Macro Final HW Questions
Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of
$5 million
Which of the following explains why many European countries have unemployment rates that are higher than in the United States?
European countries offer higher unemployment benefits than the United States.
The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.
Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks
Under the Bretton Woods exchange rate system, set up in 1944, which of the following was true?
Foreign central banks could sell their dollars to the American government in exchange for gold.
Which of the following is true about the consumer price index?
It assumes that consumers purchase the same amount of each product in the market basket each month.
Suppose an economy's exchange rate system is the gold standard and vast tracks of gold are discovered, as is what happened in the United States in 1849. If the economy is at full employment, what should this discovery do?
It should raise the money supply and cause inflation.
The Federal Reserve's narrowest definition of the money supply is
M1
Which of the following is likely to increase measured GDP?
Marijuana becomes legal to grow and sell.
GDP is not a perfect measure of well-being because
GDP is not adjusted for pollution.
Which of the following is a microeconomic question?
How does Fiat decide on the price of the 500 Pop model?
There is a government budget surplus if
T - TR > G.
Buyers scrambled to secure stocks of Australian wool following a forecast of an 11 percent decline in wool production. What happens in the Australian wool market as a result of this announcement?
The demand curve for Australian wool shifts to the right in anticipation of higher prices in the future.
How does the increasing use of streaming video affect the market for DVDs?
The demand curve for DVDs shifts to the left.
Assume that airline tickets are a normal good. Prices of commercial airline tickets have fallen in recent months. Over this same period, the price of jet fuel has risen and consumer incomes have fallen. Which of the following best explains the falling prices of airline tickets?
The demand curve for airline tickets has shifted to the left more than the supply curve has shifted to the left.
How are the fundamental economic decisions determined in Cuba?
The government decides because Cuba is a centrally planned economy
________ shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.
The production possibilities frontier model
In recent years the cost of producing wines in the U.S. has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market?
The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
In July, market analysts predict that the price of gold will rise in August. What happens in the gold market in July, holding everything else constant?
The supply curve shifts to the left.
If the demand for letters written by Abraham Lincoln is higher than the demand for letters written by John Wilkes Booth, what would have to be true for the market equilibrium prices for these letters to be equal?
The supply of Booth letters would have to be less than the supply of Lincoln letters.
An increase in public saving has what impact on the market for loanable funds?
The supply of loanable funds increases.
According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana?
The two goods are complements in consumption.
Which of the following describes a characteristic of a perfectly competitive market?
There are many buyers and sellers.
George Gnat subscribes to a monthly pest control service for his home. Last week, the owner of the service informed George that he will have to raise his monthly service fee because of increases in the price of gasoline used by his workers on their service trips. How is the market for pest control services affected by this?
There is a decrease in the supply of pest control services.
Which of the following best describes an assumption economists make about human behavior?
They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time
How do lower taxes affect aggregate demand?
They increase disposable income, consumption, and aggregate demand.
Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?
They will shift the aggregate demand curve to the right.
Which of the following is a macroeconomic question?
What determines the minimum wage?
Trade-offs force society to make choices when answering what three fundamental questions?
What goods and services to produce; how will these goods and services be produced; and who receives them?
Fast food restaurants produce a range of menu items such as hamburgers, chicken sandwiches, salads, and french fries. What fundamental economic question are they addressing by offering this range of items?
What to produce?
In a closed economy, private saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
Y + TR - C - T
Which of the following is the best example of a tariff?
a $150 fee imposed on all imported residential air conditioners
Which of the following goods is directly counted in GDP?
a 12-inch Subway sandwich purchased by a student
When Sophie, a French citizen, purchases a Dell computer in Paris, France that was produced in Texas, the purchase is
a U.S. export and a French import.
.Consider the following statements: a) Consumers rent more kayaks from a vendor that rents kayaks at a lower price than other rival kayak vendors along Waikiki beach. b) Department stores take steps to increase security since they believe it is more costly to allow shoplifting than to install expensive security monitoring equipment. c)Farmers produce more cotton when its selling price falls. Which of the above statements demonstrates that economic agents respond to incentives?
a and b
An increase in the value of which of the following would not increase household wealth?
a credit card balance.
Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good) to increase?
a decrease in consumer income
Which of the following will not shift the demand for the euro to the right?
a decrease in the demand for European goods
Which of the following would encourage economic growth through increases in the capital stock?
a decrease in the government deficit an increase in household saving an increase in the profitability of new investment due to technological change
Because of the slope of the aggregate demand curve, we can say that
a decrease in the price level leads to a higher level of real GDP demanded.
Which of the following would cause the equilibrium price of apple juice to decrease and the equilibrium quantity of apple juice to increase?
a decrease in the price of apples
Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase?
a decrease in the price of corn
If the price of beef jerky rises, then the substitution effect due to the price change will cause
a decrease in the quantity of beef jerky demanded.
Holding everything else constant, an increase in the price of raisins will result in
a decrease in the quantity of raisins demanded.
The gold standard is an example of
a fixed exchange rate system.
Hyperinflation is caused by
a high rate of growth in the money supply.
China has developed a comparative advantage in the production of children's toys. The source of this comparative advantage is
a large supply of unskilled workers and relatively little capital.
Which of the following would shift a nation's production possibilities frontier inward?
a law requiring workers to retire at age 50
Which of the following is the best example of a quota?
a limit on the quantity of residential air conditioners that can be imported from a foreign country
Governments sometimes erect barriers to trade other than tariffs and quotas. Which of the following is not an example of this type of trade barrier?
a requirement that the employees of domestic firms that engage in foreign trade pay income taxes
Which of the following individuals would be most negatively affected by anticipated inflation?
a retired railroad engineer who receives a fixed income payment every month
If consumers decide to be more frugal and save more out of their income, then this will cause
a shift in the supply curve for loanable funds to the right.
Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see
a shortage of gasoline.
All of the following are sources of comparative advantage except
a strong foreign currency exchange rate.
The statement, "My iPhone is worth $700" represents money's function as
a unit of account
Which of the following is considered a durable good?
a washing machine
A central bank like the Federal Reserve in the United States can help banks survive a bank run by
acting as a lender of last resort
Destabilizing speculation refers to
actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price.
An increase in the demand for loanable funds will occur if there is
an increase in expected profits from firm investment projects.
Which of the following would cause the short-run aggregate supply curve to shift to the left?
an increase in inflation expectations
Which of the following will shift the aggregate demand curve to the right, ceteris paribus?
an increase in net exports
If, in response to a decrease in the price of coffee, the quantity of coffee demanded increases, then economists would describe this as
an increase in quantity demanded.
Which of the following will increase investment spending in the economy, holding everything else constant?
an increase in the federal government surplus
Which of the following would cause an increase in the supply of cheese?
an increase in the number of firms that produce cheese
Over the past several decades there has been rapid growth in international trade. This growth has been due to all but one of the following factors. Which factor has not contributed to the growth of international trade?
an increase in the tariffs charged on many goods
If an increase in income leads to a decrease in the demand for salami, then salami is
an inferior good.
In economics, money is defined as
any asset people generally accept in exchange for goods and services.
Suppose that in 2020, all prices in the economy double and that all wages and salaries also double. In 2020 you
are no better off or worse off than you were in 2021 as the purchasing power of your salary has remained the same.
If the marginal cost for the U.S. Postal Service to deliver packages for Amazon on Sundays is estimated to be $250,000 per Sunday, then the U.S. Postal Service should make these Sunday deliveries
as long as the marginal benefit received each Sunday is just equal to or greater than $250,000
Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?
at least $60,000
If the value of the U.S. dollar declined relative to the currencies of most of its major trading partners in the second half of 2021, this fall in the price of the dollar against the other currencies was ________ for companies that exported to the United States and ________ for U.S. companies that exported to other countries.
bad, good
In an economy with ________, there are more prices than in an economy with ________.
barter, money
If a country sets a pegged exchange rate that is below the equilibrium exchange rate, how can the country maintain the peg?
by selling surplus domestic currency at the pegged rate
The purchase by a household in China of an automobile produced in the United States is included in U.S.
net exports.
Consumption expenditures do not include household purchases of
new houses.
The "new product bias" in the consumer price index refers to the idea that
new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.
Discouraged workers are classified by the BLS as
not in the labor force.
When the value of a currency is determined ________, the exchange rate system is defined as a floating exchange rate system.
only by supply and demand
The Bureau of Labor Statistics would categorize a retiree who is not working as
out of the labor force.
In 2018, two members of Congress introduced the Stop Bad Employers by Zeroing Out Subsidies Act, legislation they hoped would increase wages of employees who were receiving government assistance. These members of Congress thought this legislation would give firms a reason to raise employee wages so fewer employees would receive the government assistance. Under the act, firms whose employees received assistance from government programs such as Medicaid and SNAP would be required to
pay a tax equal to the cost of the assistance
The short-run aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly.
positive; final goods and services; inputs
The deflation of the 1930s impacted the U.S. economy because it led some consumers to ________ and because it ________.
postpone purchases while they waited for prices to fall even lower; increased the burden on borrowers
The GDP deflator is the
ratio of nominal GDP to real GDP multiplied by 100.
To examine how the total production of an economy has changed over time, it would be better to examine
real GDP
The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket.
change, overestimate
The level of aggregate supply in the long run is not affected by
changes in the price level
Economics is the study of the ________ people make to attain their goals, given their ________ resources.
choices, scarce
Investment, as defined by economists, would include the purchase of a
computer by an accounting firm.
Which of the following price indices comes closest to measuring the cost of living of the typical household?
consumer price index
In a market economy, who decides what goods and services will be produced?
consumers and producers
What is the largest component of spending in the United States?
consumption spending
In the second half of 2019, automobile sales in the United States were lower than they were in the second half of 2018. The decrease in auto sales impacts GDP because new automobiles are counted as ________ when purchased by households and ________ when purchased by businesses.
consumption; investment
The response of investment spending to an increase in the government budget deficit is called
crowding out
Most of the unemployment that occurred during the Great Depression was
cyclical unemployment.
If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would
decrease
Higher personal income taxes
decrease aggregate demand.
An increase in the price level results in a(n) ________ in the quantity of real GDP demanded because ________.
decrease; a higher price level reduces consumption, investment, and net exports
Which of the following will not occur as the result of a decrease in net taxes?
decreased household saving
Autarky is a situation in which a country
does not trade with other countries.
Which of the following is most liquid?
dollar bill
When the market value of the dollar rises relative to other currencies around the world, we say that
dollar has appreciated
As percentage of imports, the largest product category of U.S. imports from China is
electronic products
In the circular flow model, the value of total income for an economy ________ the value of total production.
equals
A person's wealth
equals the value of the person's assets minus his or her liabilities.
The currency adopted by most countries in Western Europe is referred to as the
euro
If a vineyard wants to raise funds to purchase a new bottling machine, it does so in the
factor market.
Efficiency wages cause unemployment because
firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.
Jack just told his boss that he thinks his boss is an idiot. It is likely that Jack will be experiencing ________ unemployment in the near future.
frictional
The advice to "keep searching, there are plenty of jobs around here for which you are qualified," would be most appropriate for which of the following types of unemployment?
frictional unemployment
Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation
greater than 7 percent
Which of the following is not an example of a transfer payment?
health insurance payments to an army private
international trade
helps consumers but hurts firms that are less efficient than their foreign competitors.
Gross domestic product understates the total production of final goods and services because of the omission of
household production.
Nominal GDP will increase
if either the price level or the quantity of goods and services produced rises.
When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.
imports; exports; net exports
A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements. This will
increase GDP and decrease well-being in the economy.
Lower personal income taxes
increase aggregate demand
If a bank receives a $1 million discount loan from the Federal Reserve, then the bank's reserves will
increase by 1 million
A(n) ________ is represented by a rightward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve.
increase in demand; increase in quantity demanded
Which of the following would cause the dollar to appreciate?
increase in the demand for dollars
If the sales of high heel shoes continue to decline as more millennials switch to more comfortable athletic shoes, this will likely
increase the demand for athletic shoes, because athletic shoes and high heel shoes are considered substitutes.
Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would
increase the measured labor force participation rate.
The purchase of Treasury securities by the Federal Reserve will, in general
increase the quantity of reserves held by banks.
Ceteris paribus, a rise in interest rates in the United States will cause the yen price of the dollar in international exchange markets to ________; i.e., the dollar ________ in value against the yen.
increase; appreciates
An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment.
increase; frictional
If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________.
increase; not change
The size of the underground economy would tend to increase if the government of a country
increased income tax rates.
The law of demand implies, holding everything else constant, that as the price of yogurt
increases, the quantity of yogurt demanded will decrease.
The percent increase in the CPI from one year to the next is a measure of the
inflation rate
The purchase of a new house is included in
investment expenditures.
When the government runs a budget deficit, we would expect to see that
investment will fail
The cost to firms of changing prices
is a called a menu cost
An advantage of the establishment survey over the household survey of the labor market is that the establishment survey
is based on actual payrolls, rather than on unverified answers.
People hold money as opposed to financial assets because money
is perfectly liquid
If inflation increases unexpectedly, then
lenders receive a lower real interest rate than they expected.
Banks keep ________ of checking deposits as reserves because on a typical day withdrawals ________ deposits.
less than 100%; are about the same as
Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2022. You know that average prices have risen steadily since 1961. You earn
less than 5 times as much as your grandfather in terms of real income.
Fiat money has
little to no intrinsic value and is authorized by the central bank or governmental body.
Members of Congress promising to support each other's legislation is known as
logrolling
The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds.
lower; greater; greater
The current exchange rate system in the United States is best described as a
managed float exchange rate system.
An office supply store sells a ream of printer paper at a fixed price of $4.50. Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper?
marginal revenue
The real interest rate equals the nominal interest rate ________ the inflation rate.
minus
The quantity theory of money predicts that, in the long run, inflation results from the
money supply growing at a faster rate than real GDP.
Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will
remain constant.
If your nominal wage rises faster than the price level, we can say your real wage has ________ and the purchasing power of your income has ________.
risen, risen
A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.
savers; borrower
The study of economics arises due to
scarcity
In 2005, Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas, gasoline, and heating oil prices. Three years later, once the refining capacity was restored, these prices came back down. The restoration of refining capacity should
shift the short-run aggregate supply curve to the right.
The supply curve for umbrellas
shows the relationship between the price of umbrellas and the quantity of umbrellas supplied.
Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are misleading because
some individuals in both countries may be made worse off because of trade.
Which of the following countries is not one of the top three exporting countries in the world?
south korea
In the circular flow model, households
spend earnings from resource sales on goods and services in the product market.
One difference between stocks and bonds is that
stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond.
A farm worker gets paid today in money, but plans to spend the money next week. This illustrates which function of money?
store of value
By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce
structural unemployment.
A lumberjack loses his job because timber cutting restrictions were imposed by the EPA to protect the spotted owl habitat. This lumberjack would be
structurally unemployed.
The United States has developed a comparative advantage in digital computers, airliners, and many prescription drugs. The source of its comparative advantage in these products is
technology
The unemployment rate is an important economic statistic that can tell us about the health of the economy. If the unemployment rate turns out to be high or higher than anticipated, we would expect
that stock prices are more likely to fall.
The broadest measure of the price level that includes all final goods and services is
the GDP deflator
The German Hyperinflation of the early 1920s was caused by
the German government raising funds for expenditures by selling bonds to the central bank.
Since the end of World War II, each president running for reelection when the economy was growing has won, and each president running for reelection when the economy was contracting has lost. These presidents were experiencing the political effects of
the business cycle.
The substitution effect of a price change refers to
the change in quantity demanded that results from a change in price making a good more or less expensive relative to other goods that are substitutes.
The CPI is also referred to as
the cost-of-living index.
If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro, then
the euro has depreciated and the dollar has appreciated.
Which of the following is a factor of production?
the janitor at the local elementary school
If stricter immigration laws are imposed and many foreign workers in the United States are forced to go back to their home countries
the long-run aggregate supply curve will shift to the left.
If technological change occurs in the economy
the long-run aggregate supply curve will shift to the right.
During a deflationary period
the nominal interest rate is less than the real interest rate.
One would speak of a movement along a supply curve for a good, rather than a change in supply, if
the price of the good changes.
Assuming the United States is the "domestic" country, if the real exchange rate between the United States and France increases from 1.5 to 1.8
the prices of U.S. goods and services have increased by 20% relative to France.
The major shortcoming of a barter economy is
the requirement of a double coincidence of wants.
An example of an intermediate good would be
the rims on a new car.
Workers and firms both expect that prices will be 2.5% higher next year than they are this year. As a result
the short-run aggregate supply curve will shift to the left as wages increase.
If in the market for bananas the supply curve has shifted to the right, then
the supply of bananas increased.
When Americans increase their demand for Japanese goods
the supply of dollars will rise, and the demand for yen will rise.
According to the text, economists consider full employment to occur when
the unemployment rate consists of only frictional and structural unemployment.
Suppose in 2020, you purchase a house built in 2014. Which of the following would be included in the gross domestic product for 2020?
the value of the services of the real estate agent
Hyperinflations occur because governments want to spend more than they raise in taxes, and they pay for the extra purchases by printing money or selling large quantities of government bonds to the central bank.
true
In the United States, businesses are not required to accept cash as payment for goods or services.
true
The quantity equation becomes the basis for a theory when we assume that velocity of money is constant.
true
A currency pegged at a value below the market equilibrium exchange rate is
undervalued
China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan was ________ at the pegged exchange rate, the Chinese government increased its reserves of ________ as the government purchased more ________ to maintain the pegged exchange rate.
undervalued; dollars; dollars
China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan has been ________ at the pegged exchange rate, the Chinese government ________ its reserves of dollars as the government purchased more ________ to maintain the pegged exchange rate.
undervalued; increased; dollars
Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness?
unemployed persons falsely report themselves to be actively looking for a job
If the minimum wage is set above the market wage
unemployment will rise.
All of the following are reasons why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services except
unions are successful in pushing up wages.
When the economy enters into a recession, your employer is ________ to reduce your wages because ________.
unlikely; lower wages reduce productivity and morale
To reduce the bias in the consumer price index, the Bureau of Labor Statistics
updates the market basket every two years, rather than every 10 years.
Allied soldiers in a World War II prisoner-of-war camp
used cigarettes as money.
In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA
values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.
In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to limit their exports to a country. What are these types of agreements called?
voluntary export restraints
As was demonstrated in 2007, firms in the shadow banking system
were very vulnerable to bank runs.
Which of the following is an example of an economic trade-off that a firm has to make?
whether it is cheaper to produce with more machines or with more workers
Whenever a buyer and a seller agree to trade, both must believe they will be made better off
whether the buyer and seller live in the same (or different) city or country.
You're traveling in Ireland and are thinking about buying a new digital camera. You've decided you'd be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the exchange rate is 0.85 euros per dollar, what's the highest price in euros you'd be willing to pay for a camera?
106.25 euros
Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be
11 percent
You're traveling in Japan and are thinking about buying a new kimono. You've decided you'd be willing to pay $175 for a new kimono, but kimonos in Japan are all priced in yen. If the exchange rate is 89 yen per dollar, what is the highest price in yen you'd be willing to pay for a kimono? (Assume no taxes or duties are associated with the purchase.)
15,575 yen
Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal benefit if he sells the standard package?
25
If you want to earn a real interest rate of 4% on money you lend and you expect that inflation will be 4%, what nominal rate of interest should you charge?
8 percent
Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?
8 percent
How does an increase in a country's exchange rate affect its trade balance?
An increase in the exchange rate raises imports, reduces exports, and reduces the trade balance.
How were countries whose industries competed with Chinese industry affected by a yuan that was pegged to the dollar?
Because the yuan was undervalued at the pegged exchange rate, the level of Chinese exports remained higher than they would have been if the exchange rate was allowed to float freely.
Which of the following would be a consequence of substitution bias in the CPI?
Businesses would overcompensate employees for inflation when giving cost of living raises.
Trade restrictions are often motivated by a desire to save domestic jobs threatened by competition from imports. Which of the following counter-arguments is made by economists who oppose trade restrictions?
Consumers pay a high cost for jobs saved through trade restrictions.
Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?
Demand for dollars will decrease, and supply of dollars will increase.
Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity. What happens in the market for solar panels if the government offers tax breaks to encourage manufacturers to produce more solar panels?
S increases, D no change, P decreases, Q increases.
Economist Steve Landsburg has pointed out that Ebenezer Scrooge's change in behavior from miser to spender might actually be detrimental to the economy because
Scrooge's miserly saving helped contribute to the production of investment goods rather than consumption goods.
If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?
Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.