MACROECONOMICS

The word "economy" comes from the Greek word oikonomos, which means

"One who manages a household

A decrease in quantity supplied a. results in a movement downward and to the left along a fixed supply curve. b. results in a movement upward and to the right along a fixed supply curve. c. shifts the supply curve to the left. d. shifts the supply curve to the right.

A

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move a. raises GDP. b. decreases GDP. c. doesn't change GDP because gambling is never included in GDP. d. doesn't change GDP because in either case his income is included.

A

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is a. borrowing directly. b. borrowing indirectly. c. lending directly. d. lending indirectly.

A

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis? a. the decline in confidence in financial institutions b. the credit crunch c. the economic downturn d. the decline in asset prices

A

In 2009, the imaginary nation of Platland had a population of 10,000 and real GDP of 42,000,000. During the year its real GDP grew by about 1.98%. Which of the following sets of growth rates is consistent with this growth in real GDP? a. 1% population growth and 3% real GDP growth b. 3% population growh and 1% real GDP growth c. 3% population growth and 6% real GDP growth d. 6% population growth and 3% real GDP growth

A

In the early 1900s, Henry Ford introduced a. a high-wage policy, and this policy produced many of the effects predicted by efficiency-wage theory. b. a high-wage policy, and this policy produced none of the effects predicted by efficiency-wage theory. c. a low-wage policy, and this policy produced many of the effects predicted by efficiency-wage theory. d. a low-wage policy, and this policy produced none of the effects predicted by efficiency-wage theory.

A

Inward-oriented policies a. include imposing tariffs and other trade restrictions. b. have generally increased productivity and growth in the countries that pursued them. c. promote the production of goods and services that the country produces most efficiently. d. All of the above are correct.

A

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds, a. the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. b. the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. c. the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. d. the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.

A

The table below contains data for Bahkan for the year 2010. GDP $110 Income earned by citizens abroad $5 Income foreigners earn here $15 Losses from depreciation $4 Indirect business taxes $6 Statistical discrepancy $0 Retained earnings $5 Corporate income taxes $6 Social insurance contributions $10 Interest paid to households by government $5 Transfer payments to households from government $15 Personal taxes $30 Nontax payments to government $5 ____ 32. Refer to Table 23-1. Personal income for Bahkan in 2010 is a. $87. b. $89. c. $103. d. $105.

A

Unions a. raise the wages of unionized workers and raise unemployment. b. raise the wages of unionized workers and reduce unemployment. c. reduce the wages of unionized workers and raise unemployment. d. reduce the wages of unionized workers and reduce unemployment.

A

When a union raises the wage above the equilibrium level, a. the quantity of labor supplied and unemployment both rise. b. the quantity of labor supplied and unemployment both fall. c. the quantity of labor supplied rises and unemployment falls. d. the quantity of labor supplied falls and unemployment rises.

A

Which of the following examples does not illustrate the principle represented by the adage, "There is no such thing as a free lunch"? a. Joe needs to pay his rent and his electric bill. b. Pete must choose between buying a new flat screen television and buying his textbooks for this semester. c. Kevin must decide between studying for his economics exam and working at his part-time job. d. Lisa can spend her money on a new sweater or a pair of jeans.

A

Which of the following is an example of a durable good? a. a refrigerator b. a quart of motor oil c. a business suit d. a can of soup

A

Which of the following is included in GDP? a. medical marijuana purchased from a government-run pharmacy by a glaucoma patient b. recreational marijuana purchased from a drug dealer by a college student c. recreational marijuana produced and consumed by a man in his attic d. All of the above are included in GDP.

A

A decrease in quantity demanded a. results in a movement downward and to the right along a demand curve. b. results in a movement upward and to the left along a demand curve. c. shifts the demand curve to the left. d. shifts the demand curve to the right.

B

A market supply curve is determined by a. vertically summing individual supply curves. b. horizontally summing individual supply curves. c. finding the average quantity supplied by sellers at each possible price. d. finding the average price at which sellers are willing and able to sell a particular quantity of the good.

B

According to 2009 data on the U.S. population which of the following was correct? a. Adults had higher labor-force participation rates and higher rates of unemployment compared to teenagers. b. Adults had higher labor-force participation rates and lower rates of unemployment compared to teenagers. c. Adults had lower labor-force participation rates and lower rates of unemployment compared to teenagers. d. Adults had lower labor-force participation rates and higher rates of unemployment compared to teenagers.

B

In a closed economy, if Y and T remained the same, but G rose, and C fell but by less than the rise in G, what would happen to public and national saving? a. public and national saving would rise b. public and national saving would fall c. public saving would rise and national saving would fall d. public saving would fall and national saving would rise

B

Mary looks over reports on four of her workers. Jack made 25 baskets in 5 hours. Walter made 36 baskets in 6 hours. Rudy made 40 baskets in 10 hours. Sam made 22 baskets in four hours. Who has the greatest productivity? a. Jack b. Walter c. Rudy d. Sam

B

Most studies indicate that tobacco and marijuana tend to be a. substitutes. b. complements. c. unrelated because one good is legal while the other one is illegal. d. inferior goods.

B

National saving a. is the total income in the economy that remains after paying for consumption. b. is the total income in the economy that remains after paying for consumption and government purchases. c. is always greater than investment for a closed economy. d. is equal to private saving minus public saving.

B

New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous.

B

Northwest Wholesale Foods sells common stock. The company is using a. equity financing and the return shareholders earn is fixed. b. equity financing and the return shareholders earn depends on how profitable the company is. c. debt financing and the return shareholders earn is fixed. d. debt financing and the return shareholders earn depends on how profitable the company is.

B

On a production function, as capital per worker increases, output per worker a. increases. This increase is larger at larger values of capital per worker. b. increases. This increase is smaller at larger values of capital per worker. c. decreases. This decrease is larger at larger value of capital per worker. d. decreases. This decrease is smaller at larger value of capital per worker.

B

Real GDP is the yearly production of final goods and services valued at a. current prices. b. constant prices. c. expected future prices. d. the ratio of current prices to constant prices.

B

Scenario 25-1. An economy's production form takes the form Y = AF(L, K, H, N). ____ 43. Refer to Scenario 25-1. If the production function has the constant-returns-to-scale property, then if we know the values of A, K/L, H/L, and N/L, we also know the value of a. output. b. labor productivity. c. A. d. All of the above are correct.

B

Suppose that the Federal Reserve Bank announces that it will be making a change to a key interest rate to increase the money supply. This is likely because a. the Federal Reserve Bank is worried about inflation. b. the Federal Reserve Bank is worried about unemployment. c. the Federal Reserve Bank is hoping to reduce the demand for goods and services. d. the Federal Reserve Bank is worried that the economy is growing too quickly.

B

The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2009. Prices and Quantities Year Price of Waffles Quantity of Waffles Price of Pancakes Quantity of Pancakes 2008 $2.00 100 $1.00 100 2009 $2.00 120 $2.00 150 2010 $2.00 150 $3.00 200 2011 $4.00 180 $3.00 220 ____ 36. Refer to Table 23-6. In 2009, this country's GDP deflator was a. 1. b. 100. c. 138.5. d. 540.

B

What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of jelly fell, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was good for you? a. Price will fall, and the effect on quantity is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will fall, and the effect on price is ambiguous. d. Quantity will rise, and the effect on price is ambiguous.

B

When a shortage exists in a market, sellers a. raise price, which increases quantity demanded and decreases quantity supplied until the shortage is eliminated. b. raise price, which decreases quantity demanded and increases quantity supplied until the shortage is eliminated. c. lower price, which increases quantity demanded and decreases quantity supplied until the shortage is eliminated. d. lower price, which decreases quantity demanded and increases quantity supplied until the shortage is eliminated.

B

Which of the following is included in the demand for loanable funds? a. investment and government borrowing b. investment but not government borrowing c. government borrowing but not investment d. neither government borrowing nor investment

B

Which of the following principles is not one of the four principles of individual decisionmaking? a. People face tradeoffs. b. Trade can make everyone better off. c. People respond to incentives. d. Rational people think at the margin.

B

Which of the following statements is correct? a. The interest rate that is usually reported is the interest rate that has been corrected for inflation. b. The supply of, and demand for, loanable funds depend on the real (rather than nominal) interest rate. c. If the nominal interest rate has decreased and the real interest rate has also decreased, then the inflation rate must have decreased as well. d. All of the above are correct.

B

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds? a. the fund's managers b. the fund's shareholders c. the federal government d. the corporations that originally issued the stocks and/or bonds held by the fund

B

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds a. is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. b. is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. c. is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. d. is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.

B

2010 Labor Data for Adults (age 16 and older) in Meditor Males not in labor force 45 million Females not in labor force 35 million Males unemployed 5 million Females unemployed 5 million Males employed 85 million Females employed 65 million ____ 70. Refer to Table 28-3. What is the adult labor force in Meditor? a. 90 million b. 150 million c. 160 million d. 230 million

C

A group of buyers and sellers of a particular good or service is called a(n) a. coalition. b. economy. c. market. d. competition.

C

Because of its effect on the amount of capital per worker, in the short term an increase in the working population is likely to a. raise productivity. Other things the same, this increase will be larger in a poor country. b. raise productivity. Other things the same, this increase will be larger in a rich country. c. reduce productivity. Other things the same, this decrease will be larger in a poor country. d. reduce productivity. Other things the same, this decrease will be larger in a rich country.

C

By definition, equity finance a. is accomplished when units of government sell bonds. b. is accomplished when firms sell bonds. c. is accomplished when firms sell shares of stock. d. involves "fair" interest rates or dividend yields.

C

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 unemployment rate. 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

If you were told that someone you knew nothing else about had just become unemployed, your best guess would be a. that they would be unemployed for a long time, and that most of the unemployed they've joined have been unemployed for a long time. b. that they would be unemployed for a long time, even though most of the unemployed they've joined have been unemployed for a short time. c. that they would be unemployed for a short time, even though most of the unemployed they've joined have been unemployed for a long time. d. that they will be unemployed for a short time, and that most of the unemployed they've joined have been unemployed for a short time.

C

In a particular country in 1999, the average worker had to work 20 hours to produce 55 units of output. In that same country in 2009, the average worker needed to work 28 hours to produce 77 units of output. In that country, the productivity of the average worker a. increased by 2 percent between 1999 and 2009. b. increased by 5 percent between 1999 and 2009. c. remained unchanged between 1999 and 2009. d. decreased by 3 percent between 1999 and 2009.

C

In determining living standards, productivity plays a key role a. for individuals, but not for nations. b. for nations, but not for individuals. c. for both nations and individuals. d. for neither nations nor individuals.

C

Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it used to bake bread that customers purchased. In which case will the flour be counted as a final good? a. Janet's purchase and ABC Bakery's purchase. b. ABC Bakery's purchase but not Janet's purchase. c. Janet's purchase but not ABC Bakery's purchase. d. Neither Janet's purchase nor ABC Bakery's purchase.

C

Market failure can be caused by a. low consumer demand. b. equilibrium prices. c. externalities and market power. d. high prices and foreign competition.

C

Nemo rents 5 movies per month when the price is $3.00 per rental and 7 movies per month when the price is $2.50 per rental. Nemo's demand demonstrates the law of a. price. b. supply. c. demand. d. income.

C

Recent forest fires in the western states are expected to cause the price of lumber to rise in the next six months. As a result, we can expect the supply of lumber to a. fall in six months but not now. b. increase in six months when the price goes up. c. fall now. d. increase now to meet as much demand as possible.

C

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same? a. The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. b. Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital. c. Consumers decide to decrease consumption and work more. d. All of the above could explain why the interest rate would be unchanged.

C

Table 28-3 2010 Labor Data for Adults (age 16 and older) in Meditor Males not in labor force 45 million Females not in labor force 35 million Males unemployed 5 million Females unemployed 5 million Males employed 85 million Females employed 65 million What is the adult male labor-force participation rate in Meditor? a. 37 percent b. 63 percent c. 66.7 percent d. 96.3 percent

C

The traditional view of the production process is that capital is subject to a. constant returns. b. increasing returns. c. diminishing returns. d. diminishing returns for low levels of capital, and increasing returns for high levels of capital.

C

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that a. the credit risk associated with Bond A is lower than the credit risk associated with Bond B. b. Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation. c. Bond A has a term of 20 years and Bond B has a term of 2 years. d. All of the above are correct.

C

Which of the following is correct? a. Countries with the highest growth rates over the last 100 years are the ones that had the highest level of real GDP 100 years ago. b. Most countries have had little fluctuation around their average growth rates during the past 100 years. c. The ranking of countries by income changes substantially over time. d. Over the last 100 years, Japan had the highest real GDP growth rate, and now has the highest real GDP per person.

C

Which of the following is not a nonsensical headline? a. British perpetuities about to mature. b. Disney issues new bonds with term of 7 percent. c. Corporate bonds currently pay higher interest rates than government bonds. d. Standard and Poor's judges new junk bond to have very low credit risk.

C

Which of the following would cause price to decrease? a. a decrease in supply b. an increase in demand c. a surplus of the good d. a shortage of the good

C

A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these goods for the last several years are shown below. The base year is 2009. Prices and Quantities Year Price of Movies Quantity of Movies Price of Popcorn Quantity of Popcorn 2008 MOVIE PRICE $10.00 MOVE QUANITY400 POPCORN PRICE $5 POPCORN QAUNITY 800 2009 MOVE PRICE$11.00 MOVE QUANITY500 POPCORN PRICE $4 POPCORN QAUNITY900 2010 MOVE PRICE$12.00 MOVIE QUANITIY600 POPCORN PRICE $5 POPCORN QUANITY 1000 2011 MOVIE PRICE $12.00 MOVIE QUANITIY600 POPCORN PRICE $6 POPCORN QUANITIY 900 ____ 35. Refer to table 23-5 In which year was this country's nominal GDP highest? a. 2008 b. 2009 c. 2010 d. 2011

D

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently, a. the market for loanable funds is in equilibrium. b. the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. c. the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. d. the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.

D

If outsiders had more say in union contracts then it is likely that union wages would be a. higher so unemployment would be higher. b. higher so unemployment would be lower. c. lower so unemployment would be higher. d. lower so unemployment would be lower.

D

In 2009 and 2010, the federal government's budget deficit was about a. 5 percent of GDP, and this was the highest debt-GDP ratio in U.S history. b. 10 percent of GDP, and this was the highest debt-GDP ratio in U.S history. c. 5 percent of GDP, and this was the highest debt-GDP ratio since World War II. d. 10 percent of GDP, and this was the highest debt-GDP ratio since World War II.

D

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then a. the government has a budget surplus and investment is 1,000 b. the government has a budget surplus and investment is 2,000 c. the government has a budget deficit and investment is 1,000 d. the government has a budget deficit and investment is 2,000

D

Other things the same, which bond would you expect to pay the highest interest rate? a. a bond issued by the U.S. government b. a bond issued by Microsoft Corporation c. a bond issued by the state of Montana d. a bond issued by a new chain of Brazilian-style restaurants

D

Suppose that consumers choose to smoke less and chew gum more. Tobacco companies cut back on the number of people they employ while chewing gum manufacturers employ more. This is an example of a. structural unemployment created by efficiency wages. b. structural unemployment created by sectoral shifts. c. frictional unemployment created by efficiency wages. d. frictional unemployment created by sectoral shifts.

D

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. -500 b. 0 c. 2,000 d. None of the above is correct.

D

The current price of neckties is $30, but the equilibrium price of neckties is $25. As a result, a. the quantity supplied of neckties exceeds the quantity demanded of neckties at the $30 price. b. the equilibrium quantity of neckties exceeds the quantity demanded at the $30 price. c. there is a surplus of neckties at the $30 price. d. All of the above are correct.

D

The line that relates the price of a good and the quantity demanded of that good is called the demand a. schedule, and it usually slopes upward. b. schedule, and it usually slopes downward. c. curve, and it usually slopes upward. d. curve, and it usually slopes downward.

D

What do we call financial institutions through which savers can indirectly provide funds to borrowers? a. stock markets b. financial institutions c. financial markets d. financial intermediaries

D

When calculating the cost of college, which of the following should you probably not include? a. The cost of tuition b. The cost of books required for college classes c. The income you would have earned had you not gone to college d. The cost of rent for your off-campus apartment.

D

Which of the following events would cause a movement upward and to the left along the demand curve for olives? a. The number of people who purchase olives decreases. b. Consumer income decreases, and olives are a normal good. c. The price of pickles decreases, and pickles are a substitute for olives. d. The price of olives rises.

D

Which of the following events would cause a movement upward and to the right along the supply curve for mangos? a. The number of sellers of mangos increases. b. There is an advance in technology that reduces the cost of producing mangos. c. The price of fertilizer decreases, and fertilizer is an input in the production of mangos. d. The price of mangos rises.

D

Which of the following is considered human capital? Knowledge acquired from a. early childhood education programs b. job training c. on-the-job experience d. All of the above are correct.

D

Which of the following is correct? a. Once adjustment is made for inflation, the prices of most natural resources have been about steady or falling. b. Technological progress has allowed us to substitute renewable resources for some nonrenewable resources. c. Technological progress has made once-crucial natural resources less necessary. d. All of the above are correct.

D

You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a rational consumer you should make your choice by comparing a. the benefits from eating all three bowls of ice cream to how much three bowls of ice cream costs. b. the benefits from eating all three bowls of ice cream to how much one more bowl of ice cream costs. c. the benefits from eating one more bowl of ice cream to how much three bowls of ice cream costs. d. the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs.

D

Sophia is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that a. people respond to incentives. b. rational people think at the margin. c. people face tradeoffs. d. improvements in efficiency sometimes come at the expense of equality.

c

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost? a. the cost of tuition and books to attend the graduate program b. the $30,000 salary that you could have earned if you retained your job at the bank c. the $45,000 salary that you will be able to earn after having completed your graduate program d. the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank

c