MACRO Midterm

At an annual interest rate of 20 percent, about how many years will it take $100 to double in value? a. 3.5 b. 4.5 c. 5 d. 6

a. 3.5

Labor Stats The Labor Market This table shows the 2003 data for males and females ages 16 and over in the imaginary country of Meditor. 1. Not in labor force a. male: 45 million b. female: 35 million 2. Unemployed a. male: 5 million b. female: 5 million 3. Employed a. male: 85 million b. female: 65 million Refer to Labor Stats. What is the adult labor-force participation rate in Meditor? a. 4.12% b. 66.67% c. 37.50% d. 12.50%

b. 66.67%

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds? a. The interest rate and investment would fall. b. The interest rate and investment would rise. c. The interest rate would rise and investment would fall. d. None of the above is necessarily correct.

b. The interest rate and investment would rise.

An increase in the budget deficit a. may increase, decrease, or not affect investment spending. b. makes investment spending fall. c. does not affect investment spending. d. makes investment spending rise

b. makes investment spending fall.

What is the present value of a payment of $100 to be made one year from today if the interest rate is 5 percent? a. $105.00 b. $105.26 c. $95.24 d. $95.00

c. $95.24

Table 24-1 year Peaches Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 24-1. Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans. Using 2005 as the base year, the CPI for 2006 is a. 240. b. 100. c. 120. d. 200.

c. 120.

If the nominal interest rate is 8 percent and rate of inflation is 5.5 percent, then the real interest rate is a. 13.5 percent. b. 12 percent. c. 2.5 percent. d. -2.5 percent

c. 2.5 percent.

Almost all variation in living standards is attributable to differences in countries' a. taxes. b. systems of public education. c. productivity. d. population growth rates

c. productivity.

Labor Stats The Labor Market This table shows the 2003 data for males and females ages 16 and over in the imaginary country of Meditor. 1. Not in labor force a. male: 45 million b. female: 35 million 2. Unemployed a. male: 5 million b. female: 5 million 3. Employed a. male: 85 million b. female: 65 million Refer to Labor Stats. What is the adult labor force in Meditor? a. 240 million b. 90 million c. 150 million d. 160 million

d. 160 million

Last year real GDP in Oceania was 561.0 billion and the population was 2.2 million. The year before real GDP was 500.0 billion and the population was 2.0 million. What was the approximate growth rate of real GDP per person? a. 12 percent b. 10 percent c. 4 percent d. 2 percent

d. 2 percent

Stock represents a. a claim to a share of the profits of a firm. b. equity finance. c. ownership in a firm. d. All of the above are correct

d. All of the above are correct

GDP is not a perfect measure of well-being; for example, a. GDP does not address the distribution of income. b. GDP excludes the value of volunteer work. c. GDP does not address environmental quality. d. All of the above are correct.

d. All of the above are correct.

If the government currently has a budget deficit, then a. it does not necessarily have a debt. b. its debt is increasing. c. government expenditures are greater than taxes. d. All of the above are correct.

d. All of the above are correct.

The future value of a deposit in a savings account will be larger a. the longer a person waits to withdraw the funds. b. the higher the interest rate is. c. the larger the initial deposit is. d. All of the above are correct.

d. All of the above are correct.

Which of the following is correct concerning a risk-averse person? a. She would not play games where the probability of winning and losing a dollar are the same. b. She might not buy health insurance if she thinks her risks are low. c. Her marginal utility of wealth decreases as her income increases. d. All of the above are correct.

d. All of the above are correct.

Which of the following statements about nominal GDP and real GDP is accurate? a. Real GDP and nominal GDP are equally good measures of economic well-being. b. Nominal GDP is a better gauge of economic well-being than is real GDP. c. Whether real GDP or nominal GDP is a better measure of economic well-being depends on the mix of goods and services. d. Real GDP is a better gauge of economic well-being than is nominal GDP.

d. Real GDP is a better gauge of economic well-being than is nominal GDP.

Which of the following newspaper headlines would be more closely related to what microeconomists study than to what macroeconomists study? a. Real GDP grows by 3.1 percent in the third quarter. b. Retail sales at stores show large gains. c. Unemployment rate rises from 5 percent to 5.5 percent. d. The price of oranges rises after an early frost.

d. The price of oranges rises after an early frost.

In a simple circular-flow diagram total income and total expenditure are a. never equal because total income always exceeds total expenditure. b. seldom equal because of the ongoing changes in an economy's unemployment rate. c. equal only when one dollar is spent on goods for every dollar that is spent on services. d. always equal because every transaction has a buyer and a seller.

d. always equal because every transaction has a buyer and a seller.

For a certain economy in 2005, GDP was $2,000; investment was $400; government purchases were $300; and net exports were $70. It follows that consumption was a. $1,230. b. $1,370. c. $1,330. d. 60 percent of GDP.

a. $1,230.

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent? a. $240.38 b. $242.24 c. $244.40 d. None of the above are correct to the nearest penny

a. $240.38

What is the future value of $450 at an interest rate of 11 percent one year from today? a. $499.50 b. $494.50 c. $495.40 d. $495.00

a. $499.50

Table 24-1 year Peaches Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 24-1. Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans. Using 2005 as the base year, what was the inflation rate in 2006? a. 20 percent b. 10 percent c. 8 percent d. 16.7 percent

a. 20 percent

Table 24-3 Year Apples Bread Robes Gasoline 2002 $1.00 $2.00 $10.00 $1.00 2003 $1.00 $1.50 $9.00 $1.50 2004 $2.00 $2.00 $11.00 $2.00 2005 $3.00 $3.00 $15.00 $2.50 Refer to Table 24-3. Using 2002 as the base year, what was the inflation rate between 2004 and 2005? a. 40.00 percent b. 40.25 percent c. 46.46 percent d. 48.56 percent

a. 40.00 percent

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value? a. 7 b. 11 c. 9 d. 5

a. 7

A mutual fund a. is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds. b. sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. c. is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. d. is a financial market where small firms mutually agree to sell stocks and bonds to raise funds

a. is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds. b. sells s

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks. This should a. lower the price and the present value of the corporation's stock. b. raise the price and the present value of the corporation's stock. c. lower the price and raise the present value of the corporation's stock. d. raise the price and lower the present value of the corporation's stock.

a. lower the price and the present value of the corporation's stock.

When a country saves a larger portion of its GDP, it will have a. more capital and higher productivity. b. more capital and lower productivity. c. less capital and higher productivity. d. less capital and lower productivity.

a. more capital and higher productivity.

The Economic Development Minister of a country has a list of things she thinks may explain her country's low growth of real GDP per person relative to other countries. She asks you to pick the one you think most likely explains her country's low growth. Which of the following contributes to low growth? a. poorly enforced property rights. b. outward oriented trade policies. c. policies that permit foreign investment. d. All of the above are correct.

a. poorly enforced property rights.

Table 23-3 Prices and Quantities Year Sandw$ Sandw# Magazine$ #ofMag 2006 $4.00 100 $2.00 180 2007 $5.00 120 $2.50 200 2008 $6.00 150 $3.50 200 Refer to Table 23-3. Using 2006 as the base year, for 2007, a. real GDP is $880 and the GDP deflator is 125. b. real GDP is $950 and the GDP deflator is 116. c. real GDP is $880 and the GDP deflator is 80. d. real GDP is $950 and the GDP deflator is 95

a. real GDP is $880 and the GDP deflator is 125.

If the tax revenue of the federal government exceeds spending, then the government necessarily a. runs a budget surplus. b. runs a budget deficit. c. runs a national debt. d. will increase taxes.

a. runs a budget surplus.

A measure of the volatility of a variable is its a. standard deviation. b. present value. c. future value. d. return.

a. standard deviation.

If the prices of Australian-made shoes imported into the United States increase, then, as a result, a. the consumer price index will increase, but the GDP deflator will not increase. b. neither the GDP deflator nor the consumer price index increases. c. the GDP deflator increases but the consumer price index does not increase. d. both the GDP deflator and the consumer price index increase.

a. the consumer price index will increase, but the GDP deflator will not increase.

For some racquet sports there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI are these facts most relevant? a. unmeasured quality change b. introduction of new goods c. substitution bias d. income bias

a. unmeasured quality change

The 2005 CPI was 196 and the 1982 CPI was 96.5. If your parents put aside $1,000 for you in 1982, how much would you have needed in 2005 in order to buy what you could have bought with the $1,000 in 1982? a. $1,834.20 b. $2,031.09 c. $2,308.89 d. None of the above is correct

b. $2,031.09

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005. President Hoover's 1931 salary was equivalent to a 2005 salary of about a. $1,125,008. b. $962,171. c. $1,455,995. d. $1,254,262

b. $962,171.

Labor Stats The Labor Market This table shows the 2003 data for males and females ages 16 and over in the imaginary country of Meditor. 1. Not in labor force a. male: 45 million b. female: 35 million 2. Unemployed a. male: 5 million b. female: 5 million 3. Employed a. male: 85 million b. female: 65 million Refer to Labor Stats. What is the adult unemployment rate in Meditor? a. 11.11% b. 6.25% c. 12.50% d. 4.12%

b. 6.25%

In the United States, Gross Domestic Product (GDP): I. Is measured in dollars. II. Measures the value of all goods and services consumed by a country in a given year. III. Only includes final goods and services. IV. Only measures goods and services sold through legal markets. a. I and II only b. I, III, and IV only c. I, II, III, and IV d. II and III only

b. I, III, and IV only

Four employers have justified their actions as follows. Whose logic is not consistent with the logic of efficiency wage theory? a. Jay develops a new assembly line technology that limits the amount of shirking workers may do, so he reduces what he pays his employees so as to make it closer to the equilibrium wage. b. Kay pays her workers less than the equilibrium wage so they won't have the time or money to look for work somewhere else. c. Ray pays his workers in a developing country more than the going wage hoping that they will get a better diet and so be more productive. d. All of the above are not consistent with the logic of efficiency wage theory.

b. Kay pays her workers less than the equilibrium wage so they won't have the time or money to look for work somewhere else.

One thing economists do to help them understand how the real world works is as follows: a. They ignore the past. b. They make assumptions. c. They try to capture every aspect of the real world in the models they construct. d. All of the above are correct.

b. They make assumptions.

Suppose that fundamental analysis shows a stock is overvalued a. This means its present value is less than its price. You should consider adding the stock to your portfolio. b. This means its present value is less than its price. You shouldn't consider adding the stock to your portfolio. c. This means its present value is more than its price. You should consider adding the stock to your portfolio. d. This means its present value is more than its price. You shouldn't consider adding the stock to your portfolio.

b. This means its present value is less than its price. You shouldn't consider adding the

Fundamental analysis shows that stock in Lodgefire Restaurants has a present value below its price. a. This stock is undervalued; you shouldn't 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 overvalued; you should consider adding it to your portfolio.

b. This stock is overvalued; you shouldn't consider adding it to your portfolio.

Which of the following is a cause of frictional unemployment? a. labor unions b. a worker leaving a job to find one with better benefits c. the minimum wage d. All of the above are correct

b. a worker leaving a job to find one with better benefits

Sally buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company. Edward buys home owners insurance and then is less careful to make sure he's put out his cigarettes. The example with Sally a. and the example with Edward illustrate adverse selection. b. best illustrates adverse selection, the example with Edward best illustrates moral hazard. c. and the example with Sally illustrate moral hazard. d. best illustrates moral hazard, the example with Edward best illustrates adverse selection.

b. best illustrates adverse selection, the example with Edward best illustrates moral hazard.

In a closed economy, national saving equals a. investment. b. income minus the sum of consumption and government purchases. c. private saving plus public saving. d. All of the above are correct.

d. All of the above are correct.

Which of the following statements is accurate? a. In rich countries, people typically live into their late seventies, while in poor countries, people typically live only until their fifties or early sixties. b. In rich countries, almost all citizens can read, while in poor countries, about half the population is illiterate. c. Poor countries tend to have higher infant mortality rates, higher maternal mortality, and higher rates of child malnutrition than do rich countries. d. All of the above are correct.

d. All of the above are correct.

Which of the following values would be reflected in U.S. GDP for 2006? a. the rent that John, an American citizen, would have paid on his home in New York in 2006 had he not owned that home b. the rent that Sarah, an American citizen, paid on her apartment in San Francisco in 2006 c. the value of the legal services provided by Carlos, an attorney and a Mexican citizen, who lived in Houston and practiced law there in 2006 d. All of the above are correct.

d. All of the above are correct.

Which of these events would cause the consumer price index to overstate the increase in the cost of living? a. A new good is introduced that renders cellular telephones inferior and obsolete. b. Energy prices decrease, and consumers respond by buying more gas and electricity. c. Carmakers benefit from a new technology that allows them to sell higher-quality cars to consumers with no increase in price. d. All of the above are correct.

d. All of the above are correct.

Which of the following items is counted in U.S. GDP? a. final goods and services that are purchased by the U.S. federal government b. intermediate goods that are produced in the U.S. but which are unsold at the end of the GDP accounting period c. goods and services produced by foreign citizens working in the U.S. d. All of the above are included in U.S. GDP.

d. All of the above are included in U.S. GDP.

Who would be included in the labor force? a. Dave, who does not have a job, but is looking for work b. Karen, who works most of the week in a steel factory c. Beth, who is waiting for her new job at the bank to start d. All of the above are included in the labor force.

d. All of the above are included in the labor force.

Some people claim that stocks follow a random walk. What does this mean? a. Stock prices are not determined by market fundamentals such as supply and demand. b. Prices of stocks of different firms in the same industry show no or little tendency to move together. c. The price of stock one day is about what it was on the previous day. d. Changes in stock prices cannot be predicted from available information.

d. Changes in stock prices cannot be predicted from available information.

ABC Company produces ink and sells it to XYZ Company, which makes pens. The ink produced by ABC Company is called a. an inventory good. b. a transitory good. c. a preliminary good. d. an intermediate good.

d. an intermediate good.

Other things equal, relatively poor countries tend to grow a. slower than relatively rich countries; this is called the fall-behind effect. b. slower than relatively rich countries; this is called the poverty trap. c. faster than relatively rich countries; this is called the constant-returns-to-scale effect. d. faster than relatively rich countries; this is called the catch-up effect

d. faster than relatively rich countries; this is called the catch-up effect

Over extended periods of time population growth a. clearly raises the standard of living. b. clearly lowers the standard of living. c. has no effect on the standard of living. d. has uncertain effects on the standard of living

d. has uncertain effects on the standard of living

If there are diminishing returns to capital, then a. increases in the capital stock eventually decrease output. b. old ideas are not as useful as new ones. c. capital produces fewer goods as it ages. d. increases in the capital stock increase output by ever smaller amounts

d. increases in the capital stock increase output by ever smaller amounts

If the efficient market hypothesis is correct, then a. mutual funds should typically beat index funds, and usually do. b. index fund should typically beat managed funds, but usually do not. c. mutual funds should typically bet index funds, but usually do not. d. index funds should typically beat managed funds, and usually do

d. index funds should typically beat managed funds, and usually do

Other things the same, a country that increases its saving rate increases a. its future real GDP, but not its future productivity. b. neither its future productivity nor future real GDP. c. its future productivity, but not its future real GDP. d. its future productivity and future real GDP.

d. its future productivity and future real GDP.

By itself, a reduction in the price of large tractors imported into the United States from Russia a. decreases the GDP deflator and increases the consumer price index. b. increases the GDP deflator but leaves the consumer price index unchanged. c. increases both the GDP deflator and the consumer price index. d. leaves both the GDP deflator and the consumer price index unchanged.

d. leaves both the GDP deflator and the consumer price index unchanged.

Suppose that in the economy in general efficiency wages become more common. Economists would predict that this would a. increase the quantity demanded and decrease the quantity supplied of labor thereby decreasing the natural rate of unemployment. b. decrease the quantity demanded and increase the quantity supplied of labor thereby increasing the natural rate of unemployment. c. increase the quantity demanded and decrease the quantity supplied of labor thereby increasing the natural rate of unemployment. d. decrease the quantity demanded and increase the quantity supplied of labor thereby decreasing the natural rate of unemployment.

b. decrease the quantity demanded and increase the quantity supplied of labor thereby increasing the natural rate of unemployment.

Because every transaction has a buyer and a seller, a. GDP is more closely associated with a nation's income than it is with a nation's expenditure. b. every transaction contributes equally to an economy's income and to its expenditure. c. the number of firms must be equal to the number of households in a simple circular-flow diagram. d. firms' profits are necessarily zero in a simple circular-flow diagram.

b. every transaction contributes equally to an economy's income and to its expenditure.

HydroGrow is considering building a new building in which to grow tomatoes. The board meets and decides that this is the right thing to do. Before they can put their plans into action, the interest rate increases. The present value of the returns from this investment project a. rise, and so HydroGrow is less likely to build the building. b. falls, and so Hydro Grow is less likely to build the building. c. rise, and so HydroGrow is more likely to build the building. d. falls, and so HydroGrow is more likely to build the building

b. falls, and so Hydro Grow is less likely to build the building.

Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has a. increased measured GDP by the full value of the restaurant meals. b. increased measured GDP only to the extent that the value of the restaurant meals exceeded the cost of meals previously cooked at home. c. not affected measured GDP. d. reduced measured GDP

b. increased measured GDP only to the extent that the value of the restaurant meals exceeded the cost of meals previously cooked at home.

If a state made a previously-illegal activity such as gambling or prostitution legal, then, other things equal, GDP a. necessarily decreases. b. necessarily increases. c. doesn't change because both legal and illegal production are included in GDP. d. doesn't change because these activities are never included in GDP.

b. necessarily increases.

Jack is a full-time unpaid homemaker not currently searching for other work. Jill is a full-time student who is not looking for a job. Who does the BLS count in the labor force? a. only Jill b. neither Jack nor Jill c. both Jack and Jill d. only Jack

b. neither Jack nor Jill

More generous unemployment insurance would a. raise structural unemployment. b. raise frictional unemployment. c. lower structural unemployment. d. lower frictional unemployment

b. raise frictional unemployment.

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers improves while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal, a. the CPI will rise. b. the CPI will fall. c. the CPI will stay the same. d. lawn mowers will no longer be included in the market basket.

b. the CPI will fall.

Edgar decided to increase the number of stocks in his portfolio. His actions reduced a. the market risk, but not the firm-specific risk of his portfolio. b. the firm-specific risk, but not the market risk of his portfolio. c. both the firm-specific risk and the market risk of his portfolio. d. neither the aggregate nor the firm-specific risk of his portfolio.

b. the firm-specific risk, but not the market risk of his portfolio.

Table 23-3 Prices and Quantities Year Sandw$ Sandw# Magazine$ #ofMag 2006 $4.00 100 $2.00 180 2007 $5.00 120 $2.50 200 2008 $6.00 150 $3.50 200 Refer to Table 23-3. Nominal GDP for 2007 is a. $900. b. $1,250. c. $1,100. d. $1,350.

c. $1,100.

Suppose that in a closed economy GDP is $11 trillion, consumption is $7 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving? a. $4 trillion and $1 trillion b. $4 trillion and -$1 trillion c. $2 trillion and $1 trillion d. $2 trillion and -$1 trillion

c. $2 trillion and $1 trillion

If nominal GDP is $10 trillion and real GDP is $8 trillion, the GDP deflator is a. 125, and this indicates that the price level has increased by 125 percent since the base year. b. 80, and this indicates that the price level has increased by 80 percent since the base year. c. 125, and this indicates that the price level has increased by 25 percent since the base year. d. 80, and this indicates that the price level has decreased by 20 percent since the base year.

c. 125, and this indicates that the price level has increased by 25 percent since the base year.

Suppose that in a closed economy GDP is equal to 11,000, Taxes are equal to 1,500, Consumption equals 7,500, and Government purchases equal 2,000. What is national saving? a. 0 b. -500 c. 1500 d. None of the above is correct.

c. 1500

Suppose that in a closed economy GDP is equal to 11,000, Taxes are equal to 2,500, Consumption equals 7,000, and Government purchases equal 3,000. What are private saving and public saving? a. 1000 and 500 b. 1500 and 500 c. 1500 and -500 d. 1000 and -500

c. 1500 and -500

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of Government purchases would make national savings equal to 1000 and at that value would the government have a deficit or surplus? a. 2,500, surplus b. 1,000, surplus c. 2,500, deficit d. 1,000, deficit

c. 2,500, deficit

In 2004, based on concepts similar to those used to estimate U.S. employment figures, the Italian adult non-institutionalized population was 45.020 million, the labor force was 24.065 million, and the number of people employed was 22.105 million. According to these numbers, the Italian labor-force participation rate and unemployment rate were about a. 45.1%, 8.1% b. 45.1%, 4.4% c. 53.5%, 8.1% d. 53.5%, 4.4%

c. 53.5%, 8.1%

Meredith is looking for work as a computer programmer. Although her prospects are good she hasn't yet taken a job. Julie is looking for work in a steel mill. Every time she shows up for an interview there are more people looking for work than their are openings. Someone waiting in line with her tells her its been that way a long time. a. Meredith and Julie are both frictionally unemployed. b. Meredith and Julie are both structurally unemployed. c. Meredith is frictionally unemployed, and Julie is structurally unemployed. d. Meredith is structurally unemployed, and Julie is frictionally unemployed.

c. Meredith is frictionally unemployed, and Julie is structurally unemployed.

Which of the following is not consistent with the efficient market hypothesis? a. Stock prices should follow a random walk. b. Index funds should typically outperform highly managed funds. c. News has no effect on stock prices.. d. There is little point in spending many hours studying the business pages looking for undervalued stocks.

c. News has no effect on stock prices..

Ralph puts money in the bank and earns a 5 percent nominal interest rate. Then, if the inflation rate is 3 percent, a. Ralph will have 3 percent more money, which will purchase 2 percent more goods. b. Ralph will have 3 percent more money, which will purchase 8 percent more goods. c. Ralph will have 5 percent more money, which will purchase 2 percent more goods. d. Ralph will have 5 percent more money, which will purchase 8 percent more goods.

c. Ralph will have 5 percent more money, which will purchase 2 percent more goods.

Investment rises and interest rates fall. Which of the following could explain these changes? a. The government went from surplus to deficit. b. The government instituted an investment tax credit. c. The government reduced the tax rate on savings. d. None of the above is correct.

c. The government reduced the tax rate on savings.

Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor county to catch up? a. The poor country has outward-oriented trade policies. b. The poor country allows foreign direct investment. c. The poor country has poorly developed property rights. d. All of the above are correct.

c. The poor country has poorly developed property rights.

In an imaginary economy, consumers buy only shirts and pants. The fixed basket consists of 6 shirts and 4 pairs of pants. A shirt cost $20 in 2006 and $25 in 2007. A pair of pants cost $30 in 2006 and $40 in 2007. Using 2006 as the base year, which of the following statements is correct? a. For the typical consumer, the number of dollars spent on shirts is equal to the number of dollars spent on pants in each of the two years. b. The consumer price index is 134 in 2007. c. The rate of inflation is 29.17% in 2007. d. All of the above are correct.

c. The rate of inflation is 29.17% in 2007.

When opening a restaurant you may need to buy ovens, freezers, tables, and cash registers. Economists call these expenditures a. business consumption expenditures. b. investment in human capital. c. capital investment. d. None of the above is correct.

c. capital investment.

When the government runs a budget deficit, a. interest rates are lower than they would be if the budget were balanced. b. national saving is higher than it would be if the budget were balanced. c. investment is lower than it would be if the budget were balanced. d. All of the above are correct.

c. investment is lower than it would be if the budget were balanced.

The last $200 of Mary's wealth adds more to her utility than another $200 would. Based on this information, Mary's utility function a. and marginal utility function are both upward sloping. b. and marginal utility function are both downward sloping. c. is upward sloping and her marginal utility function is downward sloping. d. is downward sloping and her marginal utility function is upward sloping.

c. is upward sloping and her marginal utility function is downward sloping.

Suppose a small economy produces only cheese and fish. In 2005, 20 units of cheese are sold at $5 each, and 8 units of fish are sold at $50 each. In 2004, the base year, the price of cheese was $10 per unit, and the price of fish was $75 per unit. For 2005, a. nominal GDP is $800, real GDP is $500, and the GDP deflator is 160. b. nominal GDP is $500, real GDP is $800, and the GDP deflator is 160. c. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5. d. nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5.

c. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5.

Which of the following would not be considered physical capital? a. a new factory building b. a computer used to help Mercury Delivery Service keep track of its orders c. on-the-job training d. a desk used in an accountant's office

c. on-the-job training

Suppose the price of gasoline increases rapidly, and that consumers respond by buying a smaller quantity of gasoline. The consumer price index a. overstates the price increase due to the so-called income bias. b. reflects this price increase accurately. c. overstates the price increase due to the so-called substitution bias. d. understates the price increase due to the so-called income bias.

c. overstates the price increase due to the so-called substitution bias.

Economists would predict that, other things the same, the more generous unemployment compensation a country has, a. the shorter the duration of each spell of unemployment, and the higher the unemployment rate. b. the shorter the duration of each spell of unemployment, and the lower the unemploymentrate. c. the longer the duration of each spell of unemployment, and the higher the unemployment rate. d. the longer the duration of each spell of unemployment, and the lower the unemployment rate.

c. the longer the duration of each spell of unemployment, and the higher the unemployment rate.

Compared to the United States, Germany historically has had higher unemployment rates. One explanation for this difference could be a. a very low minimum wage in German. b. the relatively low expenditures of the German government.. c. the relatively high unemployment insurance in Germany. d. the refusal of German firms to set wages according to efficiency wage theory

c. the relatively high unemployment insurance in Germany.

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because a. new goods and services are always of higher quality than existing goods and services. b. new goods and services cost less than existing goods and services. c. new goods and services cost more than existing goods and services. d. when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.

d. when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.

Cyclical unemployment refers to a. how often a worker is likely to be employed during her lifetime. b. the relation between the probability of unemployment and a worker's changing level of experience. c. long-term trends in unemployment. d. year-to-year fluctuations of unemployment around its natural rate

d. year-to-year fluctuations of unemployment around its natural rate

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. In the long run a. both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with more capital. b. both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with less capital. c. both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with more capital. d. both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

D. both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP? a. GDP increases by $6.00. b. GDP increases by $7.50. c. GDP increases by $3.50. d. GDP increases by $1.50.

a. GDP increases by $6.00.

According to the efficient market hypothesis, which of the following is not correct? a. Stock market prices tend to rise today if they rose yesterday. b. As judged by the typical person in the market, all stocks are fairly valued all the time. c. At the market price, the number of shares being offered for sale matches the number of shares people want to buy. d. All of the above are incorrect

a. Stock market prices tend to rise today if they rose yesterday.

Annie knows that people in her family die young, and so she buys life insurance. Harry knows he is a reckless driver and so he applies for automobile insurance. a. These are both examples of adverse selection. b. The first example illustrates moral hazard, and the second illustrates adverse selection. c. These are both examples of moral hazard. d. The first example illustrates adverse selection, and the second illustrates moral hazard.

a. These are both examples of adverse selection.

Which of the following transactions adds to U.S. GDP for 2006? a. When John and Jennifer were both single, they lived in separate apartments and each paid $750 in rent. John and Jennifer got married in 2006 and they bought a house that, according to reliable estimates, could be rented for $1,600 per month. b. In 2006, Ashley sells a car that she bought in 2002 to William for $5,000. c. An American management consultant works in Mexico during the summer of 2006 and earns the equivalent of $30,000 during that time. d. None of the above transactions adds to GDP for 2006.

a. When John and Jennifer were both single, they lived in separate apartments and each paid $750 in rent. John and Jennifer got married in 2006 and they bought a house that, according to reliable estimates, could be rented for $1,600 per month.

An increase in the price of dairy products produced domestically will be reflected in a. both the GDP deflator and the consumer price index. b. neither the GDP deflator nor the consumer price index. c. the GDP deflator but not in the consumer price index. d. the consumer price index but not in the GDP deflator.

a. both the GDP deflator and the consumer price index.

Sectoral changes a. create frictional unemployment. Firms paying wages above equilibrium to attract a better pool of candidates create structural unemployment. b. create structural unemployment. Firms paying wages above equilibrium to attract a better pool of candidates create frictional unemployment. c. and firms paying wages above equilibrium to attract a better pool of candidates both create structural unemployment. d. and firms paying wages above equilibrium to attract a better pool of candidates both create frictional unemployment.

a. create frictional unemployment. Firms paying wages above equilibrium to attract a better pool of candidates create structural unemployment.

The sum of which of the following would necessarily be equal to the adult population in the US statistics on labor? a. employed, unemployed, not in the labor force b. discouraged workers, employed, unemployed c. employed, unemployed d. discouraged workers, employed, not in the labor force

a. employed, unemployed, not in the labor force

Unemployment that exists because it takes time for workers to search for the job that suits them best is a. frictional unemployment, which partly accounts for the natural rate of unemployment. b. frictional unemployment, which does not help account for the natural rate of unemployment. c. structural unemployment, which partly accounts for the natural rate of unemployment. d. structural unemployment, which does not help account for the natural rate of unemployment.

a. frictional unemployment, which partly accounts for the natural rate of unemployment.

Economics is the study of a. how society manages its scarce resources. b. the government's role in society. c. how a market system functions. d. how to increase production.

a. how society manages its scarce resources.

For an economy as a whole, a. income is equal to expenditure. b. GDP measures income more precisely than it measures expenditure. c. income is greater than expenditure d. expenditure is greater than income

a. income is equal to expenditure.