Macro economics

Which of the following is a principle concerning how people interact?

Markets are usually a good way to organize economic activity.

With which of the Ten Principles of Economics is the study of international trade most closely connected?

Trade can make everyone better off.

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

U.S. paper money is fiat money.

The term hyperinflation refers to

a period of very high inflation.

Trade between countries

allows each country to consume at a point outside its production possibilities frontier.

An economy's natural rate of unemployment is the

amount of unemployment that the economy normally experiences.

Which of the following is an example of an efficiency wage?

an above equilibrium wage paid to workers to reduce shirking

If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan.

Adam is looking for a job in marketing. He has had some offers and his prospects are promising, but he has not yet accepted a job. Amanda lost her job working for Mercury Bicycles because many customers decided they prefer bicycles manufactured by Ultimate Bicycles instead. Who is frictionally unemployed?

both Adam and Amanda

A market includes

both buyers and sellers.

Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as

confirmation of the virtues of free trade.

The unique point at which the supply and demand curves intersect is called

equilibrium

Which of the following is not an example of a public policy?

equilibrium laws

From time to time, the demand for workers has risen in one region of the United States and fallen in another. This illustrates

frictional unemployment created by sectoral shifts.

Productivity is defined as the quantity of

goods and services produced from each unit of labor input.

Fiscal policy refers to the idea that aggregate demand is affected by changes in

government spending and taxes.

The United States has imposed taxes on some imported goods that have been sold here by foreign countries at below their cost of production. These taxes

harm the United States as a whole, because they reduce consumer surplus by an amount that exceeds the gain in producer surplus and government revenue.

Economists agree that

high inflation is costly, but they disagree about the costs of moderate inflation.

The increase in international trade in the United States is partly due to

improvements in transportation. advances in telecommunications. increased trade of goods with a high value per pound.

The Federal Reserve was created

in 1913 by Congress

Fiscal policy affects the economy

in both the short and long run.

A U.S. firm sells diesel locomotives to a German railroad. Other things the same, this sale

increases U.S. net exports and decreases German net exports.

Which of the following explains why production rises in most years?

increases in the capital stock advances in technological knowledge increases in the labor force

When the price level rises, the number of dollars needed to buy a representative basket of goods

increases, and so the value of money falls.

The average income in a rich country

is more than ten times that in a poor country. Further, people in rich countries have longer life expectancy.

saver. Bond buyers may sell their bonds prior to maturity.

issued by state and local governments.

When the Fed conducts open-market purchases,

it buys Treasury securities, which increases the money supply.

The theory of efficiency wages explains why

it may be in the best interest of firms to offer wages that are above the equilibrium level.

Contractionary monetary policy

leads to disinflation and makes the short-run Phillips curve shift left.

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should

lend support to the invisible hand by maintaining property rights and political stability.

When the price level rises more than expected, a firm with a sticky price will sell its output at a price that is

less than it desires and increase its production.

Money

makes trades easier. allows greater specialization. is more efficient than barter

Economists build economic models by

making assumptions.

The primary economic function of the financial system is to

match one person's saving with another person's investment.

Rapid population growth

may depress economic prosperity by reducing the amount of capital which each worker has to work with.

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

medium of exchange

Which of the following does the U.S. president appoint and the U.S. Senate confirm?

members of the Board of Governors but not the regional Federal Reserve Bank Presidents.

The burden of a luxury tax falls

more on the middle class than on the rich.

The adage, "There is no such thing as a free lunch," means

people face tradeoffs.

Other things the same, when the interest rate rises,

people would want to lend more, making the quantity of loanable funds supplied increase.

Inflation can be measured by the

percentage change in the consumer price index.

The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in

performing an experiment in an economic system.

Critics of stabilization policy argue that

policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived.

The presence of a price control in a market for a good or service usually is an indication that

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied.

Electronics firms may be able to get patents on their ideas. Doing so makes their ideas

private goods rather than public goods. This gives people more incentive to engage in research.

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies.

A relatively mild period of falling incomes and rising unemployment is called a(n)

recession

When we say that economic fluctuations are "irregular and unpredictable," we mean that

recessions do not occur at regular intervals.

The North American Free Trade Agreement

reduced trade restrictions among Canada, Mexico and the United States.

Unemployment insurance

reduces search effort which raises unemployment.

When a society cannot produce all the goods and services people wish to have, the economy is experiencing

scarcity

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

sell bonds.

The quantity supplied of a good is the amount that

sellers are willing and able to sell.

Frictional unemployment is thought to explain relatively

short spells of unemployment, while structural unemployment is thought to explain relatively long spells of unemployment.

Cyclical unemployment refers to

short-run fluctuations around the natural rate of unemployment.

Most economists use the aggregate demand and aggregate supply model primarily to analyze

short-run fluctuations in the economy.

Evidence from research studies by economists

shows that increased unemployment benefits decrease the job search efforts of the unemployed.

Which of the following institutions is a central bank?

the Federal Reserve System the Bank of England the Bank of Japan

Monetary policy is determined by

the Federal Reserve and involves changing the money supply.

The average price level is measured by

the GDP deflator or the CPI.

In markets, prices move toward equilibrium because of

the actions of buyers and sellers.

The economy's two most important financial markets are

the bond market and the stock market.x

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

A COLA automatically raises the wage when

the consumer price index increases.

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?

the decline in confidence in financial institutions

Liquidity refers to

the ease with which an asset is converted into a medium of exchange.

Liquidity refers to

the ease with which an asset is converted to the medium of exchange.

Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

the effect of an increase in the minimum wage on an economy's overall rate of unemployment

The dollar is said to depreciate against the euro if

the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.

The lag problem associated with monetary policy is due mostly to

the fact that business firms make investment plans far in advance.

Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Congressman Smith's reasoning is that he ignores the fact that

the gains from trade are based on comparative advantage.

The CPI is a measure of the overall cost of

the goods and services purchased by a typical consumer.

What basket of goods and services is used to construct the CPI?

the goods and services that are typically bought by consumers as determined by government surveys

The Employment Act of 1946 states that

the government should promote full employment and production.

Which of the following is a subject that economists study?

the growth in average income the fraction of the population that cannot find work the rate at which prices are rising all the above

Which of the following is a good gauge of economic progress?

the growth rate of real GDP per person, but not the level of real GDP per person

The idea that inflation by itself reduces people's purchasing power is called

the inflation fallacy.

A professor at a university finds a way to reduce the costs of producing automobile glass. The method is very easy for anyone to copy. A company develops a substance which prevents eyeglasses from smudging. It receives a patent on the formula. Which of these are common technological knowledge?

the method to reduce costs of producing automobile glass, but not the formula for the substance that prevents smudging

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

their investments are being financed by someone else's saving.

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor,

there is a surplus. quantity supplied increases. quantity demanded decreases. all the above

In an economy that relies upon barter,

there is no item in the economy that is widely accepted in exchange for goods and services.

The supply of a good or service is determined by

those who sell the good or service.

Unemployment data are collected

through a regular survey of about 60,000 households.

In order to maintain stable prices, a central bank must

tightly control the money supply.

Trade enhances the economic well-being of a nation in the sense that

trade results in an increase in total surplus.

An example of an automatic stabilizer is

unemployment benefits.

The quantity demanded of a good is the amount that buyers are

willing and able to purchase.

If output is above its natural rate, then according to sticky-wage theory

workers will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level.

​Rent controls can cause

​longer search times for renters attempting to locate an apartment. ​a decline in the quality of housing available for rent. ​the development of a black market to allocate apartments to renters.

A tax cut targeted at ____ people may have a bigger effect because ​

​poorer; poorer people tend to spend a higher share of their income.

When can two countries gain from trading two goods?

Two countries could gain from trading two goods under all of the above conditions.

Right-to-work laws

give workers in a unionized firm the right to choose whether to join the union.

By definition, exports are

goods produced domestically and sold abroad.

All Fed purchases and sales of

government bonds are conducted at the New York Fed's trading desk.

Which of the following depends primarily on the growth rate of the money supply?

inflation but not the natural rate of unemployment

In the long run,

inflation depends primarily upon the money supply growth rate.

Job search

would not be a problem if all workers and all jobs were the same. is the process of matching workers with appropriate jobs. is one reason economies always experience some unemployment.

In October 2009, the official unemployment rate rose to ​

​10%.

​Which of the following policies is NOT in the Fed's monetary toolbox?

​Issuing a bank run

​Which of the following policies can the Fed follow to increase the money supply?

​Reduce the interest rate on reserves

​Woody wants to open a pet store and needs to buy a building. Both the nominal interest rate and the inflation rate increase by 2 percent. Now, Woody

​is just as likely to buy the building as before.

The dividend yield is

​reported as a percentage of the stock's price.

Given U.S. tax laws, persistently high inflation may result in

​slower economic growth because the after-tax real interest rate is lower.

The Federal Open Market Committee is ​

​the group at the Federal Reserve that sets monetary policy.

People choose to hold a smaller quantity of money if​

​the interest rate increases, which causes the opportunity cost of holding money to increase.

In 1986, OPEC countries increased their production of oil. This caused

aggregate supply to shift right.

A tariff is a tax placed on

an imported good and it raises the domestic price of the good above the world price.

Which of the following would increase the price level?

an increase in the money supply.

The Federal Reserve Board of Governors

are appointed by the President and confirmed by the Senate.

Economic models

are usually composed of diagrams and equations.

For the Bureau of Labor Statistics to place someone in the "unemployed" category, that person must

be available for work.

Opponents of active stabilization policy

believe that the political process creates lags in the implementation of fiscal policy.

A shortage results when a

binding price ceiling is imposed on a market.

A surplus results when a

binding price floor is imposed on a market.

If the Apple corporation sells a bond it is

borrowing directly from the public.

The incidence of a tax falls more heavily on

consumers than producers if demand is more inelastic than supply. producers than consumers if supply is more inelastic than demand. consumers than producers if supply is more elastic than demand. All of the above are correct.

During recessions which type of spending falls?

consumption and investment

An important function of the U.S. Federal Reserve is to

control the supply of money.

Minimum-wage laws

create unemployment.

If inflation is higher than what was expected,

creditors receive a lower real interest rate than they had anticipated.

Which list ranks assets from most to least liquid?

currency, stocks, fine art

Maury did not work last week because fire forced an evacuation of his workplace. The Bureau of Labor Statistics counts Maury as

employed and in the labor force.

A circular-flow diagram is a model that

helps to explain how participants in the economy interact with one another. helps to explain how the economy is organized.

Which of the following are residents of rich countries likely to have in greater quantities, or better quality, than residents of poor countries?

housing healthcare life expectancy

Money demand refers to

how much wealth people want to hold in liquid form.

Foreign-produced goods and services that are purchased domestically are called

imports

Suppose that roofers are not unionized. If roofers unionize, then the supply of labor in other sectors of the economy will

increase, reducing wages in industries that are not unionized.

U.S. international trade has

increased because of an increase in trade of goods with a high value per pound.

The nominal interest rate is the

interest rate as usually reported by banks.

Crowding out occurs when

investment declines because a budget deficit makes interest rates rise.

A statement describing how the world should be

is a normative statement.

A statement describing how the world is

is a positive statement.

A mutual fund

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.

One determinant of the natural rate of unemployment is the

minimum wage rate.

One determinant of the long-run average unemployment rate is the

minimum wage, while the inflation rate depends primarily upon the money supply growth rate.

Commodity money is

money with intrinsic value.

The consumer price index is used to

monitor changes in the cost of living over time.

Reports on the current consumer price index are released every

month

​In order to promote growth in living standards, policymakers must

protect property rights. maintain political stability. ​encourage the accumulation of factors of production.

Labor unions

raise wages in unionized industries.

International trade

raises the standard of living in all trading countries.

A nation's standard of living is best measured by its

real GDP per person.

Minimum wages create unemployment in markets where they create a

surplus of labor. Minimum wage laws are not the predominant reason for unemployment in the U.S.

Minimum-wage laws are most likely to affect the wages paid to

teenagers.

The supply of money is determined by

the Federal Reserve System.

According to John Maynard Keynes,

the interest rate adjusts to balance the supply of, and demand for, money.

Shifts in the aggregate-demand curve can cause fluctuations in

the level of output and in the level of prices.

A logical starting point from which the study of international trade begins is

the principle of comparative advantage.

Collective bargaining refers to

the process by which unions and firms agree on the terms of employment.

A nation's standard of living is determined by

the productivity of its workers.

Aggregate demand includes

the quantity of goods and services the government, households, firms, and customers abroad want to buy.

A decrease in government spending and the enactment of an investment tax credit would definitely cause

the quantity of loanable funds traded to increase.

Bank capital is

the resources that owners have put into the bank.

Net capital outflow equals

the value of foreign assets purchased by domestic residents - the value of domestic assets purchased by foreigners.

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

the wealth effect.

A production possibilities frontier can shift outward if

there is a technological improvement.

The Bureau of Labor Statistics places people in the "employed" category if they

work without pay in a family member's business.

A payroll tax is a

tax on the wages that firms pay their workers.

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

"Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent."

Which of the following pairs of terms refer to the same thing?

"capital" and "physical capital"

Over the past 80 years, prices in the U.S. have risen on average about

3.6 percent per year.

A typical American worker covered by unemployment insurance receives

50 percent of his former wages for 26 weeks.

Which of the following is an example of U.S. foreign direct investment?

A U.S. citizen builds and operates a coffee shop in the Netherlands.

Which of the following is not an example of the principle that trade can make everyone better off?

Americans buy tube socks from China. Residents of Maine drink orange juice from Florida. A homeowner hires the kid next door to mow the lawn. All of the above are examples of the principle that trade can make everyone better off.

Closely watched indicators such as the inflation rate and unemployment are released each month by the

Bureau of Labor Statistics.

Measuring unemployment is the job of the

Bureau of Labor Statistics.

Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which of the following is the economist's next step?

Collect and analyze data.

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans

Which famous company executive introduced an innovative pay system that is consistent with the theory of efficiency wages?

Henry Ford

Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?

Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her.

The signals that guide the allocation of resources in a market economy are

Prices

Suppose buyers of vodka are required to send $5.00 to the government for every bottle of vodka they buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $3.00 per bottle. Which of the following statements is correct?

Sixty percent of the burden of the tax falls on sellers. The price paid by buyers is $2.00 per bottle more than it was before the tax. This tax causes the demand curve for vodka to shift downward by $5.00 at each quantity of vodka.

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Spain's

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?

The inflation rate decreases. The level of output decreases. The unemployment rate increases.

After OPEC raised the price of crude oil in the 1970's, which of the following was the most important reason that there were shortages of gasoline?

The effects of a price ceiling on gasoline prices imposed by the US government.

Which of the following is an example of an increase in government purchases?

The government builds new roads.

Buddy is the owner of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Buddy decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision?

The higher the wage, the less often his workers will choose to leave his firm.

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

The number of firms selling laptop computers decreases.

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

The price level increases more rapidly.

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

The quality of beef deteriorates and beef becomes more expensive relative to other goods.

The law of one price states that

a good must sell at the same price at all locations.

A price ceiling is

a legal maximum on the price at which a good can be sold.

price floor

a legal minimum on the price at which a good can be sold. a source of inefficiency in a market. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor.

Rent-control laws dictate

a maximum rent that landlords may charge tenants.

Minimum-wage laws dictate

a minimum wage that firms may pay workers.

In a market economy, supply and demand determine

both the quantity of each good produced and the price at which it is sold.

Policymakers use taxes

both to raise revenue for public purposes and to influence market outcomes.

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

buy bonds to lower the interest rate

The inflation rate is calculated

by determining the percentage change in the price index from the preceding period.

In a market economy, supply and demand are important because they

can be used to predict the impact on the economy of various events and policies.

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

capital investment.

A bond is a

certificate of indebtedness.

Which of the following can the Fed do to change the money supply?

change reserves or change the reserve ratio

An increase in the price of a good will

decrease quantity demanded.

A decrease in the price of a good will

decrease quantity supplied.

To increase the money supply, the Fed could

decrease the reserve requirement.

People are likely to want to hold more money if the interest rate

decreases, making the opportunity cost of holding money fall.

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises.

When prices are falling, economists say that there is

deflation

Tax incidence

depends on the elasticities of supply and demand.

In building economic models, economists often omit[[[

details.

To be counted as "employed" in the U.S. labor force statistics, a person

does not have to be working for pay if they are working for a family business and does not have to be working full time

During a recession the economy experiences

falling employment and income.

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

financial intermediaries

Institutions that help to match one person's saving with another person's investment are collectively called the

financial system.

High and unexpected inflation has a greater cost

for savers in high income tax brackets than for savers in low income tax brackets.

Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs. An economist would argue that

foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding.

By definition, imports are

goods produced abroad and sold domestically.

The model of aggregate demand and aggregate supply

is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships.

A country's trade balance

is greater than zero only if exports are greater than imports.

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

Amy is working part-time. Tavaris is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category?

only Amy

Which type(s) of economies interact with other economies?

only open economies

Unemployment insurance

reduces the hardship of unemployment, but it also increases the amount of unemployment. causes workers to be less likely to seek guarantees of job security when they negotiate with employers over the terms of employment. reduces the incentive for the unemployed to find and take new jobs

Disinflation is a

reduction in the rate of inflation, whereas deflation is a reduction in the price level.

Accumulating capital

requires that society sacrifice consumption goods in the present.

Long-term bonds are

riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

A bond buyer is a

saver. Bond buyers may sell their bonds prior to maturity.

In the long run, fiscal policy influences

saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services.

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

the Irish bonds pay a higher rate of interest.

Recessions in Canada and Mexico would cause

the U.S. price level and real GDP to fall.

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

this will increases U.S. net capital outflow and decrease Canadian net capital outflow.

Economists use the word "money" to refer to

those assets regularly used to buy goods and services.

Who of the following is not included in the Bureau of Labor Statistics' "employed" category?

those waiting to be recalled to a job from which they had been laid off

The demand for a good or service is determined by

those who buy the good or service.