Macroeconomics Final

How many regional banks are in the Federal Reserve System? 6 12 8 15

12

When quantity demanded is greater than quantity supplied, the resulting shortage causes the price to fall. True False

False

When there are market externalities, the market allocation of resources will be optimal. True False

False

An increase in the federal funds rate is a signal that the Fed wants a tighter monetary policy. True False

True

If a firm's total revenue is $10,000 and its total costs are $9,000, then its profits are: $1,000. -$1,000. $19,000. $10,000.

$1,000.

In 2008, gross investment was $2,593 billion and net investment was $873 billion; therefore depreciation was: $1,720 billion. $873 billion. $3,466 billion. $2,593 billion.

$1,720 billion.

The cyclical surplus is $450 billion, potential output is $10 trillion and tax rate is 15 percent. With this information, we can infer that the actual output of this economy is: $13 trillion. $13.5 trillion. $6 trillion. $6.5 trillion.

$13 trillion.

If a country's output and population are, respectively, $500 billion and 200 billion, then its per capita output is: $1,000. $250. $2,500. $24,000.

$2,500.

The real deficit is $180 billion; inflation is 4 percent; total debt is $4.5 trillion. The nominal deficit is: zero. $1 billion. $360 billion. $180 billion.

$360 billion.

If the real deficit is $100 billion, the inflation rate is 7.5 percent, and the nominal deficit is $400 billion, then total debt is: $4 trillion. $3 trillion. $2 trillion. $1 trillion.

$4 trillion.

If the reserve requirement is 20 percent, and banks keep no excess reserves, an increase in an initial inflow of $100 into the banking system will cause an increase in the money supply of: $20. $50. $100. $500.

$500.

If the velocity of money is about 1.8 and nominal GDP is $14.4 trillion, what is the money supply? $14.4 trillion we cannot compute the money supply from the data given $1.8 trillion $8.0 trillion

$8.0 trillion

Who would probably argue that you need to study the forest before you can understand the trees? a classical economist A microeconomist A macroeconomist a normative economist

**A microeconomist** INCORRECT

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 5 percent when the price rises by 10 percent and the multiplier is 3, then the slope of the aggregate demand curve is -2. -2/3. -1/2. -3.

-2/3.

If the reserves in U.S. banks totaled $8,000 and total deposits were $100,000, the banking system's reserve ratio would be: 0.08 0.92 0.80 0.10

0.08

If the money multiplier is 5, what is the reserve ratio? 0.25 0.80 0.20 0.10

0.20

Given the basic rule of thumb for the relationship among inflation, productivity and nominal wage increases, if wages rise by 2 percent and productivity increases 1 percent, one would predict inflation to be: 1.5 percent. 3 percent. 0 percent. 1 percent.

1 percent.

If the nominal deficit is $200 billion, the real deficit is $180 billion, and total debt is $2 trillion, then inflation is: 4 percent. 5 percent. 1 percent. 2.5 percent.

1 percent.

Mary buys cell-phone services from a company that charges $30 per month. For the $30 she is allowed 600 minutes of free calls and then pays 10 cents per minute for any calls above 600 minutes. Mary has used 600 minutes this month so far. What is her marginal cost per minute of making additional calls? 10 cents $0 25 cents 5 cents

10 cents

There are seven Governors of the Federal Reserve, who are appointed for terms of: 14 years. 17 years. 5 years. 10 years.

14 years.

The Rule of 72 implies that a country will double its income in about 4 years if its growth rate is: 12 percent. 8 percent. 18 percent. 25 percent.

18 percent.

The U.S. economy experienced the Great Depression in the: 1930s. 1940s. 1920s. 1910s.

1930s.

In what decade were social security payments adjusted for changes in the cost of living? 1960s 1970s 1990s 1980s

1970s

Suppose that real output is fixed and equal to 400 while velocity is fixed and equal to 5. Then, if the money supply is equal to 200, the price level will be: 10 5 2.5 7.5

2.5

The secular trend growth rate in the United States is approximately: 2.5 to 3.5 percent per year. 1 to 1.5 percent per year. 5 to 5.5 percent per year. 7 to 7.5 percent per year.

2.5 to 3.5 percent per year.

If the price of housing (which accounts for 40 percent of total expenditures in the CPI basket), rises by 10 percent in one year while the prices of all other goods rises 27 percent, by how much will the CPI rise? 20 percent 234 percent 27 percent 10 percent

20 percent

*(Format messed up, but answer is correct)* Basket of Goods 2013 2014 Prices Prices 10 pairs of jeans $20.00/pr $25.00/pr 12 flannel shirts 15.00/shirt 20.00/shirt 100 Ibs. apples 0.80/Ib. 1.05/Ib. 80 Ibs. oranges 1.00/Ib. 1.00/Ib. What is the rate of inflation in 2013? 0% It cannot be calculated with the information given. 25% 50%

25%

Assuming that r = 0.05, how much would reserves need to be increased to increase the money supply by 1,000? 25 50 250 500

50

What is 25 percent of 200? 8 25 100 50

50

Suppose there are 81.0 million people not in the labor force; 154.0 million in the civilian labor force, and 140.9 million employed. Based on these numbers, what is the labor-force participation rate? 81.0 65.5 91.5 51.1

65.5

In 2012, the unemployment rate in the United States was about: 8 percent. 5 percent. 2 percent. 10 percent.

8 percent.

The total labor force is 100,000 out of a possible working age population of 160,000. The total number of unemployed is 8,000. What is the unemployment rate? 7 percent. 5 percent. 8 percent. 6 percent.

8 percent.

A reserve ratio of 0.10 means that a bank can lend an amount equal to: 90 percent of its excess reserves. 10 percent of its excess reserves. 90 percent of its deposit liabilities. 10 percent of its deposit liabilities.

90 percent of its deposit liabilities.

Considering only their direct effect on income, which of the following policies is least likely to reduce a country's trade deficit? A decrease in government spending A decrease in the money supply An increase in taxes A cut in taxes

A cut in taxes

Which of the following would shift the aggregate demand curve to the left? A decrease in exports A depreciation in the value of the country's currency A higher future expected price level An increase in foreign income

A decrease in exports

How does stock differ from flow? A flow concept is a value at a point in time, while a stock concept has meaning over a specified period of time. They do not differ; both flow and stock concepts are values at a point in time. They do not differ; both flow and stock concepts have meaning only over a specified period of time. A flow concept has meaning over a specified period of time, while a stock concept is a value at a point in time.

A flow concept has meaning over a specified period of time, while a stock concept is a value at a point in time.

In the formula to calculate the real deficit, which of the following increases the real deficit? A lower interest rate A smaller nominal deficit A lower inflation rate A larger debt

A lower inflation rate

Who would probably argue that you need to study the forest before you can understand the trees? A microeconomist A macroeconomist a normative economist a classical economist

A macroeconomist

Which of the following does not provide an example of network externalities? The Internet A patent A language The telephone system

A patent

In August of 1998, the Russian ruble declined some 90 percent against the dollar. In Russia, which of the following policies could have slowed this decline? A reduction in income tax rates An increase in income tax rates An increase in the money supply A reduction in the money supply

A reduction in the money supply

Which of the following is most likely to be asset price inflation? A rise in the current price of assets caused by an increase in the riskiness of financial assets A rise in the price of assets caused by an increase in the underlying productivity of those assets A rise in the current price of assets caused by expectation of higher asset prices in the future A rise in the current price of assets caused by a shift in people's time preference

A rise in the current price of assets caused by expectation of higher asset prices in the future

Suppose caviar sales soars at the same time price increases. What would lead to both a higher quantity sold and higher price of caviar? A shift in demand to the left and a smaller shift in supply to the right. A shift in demand to the right and a shift in supply to the left. A shift in demand to the right and a larger shift in supply to the right. A shift in demand to the left and a smaller shift in supply to the left.

A shift in demand to the right and a shift in supply to the left.

What turns a business cycle into a structural stagnation? A slow expansion that keeps the economy below trend. A trough that is lower than the peak. Multiple business cycles in a short period of time. A downturn that doesn't end.

A slow expansion that keeps the economy below trend.

What turns a business cycle into a structural stagnation? Multiple business cycles in a short period of time. A slow expansion that keeps the economy below trend. A trough that is lower than the peak. A downturn that doesn't end.

A slow expansion that keeps the economy below trend.

The text mentions 10 sources of U.S. comparative advantage. Which of the following is not one of them? A substantial policy to limit imigration Wealth from past production The fact that English is the international language of business Extensive natural resources

A substantial policy to limit imigration

What are trade adjustment assistance programs? A form of regulatory trade restriction. A way of subsidizing exports. Attempts to compensate those who suffer losses when trade restrictions are reduced. The use of exchange rate policies to equalize exports and imports.

Attempts to compensate those who suffer losses when trade restrictions are reduced.

Contractionary fiscal policy in the United States reduces domestic income, prices, and interest rates, so the exchange rate will decrease. True False

False

Domestic producers prefer quotas to tariffs because quotas raise the price of imports and tariffs do not. True False

False

In 1964 and 1970, unemployment was about 5 percent. Inflation in 1964, however, was 2 percent while in 1970 it was over 5 percent. What might explain this difference? Expansionary monetary policy An increase in labor productivity Expansionary fiscal policy An increase in expected inflation

An increase in expected inflation

Which of the following would best explain a decrease in the supply of squash? A decrease in the price of squash An increase in the price of squash An increase in the price of other vegetables A decrease in the cost of growing squash

An increase in the price of other vegetables

Which of the following would best explain a decrease in the supply of squash? An increase in the price of other vegetables An increase in the price of squash A decrease in the cost of growing squash A decrease in the price of squash

An increase in the price of other vegetables

Which of the following statements best depicts laypeople's explanation of the Great Depression at that time? Unions were keeping the good jobs for themselves. An oversupply of goods had glutted the market. An oversupply of goods is impossible. Government policies kept prices too high.

An oversupply of goods had glutted the market.

Which of the following statements best depicts laypeople's explanation of the Great Depression at that time? Unions were keeping the good jobs for themselves. Government policies kept prices too high. An oversupply of goods had glutted the market. An oversupply of goods is impossible.

An oversupply of goods had glutted the market.

Economic models take into account the effect of trade on the distribution of income. True False

False

Given that Japan's debt level is much higher than that of the United States, the United States has more flexibility to run deficits. True False

False

If state governments began using a five-year rolling-average budgeting procedure as opposed to the current practice of no rolling average, which would the likely result be? The need for automatic stabilizers at the federal level would increase Balanced-budget requirements in state constitutions would be much less procyclical state financing would become procyclical State governments would run a greater risk of running short of funds during recessions

Balanced-budget requirements in state constitutions would be much less procyclical

Which of the following is not counted as money? Federal Reserve notes Currency held by the public Loans made by a bank Bank reserves

Bank reserves

Which of the following statements about urban sprawl and traffic congestion is the best illustration of a normative statement? Snarled traffic cost motorists in the 85 largest U.S. cities 3.5 billion hours. The average U.S. urban is stuck in road traffic 46 hours a year. Traffic congestion has increased in the last 20 years. Because urban sprawl is the result of individual choice, it is okay.

Because urban sprawl is the result of individual choice, it is okay.

Which of the following statements about urban sprawl and traffic congestion is the best illustration of a normative statement? The average U.S. urban is stuck in road traffic 46 hours a year. Traffic congestion has increased in the last 20 years. Snarled traffic cost motorists in the 85 largest U.S. cities 3.5 billion hours. Because urban sprawl is the result of individual choice, it is okay.

Because urban sprawl is the result of individual choice, it is okay.

Which of the following components is not included in the M2 definition of money? M1. Savings and money market accounts. Small-denomination time deposits. Bonds.

Bonds.

In the United States, the government regulates business in its role as a "referee." Which of the following is not among the laws regulating the interaction between households and businesses? Businesses must follow certain rules about workplace safety, minimum wages, and overtime rules. Businesses cannot meet with other businesses to agree on prices they will charge. Businesses are required to produce certain goods, called public goods, for the government. In some businesses, in some states, employees must join a union in order to work at certain jobs.

Businesses are required to produce certain goods, called public goods, for the government.

In Zimbabwe inflation rose from an annual rate of 32 percent in 1998 to 100,000 percent in early 2009. Ignoring the many other problems that face the businesses of Zimbabwe, and considering only the effects of this unexpected inflation, which of the following is most harmed by the inflation? Businesses with large inventories Businesses who had contracted to sell their services to others at fixed prices Businesses with large debts Businesses with wages determined by long-term contracts

Businesses who had contracted to sell their services to others at fixed prices

If measurement errors did not exist, real per capita GDP would be an undeniably accurate measure of human welfare. True False

False

If the economy is in a structural stagnation, it can be expected to return to its historical trend soon. True False

False

Potential income is that level of income that the economy always produces C. an economy is capable of producing without generating higher inflation. an economy is capable of producing without generating unemployment toward which the economy gravitates in the short-run

C. an economy is capable of producing without generating higher inflation.

Over the past several years, the target rate of unemployment has risen. Which of the following would not be used to explain this? Congress passed a bill that requires the target rate to rise along the rising government deficits. Government has expanded income support programs. More women have entered the workforce. The workforce is getting younger.

Congress passed a bill that requires the target rate to rise along the rising government deficits.

If the economy were producing at its potential output, then the unemployment rate would be less than the target rate of unemployment. True False

False

Ch. 28

Ch. 28

Which of the following statements is correct? Most large companies and many small companies in the United States are not corporations. Corporation are legal entities that, in law, are treated as persons. Stockholder are legally liable for all the debt of a corporation. A corporation is a business that is legally owned by its employees.

Corporation are legal entities that, in law, are treated as persons.

News story: Workers at a car-manufacturing in Flint, Michigan and laid off because the economy is weak and GM cars are not selling well. GM isn't sure when the plant will reopen. What type of unemployment describes the workers' situation? Frictional unemployment Structural unemployment Full unemployment Cyclical unemployment

Cyclical unemployment

Which of the following types of unemployment is considered to be the most controllable through demand-side macroeconomic policy? Natural unemployment Cyclical unemployment Structural unemployment Frictional unemployment

Cyclical unemployment

A currency has depreciated in value if it takes more of a foreign currency to buy it. True False

False

Which of the following statements best summarizes the relationship between debit cards and credit cards? Credit cards can be considered money but debit cards cannot. Both debit cards and credit cards can be considered money. Neither debit cards nor credit cards can be considered money. Debit cards can be considered money but credit cards cannot.

Debit cards can be considered money but credit cards cannot.

Which of the following has been an effect of globalization and a large trade deficit? Increased wages in the tradable sector Increased employment in the tradable sector Increased wages in the immigrant sector Decreased employment in the tradable sector

Decreased employment in the tradable sector

What effect would we expect in the market for loanable funds if come people discover a new business opportunity that requires investment? Demand will shift left and supply will not change. Demand will shift right and supply will not change. Supply will shift left and demand will not change. Supply will shift right and demand will not change.

Demand will shift right and supply will not change.

A government budget deficit occurs when government revenues exceed government expenditures. True False

False

Which of the following is not included in GDP but is included in GNP? A foreign company's production in the United States Sales of a good by one firm to another firm Income of a citizen of Germany working in the United States Economic activity of U.S. citizens working abroad

Economic activity of U.S. citizens working abroad

Countries such as Brazil, India, and Moldova - well known sources of donors - have banned buying and selling organs. This legal action comes at the risk of driving the trade underground. What idea from Chapter 1 of the text does this story best illustrate? Marginal revenue should equal marginal cost. Economic forces always operate despite legal forces. Legal and social forces can eliminate economic forces. The invisible hand is not always invisible.

Economic forces always operate despite legal forces.

Asset inflation tends to hurt those who save in risky assets. True False

False

Asset price inflation occurs when the price of assets fall more than their real value. True False

False

Which of the following statements correctly summarizes a difference between the layperson's and the economist's views of the net benefits of trade? Economists focus on trade in manufactured goods while laypeople also focus on trade involving the services of people who manage the trade. Economists often argue that the gains from trade in the form of low consumer prices tend to be widespread and not easily recognizable while the costs in jobs lost tend to be concentrated and readily identifiable. Economists often argue that most U.S. jobs are at risk of outsourcing while laypeople intuitively recognize that inherent in comparative advantage is that each country has a comparative advantage in the production of some good. Economists most often argue that the costs of trade outweigh the benefits while laypeople often argue that the benefits of trade outweigh the costs.

Economists often argue that the gains from trade in the form of low consumer prices tend to be widespread and not easily recognizable while the costs in jobs lost tend to be concentrated and readily identifiable.

Housing prices fell sharply in 2008 and 2009, contributing to a severe recession as the AD curve shifted leftward. The ordinary AS/AD model would predict that falling short-run aggregate supply would bring deflation and move the economy back to potential output. Which of the following describes the impact of dynamic feedback effects on this return to potential output? The deflation will be counteracted by increases in the money supply from the Federal Reserve, preventing the price adjustment and keeping the economy below potential output. Expectations that prices might fall further could cause people to reduce spending, shifting the AD curve further to the left. Falling house prices could cause people to buy more house than they really need, creating a further crisis as another wave of foreclosures and bankruptcies occurs. As the SAS curve shifts downward, firms respond by increasing their investment in capital equipment, but rehire few of the laid-off workers, so that employment does not return to normal.

Expectations that prices might fall further could cause people to reduce spending, shifting the AD curve further to the left.

A country imposing trade restrictions can benefit only if other countries also impose trade restrictions. True False

False

A country that runs a trade surplus increases current consumption at the expense of future consumption. True False

False

If the government knew the level of potential income and had sufficient information about the economy (i.e. the mpe, and such), it could fine-tune the economy. True False

False

If the unemployment rate drops, then it necessarily follows that some of the people who were once unemployed are now employed. True False

False

In practice, the Fed focuses on changing reserves to change the total money supply. True False

False

In the AS/AD model, an increase in the money supply causes an increase in the interest rate and an increase in investment spending. True False

False

Laissez-faire economists favor government intervention in the market process. True False

False

Manufacturing wages have risen significantly for 20 years. True False

False

Monetary and fiscal policies have little effect on the trade deficit. True False

False

People with intellectual property rights are on the low end of the income distribution that is created from globalization. True False

False

Quotas on imported automobiles cost jobs in the U.S. automobile industry but lower auto prices for domestic consumers. True False

False

Real-world experience shows that when weather conditions reduce crop yields, the price of agricultural products will fall. True False

False

Sound finance holds that government spending should be directed toward sound investment. True False

False

Tariffs increase equilibrium price and quantity. True False

False

The application of Keynesian economics to public finance and fiscal policy by Abba Lerner, and its incorporation into Paul Samuelson's economic principles textbook, was known as procyclical finance. True False

False

The balance of payments is made up of three accounts: the merchandise trade account, the service account, and the investment income account. True False

False

The larger the debt and the inflation rate, the less debt will be eliminated by inflation. True False

False

The law of supply states that more of a good will be supplied the lower its price, other things constant. True False

False

The opportunity cost of undertaking an activity includes any sunk cost. True False

False

The program suggested by the textbook author provides a job for everyone. True False

False

The terms business cycle and structural stagnation can be used interchangeably. True False

False

If U.S. imports of goods and services exceed exports U.S.: net exports are positive. GDP exceeds the sum of consumption, investment, and government purchases. GDP is less than the sum of consumption, investment, and government purchases. GDP equals the sum of consumption, investment, and government purchases.

GDP is less than the sum of consumption, investment, and government purchases.

Which of the following is a reason why government debt is different from individual debt? Government is ongoing, individuals are not. Government cannot create money to finance its debt. Government debt can be owed to foreigners, unlike the debt of individuals. Government has fewer sources of income to finance its debt than individuals.

Government is ongoing, individuals are not.

Suppose the price of tomatoes dramatically increases. Which of the following could cause this change? Advertising for catsup increases demand for catsup, shifting the demand curve to the left. A reduction in tariffs of tomatoes from Central America, shifting supply right. Hurricanes during the late summer damages the Florida crop, shifting supply left. A news report stating that a pesticide used on tomatoes might cause cancer, shifting the demand to the right.

Hurricanes during the late summer damages the Florida crop, shifting supply left.

Which of the following puts downward pressure on U.S. manufacturing wages? Immigration. Technological innovation. Rising foreign wages. a declining value of the dollar.

Immigration.

Which of the following puts downward pressure on U.S. manufacturing wages? Immigration. a declining value of the dollar. Technological innovation. Rising foreign wages.

Immigration.

Which two sources of revenue comprise most of federal government revenue? Corporate income taxes and excise taxes Individual income tax and corporate income taxes Corporate income taxes and social security taxes and contributions Individual income tax and social security taxes and contributions

Individual income tax and social security taxes and contributions

Which two sources of revenue comprise most of federal government revenue? Individual income tax and corporate income taxes Corporate income taxes and excise taxes Individual income tax and social security taxes and contributions Corporate income taxes and social security taxes and contributions

Individual income tax and social security taxes and contributions

Small-denomination time deposits are included in: checking accounts. M2 M1 traveler's checks.

M2

The Indian government is known for creating obstacles to foreign investment with tariffs, investment caps and tons of red tape. What effect does "red tape" have on growth? It discourages entrepreneurship. It encourages learning by doing. It discourages leisure. It encourages specialization.

It discourages entrepreneurship.

Haiti has a literacy rate (the percentage of those over 15 who can read and write) of about 66 percent. In terms of the various factors that explain the wealth of nations, where does this low literacy rate fit? It shows a lack of natural resources. It shows that it lacks entrepreneurship. It indicates that Haiti is short of physical capital. It indicates that Haiti is short on human capital.

It indicates that Haiti is short on human capital.

In what category is the purchase of a computer by a business in national income accounting? It is ignored because computers are considered intermediate goods - an input in the production of other goods and srevices. It is a form of savings. It is considered consumption. It is a form of investment spending.

It is a form of investment spending.

In what category is the purchase of a computer by a person for household use in national income accounting? It is counted as consumption. The purchase is not included at all, but the value of services the computer gives is inlcuded in consumption each year. It is included as part of investment. It is counted as consumption if the computer was manufactured in the United States; otherwise it is ignored.

It is counted as consumption.

If the U.S. dollar appreciates against the Japanese yen: Japanese goods will be cheaper in the United States. Japanese goods will be more expensive in the United States. U.S. goods will be cheaper for Japanese consumers. the U.S. dollar will buy fewer Japanese yen.

Japanese goods will be cheaper in the United States.

Suppose consumers shift money out of checking accounts and pay their credit cards. This shift will affect: M3 M2 L M1

M1

The equation of exchange is expressed as: MR = MC MV = PQ MPP = P MR = PQ

MV = PQ

Which of the following is a good example of government's attempt to correct for macroeconomic externalities? Providing public goods Maintaining full employment Providing for smoke-free public spaces Preventing excessive amounts of pollution

Maintaining full employment

At one time, most of the cars produced in Mexico were sold in Mexico. Today, however, Mexico both exports and imports cars. How can comparative advantage explain these data? Mexico has a comparative disadvantage in automobiles. Mexico specializes in the production of high-end cars, which it exports, and imports low-end cars that can be produced at lower cost elsewhere. The patter is not due to comparative advantage but to government restrictions on production. It cannot; comparative advantage predicts that a country either exports a product or imports it, not both.

Mexico specializes in the production of high-end cars, which it exports, and imports low-end cars that can be produced at lower cost elsewhere.

Which of the following is the path through which contractionary monetary policy works? Money down implies interest rate down implies investment up implies income down. Money down implies interest rate up implies investment up implies income down. Money down implies interest rate down implies investment down implies income down. Money down implies interest rate up implies investment down implies income down.

Money down implies interest rate up implies investment down implies income down.

People living in the town of Norwich, England have begun a system of trade called the LETS, which allows people to enter into exchanges without using the British pound. Members offer a particular service, such as babysitting, gardening, and plumbing for which they get Croy credits. They can then use these Croys to buy services from other people. Does this system represent what economists call barter? No; this group has merely replace one money, the pound, with a less flexible medium of exchange that they call the Croy. Yes, because it does not use the true money, the British pound. Yes, because the Croy is not real money but just a bookkeeping account. No; to be true barter, the exchange rate between the Croy and the British pound must be flexible.

No; this group has merely replace one money, the pound, with a less flexible medium of exchange that they call the Croy.

Which of the following groups might be expected to support high United States Department of Agriculture standards for imported citrus fruit? Orange and grapefruit producers in other nations. Shipping companies tht import agricultural goods from other countries. Citrus fruit consumers in New England, where citrus cannot be grown easily. Orange growers in Florida.

Orange growers in Florida.

Which of the following groups might be expected to support high United States Department of Agriculture standards for imported citrus fruit? Shipping companies that import agricultural goods from other countries. Orange and grapefruit producers in other nations. Orange growers in Florida. Citrus fruit consumers in New England, where citrus cannot be grown easily.

Orange growers in Florida.

Suppose that in Slovakia one unit of labor can produce either 16 tons of wheat or 32 tons of soy and in Poland one unit of labor can produce either 4 tons of wheat or 2 tons of soy. Given this information, which of the following statements is true? Poland has a comparative advantage in producing soy but not wheat. Slovakia has a comparative advantage in producing neither wheat nor soy. Slovakia has a comparative advantage in producing both wheat and soy. Poland has a comparative advantage in producing wheat but not soy.

Poland has a comparative advantage in producing wheat but not soy.

England has a relatively cool and cloudy climate that is ill suited for grape growing. It can produce 200 units of wine for every 400 units of cloth. Portugal, in contrast, has a relatively warm and sunny climate. Which country has the higher opportunity cost of producing cloth? Portugal: 2 units of wine for every unit of cloth England: 1/2 unit of cloth for every unit of wine Portugal: 1/2 unit of wine for every unit of cloth England: 2 units of wine for every unit of cloth

Portugal: 2 units of wine for every unit of cloth

Which statement is not consistent with the law of supply? More of a good will be supplied, the higher the price, other things constant. Less of a good will be supplied, the lower the price, other things constant. Quantity supplied of a good is inversely related to the good's price. Quantity supplied of a good is directly related to the good's price.

Quantity supplied of a good is inversely related to the good's price.

What effect will including discouraged workers have on the unemployment rate? Have no impact because discouraged workers are already included. Raise it because there are always discouraged workers. The measures are unrelated and therefore cannot be compared. Lower it because it would reduce the number of unemployed.

Raise it because there are always discouraged workers.

A widget has a opportunity cost of 4 wadgets in Saudi Arabia and 2 wadgets in the United States. Given these opportunity costs, you would suggest that: Saudi Arabia specialize in wadgets and the United States in widgets. No trade should take place. Both countries should produce an equal amount of each. Saudi Arabia specialize in widgets and the United States in wadgets.

Saudi Arabia specialize in wadgets and the United States in widgets.

Which of the following is not a type of capital that will contribute to economic growth? Social capital Financial capital Human capital Physical capital

Social capital

What makes a Federal Reserve note function as money? Banks Government Regulation Social convention

Social convention

Which of the following is not one of the functions of money? Store of wealth Unit of account Standard of economic well-being Medium of exchange.

Standard of economic well-being

When you deposit $200 in your savings account with the objective to buy in the near future a video game that is about to be offered in the market, then the $200 is serving which function? Unit of account Store of wealth Medium of exchange Store of real assets

Store of wealth

Helped by desktop publishing, the number of vintage baseball card forgeries has flooded the market for vintage baseball cards. Dealers left the market for fear of purchasing a phony. What was the effect on the market for vintage baseball cards assuming phonies cannot be detected? Supply shifted to the right, demand shifted to the left, and price declined. Supply shifted to the right, demand did not change, price declined, and quantity traded rose. Supply shifted to the right, demand shifted to the left, and price rose. Demand shifted to the left, supply did not change, price declined, and quantity traded declined.

Supply shifted to the right, demand shifted to the left, and price declined.

Helped by desktop publishing, the number of vintage baseball card forgeries has flooded the market for vintage baseball cards. Dealers left the market for fear of purchasing a phony. What was the effect on the market for vintage baseball cards assuming phonies cannot be detected? Supply shifted to the right, demand shifted to the left, and price rose. Supply shifted to the right, demand shifted to the left, and price declined. Supply shifted to the right, demand did not change, price declined, and quantity traded rose. Demand shifted to the left, supply did not change, price declined, and quantity traded declined.

Supply shifted to the right, demand shifted to the left, and price declined.

The United States switched from being a world debtor nation to being a world creditor nation during World War I. Which of the following contributed to this shift? The British needed to buy American goods and had nothing to sell in return, so they sold British assets to Americans. The United States raised taxes to finance the war effort, and in the process paid off the national debt. The high inflation caused by excessive monetary growth in the United States redistributed wealth away from foreigners to the United States. The United States needed to borrow to finance its war effort, and got the funds from other countries.

The British needed to buy American goods and had nothing to sell in return, so they sold British assets to Americans.

Which of the following is not held constant as you move along the demand curve? The price of other goods The price of that good The income of consumers The preferences of consumers for the good

The price of that good

Why are the gains from trade often difficult to recognize? The United States does not keep accurate records of employment. There are no gains from trade. The gains are in services, which are difficult to measure. The gains are spread out over a wide variety of goods and consumers.

The gains are spread out over a wide variety of goods and consumers.

Which of the following in a short-run of the rise in structural unemployment in the 2007/09 recession and its aftermath? A cut in student loan programs The bursting of the financial bubble Rising reservation wages Increased globalization

The bursting of the financial bubble

Suppose a recent and widely circulated medical article reports new benefits of exercise. Simultaneously, the price of the parts needed to make bikes falls. What is the likely effect on the equilibrium price and quantity of exercise bikes sold? Price of exercise bikes remains the same and quantity sold increases. Price of exercise bikes increases and quantity sold also increases. Price of exercise bikes decreases and quantity sold remains the same. The change in price is ambiguous, but the quantity sold increases.

The change in price is ambiguous, but the quantity sold increases.

The U.S. economy did not recover as expected after which economic downturn? The Great Recession of 1952 The oil crisis of the 1970s The crash of 2008 The 2001 dot com crash

The crash of 2008

The U.S. economy did not recover as expected after which economic downturn? The crash of 2008 The 2001 dot com crash The oil crisis of the 1970s The Great Recession of 1952

The crash of 2008

Which of the following statements is true? The debt is a stock measure and the deficit or surplus is a flow measure. Both the debt and the deficit or surplus are flow measures. Both the debt and the deficit or surplus are stock measures. The debt is a flow measure and the deficit or surplus is a stock measure.

The debt is a stock measure and the deficit or surplus is a flow measure.

The price of an acre of land in rural Nevada is a few hundred dollars. The price of an acre of land in downtown New York is many millions of dollars. How does the law of one price explain this difference? The law of one price applies only to resourcs involved in international trade. It cannot; there are unexplainable exceptions to the law of one price. It suggests that in the long run price of land will be equalized regardless of location. The law of one price depends on the mobility of resources, but location by its very nature cannot be mobile.

The law of one price depends on the mobility of resources, but location by its very nature cannot be mobile.

The price of an acre of land in rural Nevada is a few hundred dollars. The price of an acre of land in downtown New York is many millions of dollars. How does the law of one price explain this difference? The law of one price depends on the mobility of resources, but location by its very nature cannot be mobile. The law of one price applies only to resourcs involved in international trade. It cannot; there are unexplainable exceptions to the law of one price. It suggests that in the long run price of land will be equalized regardless of location.

The law of one price depends on the mobility of resources, but location by its very nature cannot be mobile.

An economy that operates inside its production possibility curve is less efficient that it would be if it were operating on its production possibility curve. True False

True

Which of the following is an example of an intermediate product? The lumber produced by Boise Cascade and sold to a builder of old houses A share of IBM stock An antique car sold to the highest bidder A pair of skis sold by a sporting goods retailer to a skier

The lumber produced by Boise Cascade and sold to a builder of old houses

Active demand management policies are based on the work of John Maynard Keynes. True False

True

After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside OPEC. OPEC during this time was unable to restrain output among members in its effort to lift oil prices. What best describes these events? The rise in demand shifted the demand for oil to the right. As price rose, quantity of oil supplied rose. The rise in demand reflects a movement down along the demand curve as supply shifted to the right when suppliers produced more oil. The rise in demand shifted the demand for oil to the right. As price rose, supply of oil also rose. The rise in demand shifted the demand for oil to the right. OPEC actions shifted the demand for oil back to the left.

The rise in demand shifted the demand for oil to the right. As price rose, quantity of oil supplied rose.

European Union subsidizes its farmers. How do these subsidies make it difficult for farmers in developing economies to compete in the world farm market? The subsidies shift the supply of EU farm goods to the right, lowering world prices of farm goods and the price developing country farmers can receive for their produce. The subsidies function as a tariff, causing imports from developing countries to become artificially expensive, thus denying European consumers the benefits of cheap imported food The subsidies create ethical problems for Europeans who want to buy farm products from developing countries since the subsidies are raising the price of developing country produce. The subsidies set a price ceiling for EU farm goods, keeping prices below the market equilibrium, and lowering the price developing country farmers can receive for their produce.

The subsidies shift the supply of EU farm goods to the right, lowering world prices of farm goods and the price developing country farmers can receive for their produce.

Active demand management policies are based on the work of John Maynard Keynes. True False

True

Why would students be prevented from joining the minimum jobs program? They would overwhelm the system looking for summer work. They would be considered overqualified. They would be judged as unreliable. They possess too much intelligence to join this program.

They would overwhelm the system looking for summer work.

Adam Smith stressed specialization and division labor as causes of economic growth. True False

True

Aggregate accounting enables us to measure and analyze how much a nation is producing and consuming. True False

True

Analysts have suggested that the cost of bras is related to trade restrictions on textile imports. What does the price of bras have to do with tariffs and quotas? Trade restrictions keep the prices of bras high, and ending them will result in lower prices. Trade restrictions do not influence the price of bras; the price is determined by domestic technology and the overall inflation rate. Trade restrictions in the form of tariffs keep prices of bras high, but replacing them wih quotas will result in lower prices. Trade restrictions protect consumers by keeping the price of bras low.

Trade restrictions keep the prices of bras high, and ending them will result in lower prices.

Analysts have suggested that the cost of bras is related to trade restrictions on textile imports. What does the price of bras have to do with tariffs and quotas? Trade restrictions keep the prices of bras high, and ending them will result in lower prices. Trade restrictions protect consumers by keeping the price of bras low. Trade restrictions in the form of tariffs keep prices of bras high, but replacing them with quotas will result in lower prices. Trade restrictions do not influence the price of bras; the price is determined by domestic technology and the overall inflation rate.

Trade restrictions keep the prices of bras high, and ending them will result in lower prices.

A free trade association is a group of countries that allows free trade among its members and, as a group, puts up common barriers against all other countries' goods. True False

True

A higher exchange rate value of the dollar reduces inflation but has a contractionary effect on the economy. True False

True

According to Taylor Rule, if current inflation is 2.5 percent, the target inflation rate is 2 percent, and output is 1 percent above potential, the Fed will target the federal funds rate at 5.25 percent. True False

True

According to the Ricardian equivalence theorem, people increase savings when the government increases deficits because they recognize the link between government deficits and higher future taxes. True False

True

Because an expansionary monetary policy decreases domestic interest rates, it can be used to fix the value of the domestic currency below the market equilibrium rate. True False

True

Crowding out is the offsetting effect on private expenditures caused by the government's sale of bonds to finance expansionary fiscal policy. True False

True

Cyclical unemployment is caused by fluctuations in economic activity. True False

True

Discouraged workers are more likely to be seen as unemployed and under the social responsibility framework than under the individual responsibility framework. True False

True

Fixed exchange rates restrict macroeconomic policy more than flexible exchange rates. True False

True

Gross domestic product (GDP) can be calculated using either the expenditure method or the income method. True False

True

Households supply factors of production to business and are paid by business for doing so. The market where this interaction takes place is called the factor market. True False

True

If Americans demand goods produced in Mexico, it leads to a demand for Mexican pesos and a supply of U.S. dollars on the foreign exchange market. True False

True

If cigar prices tripled while sales of cigars rose 30 percent, this would likely be due to a shift in demand. True False

True

In strategic trade bargaining it is sometimes reasonable to be unreasonable. True False

True

In the post-war era, the average business expansion has lasted about 59 months. True False

True

Inflation is a sustained rise in the general price level. True False

True

Long-term unemployment remained high after expansionary monetary and fiscal policy was used to fix the 2008 recession. True False

True

Money doesn't have to have an inherent value to function as a medium of exchange. True False

True

New growth theory emphasizes the contribution of technology to growth more than Classical growth theory. True False

True

People's knowledge is a type of capital, called human capital. True False

True

Private property rights are essential to market economies. True False

True

Productive efficiency is not achieved at any point inside the production possibility curve. True False

True

The United States has a trade deficit when the value of the goods and services we import exceeds the value of the goods and services we export. True False

True

The answers to an economy's three central economic problems are determined by the interaction of three forces: economic forces, political forces, and social forces. True False

True

The financial sector is very important to the economy. True False

True

The minimum wage is an example of a price floor. True False

True

The production possibility model can be used to demonstrate the concept of opportunity cost. True False

True

Two nations with differing comparative advantage will be able to consume more if they specialize and trade with each other than if they did not specialize or trade with each other. True False

True

In 2008, U.S. net exports were - $660 billion. Assuming all other components remained the same, as a consequence: U.S. GDP was $669 billion lower than it would have been if net exports had equaled zero. U.S. exports exceeded U.S. imports by $669 billion. U.S. GDP was $669 billion greater than it would have been if net exports had equaled zero. U.S. depreciation exceeded U.S. investment.

U.S. GDP was $669 billion lower than it would have been if net exports had equaled zero.

In 2008, U.S. GNP exceeded U.S. GDP by approximately $133 billion. This implies that: U.S. factor income earned abroad exceeded foreign factor income by $133 billion. U.S. depreciation was -$133 billion. U.S. factor income earned abroad was $133 billion less than foreign factor income. U.S. depreciation was $133 billion.

U.S. factor income earned abroad exceeded foreign factor income by $133 billion.

Which of the following groups would be most likely to benefit from a tariff on Japanese manufactured light trucks (i.e., pickup trucks)? U.S. firms that export products to Japan Japanese auto workers U.S. consumers of pickup trucks U.s. domestic pickup truck manufacturers

U.s. domestic pickup truck manufacturers

Which of the following cannot be determined by using a production possibility table? How much less of one output must be produced if more of another output is produced What combination of outputs can be produced How much output can be produced from a given level of inputs What combination of outputs is best

What combination of outputs is best

Which of the following is the best example of a normative question? Will increasing the money supply affect interest rates? How does the market for corn work? How do prices affect the market for coffee? Will the redistribution of income make society better off?

Will the redistribution of income make society better off?

The WTO authorized several countries to impose about $150 million trade sanctions against the United States in retaliation for a U.S. import law that the WTO ruled to be illegal. The organization that issued this ruling against the United States is known as the: World Trade Organization. Wage Tariff Objective. Wealth Technology Order. Welfare Tax Order.

World Trade Organization.

John and Jane Smith are both economists who are deciding how to split household chores of cooking and cleaning. They discover that John has a comparative advantage in cooking. Does this discovery tell them anything about comparative advantage in cleaning? No; either one may have a comparative advantage in cleaning. Yes; Jane must have a comparative advantage in cleaning. No; both or neither may have a comparative advantage in cleaning. Yes; John must also have a comparative advantage in cleaning.

Yes; Jane must have a comparative advantage in cleaning.

In China many farmers have switched from producing rice to producing vegetables and fruit because they can earn a great deal more money fro these specialty crops. Within China there are some who applaud this change, but others worry that China soon may become dependent on rice imports. Even with the low cost of Chinese labor, does that fact that china is importing rice suggest that other countries now have a comparative advantage in rice production? Yes; but only if there are other countries with even cheaper labor. Yes; countries with more expensive labor can offset that cost with abundant land and farm equipment. No; China must have a comparative advantage in rice if it imports rice. maybe; because rice is standardized product, the role of innovation and creativity in its production is important.

Yes; countries with more expensive labor can offset that cost with abundant land and farm equipment.

In China many farmers have switched from producing rice to producing vegetables and fruit because they can earn a great deal more money from these specialty crops. Within China there are some who applaud this change, but others worry that China soon may become dependent on rice imports. Even with the low cost of Chinese labor, does that fact that china is importing rice suggest that other countries now have a comparative advantage in rice production? maybe; because rice is standardized product, the role of innovation and creativity in its production is important. Yes; but only if there are other countries with even cheaper labor. Yes; countries with more expensive labor can offset that cost with abundant land and farm equipment. No; China must have a comparative advantage in rice if it imports rice.

Yes; countries with more expensive labor can offset that cost with abundant land and farm equipment.

The outsourcing of service jobs such as those in call centers has become a political issue. Do economists see any benefit to outsourcing? No; it simply shifts jobs overseas. Yes; it tends to raise the value of the dollar. Yes; it tends to reduce prices to American companies and consumers. No; it only benefits foreign economies.

Yes; it tends to reduce prices to American companies and consumers.

Suppose the target rate of unemployment is 5 percent but the actual rate of unemployment is 4 percent. Given this information, which of the following policies is most appropriate according to the AS/AD model? no change in taxes or government spending. an ncrease in government spending. a atx increase. a tax cut.

a atx increase.

A policy that raises taxes or reduces government spending is called an expansionary monetary policy. a contractionary monetary policy. a contractionary fiscal policy. an expansionary fiscal policy.

a contractionary fiscal policy.

Which of the following would shift the aggregate demand curve to the left? a higher future expected price level. a decrease in exports. an increase in foreign income. a depreciation in the value of the country's currency.

a decrease in exports.

An increase in equilibrium price and a decrease in equilibrium quantity is most likely the result of: a decrease in supply. an increase in demand. an increase in supply. a decrease in demand.

a decrease in supply.

The supply of leather jackets would be expected to increase as a result of: the expectation that the price of leather jackets will rise in the future. an increase in the popularity of leather jackets. an increase in the price of leather jackets. a decrease in the cost of producing leather jackets.

a decrease in the cost of producing leather jackets.

Suppose a price floor is imposed on eggs above their equilibrium price. The likely result will be a higher equilibrium price for eggs as the supply curve for eggs shifts left. a decrease in the quantity of eggs demanded. a lower equilibrium price for eggs as the demand curve for eggs shifts left. an increase in the quantity of eggs demanded.

a decrease in the quantity of eggs demanded.

If no resources had a comparative advantage in the production of any good, the production possibility curve would be: a horizontal line. a downward-sloping straight line. bowed inward. bowed outward.

a downward-sloping straight line.

In the late 1980s the Chinese currency, the renminbi, which is counted in yuan, was fixed by the Chinese government at 3.7 yuan to the dollar but had a black market rate of 10 yuan to the dollar. On the basis of this information, in the late 1980s most Chinese probably believed that dollars were: no better or worse than the yuan as a way of holding wealth because the exchange rates equalized values. a good way to hold wealth because the black market rate of the dollar was higher than the official rate. a poor way to hold wealth because of the social disapproval of the black market. a poor way to hold wealth compared with the yuan because the official and black market rates were so different.

a good way to hold wealth because the black market rate of the dollar was higher than the official rate.

The economic goals about which there is a substantial agreement include all the following except: a high rate of economic growth. a large trade surplus. a high level of employment a low rate of inflation.

a large trade surplus.

If the United States were to stop trading with other nations, economists would predict that in the long run the United States would end up with: a lower standard of living. a higher standard of living. lower prices. more jobs.

a lower standard of living.

If the United States were to stop trading with other nations, economists would predict that in the long run the United States would end up with: more jobs. a higher standard of living. lower prices. a lower standard of living.

a lower standard of living.

Suppose a single firm gains control of an industry by preventing other firms from entering the industry. As a result, the price charged by the single firm is much higher than the price that would be charged by many different firms producing this product in a competitive market. This situation can be best described as: a market failure. a government failure. an efficient outcome. a competitive outcome.

a market failure.

If the distribution of the gains from growth matter, growth in median income is: a more informative measure of growth than growth in per capita income when the distribution of income is equitable. a more informative measure of growth than growth in per capita income when the gains from growth are concentrated on a small segment of the population. a less informative measure of growth than growth in per capita income. the same as growth in per capita income.

a more informative measure of growth than growth in per capita income when the gains from growth are concentrated on a small segment of the population.

Graphically, a change in price causes: both supply and demand to shift. the demand curve to shift. the supply curve to shift. a movement along a given supply curve, not a shift.

a movement along a given supply curve, not a shift.

A natural experiment is: what all economists do when they develop their models. a naturally occurring event that approximates a controlled experiment. not possible given that economists study real-world events. a branch of economics that studies the economy through controlled lab experiments.

a naturally occurring event that approximates a controlled experiment.

Paying interest on external government debt rather than on domestic debt produces: no change in the level of distribution of domestic income. a net reduction in domestic income. a redistribution of income within the country. a net increase in domestic income.

a net reduction in domestic income.

A structural stagnation is: a particular type of downturn that is not expected to end anytime soon. unrelated to business cycles. a business cycle with greater in fluctuations around the trend. a business cycle in which unemployment rises during the downturn and rises during the expansion.

a particular type of downturn that is not expected to end anytime soon.

A fall in a foreign country's income will most likely cause a reduction in U.S. exports, so the U.S. aggregate demand curve shifts right. a reduction in U.S. exports, so the U.S. aggregate demand curve shifts left an increase in U.S. exports, so the U.S. aggregate demand curve shifts left. an increase in U.S. exports, so the U.S. aggregate demand curve shifts right.

a reduction in U.S. exports, so the U.S. aggregate demand curve shifts left

A fall in a foreign country's income will most likely cause an increase in U.S. exports, so the U.S. aggregate demand curve shofts left. a reduction in U.S. exports, so the U.S. aggregate demand curve shifts right. a reduction in U.S. exports, so the U.S. aggregate demand curve shifts left. an increase in U.S. exports, so the U.S. aggregate demand curve shifts right.

a reduction in U.S. exports, so the U.S. aggregate demand curve shifts left.

After one cow in Alberta, Canada was found with mad cow disease, the United States banned all imports of Canadian cattle and beef. This action is an example of: a regulatory trade restriction. a quota. a tariff. an embargo.

a regulatory trade restriction.

A tariff designed to eliminate foreign competition completely will be expected to raise: an amount of revenue equal to the amount of th tariff multiplied by the volume of exports. either a large or a small amount of revenue depending on the magnitutde of the tariff imposed. a relatively large amount of tax revenue. a relatively small amount of tax revenue.

a relatively small amount of tax revenue.

At the intersection of the short-run aggregate supply curve and the aggregate demand curve, the economy is in a short run equilibrium but not necessarily a long run equilibrium. beither a short run nor a long run equilibrium. a long-run equilibrium but not necessarily a short run equilibrium. both a short run and a long run equilibrium.

a short run equilibrium but not necessarily a long run equilibrium.

A 50 percent tax on imports of Danish cheese is an example of: a regulatory trade restriction. an embargo. a quota. a tariff.

a tariff.

A 50 percent tax on imports of Danish cheese is an example of: a tariff. a quota. an embargo. a regulatory trade restriction.

a tariff.

According to the text, if individuals base their expectations on the past we say that their expectations are: adaptive. historical. extrapolative. rational.

adaptive.

In the Classical growth model, the economy attains a stationary state because: the surplus of output above subsistence is maximized in this state. additional population would cause wages to fall below subsistence and would reduce population. population growth eventually equals output growth. the law of diminishing marginal productivity causes output to stop growing.

additional population would cause wages to fall below subsistence and would reduce population.

Social forces: affect the price mechanism through scarcity. do not affect the price mechanism. affect the price mechanism through cultural norms. affect the price mechanism but not the legal system.

affect the price mechanism through cultural norms.

Social forces: do not affect the price mechanism. affect the price mechanism but not the legal system. affect the price mechanism through cultural norms. affect the price mechanism through scarcity.

affect the price mechanism through cultural norms.

If prices are inflexible, monetary policy: affects real income but not nominal income. affects nominal income but not real income. does not affect real or nominal income. affects both nominal and real income.

affects both nominal and real income.

According to the aggregate accounting identity: GNP equals GDP. aggreagte income equals aggregate production. assets equal liabilities. supply equals demand.

aggreagte income equals aggregate production.

Because reducing both unemployment and inflation simultaneously are conflicting goals: aggregate demand policy will allow policymakers to achieve both objectives, but only if it is expansionary. aggregate demand policy will allow policymakers to achieve both objectives, but only if it is contractionary. there is a policy that allow policymakers to achieve either objective. aggregate demand policy will allow policymakers to achieve one of these objectives, but not both.

aggregate demand policy will allow policymakers to achieve one of these objectives, but not both.

GNP is the: aggregate output of the citizens and businesses of an economy in a one year period. aggregate final output of the citizens and businesses of an economy in a one yer period. total market value of all final goods and services produced in an economy in a one year period. total market value of all goods and services produced in an economy in a one year period.

aggregate final output of the citizens and businesses of an economy in a one yer period.

In the Classical growth model: countries will never share the same per capital incomes. all countries will eventually have the same per capital incomes. richer countries will always grow faster than poorer countries. poorer countries will always grow faster than richer countries but will never become as rich.

all countries will eventually have the same per capital incomes.

Technological changes in telecommunications have: reduced the need for foreign trade in many services. allowed increased foreign trade in many services. profoudly affected trade in manufactured goods with little effect on trade services. reduced the importance of services in the world economy.

allowed increased foreign trade in many services.

One reason economists have begun focusing on the Personal Consumption Expenditure measure for inflation is that the PCE deflator: includes the price of assets such as stock portfolios. takes the exchange rate value of the dollar into account. weights food more because food is a rising percent of expenditures. allows for a changing basket of goods.

allows for a changing basket of goods.

Technological development: makes it impossible to obtain more of the same things. alters the nature of production and consumption. does not depend on economic incentives. does not depend on institutions.

alters the nature of production and consumption.

Without considering the effect that a change in the value of a currency might have on trade, the net effect of an expansionary fiscal policy is: negative with respect to the exchange rate and positive with respect to the trade balance. ambiguous with respect to the trade balance, but positive with respect to the exchange rate. ambiguous with respect to the exchange rate, but negative with respect to the trade balance. positive with respect to the exchange rate and negative with respect to the trade balance.

ambiguous with respect to the exchange rate, but negative with respect to the trade balance.

An economic policy is: a physical or mental structure that significantly influences economic decisions. an action taken to influence the course of economic events. a standard people use when they determine whether a particular activity or behavior is acceptable. a generalization about the workings of an abstract economy.

an action taken to influence the course of economic events.

The United States does not allow U.S. citizens to trade with Iraq. This is an example of: a regulatory trade restriction. a quota. a tariff. an embargo.

an embargo.

If U.S. real GDP increases by 3.3 percent, we can infer that the United States experienced: an expansion. a trough. a recession. a depression.

an expansion.

Up through the early decades of the 20th century, many countries remained closed to trade, charging high tariffs or imposing strict quotas on imported goods. In 1948, 23 countries joined the General Agreement on Tariffs and Trade (GATT), which sought to set out rules for trade and enhance future negotiations. The reduction in tariffs as a result of GATT probably brought about: no change in consumption. a decrease in consumption. a reduction in domestic production. an increase in consumption.

an increase in consumption.

The paradox of thrift occurs when saving is unrelated to output an increase in saving raises output a decrease in saving reduces output an increase in saving reduces output

an increase in saving reduces output

The interest rate effect helps to explain why an increase in the price level raises investment. a decrease in the price level reduces the quantity of aggregate demand. an increase in the price level reduces the quantity of aggregate demand. a decrease in the price level reduces investment.

an increase in the price level reduces the quantity of aggregate demand.

When applied to labor markets, the law of supply suggests that: a decrease in the wages by nurses will cause the quantity of nurses demanded to increase. an increase in the wages earned by nurses will cause the quantity of nurses demanded to increase. a decrease in the wages earned by nurses will cause the quantity of nurses supplied to increase. an increase in the wages earned by nurses will cause the quantity of nurses supplied to increase.

an increase in the wages earned by nurses will cause the quantity of nurses supplied to increase.

When banks store your money for you they give you checks. These checks become: liabilities to you. assets of the bank. another form of money. assets of the Federal Reserve.

another form of money.

An economic model: applies economic theory to understand real-world events. can be used only to understand free markets. is an action taken to influence the course of economic events. is so abstract that it cannot be applied to real-world events.

applies economic theory to understand real-world events.

Sunk costs: should be considered only when there is no information about marginal cost and marginal benefit. should be considered, but only when marginal cost is less than marginal benefit. are essential parts of economic decisions. are irrelevant to economic decisions.

are irrelevant to economic decisions.

The 2004 South Asian tsunami killed more than 150,000 people in countries around the Indian Ocean, many Americans donated to help the victims of this natural disaster. These donations: are part of the export of services in the balance of payments account. are part of the import of services in the balance of payments account. would not be included in the balance of payments account because there was no purchase or sale. are part of net transfers in the balance of payments account.

are part of net transfers in the balance of payments account.

In 2009, output was beneath potential. At the same time, the budget deficit hit a record high of over $1 trillion. If President Obama were to pursue budget cuts, given the state of the economy, these spending cuts would: be procyclical. be countercyclical. increase interest rates. crowd out investment.

be procyclical.

In principle, households ultimately control: the government. both businesses and government. businesses. neither businesses nor the government.

both businesses and government.

The long-run aggregate supply curve shows the output level that an economy can produce when capital is fully employed. firms adjust quantity rather than price. both capital and labor are fully employed. labor is fully employed.

both capital and labor are fully employed.

With an upward-sloping short-run aggregate supply curve, firms respond to a change in aggregate demand by adjusting prices but not quantities in the short run. neither prices nor quantities in the short run. both prices and quantities in the short run. quantities but not prices in the short run.

both prices and quantities in the short run.

Increasing marginal opportunity cost means that the production possibility curve is: bowed in so that for every additional unit of one good given up, you get more and more units of the other good. bowed so that for every additional unit of one good given up, you get fewer and fewer units of the other good. bowed out so that for ever additional unit of a good given up, you get fewer and fewer units of the other good. bowed out so that for every additional unit of one good given up, you get more and more units of the other good.

bowed out so that for ever additional unit of a good given up, you get fewer and fewer units of the other good.

Fluctuations around the long-term growth rate are called: recessions. business cycles. expansions. depressions.

business cycles.

A government can finance its budget deficit by doing all of the following except: borrowing from its central bank. buying bonds. selling bonds. printing money.

buying bonds.

The lowest sustainable rate of unemployment that policy makers believe is achievable under existing conditions is: called the optimal rate of unemployment. called the target rate of unemployment. called cyclical unemployment. zero.

called the target rate of unemployment.

An economy's resources can always be overutilized. can never be overutilized. are always fully employed. can be overutilized, but only temporarily.

can be overutilized, but only temporarily.

Cyclical unemployment: is generally greater than structural unemployment. can be reduced with demand side policies. includes structural unemployment. is generally less than structural unemployment.

can be reduced with demand side policies.

The target rate of unemployment: remains always at 5 percent. remains always at 2 percent. remains always at 0 percent. can change over time.

can change over time.

The country with a comparative advantage in the production of good X is the one that: can produce good X with the least labor. can produce good X at the lowerest opportunity cost. has the greatest technical efficiency in producng good X. has the greatest supply of the natural resources used in producing good X..

can produce good X at the lowerest opportunity cost.

Global corporations: have little interest in decreasing international tensions. are falling in importance in today's economy. can provide many benefits to the countries in which they operate. suffer tax disadvantages that domestic corporations do not.

can provide many benefits to the countries in which they operate.

In practice, distribution under socialism is primarily determined by: central planners within the government. market forces of supply and demand. the ability of each individual to produce. individual altruism and cooperation.

central planners within the government.

If the value of the dollar falls relative to other currencies, the price of goods and services produced in the United States will appear: cheaper to foreigners. more expensive to foreigners. the same to foreigners. more expensive to U.S. citizens.

cheaper to foreigners.

The term efficiency involves achieving a goal as: steadily as possible. cheaply as possible. well as possible. quickly as possible.

cheaply as possible.

Frictional unemployment: refers mainly to unemployment resulting from fluctuations in output. comes from people constantly entering the labor force and changing jobs. refers to unemployment caused by friction between labor and management. is undesirable and should be eliminated.

comes from people constantly entering the labor force and changing jobs.

In the former USSR, state planners decided what was to be produced. They passed order down to factories, allocating raw materials, workers, and other factors of production to them. This is an example of (a): command economy. corporation. government as a referee. market economy.

command economy.

Small differences in growth rates can create large differences in income levels because of: compounding. specialization. the division of labor. Say's Law.

compounding.

According to Keynes why might deflation create problems for an economy? in expectation of increased spending, too many entrepreneurs would begin businesses and most would fall. the cost of repricing goods would increase costs, and therefore reduce profits, for businesses and they would cut production. consumers might expect prices to fall further and cut back consumption now. people would drop out of unions because unions would become ineffective at keeping wages of members high.

consumers might expect prices to fall further and cut back consumption now.

The explanation for the law of demand involves: consumers' ability to substitute different goods. the government's ability to set prices. the market's ability to equate supply and demand. suppliers' ability to substitute inputs.

consumers' ability to substitute different goods.

If the Fed simultaneously raises the discount rate and the reserve requirement, the money supply will: contract. take on a value that cannot determined from the information given. expand. remain unchanged.

contract.

A country that wants to increase its exchange rate to a higher level than the market exchange rate would most likely adopt: contractionary fiscal policy. expansionary monetary policy. expansionary fiscal policy. contractionary monetary policy.

contractionary monetary policy.

The monetary base is comprised of: currency held by the public. currency held by the public, vault cash, and commercial bank deposits at the Fed. vault cash. commercial bank deposits at the Fed.

currency held by the public, vault cash, and commercial bank deposits at the Fed.

It is generally true that elected officials find it easier to: raise taxes and cut government spending. raise both taxes and government spending. cut government spending. cut taxes.

cut taxes.

All of the following fiscal policies will contribute to increasing budget deficit except: cuts in aid to farmers. increases in Social Security payments to the elderly and disabled. increases in defense expenditures. tax cuts.

cuts in aid to farmers.

According to Keynes, the economy could become stuck at a low income level if declines in aggregate demand are not accompanied by declines in aggregate supply. aggregate demand and aggregate supply are independent of one another. declines in aggregate demand and aggregate supply reinforce one another. declines in aggregate supply are not accompanoed by declines in aggregate demand.

declines in aggregate demand and aggregate supply reinforce one another.

According to Keynes, the economy could become stuck at a low income level if: aggregate demand and aggregate supply are independent of one another. declines in aggregate demand are not accompanied by declines in aggregate supply. declines in aggregate supply are not accompanied by declines in aggregate demand. declines in aggregate demand and aggregate supply reinforce one another. (When a decline in aggregate demand causes firms to cut output and lay off workers, households have less income to spend, which reinforces the decline in aggregate demand, triggering an additional reduction in aggregate supply and so on.)

declines in aggregate demand and aggregate supply reinforce one another.

If nominal income increases by 3 percent and real income increases by 4 percent, the price level must: decrease by 7 percent. increase by 7 percent. increase by 1 percent. decrease by 1 percent.

decrease by 1 percent.

The likely effect of a contractionary monetary policy in Japan would be to: decrease the value of the dollar and increase the U.S. trade deficit. increase the value of the dollar and the U.S. trade deficit. decrease the value of the dollar and the U.S. trade deficit. increase the value of the dollar and decrease the U.S. trade deficit.

decrease the value of the dollar and increase the U.S. trade deficit.

A decrease in the number of consumers in a market causes market demand to: decrease, resulting in a surplus which will be eliminated as price rises. increase, resulting in a shortage which will be eliminated as price falls. decrease, resulting in a surplus which will be eliminated as price falls. increase, resulting in a shortage which will be eliminated as price falls.

decrease, resulting in a surplus which will be eliminated as price falls.

The crowding out effect: increase the multiplier effect, so that an increase in taxes reduces income by more. decreases the multiplier effect, so that an increase in taxes reduces income by less. increases the multiplier effect, so that an increase in taxes reduces income by less. decreases the multiplier effect, so that increase in taxes reduces income by more.

decreases the multiplier effect, so that an increase in taxes reduces income by less.

When you produce cars, it is enormously expensive to produce one car, but then the costs per car decrease as more are produced. This would be an example of: increasing marginal opportunity costs. decreasing marginal opportunity costs. constant marginal opportunity costs. increasing return to scale.

decreasing marginal opportunity costs.

The basic idea of crowding out is that a budget: deficit will cause the interest rate to go up. surplus will cause the interest rate to go up. surplus will cause the interest rate to go down. deficit will cause the interest rate to go down.

deficit will cause the interest rate to go up.

Because automatic stabilizers increase government spending and decrease tax revenue during a recession and have the opposite effect during a recovery, they tend to create budget: deficits during the recovery phase of the business cycle and budget surpluses during the recession phase. deficits throughout the business cycle. deficits during the recession phase of the business cycle and budget surpluses during the recovery phase. surpluses throughout the business cycle.

deficits during the recession phase of the business cycle and budget surpluses during the recovery phase.

The discovery of a significant new source of oil that can be exported will shift the: demand for a currency to the right and lead to a currency appreciation. supply of a currency to the right and lead to currency depreciation. supply of a currency to the right and lead to a currency appreciation. demand for a currency to the left and lead to a currency depreciation.

demand for a currency to the right and lead to a currency appreciation.

The discovery of a significant new source of oil that can be exported will shift the: supply of a currency to the right and lead to a currency appreciation. supply of a currency to the right and lead to currency depreciation. demand for a currency to the left and lead to a currency depreciation. demand for a currency to the right and lead to a currency appreciation.

demand for a currency to the right and lead to a currency appreciation.

For the foreign exchange market, exports from the United States generate a: supply of dollars and imports to the United States generate a demand for dollars. demand for dollars and imports to the United States also generate a demand for dollars. demand for dollars and imports to the United States generate a supply of dollars. supply of dollars and imports to the United States also generate supply of dollars.

demand for dollars and imports to the United States generate a supply of dollars.

Households do all of the following except: receive income that is redistributed by the government. supply labor services to the government in the factor market. demand goods and services from businesses in the goods market. demand labor services from businesses in the factor market.

demand labor services from businesses in the factor market.

The quantity of goods and services available to society: depends on human action. will always grow to meet individuals' wants and desires. is not of economic importance. is fixed.

depends on human action.

The quantity of goods and services available to society: is not of economic importance. will always grow to meet individuals' wants and desires. depends on human action. is fixed.

depends on human action.

One reason why the Soviet Union grew slowly in the 20th century compared to the United States and Western Europe was that it: invested in too many consumer goods. did not provide incentives for individuals to produce what consumers valued. did not invest as much in capital goods. licensed too many private enterprises, creating destructive competition.

did not provide incentives for individuals to produce what consumers valued.

Fine tuning the economy with fiscal policy is: relatively simple because the political process usually works smoothly and without significant lags. difficult because economists have not developed any theoretical models of the macroeconomy. difficult because the government lacks important information about the economy. relatively simple because the government has access to the best information available.

difficult because the government lacks important information about the economy.

Fiscal policy is difficult to enact and slow to affect the economy. easy to enact but slow to affect the economy. easy to enact and quick to affect the economy. difficult to enact but quick to affect the economy.

difficult to enact and slow to affect the economy.

New growth theory emphasizes the importance of all of the following except: learning by doing. diminishing marginal productivity. technology. positive externalities.

diminishing marginal productivity.

One way to measure asset inflation is to: divide GDP by nominal net worth; if it increases there is asset inflation. multiply the GDP deflator times real net worth; if it increases there is asset inflation. divide nominal net worth by GDP; if it increases there is asset inflation. multiply the GDP deflator times nominal net worth; if it increases there is asset inflation.

divide nominal net worth by GDP; if it increases there is asset inflation.

A quota differs from a tariff in that quotas: do not increase the price of imports as much as tariffs. do not generate tax revenues, unlike tariffs. limit the volume of imports more than tariffs. reduce consumer welfare more than do tariffs.

do not generate tax revenues, unlike tariffs.

If an economy is in a recession and the government tops for an expansionary fiscal policy to shift AD closer to the potential output, a sound finance economist with a Classical view who holds the Ricardian equivalence theorem to be practically true would conclude that AD: shifts to the right due to higher government spending. shifts to the left due to higher government spending. does not shift since the higher government spending is offset by lower private consumption. does not shift since the higher government spending is offset by higher private consumption.

does not shift since the higher government spending is offset by lower private consumption.

If an economy is above potential output and the government opts for a contractionary fiscal policy (running surpluses) to shift Ad, an economists with a Classical view who holds the Ricardian equivalence theorem to be practically true would conclude that AD: shifts to be right due to lower government spending. does not shift since the lower government spending is offset by higher private consumption. shifts to the left due to lower government spending. does not shift since the lower government spending is offset by lower private consumption.

does not shift since the lower government spending is offset by higher private consumption.

Contractionary monetary policy tends to push the U.S. price level: up and lower the exchange rate. up and raise the exchange rate. down and lower the exchange rate. down and raise the exchange rate.

down and raise the exchange rate.

As the reserve ratio goes up, the money multiplier goes: down, and more money will be created. down, and less money will be created. up, and more money will be created. up, and less money will be created.

down, and less money will be created.

The demand for euros on foreign exchange market slopes downward because foreign consumers buy fewer European goods when the value of the euro increases. downward because foreign consumers buy more European goods when the value of the euro increases. upward because foreign consumers buy fewer European goods when the value of the euro increases. upward because foreign consumers buy more European goods when the value of the euro increases.

downward because foreign consumers buy fewer European goods when the value of the euro increases.

With respect to the unemployment problem social responsibility framework economists generally take the position that: each person should have a job commensurate with their training or past job experience. government should eliminate only frictional unemployment. government should guarantee each person a satisfying and high-paying job. individuals should be responsible for finding their own jobs.

each person should have a job commensurate with their training or past job experience.

Most economists agree that during a depression: economic policy is counterprodutive. economic policy is ineffective. the demand for output is excessive. economic policy should be used to improve economic conditions.

economic policy should be used to improve economic conditions.

The point at which the supply curve and the demand curve intersect is called: equilibrium because quantity demanded equals quantity supplied so there is no tendency for price to change. equilibrium, because quantity demanded exceeds quantity supplied so there is a shortage. irrelevant, because real-world prices never reach this point. equilibrium, because quantity supplied exceeds quantity demanded so there is a surplus.

equilibrium because quantity demanded equals quantity supplied so there is no tendency for price to change.

The invention of a machine that increases milk production is discovered. If farmers were to decry the effect of this new technology on the price of milk and lobby government to set the price of milk at the price before the invention, what would be the result? neither a shortage nor a surplus of milk. excess demand for milk. a decline in the price of milk. excess supply of milk.

excess supply of milk.

Suppose most economists agree that the target rate of unemployment is between 4 and 7 percent. If the actual unemployment rate is 11 percent, then most economists would agree that: both expansionary and contractionary policies are appropriate. expansionary monetary and fiscal policies are appropriate. contractionary monetary and fiscal policies are appropriate. neither expansionary nor contractionary policies are appropriate.

expansionary monetary and fiscal policies are appropriate.

The part of the balance of payments account that lists all long-term flows of payments is called the: government financial account. balance of trade. financial and capital account. current account.

financial and capital account.

Considering only its direct effect on income, the effect of monetary policy is that: expansionary policy tends to decrease the trade deficit and contractionary policy tends to increase it. both expansionary and contractionary policies to increase the trade deficit. expansionary policy tends to increase the trade deficit and contractionary policy tends to decrease it. both expansionary and contractionary policies tend to decrease the trade deficit.

expansionary policy tends to increase the trade deficit and contractionary policy tends to decrease it.

GDP is $7 trillion. If consumption is $3.5 trillion, investment is $1.4 trillion, and government purchases is $2.1 trillion, then: exports exceed imports. imports exceed exports. net exports cannot be determined from the available information. exports are equal to imports.

exports are equal to imports.

The trade balance is: imports less exports. exports less imports. sum of imports and exports. total trade this year less total trade last year.

exports less imports.

As the economy contracts, tax revenues: fall and transfer payments rise, causing the economy to contract by less than it would in the absence of automatic stabilizers. rise and transfer payments rise, causing the economy to contract by more than it would in the absence of automatic stabilizers. rise and transfer payments fall, causing the economy to contract by less than it would in the absence of automatic stabilizers. fall and transfer payments fall, causing the economy to contract by more than it would in the absence of automatic stabilizers.

fall and transfer payments rise, causing the economy to contract by less than it would in the absence of automatic stabilizers.

If output increases by 2 percent and population growth is 3 percent, per capita output: falls by 5 percent. grows by 1 percent. falls by 1 percent. grows by 5 percent.

falls by 1 percent.

If a country's exchange rate appreciates, the world price level: remains unchanged. could rise or fall. rises. falls.

falls.

Suppose farmers can use their land to grow either wheat or corn. The law of supply predicts that an increase in the market price of wheat will cause farmers to substitute wheat for the production of corn. farmers to lower the production of corn and wheat. farmers to substitute corn for the production of wheat. farmers to raise the production of wheat and corn.

farmers to substitute wheat for the production of corn.

When the Fed sells bonds, the: discount rate increases. discount rate decreases. federal funds rate increases. reserve requirement falls.

federal funds rate increases.

The interest rate banks charge each other to borrow excess reserves is called the: prime rate. federal funds rate. discount rate. required reserve ratio.

federal funds rate.

Expansionary monetary policy affects domestic income in a way that causes: exports to rise. imports to rise. imports to fall. exports to fall.

imports to rise.

When banks offer checking accounts, they are issuing a(n): financial asset that functions as money. financial asset that cannot function as money. IOU. financial liability.

financial asset that functions as money.

Monetary policy is one of the two main macroeconomic tools governments use to control the aggregate economy, the other being: fiscal policy. foreign policy. immigration policy. trade policy.

fiscal policy.

The government's running of a deficit or a surplus with the objective of affecting the level of output in the economy is called: fiscal policy. the Ricardian equivalence. public finance. sound finance.

fiscal policy.

The desire of government to be able to use monetary and fiscal policies to pursue domestic goals of stable prices and full employment has been a reason that: countries have tried to stabilize their exchange rates at a low level. flexible exchange rates have been replaced with fixed exchange rates. fixed exchange rates have been replaced with flexible exchange rates. countries have tried to stabilize their exchange rates at a high level.

fixed exchange rates have been replaced with flexible exchange rates.

Countries are unlikely to maintain fixed exchange rates for long periods of time because: fixed exchange rates eventually produce very high levels of inflation. fixed exchange rates impede a nation's ability to use monetary and fiscal policy to pursue domestic macroeconomic goals. they lack the tools to do so. fixed exchange rates promote domestic macroeconomic goals at the expense of international macroeconomic goals.

fixed exchange rates impede a nation's ability to use monetary and fiscal policy to pursue domestic macroeconomic goals.

Globalization will tend to: flatten the long-run Phllips curve. shift the long-run Phillips curve. flatten the short-run Phillips curve. shift the short-run Phillips curve.

flatten the short-run Phillips curve.

Over the last 30 years, the value of the dollar has: fluctuated significantly. increased steadily. decreased steadily. changed little.

fluctuated significantly.

Cyclical unemployment is defined as unemployment that results from: changes in technology. structural changes in the economy. the aging of the population. fluctuations in economic activity.

fluctuations in economic activity.

Cyclical unemployment is defined as unemployment that results from: fluctuations in economic activity. the aging of the population. structural changes in the economy. changes in technology.

fluctuations in economic activity.

Cyclical unemployment is defined as unemployment that results from: structural changes in the economy. fluctuations in economic activity. changes in technology. the agin of the population.

fluctuations in economic activity.

Specialization allows individuals to: broaden their skill base. focus their attention on one aspect of production. become more self-sufficient. better understand the entire production process.

focus their attention on one aspect of production.

Keynesians: believe that frictional unemployment does not exist. generally favor activist government policies. generally favor laissez-faire policies. believe that all unemployment is cyclical unemployment.

generally favor activist government policies.

The goldsmith's ability to create money was based on the fact that: the goldsmith was required to keep 100 per cent gold reserves. withdrawals of gold tended to exceed deposits of gold. gold receipts were rarely exchanged for gold. consumers preferred to use gold for transactions.

gold receipts were rarely exchanged for gold.

Money is a unit of account because: goods and assets are priced in terms of it. it is liquid. barter would be impossible without it. it is a store of value.

goods and assets are priced in terms of it.

Government regulation of working conditions is an example of: government as dictator. government as referee. government as owner. government as actor.

government as referee.

External government debt is: government debt owed to individuals in foreign countries. government debt owed to its own citizens. government debt owed by one branch of the government to another. debt that individuals in foreign countries owe to the U.S. government.

government debt owed to individuals in foreign countries.

If Kenya's government buys 1 million U.S. dollars as part of its foreign reserves with its own currency, this will enter the Kenyan balance of payments as part of its: government financial account. financial and capital account. net investment account. current account.

government financial account.

One advantage of a partnership over a corporation is: greater accountability. the ability to share the work and risks of business. increased ability to get funds. limited liability.

greater accountability.

Over the last twenty years, the United States had considerable goods inflation in the past twenty years. had significant periods of asset price inflation, followed by sudden spurts of asset price deflation. had significant periods of asset price deflation, followed by sudden spurts of asset price inflation. had considerable goods deflation in the past twenty years.

had significant periods of asset price inflation, followed by sudden spurts of asset price deflation.

The depreciation of a currency will worsen a country's comparative advantages. improve a country's comparative advantages. balance a trade surplus. have no impact on a country's comparative advantages.

improve a country's comparative advantages.

"We should suppose the market because it is efficient" is an example of : negative economics. positive economics. objective economics. normative economics.

normative economics.

The percentage of goods and services the U.S. has imported from China and India over the last 15 years: has fallen. initially rose and then dropped back to the original level. has risen. has remained roughly the same.

has risen.

The percentage of goods and services the U.S. has imported from China and India over the last 15 years: has remained roughly the same. has fallen. has risen. initially rose and then dropped back to the original level.

has risen.

Deficits may be desirable in the short run if they: increase savings necessary for future investment and growth. help to stabilize the economy when the economy is above potential output. help to stabilize the economy when the economy falls below potential output. increase savings necessary for future consumption and demand.

help to stabilize the economy when the economy falls below potential output.

An increase in the federal funds rate could be caused by: higher than expected withdrawals. lower than expected loan demand. higher than expected bank reserves. higher than expected bank deposits.

higher than expected withdrawals.

Many countries have ambiguous property rights. A person may own a piece of land by squatting, but that ownership is not legally recognized. According to Hernando DeSoto, these ambiguous property rights: spur growth because they encourage creativity. do not affect growth because they do not affect capital or technology. hinder growth because they discourage self-interested behavior. hinder growth because they discourage loans for productive purposes.

hinder growth because they discourage loans for productive purposes.

Liability management refers to: a bank's handling of the assets in individual trust funds. how a bank attracts deposits and what it pays for them. how a bank manages its accounts receivable. a bank's handling of loans and other assets.

how a bank attracts deposits and what it pays for them.

Voluntary restraint agreements: do not affect imports in both the short run and the long run. are prohibited by NAFTA. hurt consumers in both the short run and the long run. hurt workers in both the short run and the long run.

hurt consumers in both the short run and the long run.

Mexico has a comparative advantage in producing corn: if its opportunity cost of producing corn is lower than the opportunity cost in other countries. if its opportunity cost of producing corn is higher than the opportunity cost in other countries. regardless of the opportunity cost in other countries. if its opportunity cost of producing corn is the same as the opportunity cost in other countries.

if its opportunity cost of producing corn is lower than the opportunity cost in other countries.

Money can be many things, but it is not: liquid. illiquid. a financial asset. a financial liability.

illiquid

If the price level in the United States falls relative to the price level in foreign nations, U.S. exports: decrease and U.S. imports increase, causing the demand for dollars to fall and the supply of dollars to rise. increase and U.S. imports decrease, causing the demand for dollars to rise and the supply of dollars to fall. increase and U.s. imports decrease, causing the demand for dollars to fall and the supply of dollars to rise. decrease and U.S. imports decrease, causing the demand for dollars to rise and the supply of dollars to rise.

increase and U.S. imports decrease, causing the demand for dollars to rise and the supply of dollars to fall.

When an effective price ceiling is removed, we would expect the price of the good to decrease and the quantity demanded to increase. increase and the quantity demanded to decrease. increase and the quantity demanded to increase. decreaseand the quantity demanded to decrease.

increase and the quantity demanded to decrease.

One impact of an import quota is to: increase domstic production and reduces domestic prices. reduce domestic production and increases domestic prices. increase both domestic production and domestic prices. reduce both domestic production and domestic prices.

increase both domestic production and domestic prices.

If the Federal Reserve reduced its reserve requirement from 6.5 percent to 5 percent, this policy would most likely: decrease both the money multiplier and the money supply. increase both the money multiplier and the money supply. decrease the money multiplier but increase the money supply. increase the money multiplier but decrease the money supply.

increase both the money multiplier and the money supply.

The government decides to increase its expenditures by $250. The multiplier in this economy is 4 and the tax rate is 22 percent. The net effect of this expansionary fiscal policy is to: decrease the budget deficit by $220. decrease the budget deficit by $30. increase the budget deficit by $30. increase the budget deficit by $220.

increase the budget deficit by $30.

Given that diesel cars get much better gas mileage than the typical car, an increase in the price of gasoline would be expected to: decrease the demand for diesel cars. decrease the demand for gasoline. increase the demand for diesel cars. increase the demand for gasoline.

increase the demand for diesel cars.

Given that diesel cars get much better gas mileage than the typical car, an increase in the price of gasoline would be expected to: increase the demand for diesel cars. increase the demand for gasoline. decrease the demand for gasoline. decrease the demand for diesel cars.

increase the demand for diesel cars.

When other countries threatened to limit Japanese imports, Japan took steps to: decrease the value of the yen and increase its trade surplus. increase the value of the yen and increase its trade surplus. decrease the value of the yen and decrease its trade surplus. increase the value of the yen and decrease its trade surplus.

increase the value of the yen and decrease its trade surplus.

If government were to issue a fixed number of licenses to produce a good or provide a service, this would likely increase the demand for goods. increase the wage received by those who have licenses. lower the price of the good or service to consumers. lower the wage received by those who have licenses.

increase the wage received by those who have licenses.

If government were to issue a fixed number of licenses to produce a good or provide a service, this would likely lower the wage received by those who have licenses. increase the wage received by those who have licenses. increase the demand for goods. lower the price of the good or service to consumers.

increase the wage received by those who have licenses.

The discovery of a new source of oil will lead to: increased demand for domestic currency; appreciation of the currency. increased demand for another currency; appreciation of the currency. decreased demand for domestic currency; appreciation of the currency. increased demand for domestic currency; depreciation of the currency.

increased demand for domestic currency; appreciation of the currency.

When the drug Vioxx was pulled from the market by pharmaceutical company Merck due to its association with heart problems, the demand for other pain medications: increased putting upward pressure on their price. increased putting downward pressure on their price. decreased, putting downward pressure on their price. decreased putting upward pressure on their price.

increased putting upward pressure on their price.

The Industrial Revolution was important to the history of economic systems because it: changed the way people exchanged goods - from barter to using money as a medium of exchange. increased the power of capitalists and eventually led to a revolution instituting capitalism as the dominant economic system. increased the wealth of merchants and artisans and eventually led to a change in economic systems to mercantilism. concentrated wealth in the hands of a few noblemen who then controlled the land in their region, creating a feudal system.

increased the power of capitalists and eventually led to a revolution instituting capitalism as the dominant economic system.

The Industrial Revolution was important to the history of economic systems because it: concentrated wealth in the hands of a few noblemen who then controlled the land in their region, creating a feudal system. increased the power of capitalists and eventually led to a revolution instituting capitalism as the dominant economic system. changed the way people exchanged goods - from barter to using money as a medium of exchange. increased the wealth of merchants and artisans and eventually led to a change in economic systems to mercantilism.

increased the power of capitalists and eventually led to a revolution instituting capitalism as the dominant economic system.

When people heard that there was a shortage of Furby dolls, they wanted even more of them. Because of this effect the pressure on the price of these dolls increased. The price of the dolls remained the same however. Thus, the shortage of these dolls: may have increased or decreased. did not change. increased. decreased.

increased.

A fall in the price level reduces the value of money in peoples' pockets, so people buy less goods increases the value of money in peoples' pockets, so people buy less goods increases the value of money in peoples' pockets, so people buy more goods reduces the value of money in peoples' pockets, so people buy more goods (A fall in the price level increases the value of a dollar bill in your pocket. You will be richer and buy more goods)

increases the value of money in peoples' pockets, so people buy more goods

All of the following are arguments in support of protectionist legislation except: increasing tax revenues increasing income equality increasing competition for domestic producers increasing political pressure on rogue nations

increasing competition for domestic producers

Fed watchers are: financial advisers for the government, telling them when raising taxes will raise revenue and when it won't. individuals or organizations whose sole occupation is to predict the future of the interest rates. individuals or organizations whose sole occupation is to follow the Fed's FOMC. part of the Fed governor system and given voting power on the FOMC.

individuals or organizations whose sole occupation is to follow the Fed's FOMC.

Economists generally agree that infant industry protection, although justified in theory, often becomes permanent because infant industries fail to grow up. trade embargoes are not an effective way of achieving international political objectives. trade between two nations generally benefits one at the expense of the other. trade restrictions will increase the welfare of a large country even if other countries retaliate.

infant industry protection, although justified in theory, often becomes permanent because infant industries fail to grow up.

The slope of a line that is vertical is: zero infinite 1 dependent on where it intersects the horizontal axis

infinite

According to the quantity theory: real output is everywhere and always a monetary phenomenon. inflation is everywhere and always a monetary phenomenon. the equation of exchange does not hold true. unemployment is everywhere and always a monetary phenomenon.

inflation is everywhere and always a monetary phenomenon.

What kind of relationship exists between the price of gas and the quantity demanded for gas if the quantity demanded for gas falls when the price of gas increases? perverse direct normal inverse

inverse

Functional finance: is a theoretical proposition, not a moral proposition. is based on the political realities of voters wanting their government to respond to recessions. is based on empirical evidence that fiscal policy can be effective in smoothing business cycles. is a proposition supported by public choice economists.

is a theoretical proposition, not a moral proposition.

If actual output exceeds potential output, the economy is experiencing an inflationary gap. is in neither a short run nor long run equilirbium. may be in a long-run equilirbium but is not in a short-run equilibrium. is experiencing a recessionary gap.

is experiencing an inflationary gap.

In contrasts to a recession in industrialized nations, a recession in pre-industrial nations: is less visible in its effects on the unemployment rate but it has a larger effect on wage rates. is more visible in its effects on the unemployment rate but it has a smaller effect on wage rates. has smaller effects on both unemployment and wage rates. has larger effects on both unemployment and wage rates.

is less visible in its effects on the unemployment rate but it has a larger effect on wage rates.

As domestic income decreases, the trade balance: is likely to worsen. is not likely to change. is likely to improve. may improve or worsen depending on the size of the decrease in income.

is likely to improve.

Suppose potential income is $60 billion, actual income is $40 billion, and expenditures don't vary with income. If the actual budget deficit is $4 billion and the marginal tax rate is 20 percent, the structural deficit: is between zero and $4 billion. is zero. cannot be determined from the given information. is $4 billion.

is zero.

In order for the U.S. Treasury to avoid refinancing debt at higher interest rates, it will have to: default on interest payments. issue less long term bonds. allow the Federal Reserve to engage in more quantitative easing. issue more long term bonds.

issue more long term bonds.

A resource is said to have a comparative advantage if: its suitability to the production of one good change as it produces more of that good. it is better suited to the production of one good than to the production of an alternative good. it is equally suited to the production of all goods. its suitability to the production of one good does not change as it produces more of that good.

it is better suited to the production of one good than to the production of an alternative good.

If a country's trade deficit increases, then: it must be selling fewer assets to foreigners. it must be buying more assets from foreigners. its consumption must be rising relative to its production. its consumption must be falling relative to its production.

its consumption must be rising relative to its production.

The number of people over age 16 in an economy willing and able to work, is known as the: labor force. employment force. unemployment rate. labor force participation rate.

labor force.

Before the Great Depression the popular view of government was: laissez-faire; and after the Great Depression, the popular view of government was activist. activist; and after the Great Depression, the popular view of government was still activist. activist; and after the Great Depression, the popular view of government was laissez-faire. laissez-faire; and after the Great Depression, the popular view of government was still laissez-faire.

laissez-faire; and after the Great Depression, the popular view of government was activist.

If the government imposes an excise tax on cars equal to $5,000 per automobile, the supply of automobiles will shift to the: right and the price of automobiles will decrease by an unknown amount. left and the price of automobiles will increase by $5,000. right and the price of automobiles will decrease by $5,000. left and the price of automobiles will increase by an unknown amount.

left and the price of automobiles will increase by an unknown amount.

Regulatory trade restrictions: are irrelevant since they are seldom used. are never justified. may be justified depending on the nature of the restriction. are always justified.

may be justified depending on the nature of the restriction.

If the government imposes an excise tax on cars equal to $5,000 per automobile, the supply of automobiles will shift to the: right and the price of automobiles will decrease by an unknown amount. left and the price of automobiles will increase by an unknown amount. left and the price of automobiles will increase by $5,000. right and the price of automobiles will decrease by $5,000.

left and the price of automobiles will increase by an unknown amount.

When a country runs a trade surplus, it will: borrow from foreign countries or sell assets to them. borrow from foreign countries or buy assets from them. lend to foreign countries or buy assets from them. lend to foreign countires or sell assets to them.

lend to foreign countries or buy assets from them.

When a country runs a trade surplus, it will: lend to foreign countries or sell assets to them. borrow from foreign countries or sell assets to them. lend to foreign countries or buy assets from them. borrow from foreign countries or buy assets from them.

lend to foreign countries or buy assets from them.

The idea that the economy will solve its own problems and not need any stimulus measures falls under the ________ framework. medium-run intermediate short-run long-run

long-run

If Japan adopts a contractionary monetary policy, then the dollar will: lose value and U.S. inflation will rise. gain value and U.S. inflation will rise. gain value and U.S. inflation will fall. lose value and U.S. inflation will fall.

lose value and U.S. inflation will rise.

The principle of increasing marginal opportunity costs states that the initial opportunity costs are: high but decrease the more you concentrate on the activity. high but increase the more you concentrate on the activity. low but increase the more concentrate on the activity. low but decrease the more you concentrate on the activity.

low but increase the more concentrate on the activity.

The principle of increasing marginal opportunity costs states that the initial opportunity costs are: high but decrease the more you concentrate on the activity. low but increase the more concentrate on the activity. high but increase the more you concentrate on the activity. low but decrease the more you concentrate on the activity.

low but increase the more concentrate on the activity.

Since the mid-19080s , the dollar's value has fallen from over 300 yen per dollar to about 136 yen per dollar. This trend might be explained by: higher economic growth in Japan. lower interest rates in Japan. lower inflation in Japan. Japanese purchases of U.S. dollars.

lower inflation in Japan.

Expansionary monetary policy tends to: lower the U.S. interest rate and decrease the U.S. exchange rate. increase the U.S. interest rate and decrease the U.S. exchange rate. increase the U.S. interest rate and increase the U.S. exchange rate. lower the U.S. interest rate and increase the U.S. exchange rate.

lower the U.S. interest rate and decrease the U.S. exchange rate.

The target rate of unemployment is defined as the lowest sustainable rate of unemployment achievable under existing conditions. unemployment rate at which there is no cyclical or structural unemployment. highest sustainable rate of unemployment achievable under existing conditions. the rate of unemployment that will eliminate the business cycle.

lowest sustainable rate of unemployment achievable under existing conditions.

Economists who believe in sound finance would say that in a recession, the government should: run a budget deficit despite the truth of the Ricardian equivalence theorem. maintain a balanced budget for political and moral reasons. maintain a balanced budget because the Ricardian equivalence theorem is true in practice. run a budget deficit because the ricardian equivalence theorem is true both in theory and in practice.

maintain a balanced budget for political and moral reasons.

The U.S. produces and sells millions of types of products. To add them up to a single aggregate, each good is weighted by its: market price. cost of production. utility to consumers. contribution to corporate profits.

market price.

Self-fulfilling expectations challenge the idea of a well-functioning market, particularly in the exchange rate market because the exchange rate: may be driven by supply and demand forces. may not be driven by supply and demand forces. is determined by rumors. is determined by traders and speculators.

may not be driven by supply and demand forces.

According to Keynes, market economies are constantly experiencing a significant declines in aggregate demand never experience significant declines in aggregate demand quickly recover after they experience a significant decline in aggregate demand may recover slowly after they experience a significant decline in aggregate demand (Keynes believed that the adjustment process for an entire economy differed from the adjustment process for a single market in that the level of aggregate spending was a public good that could be underprovided, especially during a recession or depression, making it difficult for an economy to recover by itself.)

may recover slowly after they experience a significant decline in aggregate demand

In the U.S. current account, most of the trade deficit results from an excess of imported: services. transfers. merchandise. merchandise and services.

merchandise.

Healthy food and charitable giving are examples of: demerit goods or activities. merit goods or activities. public goods. negative externalities.

merit goods or activities.

Healthy food and charitable giving are examples of: negative externalities. demerit goods or activities. public goods. merit goods or activities.

merit goods or activities.

The invisible hand theorem comes from: political science. sociology. microeconomics. macroeconomics.

microeconomics.

The study of individual choice is a focus in: microeconomics. Ricardian economics. macroeconomics. normative economics.

microeconomics.

Capitalism and socialism have not existed forever. Capitalism came into existence in the: early 1900s and socialism came into existence in the mid-1800s. early 1900s and socialism came into existence in the mid 1700s. mid-1800s and socialism came into existence in the early 1900s. mid-1700s and socialism came into existence in the early 1900s.

mid-1700s and socialism came into existence in the early 1900s.

A reason that the quantity theory of money has lost favor is that: money growth and inflation are no longer closely related. the quantity of money is better at predicting stock prices. the federal funds market has been taken over by the Federal Reserve bank. the economy recently experienced an unexpected and deep recession.

money growth and inflation are no longer closely related.

If the euro rises in price, it becomes: cheaper for Americans to buy European products and cheaper for Europeans to buy American products. cheaper for Americans to buy European products but more expensive for Europeans to buy American products. more expensive for Americans to buy European products but cheaper for Europeans to buy American products. more expensive for Americans to buy European products and more expensive for Europeans to buy American products.

more expensive for Americans to buy European products but cheaper for Europeans to buy American products.

A low exchange rate for the dollar makes foreign currencies: cheaper, raising the price of imports. cheaper, lowering the price of imports. more expensive, lowering the price of imports. more expensive, raising the price of imports.

more expensive, raising the price of imports.

Considering its effects through income, the price level, and interest rates only, contractionary fiscal policy causes the value of a country's currency to: fall. move unpredictably. remain unchanged. rise.

move unpredictably.

In the AS/AD model, the repercussions that a change in quantity demanded has on production and subsequently on income and expenditures is called the multiplier effect. expenditure effect. accelerator effect. money wealth effect.

multiplier effect.

Suppose that the economy has a structural deficit of $200 billion and a budget deficit of $100 billion. It follows that output: must equal potential output. must be below its potential output. must be above potential output. could be at, above, or below potential output.

must be above potential output.

A defining difference in what makes a firm a sole proprietorship, partnerships, or a corporation is the: nature of ownership and accountability for each type of business. size of each type of business. profitability of each type of business. number of each type of business.

nature of ownership and accountability for each type of business.

A defining difference in what makes a firm a sole proprietorship, partnerships, or a corporation is the: number of each type of business. nature of ownership and accountability for each type of business. size of each type of business. profitability of each type of business.

nature of ownership and accountability for each type of business.

If output is below potential output, it is most likely that the economy is: experiencing inflation. near a trough. in a boom. near a peak.

near a trough.

In 2008, the value of the stocks listed on the New York Stock Exchange decreased tremendously. As a direct result: U.S. GDP declined by the amount of the stock market decline but U.S. GNP was unaffected. neither U.S. GDP nor U.S. GNP were affected. both U.S. GDP and U.S. GNP declined by the same amount. U.S. GNP declined by the amount of the stock market decline but U.S. GDP was unaffected.

neither U.S. GDP nor U.S. GNP were affected.

Suppose the government never borrows, so that it always finances its expenditures with taxes. Suppose further that government spending does not depend on income. In this case: both government spending and taxes are automatic stabilizers. government spending is an automatic stabilizer but taxes are not. taxes are an automatic stabilizer but government spending is not. neither government spending nor taxes are automatic stabilizers.

neither government spending nor taxes are automatic stabilizers.

If a fiscal expansion financed by government bond sales does not affect interest rates, then: crowding out will be relatively large. crowding out will be relatively small. no crowding out will occur. crowding out will be so great that output will decline.

no crowding out will occur.

According to Okun's rule of thumb, if trend growth is 3 percent, a decrease of the rate of unemployment from 5 percent to 4 percent would be expected to be associated with which of the following income changes? rise by 2 percent. none of the answers are correct. rise by 4 percent. fall by 4 percent. fall by 2 percent.

none of the answers are correct.

Assuming an economy is initially at potential output, an expansionary monetary policy will: not affect output in either the short run or the long run. affect output in both the short run and the long run. affect output, but only in the long run. not affect output in the long run.

not affect output in the long run.

Transfer of assets, such as stock sales are: not included in GDP because they do not increase domestic wealth. included in GDP because they raise domestic production. included in GDP because they increase domestic wealth. not included in GDP because they do not increase domestic production.

not included in GDP because they do not increase domestic production.

A one-time rise in the price level is: inflation if that rise is above 5 percent. not inflation. inflation if that rise is above 10 percent. inflation if that rise is above 15 percent.

not inflation.

Per capita growth: occurs only when output is growing. occurs only when the population is growing. always improves the distribution of income. occurs when there is an increase in goods and services per person.

occurs when there is an increase in goods and services per person.

The law of diminishing marginal productivity applies whenever: all inputs are increased. decreasing returns to scale are present. only one input is increased. output is increased.

only one input is increased.

In 2008, the U.S. inflation rate increased unexpectedly. If revenues, expenditures, and nominal interest rates had remained unchanged, as a consequence of this increase: both the U.S. real and nominal budget deficits would have increased. both the U.S. real and nominal budget deficits would have decreased. only the U.S. real budget deficit would have decreased. only the U.S. real budget deficit would have increased.

only the U.S. real budget deficit would have decreased.

When considering outsourcing, most laypeople: recognize it frees resources for other jobs for which the U.S. has a comparative advantage. support it because they enjoy lower consumer prices. recognize its benefits to raising foreign wages. oppose it because of the visible loss of jobs.

oppose it because of the visible loss of jobs.

In order of their occurrence, the phases of the business cycle are: peak, uptown, downturn, trough. peak, downturn, trough, upturn. peak, upturn, trough, downturn. peak, downturn, upturn, trough.

peak, downturn, trough, upturn.

In order of their occurrence, the phases of the business cycle are: peak, upturn, trough, downturn. peak, downturn, trough, upturn. peak, downturn, upturn, trough. peak, upturn, downturn, trough.

peak, downturn, trough, upturn.

According to the law of demand, an increase in the price of baseball trading cards causes: people to buy more trading cards. people to buy fewer trading cards. baseball trading cards to grow in abundance. the scarcity of baseball trading cards to increase.

people to buy fewer trading cards.

When inflation is unexpected it tends to hurt people who save money in financial institutions people who borrow money from financial institutions people with flexible income businesses who borrow money from financial institutions

people who save money in financial institutions

Microsoft has just taken some senators out to dinner in Paris in a private jet. This is probably an example of an attempt to influence: political forces. economic forces. the price mechanism. social forces.

political forces.

Maintaining objectivity is easiest in: positive economics. normative economics. subjective economics. the art of economics.

positive economics.

Flu vaccinations of school children have the unintended effect of protecting the vulnerable elderly from contracting the virus. This is an example of a: goods distribution. free rider problem. social force. positive externality.

positive externality.

A policy rule that concludes that a particular course of action is preferable is known as a(n): insight. policy. theorem. precept.

precept.

As the economy moves to the right of the long-run Phillips curve inflationary: expectations rise. pressures subside. pressures build. pressures remain constant.

pressures subside.

When the going rate is $2.00 per hour, Ann wants to babysit 6 hours each week and Pat wants to babysit 4 hours each week. If the rate goes up to $4.00, Ann and Pat both double the number of hours they are willing to babysit each week. Based on this information, a combined supply curve will pass through the points: price = $2.00, quantity supplied = 20 and price = $4.00, quantity supplied = 10. price = $2.00, quantity supplied = 4 and price = $4.00, quantity supplied = 6. price = $2.00, quantity supplied = 10 and price = $4.00, quantity supplied = 20. price = $2.00, quantity supplied = 6 and price = $4.00, quantity supplied = 4.

price = $2.00, quantity supplied = 10 and price = $4.00, quantity supplied = 20.

More and more devices are being introduced in the market that perform tasks similar to that of PCs, such as tablets and smartphones. At the same time, the price of computer chips to make high-end PCs continues to fall. What is the effect of the events on equilibrium price and quantity of high-end PCs? price falls continuously while quantity falls initially but then rises, recouping earlier losses. price rises then falls while quantity sold falls continuously. price falls continuously and quantity rises continuously. price falls continuously as does quantity sold.

price falls continuously while quantity falls initially but then rises, recouping earlier losses.

A number of states have a minimum wage that is higher than the federal minimum. In those states that impose such a minimum wage, it is more likely that the minimum wage acts as a binding: price ceiling, causing excess demand in the market. price ceiling, causing excess supply in the market. price floor, causing excess demand in the market. price floor, causing excess supply in the market.

price floor, causing excess supply in the market.

A number of states have a minimum wage that is higher than the federal minimum. In those states that impose such a minimum wage, it is more likely that the minimum wage acts as a binding: price floor, causing excess supply in the market. price ceiling, causing excess demand in the market. price ceiling, causing excess supply in the market. price floor, causing excess demand in the market.

price floor, causing excess supply in the market.

In 1990 the UN placed trade sanctions on Iraqi oil. In 1996, Iraq was allowed limited export of oil to make war reparations. What was the predicted effect of the two events on equilibrium price and quantity of oil? price rose initially, then fell (failing to regain its former losses); quantity fell and then rose price fell initially, then rose (failing to return to its former low level); quantity fell and then rose price fell initially, then rose (failing to return to its former low level); quantity rose and then fell price rose initially, then fell (failing to regain its former losses); quantity rose, then fell

price rose initially, then fell (failing to regain its former losses); quantity fell and then rose

In comparing the per capita GDPs of two countries, purchasing power parity adjusts for differences in: exchange rates. non-market activities. prices. populations.

prices.

In 2007, the U.S. economy was operating close to potential. The budget deficits experienced by the United States in 2007 was: primarily cyclical deficits. neither structural nor cyclical deficits. primarily structural deficits. about evenly split between structural and cyclical deficits.

primarily structural deficits.

A U.S. trade deficit will cause all of the following phenomena except: U.S. assets will have to be sold to foreigners. production must eventually increase. future consumption must decrease to pay for the current excess of imports over exports. future interest and profits from assets sold to foreigners must be paid to them.

production must eventually increase.

The $400 dividend check a stockholder receives is included in aggregate accounting as: interest. profits. employee compensation. rents.

profits.

Import duties ranging from 28 percent to 113 percent on Chinese frozen and canned shrimp are an example of a policy that: use regulations and taxes to protect American consumers. protects American fisheries from overfishing. protects American consumers from foreign producers. protects domestic producers from foreign producers.

protects domestic producers from foreign producers.

Stricter environmental regulations and increased demand for energy have caused an increase in the demand for relatively clean natural gas. In the last several years, improved extraction technologies and new discoveries have increased the availability of natural gas. What has been the net effect on price and quantity for natural gas? quantity sold and price both fell with certainty. quantity sold fell and the effect on price is ambiguous. quantity sold and price both rose with certainty. quantity sold rose while the effect on price is ambiguous.

quantity sold rose while the effect on price is ambiguous.

According to the Classical growth model, an economy that increases its saving will grow: quickly since the increase in saving will permit more rapid technological progress. quickly since the increase in saving will permit greater investment. slowly because interest rates will fall, causing investment to decline. slowly because consumption and aggregate demand will be reduced.

quickly since the increase in saving will permit greater investment.

The increase in the availability of organic foods likely: raises equilibrium quantity and price for organic foods. lowers equilibrium quantity and price for organic foods. raises equilibrium quantity and lowers equilibrium price for organic foods. lowers equilibrium quantity and raises equilibrium price for organic foods.

raises equilibrium quantity and lowers equilibrium price for organic foods.

The increase in the availability of organic foods likely: raises equilibrium quantity and price for organic foods. lowers equilibrium quantity and raises equilibrium price for organic foods. lowers equilibrium quantity and price for organic foods. raises equilibrium quantity and lowers equilibrium price for organic foods.

raises equilibrium quantity and lowers equilibrium price for organic foods.

A voluntary restraint agreement: raises the price of imports in the same way as a quota. does not, unlike a tariff, affect the price of imports. is prohibited under the GATT treaty and has become less common recently. does not, unlike a quota, affect the quantity of imports.

raises the price of imports in the same way as a quota.

A voluntary restraint agreement: raises the price of imports in the same way as a quota. is prohibited under the GATT treaty and has become less common recently. does not, unlike a quota, affect the quantity of imports. does not, unlike a tariff, affect the price of imports.

raises the price of imports in the same way as a quota.

A stronger dollar would be a good policy if the U.S. government wanted to: reduce U.S. exports and slow the U.S. economy. increase U.S. imports and expand the U.S. economy. reduce U.S. imports and slow the U.S. economy. increase U.S. exports and expand the U.S. economy.

reduce U.S. exports and slow the U.S. economy.

A company switches from a medical plan that covered all medical costs to a medical plan with a high deductible, making employees responsible for the first $1,500 of healthcare costs. Other things the same, a higher deductible is expected to: increase medical claims and reduce hospital admissions. reduce medical claims and increase hospital admissions. reduce both medical claims and hospital admissions. increase both medical claims and hospital admissions.

reduce both medical claims and hospital admissions.

Suppose the reserve requirement is 20 percent. A $1 billion sale of government securities by the Fed will: increase checkable deposits in the banking system by $5 billion. reduce checkable deposits in the banking system by $5 billion. reduce checkable deposits in the banking system by $1 billion. increase checkable deposits in the banking system by $1 billion.

reduce checkable deposits in the banking system by $5 billion.

Congress has the power to do all of the following to the Fed except: audit Federal Reserve District banks. confirm the president's nominee to the Chair of the Federal Reserve. confirm the president's nominee to the Board of Governors. reduce the Fed's budget.

reduce the Fed's budget.

Suppose the money multiplier in the United States is 3. Suppose further that if the Fed changes the discount rate by 1 percentage point, banks change their reserves by 300. To increase the money supply by 2,700 the Fed should: raise the discount rate by 3 percentage points. reduce the discount rate by 10 percentage points. raise the discount rate by 10 percentage points. reduce the discount rate by 3 percentage points.

reduce the discount rate by 3 percentage points.

Patents: reduce the positive externalities associated with new technologies. eliminate the positive externalities associated with new technologies. increase the positive externalities associated with new technologies. do not affect the positive externalities associated with new technologies.

reduce the positive externalities associated with new technologies.

The central goal of the General Agreement on Tariffs and Trade (GATT) was to: promote free trade associations and customs unions. ensure a balance of trade between countries. promote international security. reduce trade barriers.

reduce trade barriers.

In the AS/Ad model, a contractionary monetary policy: increases both investment and aggregate demand. increases investment but reduces aggregate demand. reduces investment but increases aggregate demand. reduces both investment and aggregate demand.

reduces both investment and aggregate demand.

Considering primary effects through the price level, interest rates, and income only, contractionary fiscal policy: reduces the supply of dollars but increases the demand. increases both the supply and demand for dollars. increases the supply of dollars but reduces the demand. reduces both the supply and demand for dollars.

reduces both the supply and demand for dollars.

A market economy: requires government to set prices. distributes property rights. relies on the invisible hand to coordinates supply and demand. allocates according to need.

relies on the invisible hand to coordinates supply and demand.

Payments for the use of land and buildings are included in aggregate accounting as: employee compensation. interest. profits. rents.

rents.

Globalization has increased the demand for the logistical support and marketing sectors but has led to a decline in the manufacturing industry. The effects of this are the same as those caused by the: renewable curse. depreciation curse. resource curse. common curse.

resource curse.

A decrease in price and an intermediate change in quantity are consistent with a leftward shift in supply and a rightward shift in demand. leftward shift in demand and no shift in supply. leftward shift in supply and no shift in demand. rightward shift in supply and a leftward shift in demand.

rightward shift in supply and a leftward shift in demand.

The cyclical deficit: is not affected by changes in actual income or potential income. is the deficit that exists if the economy is at potential income. rises as the economy moves below potential output. rises as the economy expands and falls as the economy contracts.

rises as the economy moves below potential output.

If output is $15 trillion, the unemployment rate falls by 3 percentage points, and trend growth: rises to $15.6 trillion. falls to $13.8 trillion. rises to $16.2 trillion. falls to $14.7 trillion.

rises to $16.2 trillion.

In 1923, Germany experienced a very severe inflation. As prices in Germany rose, the demand in the foreign exchange market for U.S. dollars: rose and the supply of them fell, increasing their value. fell and the supply of them rose, decreasing their value. fell and the supply of them also rose and the supply of them also rose, decreasing their value.

rose and the supply of them fell, increasing their value.

If the CPI in year 2 equals 110 and the CPI in year 3 equals 121, it can be concluded that consumer prices: are the same in year 2 as in the base year. rose from year 2 to year 3 by 21 percent. rose from year 2 to year 3 by 11 percent. rose from year 2 to year 3 by 10 percent.

rose from year 2 to year 3 by 10 percent.

If you decide not to spend $1,000 you earned at your summer job but instead intend to buy shares in a mutual fund, in terms of aggregate economic accounting you would be: transferring. consuming. investing. saving.

saving.

The process of packing a variety of loans together and slicing them up into new financial instruments is called: diversifying. defaulting. securitization. liquidating.

securitization.

If a country cannot internationalize its debt, then it will have to: sell more bonds domestically, causing its interest rates to rise. sell more bonds domestically, causing its interest rates to fall. buy more bonds domestically, causing its interest rates to fall. buy more bonds domestically, causing its interest rates to rise.

sell more bonds domestically, causing its interest rates to rise.

If a government finances an increase in its expenditures by selling bonds to the public, then the aggregate demand curve will: not shift. shift out but not as much as it would if crowding out didn't occur. shift out more if crowding out occurs. shift out by the same amount regardless of whether crowding out occurs.

shift out but not as much as it would if crowding out didn't occur.

If total income in Sweden remains the same but the wage share of income rises, the Swedish AD curve will most likely shift to the right. become steeper. shift to the left. become flatter.

shift to the right.

In 1968, the government instituted a 26 percent income tax surcharge. In terms of the AS/AD model, this change should have shifted the AD curve to the right. made the AD curve flatter. made the AD curve steeper. shifted the AD curve to the left.

shifted the AD curve to the left.

If productivity increases by 2 percent but wages increase by 3 percent, then it is most likely that the aggregate demand curve will shift left. short run aggregate supply curve will not shift. short run aggregate supply curve will shift up (to the left). short run aggregate supply curve will shift down (to the right).

short run aggregate supply curve will shift up (to the left).

To keep the price of gas from rising quickly after Katrina, the government instituted price ceilings on the price of gasoline in some states. These price ceilings caused ______ in the gasoline market. movement along the demand curve. surpluses. shortages. movement of the demand curve.

shortages.

If the government knew the precise values of the multiplier and potential income, fine-tuning the economy would: be more difficult. be possible. be much easier but mistakes would still occur occasionally. still be very difficult.

still be very difficult.

Consider the table below, in which each production choice represents a point on a production possibility curve. Choice Eggs Rye A 10 0 B 8 10 C 6 20 D 4 30 E 2 40 F 0 50 This production possibility table could be graphed as a: straight line with zero slope curved line with positive slope straight line with negative slope. curved line with negative slope

straight line with negative slope.

The combination of prolonged high unemployment and slow growth caused by globalization is known as: a recession. structural stagnation. a business cycle. secular stagnation.

structural stagnation.

Workers at a car-manufacturing plant are let go because automated machinery has been installed that requires fewer employees to operate. What type of unemployment describes the workers' situation? frictional unemployment. full unemployment. structural unemployment. cyclical unemployment.

structural unemployment.

Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from 75 to 100. She also determines that this improvement is worth $20. To study for an hour for her economics quiz, however, she will have to work one fewer hour at her part-time job. Alexandra should: study for the quiz as long as her hourly wage rate is more than $20. not study for the quiz because earning a higher grade cannot have a dollar value. study for the quiz as long as her hourly wage rate is less than $20. study for the quiz only if her hourly wage rate is exactly $20.

study for the quiz as long as her hourly wage rate is less than $20.

To derive a market demand curve from individual demand curves, it would be necessary to: multiply the quantities demanded on each demand curve at each price to find the market quantity demanded at each price. sum the curves horizontally, adding quantities demanded at each price. take the maximum quantity of each demand curve as the market quantity demanded at each price. take the demand curve that is the furthest to the right as the market demand curve.

sum the curves horizontally, adding quantities demanded at each price.

The rapid development of Internet technologies during the 1990s allowed businesses to produce goods and services cheaper than before and also gave rise to completely new services. We would show this change in the AD/AS model by moving the aggregate demand curve left with little change in aggregate supply. demand curve right with little change in aggregate supply. supply curve up with little change in aggregate demand. supply curve down (to the right) with little change in aggregate demand.

supply curve down (to the right) with little change in aggregate demand.

A Japanese citizen's purchase of McDonald's stock (a U.S. fast-food firm) represents an increase in the: demand for Japanese yen and a financial capital account outflow in the U.S. balance of payments. supply of Japanese yen and a financial capital and account inflow in the U.S. balance of payments. demand for Japanese yen and a financial capital account inflow in the U.S. balance of payments. supply of Japanese yen and a financial capital account outflow in the U.S. balance of payments.

supply of Japanese yen and a financial capital and account inflow in the U.S. balance of payments.

If Argentina imposes a 20 percent tax on natural gas exports to be paid by suppliers. Other things equal, this causes the : demand of natural gas exports to shift to the right. supply of natural gas exports to shift to the left. supply of natural gas exports to shift to the right. quantity of natural gas exports produced to increase.

supply of natural gas exports to shift to the left.

Households are on the: demand side of factor markets and the supply side of goods markets. demand side of both factor markets and goods markets. supply side of factor markets and the demand side of goods markets. supply side of both factor markets and goods markets.

supply side of factor markets and the demand side of goods markets.

The theory that quantity supplied and prices are positively related, other things constant, is referred to as the law of: supply. demand. opportunity cost. profit maximization.

supply.

The theory that quantity supplied and prices are positively related, other things constant, is referred to as the law of: supply. opportunity cost. profit maximization. demand.

supply.

If the price in a market is above its equilibrium level, there will be a: shortage and downward pressure on price. shortage and upward pressure on price. surplus and upward pressure on price. surplus and downward pressure on price.

surplus and downward pressure on price.

If the debt of the federal government decreases by $20 billion in one year the budget: surplus in that year must be $20 billion. deficit in that year must be $20 billion. deficit in that year decreases by $20 billion. surplus in that year increases by $20 billion.

surplus in that year must be $20 billion.

Monetary policy affects exchange rates in all of the following ways except through its effects on: the interest rate. income. taxes. price level and inflation.

taxes.

The best example of a merit good or activity is: providing free beer to teenagers. excessive consumption of pork. exercising too much. teaching baseball to boys and girls in the community.

teaching baseball to boys and girls in the community.

A key reason that the value of the dollar did not change relative to the Chinese yuan in the early 2000s was: the Chinese central bank bought dollars to keep the value of the dollar from falling. the Chinese central bank sold dollars to keep the value of the dollar from rising. the U.S. Federal Reserve bought dollars to keep the value of the dollar from falling. trade was balanced between the two nations.

the Chinese central bank bought dollars to keep the value of the dollar from falling.

The discount rate is the interest rate: the Fed charges on loans to individuals. the interest rate commercial banks charge one another for overnight loans. commercial banks charge their largest customers. the Fed charges on loans to commercial banks.

the Fed charges on loans to commercial banks.

Most decisions about monetary policy are made by: the Federal Open Market Committee. the president and Congress. the president. the chairman of the Fed only.

the Federal Open Market Committee.

The theoretical proposition that government deficits do not affect the level of output because individuals realize that they have to pay the deficits in the future and therefore increase their savings is called: purchasing power parity. the Ricardian equivalence theorem. functional finance. sound finance.

the Ricardian equivalence theorem.

If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and U.S. workers produce 9 times as much output per hour as Mexican workers, then, all else equal, it would be efficient to locate production facilities in: the United States since the cost per unit of output will be higher. the United States since the cost per unit of output will be lower. Mexico since the cost per unit of output will be lower. Mexico since the cost per unit of output will be higher.

the United States since the cost per unit of output will be lower.

Economists who believe in the quantity theory of money argue that: the causation in the equation of exchange goes from PQ to MV. there is no causation in the equation of exchange. the causation in the equation of exchange goes from MV to PQ. the causation in the equation of exchange could go either way.

the causation in the equation of exchange goes from MV to PQ.

Suppose the money supply increases by 10 percent but velocity is not constant. Given this information, it follows that: nominal GDP will increase by 10 percent. nominal GDP will increase by more than 10 percent. the change in nominal GDP cannot be determined. nominal GDP will increase by less than 10 percent.

the change in nominal GDP cannot be determined.

In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because: the country eventually will sell all its financial assets to foreigners. the country eventually has produce more than it consumes in order to pay foreigners their profits. the domestic currency will appreciate. the country eventually will consume more and produce less.

the country eventually has produce more than it consumes in order to pay foreigners their profits.

The Mexican demand for American goods leads to: the demand for Mexican pesos and the supply of U.S. dollars on the foreign exchange market. the demand for U.S. dollars and the demand for Mexican pesos on the foreign exchange market. the demand for U.S. dollars and the supply of U.S. dollars on the foreign exchange market. the demand for U.S. dollars and the supply of Mexican pesos on the foreign exchange market.

the demand for U.S. dollars and the supply of Mexican pesos on the foreign exchange market.

Crowding out would most likely occur when: the federal government engages in bond sales to finance its budget deficit. workers lose jobs as result of anti-inflationary fiscal policies. tax receipts rise more slowly than anticipated, resulting in the need to cut government spending. Congress enact budget cuts to balance the budget.

the federal government engages in bond sales to finance its budget deficit.

According to some economists when a country's debt-to-GOP ratio exceeds 90 percent: the government will face financial instability. the government will have to purchase more long-term securities. the interest rate will fall, reducing debt service payments. it will compel citizens to buy more U.S. debt.

the government will face financial instability.

Debt service refers to: the interest rate a country pays on its debt. the fraction of a country's debt that becomes due each year. the interest payments a country makes on its debt each year. how much debt a country incurs each year.

the interest payments a country makes on its debt each year.

For a given benefit, a rational person chooses the option that has: no opportunity cost. the lowest opportunity cost. the average opportunity cost. the highest opportunity cost.

the lowest opportunity cost.

As prices fall, people become richer and buy more. This occurs as a result of the money wealth effect. the interest rate effect. the multiplier effect. the international effect.

the money wealth effect.

Your opportunity cost of taking this course is: the net benefit of the activity you would have chosen if you had not taken the course. the net benefit of taking this course. the tuition you paid for the course. the cost of the activity you would have chosen if you had not taken the course.

the net benefit of the activity you would have chosen if you had not taken the course.

Globalization represents: a return to isolationism. the economic complement of political isolationism. the opposite of isolationism. the political complement of economic isolationism.

the opposite of isolationism.

An increase in the aggregate demand curve will, in the long run, change output but not price level. the price level but not output. neither output nor the price level. both output and the price level.

the price level but not output.

Markets coordinate economic activity through: asking individuals what to do. the legal mechanism. the price mechanism. commanding individuals what to do.

the price mechanism.

The price of a new model of iPod tends to fall significantly a year after it is introduced. Suppose Jane bought an iPod as soon as it was introduced (a year ago) and paid a premium price for it. Now she wants to buy an iPod cover. Which of the following should she consider before buying the new accessory? the price she paid for her iPod, the price of the iPod cover, and the benefit she'll receive from using the iPod cover the price of the iPod cover had she bought it with the iPod, the current price of the iPod cover, and the benefit she'll receive from using the iPod cover the price of replacing her iPod, the price of the iPod cover, and the benefit she'll receive from using the iPod cover the price of the iPod cover and the benefit she'll receive from using the iPod cover

the price of the iPod cover and the benefit she'll receive from using the iPod cover

If a bank's reserve ratio is increasing, the rate of change in deposits must exceed the rate of change in reserves. deposits must be decreasing. reserves must be increasing. the rate of change in reserves must

the rate of change in reserves must

A surplus of a good could possibly be eliminated by a sufficient increase in supply keeping price constant. the removal of a price floor. a sufficient decrease in demand keeping price constant. the removal of a price ceiling.

the removal of a price floor.

Keynes argued that the short run is a more important policy concern than the long run. both the short run and the long run are equally important. the distinction between the short run and the long run is irrelevant. the long run is a more important policy concern than the short run.

the short run is a more important policy concern than the long run.

Using the expenditure approach, gross domestic product equals: gross national product. the sum of consumption, investment, government purchases, and net exports. the sum of consumption, investment, government purchases. gross national product minus net exports.

the sum of consumption, investment, government purchases, and net exports.

When the number of Alaskan fishermen increased, salmon prices fell to record lows. this could be shown geographically by a shift in: the demand curve right. the demand curve left. the supply curve right. the supply curve left.

the supply curve right.

If the United States imposes tariffs on steel imports the supply of the imported steel shifts to the left and raises its market price. the supply of steel shifts to the right and lowers its market price. the demand for steel shifts to the left and raises its market price. the demand for steel shifts to the left and lowers its market price.

the supply of the imported steel shifts to the left and raises its market price.

For the purposes of calculating GDP, gross private domestic investment includes: purchases of stock. the value of new residential construction. purchases of old automobiles. purchases of government bonds.

the value of new residential construction.

According to Adam Smith, individuals are directed to do those things for which they have a comparative advantage by: government policy. corporate management. their self interest. the educational system.

their self interest.

According to Adam Smith, individuals are directed to do those things for which they have a comparative advantage by: the educational system. government policy. corporate management. their self interest.

their self interest.

If a production possibility curve representing a trade-off between a grade in english and a grade in math has a negative slope, we know that: there is a direct relationship between grades in English and grades in math. one can get better grades in English only if one gets better grades in math. there is an inverse relationship between grades in English and grades in math. there is no relationship between grades in English and grades in math.

there is an inverse relationship between grades in English and grades in math.

Say a pill existed that made people selfless. After taking it they were only interested in others, not themselves. Under the coordination definition of economics: there would be a social problem but not an economic problem. there still would be an economic problem. there would be a political problem but no an economic problem. no economic problem would exist.

there still would be an economic problem.

The idea behind Say's Law is that people work because: work gives them social status. they want to accumulate wealth. they like to work. they want to buy things.

they want to buy things.

The morel is prized mushroom that is often abundant in the Western United States in years after forest fires. Suppose two companies are buying morels from workers willing to find them. One company offers to pay workers $5.00 per pound, and the other company will pay workers only $4.00 per pound. Economists would say that: the higher-paying company will attract the more creative and innovative pickers and the lower-paying company will attract the others. this situation violates the law of one price and is not likely to persist. the company willing to pay only $4.00 has a comparative advantage in selling morels. the lower-paying company will attract the more creative and innovative pickers and the higher-lying company will attract the others.

this situation violates the law of one price and is not likely to persist.

If the multiplier effect is 4, a $15 billion increase in government expenditures will shift the AD curve to the left by $15 billion. to the left by $60 billion. to the right by $15 billion. to the right by $60 billion.

to the right by $60 billion.

The text suggests that if economists had a mantra, it would be: do unto others before they do unto you. trade is good. when one person benefits, another is hurt. justice is the measure of all things.

trade is good.

The text refers to the type of comparative advantage that can be gained or lost because of changes in skills of workers or types of capital as: transferable comparative advantage. non-equilibrium comparative advantage. unstable comparative advantage. temporary comparative advantage.

transferable comparative advantage.

The law of supply states that, other things equal, as the price of a good goes: down, the supply goes down. down, the quantity supplied goes up. up, the supply goes down. up, the quantity supplied goes up.

up, the quantity supplied goes up.

The opportunity cost of attending college for one year is best measured by: tuition paid for the year. total money expenses associated with attending college. benefit received by the student. value of the next-best activity forgone by attending college.

value of the next-best activity forgone by attending college.

At a Chicago Bulls game 20,000 tickets were sold at $30 a piece. The game was sold out and some people did not get tickets. This suggests that the selling price: could not have been any higher. was below equilibrium. was at equilibrium. was above equilibrium.

was below equilibrium.

At a Chicago Bulls game 20,000 tickets were sold at $30 a piece. The game was sold out and some people did not get tickets. This suggests that the selling price: was below equilibrium. was at equilibrium. was above equilibrium. could not have been any higher.

was below equilibrium.

The use of the phrase "other things constant" in supply and demand analysis indicates that: an equilibrium price has been reached. we are considering all the changes which might take place in actual markets. an equilibrium quantity has been reached. we are considering changes in just one factor.

we are considering changes in just one factor.

The use of the phrase "other things constant" in supply and demand analysis indicates that: an equilibrium quantity has been reached. an equilibrium price has been reached. we are considering all the changes which might take place in actual markets. we are considering changes in just one factor.

we are considering changes in just one factor.

Suppose the money multiplier in the United States is 2.5. If the Fed wants to reduce the money supply by 1,500 it should: buy government securities worth 600. raise the required reserve ratio to 0.2. well government securities worth 600. raise the discount rate by 2 percentage points.

well government securities worth 600.

If the U.S. government increases its expenditures (without any changes in taxes) while the Federal Reserve Bank decreases the money supply what happens to the AD curve is unclear. the AD curve would likely shift to the right. the AD curve would likely remain unchanged. the AD curve would likely shift to the left.

what happens to the AD curve is unclear.

Underemployment includes people: who are tired of looking for a job, so they quit looking, but still want one. who work "off-the-books" to avoid tax liabilities. whose skills are not in demand anymore. who are working part time, or not using all their skills, at a full-time job.

who are working part time, or not using all their skills, at a full-time job.

The marginal benefit of another T-shirt this month to Mary is $15. If the $10 price of a T-shirt reflects its marginal cost to Mary and Mary uses economic reasoning, she: cannot gain by buying another T-shirt. will buy another T-shirt this month. will not buy a T-shirt this month. will sell the T-shirts she has to others who are willing to pay $10.

will buy another T-shirt this month.

The employment-population ratio gives the number of people: in the labor force as a percentage of the population. working as a percentage of the population. working as percentage of the number of people available to work. in the labor force as a percentage of the number of people available to work.

working as percentage of the number of people available to work.

In the mid-1960s, the United States was running an expansionary fiscal policy to support the war effort in Vietnam. This likely: improved the trade deficit. left the trade deficit the same. had ambiguous effects on the trade deficit. worsened the trade deficit.

worsened the trade deficit.