDP would need to decrease for GDP to increase?

Imports

Which of the following can be categorized under fiscal policy?

Increase in tax rates

Which of the following will shift the long-run aggregate supply curve to the right?

Increase in the rate of economic growth

Which of the following would not be included as part of personal income?

Indirect business taxes

Which of the following measures of globalization was not affected during the aftermath of the terrorist attacks in the United States on September 11, 2001?

International telephone calls

Which of the following can be considered an injection into an economy?

Investment

Which of the following refers to a shift in government spending from the country's infrastructure to education and health care?

Investment diversion

Which of the following is true of the FDIC?

It is a federal agency that insures bank deposits in commercial banks.

Which of the following properties should a commodity have to be considered as money?

It should be homogenous in nature.

A piece of land is divided between John and Mary. However, only John gets the title to his share of land. Which of the following is true?

John will be able to use his land as collateral for a loan from a bank.

Which of the following statements about technology is true?

Low levels of education can impede technological progress.

Personal income is equal to:

NI plus income currently received but not earned - income currently earned but not received.

Which of the following can be a valid reason for Canada's GDP exceeding its GNP in 2001?

Net factor income from abroad in Canada was negative.

Which of the following economic theories take into account the rational expectations of people in the economy?

New classical economic theory

Which of following policies of the Congress was aimed to place the Fed above politics and maintain continuity in the policymaking process?

One board member's term expires every second year.

Which of the following must be included in the calculation of GDP?

Payment made for a SAT preparation class

Which of the following is an obstacle to economic growth?

Political instability

Which of the following actions of the Fed will increase money supply in the U.S. directly?

Purchase U.S. government bonds

Which of the following holds true, if goods sell for the same price worldwide when converted to a common currency?

Purchasing power parity exists

Which of the following is observed in an economy during the contraction phase of the business cycle?

Real GDP falls

Which of the following is a primary product?

Salt

Which of the following would tend to increase the natural unemployment rate?

Sociological changes that encourage people to seek employment

Why do the European countries like France, Germany, Italy and Spain have higher unemployment rates than other industrialized nations?

Stringent policies adopted by the governments of these nations against the termination of workers by firms

Which of the following coordinates and plans foreign aid programs and expenditures in the United Sates?

The Agency for International Development

Which of the following is an example of opportunity cost?

The Chinese food that you give up when you choose to eat Italian food.

Which of the following statements is incorrect?

The Federal Reserve Open Market Committee determines fiscal policy actions for the Congress.

Which of the following government agencies oversees monetary policy in the U.S.?

The Federal Reserve System

Which of the following is not an example of a price ceiling?

The U.S. government requires that sugar be sold at a price that exceeds the world price of sugar

Assume that the United States uses 20 worker-hours to produce 1 computer and 5 worker-hours to produce 1 unit of food; assume also that Japan uses 10 worker-hours to produce 1 computer and 30 worker-hours to produce 1 unit of food. Which of the following statements is true?

The United States has the comparative advantage in food production.

In the fixed-price Keynesian model, what would be the impact of an increase in aggregate expenditure on the aggregate demand curve and real GDP?

The aggregate demand curve would shift rightward and real GDP would increase.

Which of the following will be observed if the U.S. federal government reduces fiscal spending, keeping other things constant?

The aggregate expenditure in the economy will decrease.

Which of the following is a direct consequence of the development of faster and cheaper computers?

The enhanced ability of managers of business operations to deal with complex transactions in far-flung locations

If the price of hot dogs were to decrease, which of the following changes would we expect to occur in the hot dog bun market?

The equilibrium price of hot dog buns would increase and the quantity of hot dog buns sold would increase.

Which of the following contributed to a slowdown in U.S. labor productivity during the 1970s?

The exit of the baby boom generation from the work force

Which of the following is not a limitation a person faces when shopping for clothes?

The freedom to make rational choices

Which of the following is an example of a transfer payment by the government?

The government provides unemployment benefits to its citizens.

Which of the following determines the quantity demanded of a commodity?

The income levels of consumers

Which of the following statements is not true about a market system?

The market system magnifies the problem of scarcity of goods and services.

What is the immediate effect when Bank A lends $1,000 to a local business?

The money supply increases by $1,000.

Which of the following conditions is true for a nation operating at a point lying inside its production possibilities curve?

The nation is not utilizing its resources efficiently.

What would be the impact of an increase in foreign income on the net export function?

The net export function would shift downward.

What is known as the Dutch disease?

The phenomenon of a boom in one industry causing declines in the rest of the economy

Other things remaining unchanged, which of the following is a determinant of the quantity supplied of a good?

The price of the product

Which of the following would be included in the financial account of the U.S. balance of payments?

The purchase of a stock in a U.S. corporation by a foreigner

When constructing a production possibility curve for an economy, which of the following is assumed to be constant?

The quantity of resources

Which of the following accounts for a movement along a given AD curve?

The real-balance effect

Because there is no way to account for them, the official unemployment rate does not include discouraged workers. What would happen to the unemployment rate if, because of a program that gave them new hope, all discouraged workers suddenly begin reporting themselves as ready to work?

The size of the labor force would increase.

A world-renowned brain surgeon can type twice as fast as her secretarial assistant. Which of the following statements is true in this situation?

The surgeon should spend her time doing brain surgery and allow her secretary to do the typing because the secretary has a comparative advantage in typing.

Which of the following looks at the demand side of the market to explain some of the observed international trade patterns?

The theory of consumer preferences

Which of the following is assumed to be constant in the quantity theory of money?

The velocity of money

What has happened to countries that did not participate in the globalization of the world economy?

These countries have been mired in a low-growth path and are experiencing high poverty rates.

Which of the following is true of other checkable deposits?

They are accounts at financial institutions that pay interest and give the depositor check-writing privileges.

Which of the following is true of Western Europe, Japan, Canada, Mexico, and China taken together?

They are collectively the largest trade partners of the U.S.

Which of the following is most likely to be a reason for immigrants to become entrepreneurs in developing countries?

They have skills and experience that are lacking in poor nations.

Which of the following sentences about entrepreneurs stands true?

They help achieve technological progress.

Assume that for a given year, the nominal interest rate is 9 percent while inflation rises to 11 percent indicating a 4 percent higher rate than anticipated. Which group of people is made better off by the inflation?

Those who borrow at fixed interest rates

Which of the following gives the Fed a credibility problem because the Fed may change its planned policies in light of new economic developments?

Time inconsistency

_____ is the ratio of an economy's output to its stock of labor and capital.

Total factor productivity

Which of the following is not a component of the aggregate expenditures of a country?

Transfer payments

Which of the following was the reserve currency under the gold exchange standard?

U.S. dollar

In effect, during the period immediately following World War II, the world was on a(n):

U.S. dollar standard.

When will a shortage occur in a market?

When the actual price is lower than the equilibrium price

Which of the following is the closest example of structural unemployment?

Workers in a firm manufacturing films for roll film cameras losing jobs due to the popularity of digital cameras

The change in the quantity demanded of any good is always caused by:

a change in the price of that good.

A trade deficit occurs when:

a country's imports exceed its exports.

If the average price level in 2002 was 1.25 relative to the base year in 1992, then:

a dollar in 2002 bought just 80 percent of the goods and services that a dollar bought in 1992.

The per capita real GDP in Sri Lanka is likely to be lower than the United States because Sri Lanka's economy is characterized by:

a high population growth.

Rapid population growth leads to age dependency which refers to:

a large number of dependent children whose consumption requirements lower the ability of the economy to save.

Suppose the Congress enacts a 5 percent decrease in annual military expenditures. Other things equal, this can be associated with:

a leftward shift of the aggregate demand curve.

A scalper reselling Super Bowl tickets is an example of money being used as:

a medium of exchange.

Other things equal, an increase in aggregate supply will cause:

a reduction in unemployment and a decline in inflation.

The table given below reports the quantity demanded and supplied of a commodity at different prices in a market.Table 3.5 Quantity Demanded Price per Unit ($) Quantity Supplied 10 5 50 20 4 40 30 3 30 40 2 20 50 1 10 Refer to Table 3.5. If government imposes a price ceiling of $2:

a shortage will result equal to 20 units.

In absolute terms, poverty is measured as:

a specific value of per capita GNP.

The balance of payments is:

a summary statement of all international trade transactions of one country with the rest of the world.

The steepness of the aggregate supply curve depends on the:

ability of the producers to respond to price-level changes in the short run.

Suppose that a labor union negotiates an increase in wages of 4 percent for the coming year because annual inflation for the past five years has been 4 percent. The expectations formed by the union are:

adaptive expectations.

Suppose that the world price of kiwi fruit ($10 per box) is below the domestic price ($12 per box). A tariff of $1 per box would:

allow domestic consumers to enjoy kiwi fruit for $1 more per box than the free trade price, but still $1 less than the domestic price.

During the 1970s, real shocks to the U.S. economy caused:

an increase in both the price level and the unemployment rate.

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

an increase in employment.

The buying and selling of government bonds by the FOMC constitutes:

an open market operation.

Equilibrium in the foreign exchange market occurs:

at the point where the foreign exchange demand and supply curves intersect.

The exchange of goods and services directly without money is called:

barter

In order to use inflation targeting, a central bank must:

be independent of fiscal policy.

Economists typically date the beginning of the gold standard to the period:

between 1880 and 1914.

A foreign aid that flows from one country to another is called a(n):

bilateral aid.

The wealth effect and the interest rate effect are changes in the price level that:

bring about a movement along the aggregate demand curve.

In economics, the term investment refers to:

business spending for acquiring capital goods.

According to the theory of rational expectations, expansionary fiscal policy that is anticipated will:

cause wage expectations to adjust upward immediately following the higher price level.

The quantity theory of money asserts that:

changes in the money supply are directly related to changes in nominal GDP.

Economists refer to the ability of one person or nation to do something with a lower opportunity cost than another as _____.

comparative advantage

Other things remaining the same, when a fall in the price of one good is followed by an increase in the demand for another good, both goods are said to be:

complementary goods.

The deleveraging of financial institutions led to the financial crisis of 2007-2008 sometimes also referred to as the _____.

credit crisis

The most heavily traded category of goods in the world is:

crude petroleum.

Labor productivity is affected by each of the following, except:

cultural background and ethnicity.

A decrease in the price of a currency in terms of another under a flexible exchange rate regime is called:

depreciation.

An inward-oriented strategy is designed to:

develop the domestic manufacturing sector.

Developing countries often justify imposition of tariffs because:

developing countries find income taxes difficult to levy and collect.

The effect of _____ is to produce an unemployment rate that understates actual unemployment.

discouraged workers and underemployment

The sum of consumption and saving is called _____.

disposable income

A Eurodollar loan is a(n):

dollar-denominated loan issued outside the U.S. domestic banking system.

An increase in aggregate demand due to higher foreign income will cause:

domestic equilibrium GDP to increase.

When restrictions alter the pattern of international trade, the _____ benefit and the _____ suffer(s).

domestic producers; domestic consumers

The original comparative advantage model that used the relative abundance of factors of production to explain comparative advantage assumed that countries:

employed only two factors of production; labor and capital.

The most successful free trade agreements achieve all of the following goals, except:

ensuring that production occurs on the basis of comparative advantage.

Foreign direct investment occurs when a company:

establishes foreign operating units.

Currency speculators are traders who seek to profit from a(n):

exchange rate change by selling the currency expected to depreciate and buying the currency expected to appreciate.

We know that industrial countries tend to trade with other industrial countries. This pattern counters the:

factor abundance theory of comparative advantage.

Commercial banks act as middlemen between savers and borrowers, therefore they are called _____.

financial intermediaries

When the government uses taxes and spending to affect national economy, it is engaging in:

fiscal policy.

A commodity money standard exists when exchange rates are:

fixed, based on the values of different currencies, in terms of some commodity.

For most Third World countries, the key source of capital accumulation is _____.

foreign direct investment

The demand for foreign currency in the United States is based on the demand for:

foreign goods and services.

A country has a comparative advantage when the opportunity cost of producing a good in terms of:

forgone output of other goods is lower than that of other nations.

When the U.S. economy is at its full-employment level, the unemployment rate is not equal to zero because:

frictional and structural unemployment are always present in a modern economy.

Most markets involve the use of money for transactions because:

goods and services can be exchanged more easily with money than without it.

The second-largest component of aggregate expenditures in the United States is _____.

government expenditure

A reserve currency is a currency that is:

held by governments to facilitate foreign exchange market interventions.

Technological advancements cause structural unemployment. However, they help in:

improving living standards by giving consumers a greater variety of goods at lower costs.

The purchase of a new machine to replace the one that is worn out is:

included in gross investment.

An increase in the money supply will:

increase both investment spending and aggregate demand.

If the FOMC purchases government bonds priced at $5,000 from a bond dealer who banks at National Bank, and if the reserve requirement is 20 percent, then the required reserves of National Bank:

increase by $1,000.

Lower interest rates on business loans usually result in a(n):

increase in aggregate expenditures.

An expansion in a country's capital stock is associated with a(n) _____.

increase in potential GDP

If a dollar invested in the United States yields the same return as a dollar's worth of yen invested in Japan, then it implies that:

interest rate parity exists.

Commercial policy is government policy that influences:

international trade flows.

The measure of money supply that includes the fewest types of assets:

is M1.

The market supply curve for any product:

is a summation of individual firms' supply curves.

Economic freedom:

is the ability to engage in voluntary trade.

The output level that occurs in any market that is in equilibrium:

is the quantity where the demand and supply curves intersect each other.

When a household owns shares of stock, _____.

it has ownership rights in that firm

When a bank's excess reserves are zero:

its required reserves equal its legal reserves.

In the 1980s, U.S. economists acknowledged that it was not possible to exploit the trade-off suggested by the Philips curve of the 1960s. This realization led to more stable macroeconomic policy, which in turn contributed to:

less volatility in real output.

The movement of the vertical _____ curve to the _____ reflects the increase in potential output on account of the development of new technologies, and increase in the quantity and quality of resources.

long-run aggregate supply; right

If the government wants to close a GDP gap, it should:

lower taxes and raise government spending.

During the Christmas holiday season, the Fed increases the supply of currency to:

meet the demand for cash withdrawals from banks.

Total factor productivity is the ratio of a:

nation's output to its stock of labor and capital.

The wealth effect, the interest rate effect, and the international trade effect account for the:

negative slope of the aggregate demand curve.

The figure given below depicts the tax revenue for different tax rates applied by the government.Figure 11.2Refer to Figure 11.2. If the tax rate were 100 percent, then:

no one would be willing to work.

Assume that the Fed increases the money supply when there is substantial unemployment in the economy. According to the quantity theory of money, if velocity is constant, then:

nominal GDP will increase.

Suppose Jess resigns from her low paying job. After looking for a new job for two weeks she is highly frustrated and gives up looking for a better-paying job. According to the U.S. Bureau of Labor Statistics, Jess would:

not be considered as a part of the labor force.

The new Keynesians believe that the economy is not always in equilibrium because:

of the existence of wage and price rigidities.

Margaret can use her quarterly savings to buy a teakwood study table for her room or spend it on a small Christmas party with her family. The _____ cost of her enjoyment at the Christmas party would then equal the forgone utility of the study table.

opportunity

Shirley can choose between peanut butter pretzels and caramel coated popcorn for her evening snack. According to economists, her _____ cost of consuming caramel coated popcorn would be the forgone peanut butter pretzels.

opportunity

The total factor productivity of an economy is the ratio of the economy's _____.

output to its total stock of labor and capital

The economic development strategy aimed at exporting domestically manufactured goods is called a(n):

outward-oriented strategy.

Compared to the government in a typical industrial country, the government in a typical developing country:

plays a larger role in investment spending.

The business cycle that results from the election campaign of incumbent politicians is called a:

political business cycle.

The gold standard fixes the:

price of gold in terms of international currencies.

The Keynesian aggregate expenditures model assumes that:

prices do not decrease when aggregate demand decreases.

The theory that explains the shift of color TV sets production from the United States to Japan and Taiwan is called the _____ theory.

product life cycle

Suppose the marginal tax rate is 37 percent for an income level of $50,000 and 39 percent for an $80,000 income. This implies that the underlying tax structure is _____ in nature.

progressive

The process of buying financial assets to stimulate the economy when the central bank target interest rate is near or at zero and the interest rate cannot be lowered further is called:

quantitative easing.

In the short run, an expansionary monetary policy by the Fed would:

reduce unemployment at the cost of higher inflation.

Between two countries, comparative advantage is found by comparing the:

relative costs of production in each country.

A point outside the production possibilities curve [PPC]:

represents more resources than are currently available.

As disposable income rises:

saving rises as a percentage of disposable income.

Credit can be described as:

savings made available to borrowers.

The Federal Open Market Committee consists of:

seven members of the Board of Governors and five district presidents.

The positive slope of the AS curve is a _____ phenomena, when the _____ are held constant.

short-run; costs of production

The import demand curve shows the amount of the home country's:

shortage at various prices below the "no-trade" equilibrium.

Countries in which one would see a spread of ideas, information, images, and people would be categorized under _____ globalization.

social

All of the following components add up to the current account, except:

statistical discrepancies.

The notion of reciprocity means that one nation will impose import restrictions on another in order to:

stimulate a decrease in trade restrictions in the latter.

In the figure given below, D1 and S1 are the original demand and supply curves.Figure 3.1Refer to Figure 3.1. Given D1, if supply moves from S1 to S2 it implies:

supply has decreased, and equilibrium price and equilibrium quantity will move to E and A respectively.

The supply of the U.S. dollar on the foreign exchange market is generated by:

the U.S. demand for the products and financial assets of other countries.

The predominant source of multilateral aid is:

the World Bank.

Business cycles are linked to the interaction between:

the aggregate demand and aggregate supply curves.

Economic growth is measured as:

the annual percentage change in real GDP.

Under a progressive tax system:

the average tax rate increases with increases in real GDP.

All the following affect short-run operating targets of the FOMC, except:

the budget deficit.

Firms in industrial countries find a larger market for their goods in other industrial countries than in developing countries because:

the consumption patterns in the industrial countries are more or less similar.

According to the rational expectations view, _____.

the economy will never deviate from the natural rate of unemployment for any anticipated policy

A rightward shift of a market supply curve might be caused by:

the entry of new firms in the industry.

When the Federal Open Market Committee buys government securities:

the excess reserves of banks increase.

In this era of globalization, one of the main reasons why some countries have remained closed to the rest of the world is:

the fact that their governments follow policies that explicitly work against economic integration.

If funds are being loaned from one commercial bank's excess reserves on deposit with the Federal Reserve to another commercial bank's deposit account at the Fed, the transaction is taking place in:

the federal funds market.

U.S. bank notes have no intrinsic value and yet are widely accepted as a medium of exchange. This is a result of:

the fiduciary monetary system.

The AD curve will shift to the right if:

the foreign price level increases.

Opportunity cost is best defined as:

the highest-valued alternative given up when a choice is made.

Consider a PPC with automobiles on the vertical axis and cotton on the horizontal axis. The discovery of a new fertilizer that improves crop yield will shift:

the horizontal intercept to the right but will not shift the vertical intercept.

The long-run aggregate supply curve at potential national income is analogous to:

the long-run Phillips curve at the natural rate of unemployment.

A change in the interest rate does not affect the quantity of money supplied. This means that:

the money supply curve is vertical.

The long-run growth in the economy depends on all of the following, except:

the number of economic contractions witnessed in a year.

As more women entered the labor force in the 1980s in the United States:

the number of unskilled workers increased.

The national income accounting system provides a measure of:

the output of an entire economy.

Savings are good for a family. If all families increase savings, the economy is better off. This fallacy of composition is called:

the paradox of thrift.

The fact that the United States exports Budweiser beer and imports Heineken beer can be explained by:

the preference for foreign brands of beer by a part of the U.S. population.

The adaptive expectations theory suggests that:

the price level that people expect in the future is based on the behavior of prices in the past.

The short-run aggregate supply curve will shift to the left if:

the price of capital goods rises.

An exchange rate can be described as:

the price of one country's currency in terms of another country's currency.

When the reservation wage is adjusted to account for a higher inflation rate:

the short-run Phillips curve shifts outward.

The slope of the short-run Phillips curve is consistent with:

the short-run trade-off between the unemployment rate and inflation.

National debt can be defined as:

the total stock of government bonds outstanding.

To avoid double counting in the calculation of GDP,

the value of intermediate goods and services should be excluded.

If a percentage decrease in money supply is followed by a proportional percentage decrease in prices and output, this means that:

the velocity of money is constant.

The producer price index was earlier known as _____.

the wholesale price index

An MPI of 0.4 indicates that for every 100 percent increase in domestic income:

there is a 40 percent increase in imports.

When workers expect more inflation than actually occurs:

there will be a movement down the short-run Phillips curve.

During periods of inflation:

those people whose nominal income rises faster than the general price level benefit.

Consider the production possibilities curve [PPC] for a country producing only cheese and wine. The first few resources transferred from cheese to wine production are:

those that are least specialized in cheese production.

One of the primary objectives of the WTO is:

to reduce trade barriers created by the different countries.

The primary objective of inward-oriented strategies is:

to replace imported manufactured goods with domestic goods.

If the growth rate of resources is zero and real output is growing at 4 percent, then _____.

total factor productivity has risen by 4 percent

Aggregate demand represents the _____ at alternative price levels.

total spending in the economy

If you have a choice of consuming either two apples, three oranges, or one candy bar, the opportunity cost of the candy bar is:

two apples or three oranges, whichever you value more.

The four main components of the current account are:

unilateral transfers, merchandise, services, and investment income.

Traditional classical economists believe that:

wage rates are perfectly flexible.

Other things held constant, when the general price level changes:

we move along the aggregate demand curve.

Barter requires a double coincidence of wants. This means that:

when two traders are involved in a transaction each trader must want what the other has to offer.

According to the monetarists, deliberate government intervention:

will destabilize the economy and cause a business cycle of its own, regardless of whether fiscal or monetary policy is used.

The cost-of-living adjustments that are included in the wage contracts protect:

workers from unexpected inflation.

It is believed that the relatively high rate of labor force growth in the developing countries does not translate into a high rate of economic growth because:

workers in developing countries have very little capital.

Suppose only 7 percent of Turkey's products go to the United States. Hence, an increase in U.S. imports from Turkey:

would have no significant effect on Turkey's domestic income.