ECO 202 FINAL

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What factors explain the dramatic increases in life expectancy that we saw in most countries in the twentieth century? (Select all that apply.) A. Scientific breakthroughs leading to the development of antibiotics and vaccines. B. Greater government control of the production and delivery of health care. C. The establishment of simple but effective medical and public health practices. D. Innovations in disease control, including the use of DDT against malaria.

A. Scientific breakthroughs leading to the development of antibiotics and vaccines. C. The establishment of simple but effective medical and public health practices. D. Innovations in disease control, including the use of DDT against malaria.

Which of the following is a reason economists use mathematics: A. to clarify economic concepts. B. as a way of summarizing economic thinking. C. to work out the implications of an economic argument. D. all of the above.

D. all of the above.

Economic agents who borrow funds are known as __________ (creditors/ debtors/ spenders), the funds that they borrow are referred to as __________ (debt/ credit/ capital), and this activity occurs in the __________ (credit or financial/ credit or loanable funds/ loanable funds or debit) market.

debtors; credit; credit or loanable funds

Policy decisions made by the government are analyzed by __________ a. only macroeconomics b. both microeconomics and macroeconomics c. only microeconomics d. neither microeconomics nor macroeconomics

b. both microeconomics and macroeconomics

Demonstrate causation or correlation with the following examples: More __________ (police officers/ firefighters) and __________ (higher/ lower) crimes rates is likely to be __________ (causation/ correlation). More __________ (unemployment/ government regulation/ economic growth) and __________ (lower/ higher) employment levels is likely to be __________ (correlation/ causation). The length of women's skirts and stock market performance is likely to be __________ (causation/ correlation).

police officers; lower; causation economic growth; higher; causation correlation

True or False: Free riding occurs when people's private benefits are out of sync with the public interest

true

The core ingredients of expansionary monetary policy are shown below. These events impact the real economy and occur as shown by the sequence on the right. For each of the events described below, insert the number (1−4) to give each event its correct position in the sequence. _____ Long−term interest rates fall _____ Labor demand shifts right _____ Demand for goods and services increases _____ Short−term interest rates fall and access to credit expands

2 4 3 1

Suppose U.S. drivers purchased $80 billion of ExxonMobil-produced gasoline during a recent year, with one-half purchased directly from ExxonMobil-owned gas stations and one-half from independent (or third-party) gas stations. Suppose further that ExxonMobil purchased the oil (which it refined into gasoline) from foreign producers for $30 billion and that it receives 60 percent of the sales revenue that independent stations generate from selling ExxonMobil gasoline. In this case, the value added by ExxonMobil to U.S. GDP is $_____ billion.

34 ???

Suppose your total benefit from eating slices of pizza (value in dollars) is 10x - x^2, where x is the number of slices of pizza. Pizza is sold by the slice and costs $2 per slice, and so the total cost of pizza is 2x. Using optimization in levels, what is the optimal amount of pizza for you to eat? Your net benefit is maximized at __________ slices of pizza. (Enter your response as an integer.)

If the annual inflation rate is predicted to be 1.9 percent and the real interest rate is 2.3 percent, the nominal interest rate is _____ percent. (Round your response to one decimal place.)

4.2

Which of the following is an accurate description of the question, "Did the Federal Reserve accurately predict the financial crisis of 2008?" A. A macroeconomic reasoned judgment question. B. A microeconomic taste question. C. A microeconomic factual question. D. A macroeconomic factual question.

A. A macroeconomic reasoned judgment question.

Which of the following factors will increase GDP and also achieve sustained growth? A. An increase in physical capital accumulation. B. Increasing the workforce. C. Advances in the technical knowledge used in production. D. Raising the educational attainment or skill level of the workers.

A. An increase in physical capital accumulation.

Which is not one of the Five Steps to Effective Communication"? A. Assume your audience disagrees with you. B. Choose a suitable organization for your writing or speaking. C. Be professional but lively. D. Make your conclusion your main point.

A. Assume your audience disagrees with you.

Which of the following are functions banks perform as financial intermediaries in the economy? (Check all that apply.) A. Identify profitable lending opportunities. B. Manage risk through diversification strategies. C. Introduce new paper currency into the economy. D. Enforce lending standards and rules. E. Transform short-term liabilities into long-term assets.

A. Identify profitable lending opportunities. B. Manage risk through diversification strategies.

Which of the following can produce a movement along the credit demand curve? A. A change in government borrowing. B. A change in household preferences or expectations. C. A change in the real interest rate. D. Upper A change in government tax policy on profitsA change in government tax policy on profits.

C. A change in the real interest rate.

The goal of optimization for an individual is to maximize ___________.

Overall well-being

A table that reports the quantity demanded at different prices, holding all else equal.

demand schedule

A price ceiling set below the natural equilibrium price would cause the quantity __________ (demanded/ supplied) to exceed quantity __________ (demanded/ supplied.

demanded; supplied

Items are classified as final goods only if they are the __________ (end product/ primary component) in a chain of production.

end product

The concept of diminishing marginal benefits __________ (does not exist/ holds true) for goods that you like a lot.

holds true

Identify the effect on GDP due to the following factors: An improvement in transportation facilities. (Decrease in GDP/ Increase in GDP) A decreased investment in infrastructure. (Increase in GDP/ Decrease in GDP) An increase in brain drain in a nation. (Increase in GDP/ Decrease in GDP) The use of advanced technology. (Decrease in GDP/ Increase in GDP)

increase; decrease; increase; increase???

In almost all cases, the quantity demanded rises when the price falls (holding all else equal).

law of demand

We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in __________ (the price of a good and incomes/ only the income of consumers/ only the price of a good).

only the price of a good

When one of the five major factors changes, causing an increase in demand, the demand curve shifts __________ (rightward/ up and to the right/ upward).

rightward

You are considering renting a city apartment with 1,000 square feet for $1, 600 per month. The monthly rent on a larger, 1,500-square-foot city apartment is $2,100. The marginal cost of renting an apartment with 500 additional square feet is $_____ per square foot per month. (Round your response to two decimal places.)

$1/square foot

You have been invited to play a 4-hour round of golf that has a value to you of $70. The total price to play the round of golf is $45. The net benefit of the round of golf is $__________. (Enter your response as an integer.)

$25

The supply curve shifts when these 4 variables change:

-prices of inputs used to produce the good -technology used to produce the good -number and scale of sellers - sellers' beliefs about the future

Banks and other financial institutions of an economy are in the business of channeling funds from suppliers of financial capital to users of financial capital. This process is known as ____________. A. financial integration. B. capital transformation. C. financial intermediation. D. direct finance.

C. financial intermediation.

If people expect the price of SUVs to decrease in the future, then the demand for the Toyota Rav4 SUV would __________. A. remain unchanged. B. decrease (shift left) C. increase (shift right)

C. increase (shift right)

Unlike extractive economic institutions, inclusive economic institutions ____________. A. do not include laws. B. restrict free markets. C. are comprised of regulations. D. uphold the law.

D. uphold the law.

If a bank runs short of reserves, a reasonable step would be to ____________. A. apply for a taxpayer-funded bailout. B. stop making new loans. C. sell some of its illiquid long-term assets. D. issue special IOU's to the bank's depositors. E. all of the above. F. B and C only.

F. B and C only.

The question, "Do most Americans believe that government is too big? " is an example of a: A. Factual question. B. A combination of two or more of the other answers. C. A taste question. D. A reasoned judgment question.

A. Factual question.

Which of the following is not a characteristic of a market? A. Markets are physical locations where trading occurs B. Voluntary exchanges between economic agents C. Flexible prices D. There are rules and arrangements for trading

A. Markets are physical locations where trading occurs

Since optimization is used to analyze people's choices and help them improve the outcomes of their choices, its A. normative only. B. positive only. C. both normative and positive D. neither because it doesn't show people who don't optimize how to improve their well minus being.

C. both normative and positive

In the presence of low income inequality in an economy, growth in income per capita leads to __________ (a fall/ a rise/ no change) in poverty.

a fall

Which of the following factors does not cause a shift in the labor demand curve? A. Changes in the wage rate. B. Changing input prices. C. Changing technology. D. Changes in output prices.

A. Changes in the wage rate.

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client becomes critical of your "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this criticism? A. Economic models are meant to be approximations that predict what happens in most circumstances. B. Even a simplified economic model can provide two standard deviations accuracy. C. Even a simplified economic model can provide 99 percent accuracy. D. Economic models are meant to exactly predict each and every outcome by using all variables.

A. Economic models are meant to be approximations that predict what happens in most circumstances.

Brainstorming: A. is a method for figuring out what information needs to be gathered. B. is a way of identifying sources. C. occurs when a macroeconomic question is too vague. D. all of the above.

A. is a method for figuring out what information needs to be gathered.

Those who are voluntarily unemployed are ____________. A. willing to work, but not at the prevailing wage. B. willing to work, but can't find a job. C. not willing to work. D. willing to work, but choose to volunteer instead.

A. willing to work, but not at the prevailing wage.

In searching for answers, if the macroeconomic question is vague: A. you can end up wasting a lot of time during the search process. B. it gives you valuable flexibility when you begin gathering information. C. you can clear it up at the end of the critical-thinking process. D. none of the above.

A. you can end up wasting a lot of time during the search process.

Private property rights foster economic development by ____________. A. redistributing income to those less fortunate. B. providing incentives to start a business. C. replacing the law. D. removing the need for costly contracts.

B. providing incentives to start a business.

When the value of a bank's assets is less than its liabilities, the bank is said to be ____________. A. underwater. B. solvent. C. insolvent. D. insoluable When the value of a U.S. bank's assets become less than its liabilities, the government, through the FDIC, ___________. A. shuts the bank down and makes payouts to its depositors. B. searches for a healthy bank to take over its operations. C. lets the "chips fall where they may." D. presses Congress for bailout money. E. A and B are the usual responses. F. C and D represent the standard operating procedures.

B. solvent. E. A and B are the usual responses.

Fiat money is ____________. A. a currency that is not convertible to a physical commodity. B. something that is used as legal tender by government decree and is not backed by a physical commodity. C. something that is used as legal tender that is backed by a physical commodity like gold or silver. D. a currency that is protected with computer codes.

B. something that is used as legal tender by government decree and is not backed by a physical commodity.

The question "Is greater income inequality a moral issue?" is an example of: A. A positive macroeconomic question. B. Neither a positive nor a normative macroeconomic question. C. A normative macroeconomic question. D. Both a positive and a normative macroeconomic question.

C. A normative macroeconomic question.

Which of the following is not an example of a positive frame or reference? A. Business Sciences B. Psychology C. Efficiency D. Microeconomics

C. Efficiency

Holding all else constant, if the number of cell phone manufacturers suddenly decreased due to increased regulations, then A. supply would shift rightwards, equilibrium price would decrease, and equilibrium quantity would increase. B. supply would shift rightwards, equilibrium price would increase, and equilibrium quantity would decrease. C. supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease. D. supply would shift leftwards, equilibrium price would decrease, and equilibrium quantity would decrease.

C. supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease.

Which of the following is subject to the free-rider problem? A. Public libraries. B. National security. C. A neighborhood watch. D. All of the above.

D. All of the above.

Does the shape of the market demand curve differ from the shape of an individual demand curve? A. No, they both tend to be upward-sloping curves. B. Yes, individual demand curves tend to be upward-sloping, while market demand curves are horizontal. C. Yes, individual demand curves tend to be downward-sloping, while market demand curves are upward-sloping. D. No, they both tend to be downward-sloping curves.

D. No, they both tend to be downward-sloping curves.

Who bears the risk that a bank faces when stockholders' equity is greater than zero? A. Taxpayers. B. The FDIC. C. Depositors with accounts greater than $250,000. D. The bank's stockholders.

D. The bank's stockholders.

Which of the following best explains why the labor supply curve slopes upward? A. When the output that a firm produces increases, the opportunity cost of hiring another worker increases. B. When the wage rate increases, the number of employees that a firm wants to hire increases. C. When the price of a good increases, firms get more value out of each worker and thus seek to hire more workers. D. When wages increase, the opportunity cost of not working increases, leading people to seek more work hours.

D. When wages increase, the opportunity cost of not working increases, leading people to seek more work hours.

What is a good source for macroeconomic data and statistics? A. Economic Report of the President B. www.bea.gov C. FRED D. all of the above

D. all of the above

As you consume more of a good, your willingness to pay for an additional unit declines.

Diminishing marginal benefit

The formula for inflation is

inflation (percent)= ([CPI(t) - CPI(t-1)] / CPI(t-1)) x 100

Suppose the Fed conducts an open market purchase. Such an action would be called for if the economy faced the possibility of __________ (inflation/recession).

recession

Banks obtain overnight loans of reserves from one another through __________ (open market operations/ the federal funds market). When bank A has $1515 billion in reserves and loans $55 billion of reserves to another bank, the net quantity of reserves demanded by these banks is $_____ billion. A higher federal funds rate __________ (decreases/ increases) the cost of holding reserves and __________ (reduces/ increases) the quantity of reserves demanded by optimizing banks.

the federal funds market; 15; increases; reduces

The accounting identity that is used to estimate the gross domestic product of a country is given by A. Production equivalent Expenditure equivalent Income B. Production equivalent Expenditure equivalent Consumption C. Income equivalent Production minus Consumption D. Consumption equivalent Income minus Saving

A. Production equivalent Expenditure equivalent Income ???

Which of the following is not a standard for evaluating conflicting claims? A. Simplicity B. Logicalness C. Relevance D. Clarity

A. Simplicity

All of the following are factors in determining the subsistence level of an economy except ____________. A. air. B. shelter. C. clothing. D. calories.

A. air.

Two fundamental problems that often arise in answering a macroeconomic question are: A. Hidden biases that keep one from honestly weighing arguments, and problems that restrict access to sufficient data. B. Hidden biases and a lack of intellectual courage. C. Hidden biases that keep one from honestly weighing arguments and evidence, and confusion over how to sort out conflicting arguments and evidence. D. Confusion over how to sort out conflicting arguments and evidence, and working with flawed models.

C. Hidden biases that keep one from honestly weighing arguments and evidence, and confusion over how to sort out conflicting arguments and evidence.

If π denotes the rate of inflation and i denotes the nominal rate of interest, then the amount a borrower repays in a year on a one-dollar loan is __________ (1+π/ 1−i/ 1+i) and the inflation-adjusted purchasing power of the originally borrowed dollar is __________ (1−π/ 1+π/ i+π). The inflation-adjusted purchasing power of the originally borrowed dollar is subtracted from the amount a borrower repays in a year on a one-dollar loan. The result is the ____________. A. inflation-adjusted cost of the loan. B. real interest rate. C. real price of the loan. D. all of the above. E. A and B only.

1 + i 1 + π D. all of the above.

Suppose the Fed commits itself to the use of the Taylor rule (shown below) to set the federal funds rate. Federal funds rate=Long−run target+1.5(Inflation rate−Inflation target)+0.5(Output gap) Suppose the Fed has set the long-run target for the federal funds rate at 1 percent and its target for inflation at 1.5 percent. If the economy is currently hitting the Fed's inflation target and GDP exactly equals the trend GDP, then the Fed will set the federal funds rate at _____ percent. (Enter your response with no rounding.) Now suppose the economy slows down, causing the actual inflation rate to decrease to 0.5 percent and the economy to fall 1 percent below trend GDP. In this case, the Fed will seek to set the federal funds rate at nothing percent.(Enter your response with no rounding.) To achieve its target for the federal funds rate, the Fed may ____________. (Check all that apply.) A. Decrease the reserve requirement. B. Decrease corporate taxes. C. Decrease the interest rate paid on reserves deposited at the Fed. D. Increase lending from the discount window. E. Purchase Treasury bonds in the open market.

1? 1.25? A. Decrease the reserve requirement. C. Decrease the interest rate paid on reserves deposited at the Fed. D. Increase lending from the discount window. E. Purchase Treasury bonds in the open market.???

Suppose the government enacts a stimulus program composed of $600 billion of new government spending and $300 billion of tax cuts for an economy currently producing a GDP of $13,000 billion. If all of the new spending occurs in the current year and the government expenditure multiplier is 1.5, the expenditure portion of the stimulus package will add _____ percentage points of extra growth to the economy. (Round your response to two decimal places.) If the government taxation multiplier is 0.8, the tax cut portion of the stimulus package will add _____ percentage points of extra growth to the economy. (Round your response to two decimal places.) As a result of the stimulus program, the economy's GDP was increased by _____ percentage points over its value without the program. (Round your response to two decimal places.) If the economy's actual growth was negative −4 percent, then without the stimulus package, growth would have been _____ percentage points. (Round your response to two decimal places and use a minus sign if necessary.)

6.92? 1.85? 8.77? 4.77?

Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice an increase in the price of gas. You have access to the following groups of people: People who have not noticed a gas-price increase: 50 People who drive electric cars: 35 People who have recently noticed a gas-price increase: 70 People who ride their bikes to work: 20 People who ride the bus: 100 To set up your experiment on how price-increase awareness impacts customer behavior, you would have _____ people in your treatment group and _____ people in your control group.

70; 50

The question "Who has been hurt the worst by the deflation that Japan has experienced in recent years?" is an example of: A. A normative macroeconomic question. B. Neither a positive nor a normative macroeconomic question. C. A positive macroeconomic question. D. Both a positive and a normative macroeconomic question.

A. A normative macroeconomic question.

Which of the following is not a standard for judging whether a positive frame of reference is a good one? A. Brevity B. Relevance C. Accuracy D. Depth

A. Brevity

Which of the following countries will be better off in the long run? A. Country A with $1 comma 000 annual GDP per capita and a 6 percent annual growth rate. B. Country B with $5 comma 000 annual GDP per capita and a 2 percent annual growth rate. C. Country C with $40 comma 000 annual GDP per capita and a 1 percent annual growth rate. D. Country D with $60 comma 000 annual GDP per capita and a 0.1 percent annual growth rate.

A. Country A with $1 comma 000 annual GDP per capita and a 6 percent annual growth rate.

Which of the following is not one of the Five Steps to Reading Critically? A. Determine the credentials of the author B. Determine the purpose of the writing C. Figure out the context of the writing D. Make sense of each part of the writing

A. Determine the credentials of the author

Which of the following is true regarding the concept of causation? A. It describes how one event can bring about change in another. B. It states that if event A causes event B, then event B must also cause event A. C. It states that if event A causes event B, then event B cannot have a causal effect on event A. D. For any two events that occur, economists state that the first must have caused the second, since it came first.

A. It describes how one event can bring about change in another.

From a critical-thinking perspective, what is the value of a general (aka a liberal) education? A. It provides a variety of perspectives that can be used in the future. B. It teaches good study skills. C. It fulfills university requirements. D. It has no value.

A. It provides a variety of perspectives that can be used in the future.

Which of the following are not included in GDP but probably should be? (Check all that apply.) A. Transactions in the underground economy. B. The value of leisure. C. The value of intermediate goods used in the assembly of final products. D. Financial asset transactions.

A. Transactions in the underground economy. B. The value of leisure.

What are the functions of money in a modern economy? (Check all that apply.) A. Unit of account. B. Store of gold or silver. C. Store of value. D. Medium of exchange.

A. Unit of account. C. Store of value. D. Medium of exchange.

The investment (I) component of aggregate expenditure includes ____________. (Check all that apply.) A. business structures. B. residential houses. C. stocks and bonds. D. infrastructure comma such as highways and bridges. E. business inventories.

A. business structures. C. stocks and bonds. E. business inventories. ???

In a perfectly competitive market, sellers _________ and buyers _________. A. cannot charge more than the market price; cannot pay less than the market price. B. are able to charge more than the market price; cannot pay less than the market price. C. are able to charge more than the market price; are able to pay less than the market price. D. cannot charge more than the market price; are able to pay less than the market price.

A. cannot charge more than the market price; cannot pay less than the market price.

Optimization is the process that describes __________. A. the choices that firms make. B. how to maximize revenue. C. the budgeting process for governments. D. how to obtain relevant data. E. the production of resources.

A. the choices that firms make.

What are the two components of technology? (Check only two.) A. The need for more workers to produce more complex goods. B. The enablement of globalization and the ability to use low-cost workers. C. A more efficient means of production. D. The knowledge of how to produce new products.

C. A more efficient means of production. D. The knowledge of how to produce new products.

Optimization is the process that describes __________. A. the production of resources. B. the budgeting process for businesses. C. the choices that governments make. D. how to obtain relevant data. E. how to maximize revenue.

C. the choices that governments make.

The Federal Reserve influences the long-run real interest rate through ____________. A. the discount rate. B. the long-term federal funds rate. C. the short-term federal funds rate. D. adjustments to expected inflation.

C. the short-term federal funds rate.

Thinking critically about a macroeconomic issue requires: A. finding flaws in the macroeconomic argues of others. B. weighing the pros and cons of various macroeconomic conceptual arguments. C. evaluating empirical evidence. D. (b) and (c)

D. (b) and (c)

When wages exhibit downward flexibility and a recession occurs, the decline in employment will be ____________. A. smaller when the supply of labor is relatively inelastic. B. softened because some of the decline in labor demand is absorbed by a fall in wages. C. smaller than what would occur if wages were rigid. D. all of the above. E. A and C only.

D. all of the above.

Structural unemployment can be caused by ____________. A. efficiency wages. B. collective bargaining rights of workers. C. imperfect information by workers and firms. D. all of the above. E. A and B only.

E. A and B only.

When optimizing for total value, opportunity cost must be __________ (added to/subtracted from) total cost. Assuming __________ (equal/varying) benefits, the lowest cost option is the optimal choice.

added to; equal

If a country enacts fiscal policy to alleviate a recession by lowering taxes and increasing government spending, this will likely __________ (decrease/ increase) the deficit and __________ (decrease/ increase) the risk of inflation.

increase; increase

Foreign aid often __________ (decreases/ increases) the power of extractive economic institutions and __________ (decreases/ increases) overall inequality within the country.

increases; increases???

Suppose that a 10 percent increase in the physical capital stock increases GDP by 10 percent. Now consider an additional 10 percent increase in the physical capital stock. This increase in the physical capital stock will increase GDP by __________ (more than 10 percent/ 10 percent/ less than 10 percent)

less than 10 percent

How do wage flexibility and downward wage rigidity affect the extent of unemployment in the economy when the demand for labor falls? When the demand for labor falls, the fall in employment is __________ (contractual/ amplified/ limited) when real wages are flexible and __________ (amplified/ limited/ aggregated) when wages are downwardly rigid.

limited; amplified

A policy such as passing an economic stimulus to spur the economy would be studied under __________ (microeconomics/ macroeconomics), since it deals with _______________________________.

macroeconomics; the economy as a whole

A group of economic agents who are trading a good or service would define a __________ (competition/ market). Price takers exist throughout __________ (competitive/ bargaining) markets.

market; competitive

Economists refer to the process of summing the individual supply curves to find the market supply curve as aggregation. Aggregation consists of fixing the __________ (price of the good/ quantity supplied) and adding up the __________ (prices charged/ quantity supplied) by each firm.

price of the good; quantity supplied

The fact that unemployment is lower among workers with a relatively higher level of education can be explained in part by the __________ (principle of optimization/ demand for labor/ unemployment rate) . What other reasons might explain why unemployment is lower among workers with a relatively higher level of education? A. More educated workers have more human capital. B. Workers with a higher level of education are in greater demand by firms. C. More educated workers have a higher opportunity cost of time. D. All of the above.

principle of optimization D. All of the above.

Suppose the Fed wants to implement an anti-recession; anti-inflation monetary policy. For each of the tools listed below, indicate the direction the Fed's action should take. The Fed should conduct an open market __________;__________ (purchase/ sale) of Treasury bonds. The Fed should __________;__________ (raise/ lower) the reserve requirement. The Fed should __________;__________ (increase/ decrease) the interest rate paid on reserves deposited at the Fed. The Fed should __________;__________ (contract/ expand) lending from its discount window.

purchase; sale lower; raise decrease; increase expand; contract

The Law of Demand states that as the price of a good increases, ceteris paribus, the __________ (quantity supplied/ supply/ demand/ quantity demanded) decreases. This can be shown graphically with __________ (a downward-sloping/ an upward-sloping) demand curve or numerically in a table using a __________ (statement of demand/ demand schedule). The relationship that exists between these two variables can be described as __________ (positively related/ economically related/ negatively related).

quantity demanded; a downward-sloping; demand schedule; negatively related

Which of the following is true about the use of mathematics in economics? A. has limitations in economics. B. It assures that economic reasoning is precise. C. both of the above. D. none of the above.

A. has limitations in economics.

Which of the following will be considered a final good in the calculation of U.S. GDP? (Check all that apply.) A. Golf outings at courses in North Carolina. B. Transmissions manufactured in Alabama for Ford's range of Upper F minus series pickup trucks. C. School supplies purchased by a local school board. D. Canned foods purchased by a grocery store.

A. Golf outings at courses in North Carolina. C. School supplies purchased by a local school board.

Other than open market operations, what tools does the Federal Reserve use to manipulate interest rates in the economy? (Check all that apply.) A. Changing the reserve requirement. B. Changing the magnitude of federal transfer payments. C. Lending from the discount window. D. Quantitative easing. E. Changing the interest rate paid on reserves deposited at the Fed.

A. Changing the reserve requirement. C. Lending from the discount window. D. Quantitative easing. E. Changing the interest rate paid on reserves deposited at the Fed.

Which of the following is an example of a proximate cause of prosperity? A. Human capital B. Culture C. Institutions D. Geography

A. Human capital

Where would you look for information about recent macroeconomic events? A. The Economist B. Wikipedia C. JSTOR D. all of the above

A. The Economist

Which of the following is not one of the five major factors that shifts the demand curve when it changes? A. The price of the good itself. B. Income and wealth. C. The price of complementary goods. D. Expectations about the future.

A. The price of the good itself.

Productivity is ____________. A. the value of output that a worker generates for each hour of work. B. a measure of the speed with which inputs can be transformed into products. C. the value of profit divided by the number of production workers. D. an indicator of how hard workers apply themselves to their tasks.

A. the value of output that a worker generates for each hour of work.

The institutions hypothesis explains the difference in prosperity among nations is due to ____________. A. the way societies provide public goods. B. geographic variation in ecology. C. proximate factors, such as technology. D. differences in a society's beliefs.

A. the way societies provide public goods.

Which of the following news stories (all published in early 2014) would typically be studied in macroeconomics? (Select all that apply.) A. "5 Reasons Why Apple is Looking Like the Next Sony" B. "What If Economic Growth Is No Longer Possible?" C. "We Believe Inflation Should Rule Monetary Policy." D. "Which Collegelong dashand Which Majorlong dashWill Make You Richest." E. "Expectations High for March Employment."

B. "What If Economic Growth Is No Longer Possible?" C. "We Believe Inflation Should Rule Monetary Policy." E. "Expectations High for March Employment."

The GDP deflator is calculated using ____________. A. (Constant Dollar GDP / Current Dollar GDP) x 100 B. (Nominal GDP / Real GDP) x 100 C. (Real GDP - Nominal GDP / Nominal GDP) x 100 D. (Real GDP / Nominal GDP) x 100

B. (Nominal GDP / Real GDP) x 100

Economic growth is ____________. A. the steady growth of income (GDP) per capita of an economy. B. the increase in income (GDP) per capita of an economy. C. a period of time that excludes negative fluctuations, such as the "Great Recession." D. the amount of constant dollars in the economy.

B. the increase in income (GDP) per capita of an economy.

Which is not one of the Five Steps to Effective Communication"? A. Be professional but lively. B. Assume your audience disagrees with you. C. Choose a suitable organization for your writing or speaking. D. Make your conclusion your main point.

B. Assume your audience disagrees with you.

Why is efficiency of production so important to real GDP? A. When efficiency is higher, the government tends to be more efficient. B. Higher efficiency translates into higher incomes for workers. C. Better efficiency results in lower marginal tax rates. D. The higher the efficiency, the more workers are able to unionize.

B. Higher efficiency translates into higher incomes for workers.

Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second approach, you also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate. Which approach is likely to give you a more accurate picture of the living standards in both countries? A. The second approach, because it's the total dollars that matter. B. The second approach, because it takes into account the relative costs for each country. C. The first approach, because the United States is the world's leader and the dollar is the global reserve currency. D. The first approach, because it's the total dollars that matter.

B. The second approach, because it takes into account the relative costs for each country.

In 1973, the major oil-producing nations of the world declared an oil embargo. The price of oil, a key source of energy, increased. This led to widespread inflation as costs of production increased steeply. The resulting fall in GDP and employment led the United States into a recession. Which of the business cycle theories explained in the chapter would best fit this explanation of the 1970s recession? A. Okun's theory. B. Monetary theory. C. Real business cycle theory. D. Keynesian theory.

C. Real business cycle theory.

Suppose that your favorite aunt has just given you a $100 gift certificate for your birthday that can be used at a local bookstore. Suppose further that you have decided to divide the money between books and coffee in some way and that the price of a book is $20 and the price of a cup of coffee is $2. Given these facts, take a sheet of paper and graphically represent your budget constraint and label that constraint with the letter A. Then choose a point on constraint A that reflects in your estimation the best way to spend your gift certificate and label that point with the letter B. Now, based on your graph (do not turn in the graph), which statement below most accurately describes your graph: A. Constraint A and Point B are the result of answering normative questions. B. Constraint A is the result of answering a normative question; Point B is the result of answering a positive question. C. Constraint A and Point B are the result of answering positive questions. D. Constraint A is the result of answering a positive question; Point B is the result of answering a normative question.

D. Constraint A is the result of answering a positive question; Point B is the result of answering a normative question.

In the 1980s, the saving rate in Japan was extremely high. The saving rate ranged between 30 percent and 32 percent. Since saving leads to investment, is a very high saving rate always good for the economy? A. No, a high saving rate cannot lead to sustained economic growth because depreciation always drags aggregate output back down, forcing the economy to spend some of its income on investment. B. Yes, because a high saving rate allows the economy to invest in more physical capital, which increases income more than a low saving rate would. C. Yes, because a high saving rate increases income more than a low saving rate, which allows the people to consume more. D. No, a high saving rate cannot lead to sustained economic growth because there is a maximum amount of aggregate income that an economy can achieve by increasing saving, since the economy can never exceed a saving rate of 100 percent.

D. No, a high saving rate cannot lead to sustained economic growth because there is a maximum amount of aggregate income that an economy can achieve by increasing saving, since the economy can never exceed a saving rate of 100 percent.???

Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following order: going to class, sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. If you decide to go to class, then what do we know about the opportunity cost of your decision? a. The opportunity cost would be working, since it is the only option that can be put in a dollar amount. b. the opportunity cost would include sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. c. the opportunity cost would be sleeping in late, since it was your next-best option d. there would be no opportunity cost in this example

c. the opportunity cost would be sleeping in late, since it was your next-best option

The Law of Supply states that as the price of a good increases, ceteris paribus, the __________ (quantity demanded/ quantity supplied/ supply/ demand) of that good increases. This can be shown graphically with __________ (a downward-sloping/ an upward-sloping) supply curve or numerically in a table using a __________ (supply schedule/ statement of supply). The relationship that exists between these two variables can be described as __________ (economically related/ negatively related/ positively related.

quantity supplies; an upward-sloping; supply schedule; positively related

The demand curve shifts when these 5 major factors change:

-tastes and preferences -income and wealth -availability and prices of related goods -number and scale of buyers -buyers' beliefs about the future

Which of the following would not be considered a market by an economist? A. A dating website B. Your corner gas station C. An online auction site such as ebay D. All of the above are examples of a market.

D. All of the above are examples of a market.

If you have studied microeconomics, you may recall a concept called "moral hazard." Moral hazard occurs when an economic agent is incentivized to take risks because some (or all) of the losses that might result will be borne by other economic agents. How might federal deposit insurance, as administered by the FDIC, lead to moral hazard? A. Insurance may cause bank shareholders to be less vigilant in monitoring the investment strategies of bank managers. B. Depositors may pay less attention to the lending practices of banks since their deposits are covered up to some cap. C. Insurance gives bank managers incentives to pursue added risks since losses can be shifted to the FDIC. D. All of the above are plausible. E. A and B only.

D. All of the above are plausible.

What is the shadow banking system? A. Nonbank financial institutions that behave like banks in many respects. B. A group of several thousand disparate nonbank financial intermediaries. C. Financial institutions that make loans from funds raised by means other than by accepting deposits. D. All of the above describe the shadow banking system. E. B and C only.

D. All of the above describe the shadow banking system.

An example of plagiarism is: A. Using direct quotations without acknowledging that the language is taken directly from another source and/or proper citation. B. Using the ideas, arguments, results, etc. of others without citing them. C. Paraphrasing the work of others without citation. D. All of the above.

D. All of the above.

How do expansionary policies differ from contractionary policies? A. Expansionary policies seek to reduce the severity of recessions, while contractionary policies seek to slow down the economy when it grows too fast. B. Expansionary policies seek to increase economic growth and increase employment, while contractionary policies seek to reduce the risk of excessive price inflation. C. Expansionary policies seek to shift the labor demand curve to the right, while contractionary policies seek to shift it to the left. D. All of the above. E. Only A and C are correct.

D. All of the above.

The question, "Is the price of a share of IBM stock higher today than the price of a share of Xerox stock?" is an example of a: A. Factual question. B. A combination of two or more of the other answers. C. A taste question. D. A reasoned judgment question.

A. Factual question.

Changing corporate tax rates is an example of countercyclical __________ (monetary/ fiscal) policy. If the government lowers corporate tax rates, its goal would be a __________ (leftward/ rightward) shift of the __________ (labor demand/ labor supply) curve.

fiscal; rightward; labor demand

In order to compare living standards across time, economists generally look at ___________________/

per capita GDP

What is the percentage change formula?

percent change = [(new# - original#) / original#] *100

All the workers in the manufacturing sector in a particular country fit into one (and only one) of the following three categories: 31.5 percent are high school dropouts, 63.5 percent have a regular high school diploma, and the rest have a vocational training certificate. This could best be represented with a _______________ (bar graph/ scatter plot/ time series graph/ pie chart.)

pie chart

You have been invited to play a 4-hour round of golf that has a value to you of $70. The total price to play the round of golf is $45. Now assume that you have a job that pays you $6 per hour. Would you be optimizing to accept the invitation to play golf? To optimize, you should __________ (not play/play) golf.

play

The statement that the United States has a budget deficit that is in excess of $15 trillion is a __________ (positive/ normative) statement since it describes what people __________ (actually do/ ought to do).

positive; actually do

In general people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high schools and colleges teach people valuable skills, and employers are willing to pay higher salaries to attract people with those skills. The signaling argument says that college graduates earn more because a college degree is a signal to employers that a job applicant is diligent, intelligent, and persevering. The __________ (causation argument/ correlation argument/ signaling argument/ human capital argument) implies that a college student who drops out of school one month before graduation should earn much less than a student who graduates. The __________ (human capital argument/ causation argument/ signaling argument/ correlation argument) implies that a college student who drops out of school one month before graduation should earn almost the same as a student who graduates.

signaling argument; human capital argument

By affecting certain key interest rates, the Fed can indirectly control the money __________ (supply/ demand). The Fed's dual mandate is to maintain __________ (low/ high) levels of inflation while allowing for sustainable levels of __________ (price stability/ GDP growth).

supply; low; GDP growth

He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by ____________________ (testing its predictions/ building duplicate models/ peer review) with ______________ (empirical data/ hypothetical data/ simulated data)

testing its predictions; empirical data

the opportunity cost of your time

How would you represent the following graphically? Income inequality in the United States has increased over the past 10 years. This could best be represented with a _______________ (scatter plot/ pie chart/ time series graph/ bar graph).

time series graph

When John determines what choice of walking shoes will give him the best bang for his buck, he is using optimization based on __________ (total value/marginal analysis). When Janet looks at the additional value of purchasing a new laptop to the cost as compared to keeping her old one, she is using optimization based on __________ (total value/marginal analysis).

total value; marginal analysis

The labor supply curve shows that the quantity of labor supplied will increase as __________ (wages increase/ wages decrease/ prices increase). This results in a labor supply curve that is __________ (downward-sloping/ upward-sloping/ always horizontal.

wages increase; upward-sloping

Suppose that you are on a date with an economics major, and you want to impress them by talking about economics. Your date challenges you to state your knowledge of positive and normative questions. You say that positive questions ask ____________________ (what is or what will be/ what ought to be) and normative questions ask ____________________ (what is or what will be/ what ought to be).

what is or what will be; what ought to be

Assume that the average price for a 2,000-square-foot house in the city is $350,000 and the average rent for a 2,000-square-foot apartment in the city is $1,100 per month. Also assume that the average price for a 2,000-square-foot house in the suburbs is $210,000, the average price for a 2,000-square-foot house in the county is $353,333, and the average price for a 3,000-square-foot house in the suburbs is $500,000. Using comparative statics and the information above, what is the best estimate of the effect of living in the city (relative to living in the suburbs) on home prices? Living in the city changes home prices by $_____. (Round your response to two decimal places.)

$140,000

You are hired as a consultant for a local restaurant. It is considering whether to close at 9:00 p.m., stay open an extra hour (10:00 p.m.), or close earlier (8:00 p.m.). Based on wages and utility bills, the added cost (the marginal cost) of staying open for each additional hour is $239. If the additional revenue (the marginal revenue) during the last hour is $259, the profit earned during the last hour of operation will be $_____. If the additional revenue during the last hour is $139, the profit earned during the last hour of operation will be $_____. If the additional revenue (the marginal revenue) from staying open until 10.00 p.m. is $239, the profit earned during the last hour of operation will be $_____.

$20; -$100; $0 ?????

You have the option to play tennis or a round of golf (but not both). The tennis match requires you to take 2 hours off from work and the round of golf requires you to take 4 hours off from work. Playing tennis has value to you equal to $60, while golf has value to you equal to $105. Tennis courts are publicly available at no cost, but golf costs $30 per round. Suppose your wage from working is $8 per hour. The net benefit from playing tennis is $_____ and the net benefit from playing golf is $_____. (Enter your responses as integers.) Therefore, you should play __________ (tennis/ golf).

$44; $43: tennis ?????

You are a professor of economics at a university. You've been offered the position of serving as department head, which comes with an annual salary that is $5,500 higher than your current salary. However, the position will require you to work 200 additional hours per year. Suppose the next best use of your time is spending it with your family, which has value of $30 per hour. What is the difference in the net benefit from becoming the department head? The change in net benefit is $__________. (Enter your response as an integer.)

-$500 The change in net benefit from becoming a department head is the $5,500 additional salary minus the $6,000 opportunity cost of your time required to serve as department head (from 200 hours multiplied by the $30 hourly value from being with your family).

A company mines 300,000 tons of coal per year in a rural county. The coal is worth $71 per ton. The average price for a 2,000-square-foot house with three bedrooms more than 20 km away from the mining site in this county is $250,000. The average price for a similar, 2,000-square-foot house with three bedrooms within 4 km of the mine is 4 percent lower. Using comparative statics, what is the effect of mining on home prices in this county? Mining changes the price of a 2,000-square-foot home (with three bedrooms) by $__________. (Round your response to two decimal places and use a negative sign if necessary.)

-$5000 (make sure to put negative sign because it's not ADDING $5000 to the price but SUBTRACTING $5000 from the price.

Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan. Suppose the average rate paid by banks on savings accounts is 0.55% at a time when inflation is around 1.45%. For the average saver, the real rate of interest on his or her savings is _____%. (Round your response to two decimal places and use a minus sign if necessary.) If banks expect that the rate of inflation in the coming year will be 4.45% and they want a real return of 5% on a certain category of loans, then the nominal rate they should charge borrowers on those loans is _____%. (Round your response to two decimal places.) If the economy experiences an unexpectedly high rate of inflation, the group that would tend to benefit is ___________. A. debtors (people or businesses who owe money). B. creditors (people or institutions that are owed money). C. both would benefit equally. D. neither benefits.

-0.90 9.45 A. debtors (people or businesses who owe money).

Suppose you are on a date with an economics major, and you want to impress them by asking good economic questions. Two characteristics of a good economic question are: 1. ____________________________________________ (It supports a certain political agenda/ It is important to individuals or society/ It mirrors what was said by an economics professor/ It comes from an economics textbook). 2. ___________________________________________ (It can be discussed/ It can be answered/ It can be modeled/ It can be ignored).

1. it is important to individuals or society 2. it can be answered

Research was conducted by professor Jobs to check which one program out of three given programs is the optimal choice for a student. The three options are a 6 month, a 12 month, or a 15 month program. Important information considered by the professor in his research is how much a student pays in tuition and fees for a given program within different time spans. The program is intensive, so it can be completed faster but at higher costs. The three programs yield the same benefit for the student. The program can be completed in 6 months, 12 months, or 15 months. The tuition and fees are $38,600, $35,000 and $28,600 respectively. Professor Jobs assumes the opportunity cost of time to a student for the program is $2,000 per month Therefore, the professor concludes that the optimal decision for the student is to choose the _________ month program. If professor Jobs assumes the opportunity cost of time to a student for the program is $500 per month instead of $2,000 per month, then the $2,000 per month cost curve lies __________ (below/above) the $500 per month cost curve. The optimal program for students when the opportunity cost of time for the program is $500 per month __________ (switches to 12 month program/ switches to 15 month program/ switches to a 6 month program/ remains the same) when compared to the scenario with the opportunity cost of time is $2,000 per month.

15; below; remains the same

Suppose the return and cost of entrepreneurship curves are described by the following equations (with numbers measured in the thousands): R=750-25N C=200, where R=returns to entrepreneurship, C=cost of entrepreneurship, and N=number of entrepreneurs. The equilibrium number of entrepreneurs is N= _____ thousand. (Round your response to two decimal places.) The equilibrium cost of entrepreneurship is C= $_____ thousand. (Round your response to two decimal places.) Suppose the country's government begins providing a court system to provide legal backup of contracts, increasing the return to entrepreneurship by $100 thousand for each entrepreneur. The equilibrium number of entrepreneurs is N= _____ thousand. (Round your response to two decimal places.) The equilibrium returns to entrepreneurship is R= $________ thousand. (Round your response to two decimal places.)

22; 200; 26; 200

Suppose the return and cost of entrepreneurship curves are described by the following equations (with numbers measured in the thousands): R = 1,300 - 25N C = 200, where R = returns to entrepreneurship, C = cost of entrepreneurship, and N = number of entrepreneurs. The equilibrium number of entrepreneurs is N = _____ thousand. (Round your response to two decimal places.) The equilibrium returns to entrepreneurship is R = $_____ thousand. (Round your response to two decimal places.)

44; 200

The Centers for Disease Control and Prevention (CDC) has studied the economic impact of a global pandemic. According to its estimates, if MERS develops a resistance to current treatments, the U.S. population will fall from 315 million to 210 million, worst case, over the course of a year. Consequently, real GDP will collapse due to the pandemic. It is estimated that real GDP will fall from $15,000 billion to $4,000 billion. Calculate real income per capita before and after the MERS pandemic. Before the pandemic, real income per capita is $_____ thousand. (Round your response to two decimal places.) After the pandemic, real income per capita is $_____ thousand. (Round your response to two decimal places.)

47.62; 19.05

Let's assume the U.S. dollar/Mexican peso exchange rate is 1/12 pesos and the price of a Big Mac in the United States is $4. Mexico's GDP is 17,000 billion pesos, and its population is 135 million people. Assuming the countries have purchasing power parity, the price of a Big Mac in Mexico is _____ pesos. (Round your response to the nearest integer.) Mexican income per capita is _____ thousand pesos. (Round your response to the nearest integer.) Mexican income per capita in U.S. dollars is _____ thousand USD. (Round your response to the nearest integer.)

48; 126; 11

According to the quantity theory of money, what must the growth rate of the money supply be given the following information? The growth rate of real GDP is 4.8%. The growth rate of nominal GDP is 9.0%. The nominal interest rate is 4.6%. The real interest rate is 0.4%. The money supply (M2) is $8,591 (in billions) According to the quantity theory of money, the growth rate of the money supply must be _____%. (Round your answer to the nearest tenth.) According to the quantity theory of money, what is the inflation rate? Use the information given above and calculate the inflation rate. According to the quantity theory of money, the inflation rate is _____%. (Round your answer to the nearest tenth.)

9% 4.2

The question "What has been the effect of deflation (that is, a general fall in prices) on the income of the average Japanese worker?" is an example of: A. A positive macroeconomic question. B. None of the above is correct. C. Both of the above are correct. D. A normative macroeconomic question.

A. A positive macroeconomic question.

Which of the following key factors can help explain the Great Recession of 2007-2009? (Check all that apply.) A. A reduction in new home construction, leading to a decrease in labor demand. B. A fall in the value of the stock market. C. An increase in mortgage defaults, negatively impacting banks. D. A reduction in consumer wealth, curtailing spending. E. A fall in housing prices. F. Increased trade protectionism, decreasing net exports. G. An increase in inflation.

A. A reduction in new home construction, leading to a decrease in labor demand. C. An increase in mortgage defaults, negatively impacting banks. D. A reduction in consumer wealth, curtailing spending. E. A fall in housing prices.

Assume country A is a developing country with considerable income inequality. It has ample natural resources and participates in international trade by exporting these resources to the rest of the world. Which of the following could lead to a reduction in poverty in country A? (Check all that apply.) A. An increase in government spending on infrastructure creates an excess demand for lowdashskilled jobs in the economy, increases the wages for lowdashskilled workers, increases output, and in turn increases GDP per capita. B. The recent round of multilateral trade negotiations allows members to raise trade tariffs globally. C. A change in labor laws allows industrialists to hire labor more cheaply, thereby increasing output and in turn GDP per capita. D. Advancements in artificial intelligence that increases productivity in the Western world.

A. An increase in government spending on infrastructure creates an excess demand for lowdashskilled jobs in the economy, increases the wages for lowdashskilled workers, increases output, and in turn increases GDP per capita. D. Advancements in artificial intelligence that increases productivity in the Western world.

Which of the following would be true for the banking system if there were no government regulation? A. Bank owners would bear all the risks of bank failures. B. Borrowers would bear all the risks of bank failures. C. The money supply would be determined by individual banks. D. The money supply would never fluctuate.

A. Bank owners would bear all the risks of bank failures.

Bitcoins are defined as a "peer-to-peer decentralized digital currency." The supply of bitcoins is not controlled by the government or any other central agency. The value of each bitcoin is determined on the basis of supply and demand and is defined in terms of dollars. New bitcoins can be generated through a process called "mining." However, new bitcoins will not be created once there are a total of 21 million bitcoins in existence. Some commentators feel that bitcoins can eventually replace most of the major currencies in the world. What are some of the issues with bitcoins replacing major currencies? (Check all that apply.) A. Bitcoin deposits are not insured by the government. B. Bitcoins are nonconvertible and therefore not acceptable for most types of purchases. C. Fiat money is generally worthless without a government decree that it is legal tender. D. The value of a bitcoin is highly volatile and so people that hold them may lose money. Traditional currencies are controlled by central banks. What is a potential problem of restricting the creation of bitcoins to a total of 21 million bitcoins? A. There is a limit to the number of transactions that can occur in the economies that would use them. B. The central bank loses the ability to generate revenues from seignorage. C. When bitcoins are stolen, the number of bitcoins in circulation declines and the central bank cannot replace them. D. Monetary authorities cannot undertake expansionary monetary policy to stimulate the economy during recessions.

A. Bitcoin deposits are not insured by the government. C. Fiat money is generally worthless without a government decree that it is legal tender. D. The value of a bitcoin is highly volatile and so people that hold them may lose money. D. Monetary authorities cannot undertake expansionary monetary policy to stimulate the economy during recessions.

After the Second World War, Germany was divided into two parts, East Germany and West Germany. East Germany was controlled by the former Soviet Union while West Germany was controlled by the other Allied governments: the United States, the United Kingdom, and France. The war had destroyed most of Germany's economy. The Soviet Union as well as the Allied occupation forces sought to rebuild the economies of their respective parts. Before the fall of the Berlin Wall reunited East and West Germany in 1990, West Germany's economy grew at an annual average growth rate of 4.4 percent, which was about 3 times higher than East Germany's rate. Draw the parallel between the natural experiment discussed in the chapter and the case of East and West Germany. Based on the information given in the question and your own research, why do you think two otherwise similar areas had such divergent growth rates? East and West Germany likely had different growth rates because ____________. A. East Germany's economic institutions mandated central planning. B. East Germany's cultural beliefs did not encourage growth. C. West Germany's climate was more favorable for growth. D. East Germany received less foreign aid.

A. East Germany's economic institutions mandated central planning.???

Where would you look for information about what professional economists think about the macroeconomic issue you are researching? A. EconLit B. FRED C. The Economist D. all of the above

A. EconLit

Suppose a country has well-enforced private property rights for entrepreneurs, but a large fraction of the population does not have access to education and thus cannot become entrepreneurs and would have low productivity as workers. Would you say this country has inclusive or extractive economic institutions? A. Extractive institutions, because barriers block access to education. B. Extractive institutions, because enforcing property rights creates inequality. C. Inclusive institutions, because talents and skills are used efficiently. D. Inclusive institutions, because investment in human capital is inefficient. Could the country achieve a high level of economic development? A. Yes, the country's extractive institutions promote growth. B. No, the country's inclusive institutions generate creative destruction. C. No, the country's extractive institutions limit prosperity. D. Yes, because the country's extractive institutions do not affect inequality.

A. Extractive institutions, because barriers block access to education. C. No, the country's extractive institutions limit prosperity.

Which of the following would not likely have a positive impact on reducing poverty? A. Flexible currency exchanges B. Global deregulation in the telecommunications industry C. Educational grants for Kenyan students to study in the United States D. Reduction of tariffs, especially in agriculture

A. Flexible currency exchanges???

According to salary.com, the average salary for a software engineer level III (a higher-level position in software design and implementation) in the Silicon Valley area of California is $108,244. However, Google pays its level III software engineers an average salary of $124,258. Why does Google pay a salary higher than the equilibrium salary for equivalent positions in the same area? A. Google is paying an efficiency wage in order to minimize worker turnover, increase worker productivity, and attract the top talent. B. Since Google is such a large firm and produces a product used by so many people, the government mandates an efficiency wage that Google must pay its engineers. C. Google is the only firm in the Silicon Valley area whose workers are not in a union; thus, it is able to pay its workers more than other firms that have unionized workers. D. Google does not know what other firms in the same area are paying and unknowingly set its wages far above the equilibrium salary.

A. Google is paying an efficiency wage in order to minimize worker turnover, increase worker productivity, and attract the top talent.

What important factors do GDP estimates leave out? (Check all that apply.) A. Home production. B. The production of illegal professions. C. Capital depreciation. D. Leisure. E. The value of intermediate goods.

A. Home production. B. The production of illegal professions. C. Capital depreciation. D. Leisure. ???

In the 1990s, Uganda received a sizable amount of foreign aid from the international community for education. However, only 13 percent of schools in Uganda actually received the grants funded by the aid. What might explain why so few Ugandan primary schools benefited from the foreign aid? A. It was stolen by government officials for their own use. B. It was needed first to develop inclusive economic institutions. C. It was instead used to invest in physical capital. D. It was instead used by rebels to destabilize the government.

A. It was stolen by government officials for their own use.

Banks that practice narrow banking match the maturity of their investments with the term of the deposits that they collect from the public. In other words, narrow banks take short-maturity deposits and invest in assets that carry a low level of risk and are also of short-term maturity, like short-term government debt. Suppose that all FDIC-insured banks decide to adopt narrow banking. How would narrow banking reduce the level of risk in the banking system? A. It would reduce risk in the banking system by reducing the likelihood of bank runs and liquidity problems for banks. B. It would not change the level of risk in the banking system because bank runs would still occur for irrational reasons. C. It would increase risk in the banking system by making it more difficult for banks to build up stockholders' equity. D. It would reduce the level of risk in the banking system by making banks more profitable. If narrow banking reduces systemic risk, why do banks still practice maturity transformation? A. Banks still practice maturity transformation simply because it is generally very profitable to do so. B. Banks practice maturity transformation because they know that it promotes more rapid economic growth. C. Bank regulations require a certain level of maturity transformation. D. Banks have no incentive to reduce risk given the Fed's promise to be a lender of last resort.

A. It would reduce risk in the banking system by reducing the likelihood of bank runs and liquidity problems for banks. A. Banks still practice maturity transformation simply because it is generally very profitable to do so.

Which of the following statements correctly describes the events that took place during the Great Depression? A. Its start coincided with a crash in the U.S. stock market. B. The unemployment rate during this period was lower than the rate during the 2007-2009 recession. C. Economists had forecasted the signs of its arrival and warned the government to take appropriate steps. D. During this period, the rate of economic growth did not show persistence.

A. Its start coincided with a crash in the U.S. stock market.

____________ used the concepts of animal spirits and sentiment to explain economic fluctuations. A. John Maynard Keynes. B. Milton Friedman. C. Arthur Cecil Pigou. D. Irving Fisher. According to his theory of animal spirits and sentiment, changes in sentiment cause economic fluctuations through ____________. A. changes in productivity. B. changes in government expenditure. C. decreases in offsetting movements in exports and imports. D. changes in household consumption and firm investment.

A. John Maynard Keynes. D. changes in household consumption and firm investment.

What are the important mechanisms that reverse the effects of a recession in a modern economy? (Check all that apply.) A. Labor demand increases due to market forces. B. Labor supply increases due to an increase in real wages. C. Labor demand increases due to expansionary government policies. D. The multipliers on wages and employment return to normal. What market forces might cause the labor demand curve to shift back to the right? (Check all that apply.) A. Technological advances encourage firms to expand their activities. B. Excess inventory has been sold off. C. The banking system recuperates and businesses are again able to use credit to finance their activities. D. Wage rigidity decreases.

A. Labor demand increases due to market forces. C. Labor demand increases due to expansionary government policies. A. Technological advances encourage firms to expand their activities. B. Excess inventory has been sold off. C. The banking system recuperates and businesses are again able to use credit to finance their activities. D. Wage rigidity decreases.

Which of the following are included in the United Nations' Human Development Index? (Check all that apply.) A. Life expectancy. B. Male/female ratio. C. School enrollment. D. Birth rates. E. Income per capita. F. Literacy rates. G. Geography There is _______________ (a negative/ an inverse/ a positive) relationship between the Human Development Index and income per capita.

A. Life expectancy. C. School enrollment. E. Income per capita. F. Literacy rates. a positive

The Three Searching Strategy Rules are: A. know the question, figure out what's needed to answer the question, identify sources B. identify sources, gather possible answers, evaluate possible answers C. figure out what's needed to answer the question, identify sources, gather possible answers D. know the question, identify sources, gather possible answers

A. know the question, figure out what's needed to answer the question, identify sources

Imagine that the chairperson of the Federal Reserve announced that, as of the following day, all currency in circulation in the United States would be worth 10 times its face denomination. For example, a $10 bill would be worth $100; a $100 bill would be worth $1,000, etc. Furthermore, the balance in all checking and savings accounts is to be multiplied by 10 as will the balance of all outstanding debts. So, if you have $500 in your checking account, as of the following day, your balance would be $5,000, etc. Would you actually be 10 times better off on the day the announcement took effect? A. No, because all prices would increase by a factor of 10 as well, keeping the real value of your money constant. B. Yes, because the real value of your money would increase by approximately a factor of 10. C. No, because the velocity of money would stay constant. D. Yes, because you would now be able to buy 10 times as much in goods and services.

A. No, because all prices would increase by a factor of 10 as well, keeping the real value of your money constant.

There is a proverb "anything worth doing is worth doing well." Do you think an economist would agree with this proverb? A. No, because the marginal cost of extra effort may be greater than the marginal benefit. B. No, because the total net benefit of extra effort is negative by definition. C. Yes, because doing something to the best of your ability is optimizing behavior. D. No, because doing something well has no next best alternatives with which to compare. E. Yes, because the marginal cost of extra effort is typically increasing as effort increases.

A. No, because the marginal cost of extra effort may be greater than the marginal benefit.

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question? A. No, the model is a simplified representation of reality. B. No, since the economic convention is to limit inclusion to the top three variables. C. Yes, the model includes all factors. D. Yes, the model includes every result from related academic papers and all industry expertise.

A. No, the model is a simplified representation of reality.

Are all markets perfectly competitive? A. No, there are other market types where firms have considerable power to control the price. B. Yes, any economic system with a market structure is by definition perfectly competitive. C. No, there are also command and control markets that are run by a central government. D. No, in other types of markets, sellers offer identical goods and simply accept the market price.

A. No, there are other market types where firms have considerable power to control the price.

Holding all else equal, will increasing the efficiency units of labor lead to sustained growth? Why? A. Not likely, because each individual has a finite life and there is a limit to the number of years of schooling that an individual can obtain. B. Yes, although it will lead to sustained growth only if individuals learn the correct skills as determined by the type of physical capital available. C. Probably, because although there is diminishing marginal product of labor, there are not diminishing returns to education or skills attainment. D. No, because with diminishing marginal product of physical capital, there is a limit to the amount of work an individual can do.

A. Not likely, because each individual has a finite life and there is a limit to the number of years of schooling that an individual can obtain.

Banks fail when they invest in long-term assets that subsequently fall in price. What are the two views on why asset prices fluctuate so much that they lead to financial crises and bank failures? A. One view holds that asset prices are rationally based on fluctuating fundamentals, while the other asserts that psychological factors and biases play a significant role. B. One view holds that asymmetric information creates price volatility, while the other asserts that variations in the government's regulatory efforts are to blame. C. One view holds that psychological factors and biases play a dominant role, while the other asserts that asymmetric information creates price volatility. D. One view holds that asset prices are rationally based on fundamentals that are sometimes volatile, while the other asserts that fluctuations are due to variations in the government's regulatory efforts.

A. One view holds that asset prices are rationally based on fluctuating fundamentals, while the other asserts that psychological factors and biases play a significant role.

Which factors explain economic growth in the United States over the past few decades? (Check all that apply.) A. Physical capital (K). B. An increase in the saving rate (S). C. Technology (A). D. Human capital (H).

A. Physical capital (K). C. Technology (A). D. Human capital (H).

Which of the following are possible benefits of inflation? (Check all that apply.) A. Revenue is generated to the government when it prints money. B. There may be a reduction in real wages. C. There may be a reduction in the real interest rate. D. The introduction of price controls could make goods more affordable. E. There are no benefits to inflation.

A. Revenue is generated to the government when it prints money. B. There may be a reduction in real wages. C. There may be a reduction in the real interest rate.

Some economists stress the role of monetary policy in the period leading up to the recession of 2007-2009. Between 2001 and 2003, the Federal Reserve lowered the target federal funds rate from 6.5% to 1%, and kept it there through much of 2004. This resulted in a substantial decline in real interest rates throughout the economy, including mortgage rates. Based on the chapter's discussion of monetary and financial factors, how could the Federal Reserve's policies have contributed to the economic "bubble" of the pre-recession years of 2000-2006? A. The low federal funds rate also lowered mortgage rates, driving an increase in demand for housing, which in turn drove up real estate prices. B. The low federal funds rate also lowered the rate at which businesses could borrow, driving an increase in demand for investment, which in turn drove up real wages. C. The rapid decrease in the federal funds rate led to increased consumption because of the low return on savings, which increased demand in the economy above the sustainable level. D. The Federal Reserve's policies increased the multipliers in the economy, increasing the impact of the boom and therefore the subsequent crash.

A. The low federal funds rate also lowered mortgage rates, driving an increase in demand for housing, which in turn drove up real estate prices.

Money makes a variety of economic transactions possible. In the following three situations, determine whether money is involved in the transaction. In prison camps during World War II, and in some prisons today, cigarettes circulate among prisoners. For example, an iPod might cost two cartons of cigarettes, whereas a magazine might only cost two cigarettes. Which functions of money are cigarettes fulfilling in this case? (Check all that apply.) A. Store of value. B. Medium of exchange. C. Unit of account. D. Fiat money. Over the last 50 years, credit cards have become an increasingly popular way for people to purchase goods and services. Are credit cards money? A. Yes, because you are spending your money since you have to pay the credit card company back. B. No, because you credit cards are not assets. C. Yes, because they fulfill all the functions of money. D. No, because not everyone accepts credit cards. Almost every day, many people sign their names to little pieces of paper called checks, which are then accepted in exchange for goods and services. Do these checks constitute money? A. Yes, because they fulfill all three functions of money. B. No, because checks simply represent a means of access to money, not money itself. C. No, because checks, unlike currency, do not have "legal tender" printed on them. D. Yes, because the check authorizes the person who receives it to get money out of the bank account.

A. Store of value. B. Medium of exchange. C. Unit of account. B. No, because you credit cards are not assets. B. No, because checks simply represent a means of access to money, not money itself.

What is meant by randomization in the context of an economic experiment? A. Subjects are assigned by chance, rather than by choice, to a group. B. Subjects are assigned to control and test groups by noneconomic factors such as race. C. Group numbers are arranged in a non-sequential order. D. Economic experiments are not arranged in a logical sequence.

A. Subjects are assigned by chance, rather than by choice, to a group.

What does it mean to say that we are running out of "cheap oil"? A. That oil reserves are becoming more expensive to find and extract over time. B. That world demand for oil is declining, which will raise the price of oil in the future. C. That we will soon deplete all the world's oil reserves, which will cause the price of oil to increase significantly. D. That there are declining reserves of low-quality oil, but there is still plenty of high-quality oil remaining. What does this imply for the price of oil in the future? A. The demand for oil will decrease, which will lead to higher prices in the future. B. The supply of oil will increase, which will lead to lower prices in the future. C. The demand for oil will increase, which will lead to lower prices in the future. D. The supply of oil will decrease, which will lead to higher prices in the future.

A. That oil reserves are becoming more expensive to find and extract over time. D. The supply of oil will decrease, which will lead to higher prices in the future.

What are the disadvantages of using Big Macs to measure purchasing power parity? (Check all that apply.) A. The Big Mac index simply compares a bundle consisting of only one good. B. Big Macs are popular, so they distort the true cost-of-living differences across countries. C. Rather than accounting for cost-of-living differences, the Big Mac index reflects income inequality. D. Big Macs represent only a very small fraction of people's consumption.

A. The Big Mac index simply compares a bundle consisting of only one good. D. Big Macs represent only a very small fraction of people's consumption.

What are the automatic and discretionary components of fiscal policy? A. The automatic components do not require deliberate action on the part of the government, while the discretionary components do. B. The automatic components are those fiscal actions that require accommodation from monetary policy, while the discretionary components do not. C. The automatic components stimulate the economy, while the discretionary components serve purposes unrelated to the health of the overall economy. D. The automatic components are limited to government expenditures, while the discretionary components entail changes in both taxes and expenditures.

A. The automatic components do not require deliberate action on the part of the government, while the discretionary components do.

Why is total efficiency units of labor used as an indicator of how much the economy can produce? A. The average human capital of workers changes over time. B. The data on total number of workers in an economy is not easily available. C. The efficiency of workers depends on the economy's total production. D. There exist differences in workers' human capital.

A. The average human capital of workers changes over time.???

Which of the following can't be a reason why foreign aid has been unsuccessful as a permanent solution to poor economic development? A. The donor countries demand preference in trade from the receiving country in exchange for providing aid. B. The presence of corruption in the receiving country which prevents the aid from being invested in new technology and education. C. The amount of aid is not large enough to lead to a significant increase in physical capital or the level of technology. D. The presence of extractive economic institutions in the receiving country.

A. The donor countries demand preference in trade from the receiving country in exchange for providing aid.

How would the equilibrium price in a market be affected if there were a small decrease in demand and a large decrease in supply? A. The equilibrium price increases. B. The equilibrium price decreases. C. The equilibrium price would remain the same. D. More information is needed. It may increase, decrease, or remain the same.

A. The equilibrium price increases.

Land in Sonoma, California, can be used to either grow grapes for pinot noir wine or to grow Gravenstein apples. Given this information, what is the relationship between pinot noir wine and Gravenstein apples? A. They share a common input. B. They are substitutes in consumption. C. They are complements in consumption. D. They are completely unrelated.

A. They share a common input.

How do economists distinguish between models that work and those that don't? A. They test their models against real-world data. B. They have their models reviewed by other economists. C. They program their models into computers to test via simulation. D. They publish their model results in academic journals.

A. They test their models against real-world data.

In April 2012, the Bazanian Daily, a leading newspaper in the country of Bazania, carried a report titled "20,000 jobs added in the last quarter; unemployment rate shoots up from 5 percent to 6.7 percent." How could the unemployment rate in Bazania increase even when new jobs were created? A. The new jobs may have made discouraged workers optimistic enough to start applying for jobs, thus re-entering the labor force and being counted as unemployed, which causes the overall unemployment rate to increase. B. Government jobs are not counted in the official unemployment rate. So, if the 20,000 new jobs were government jobs, then they will not have any impact on the overall unemployment rate. C. Only government jobs are counted in the official unemployment rate. So, if the 20,000 new jobs were not government jobs, then they will not have any impact on the overall unemployment rate. D. Since the unemployment rate equals the number of unemployed multiplied by the labor force, when 20,000 new jobs are added, it causes the labor force to increase, which increases the unemployment rate.

A. The new jobs may have made discouraged workers optimistic enough to start applying for jobs, thus re-entering the labor force and being counted as unemployed, which causes the overall unemployment rate to increase.

The 1970s saw a period of high inflation in many industrialized countries including the United States. Due to the increase in the rate of inflation, lenders, including credit card companies, revised their nominal interest rates upward. How is the rate of inflation related to the nominal interest rate that credit card companies charge, and why would lenders need to increase the nominal interest rate when the inflation rate increases? A. The nominal rate of interest is the real rate of interest plus the rate of inflation; lenders need to raise the nominal rate when inflation increases to maintain their desired real return. B. The nominal rate of interest is the real rate of interest less the rate of inflation; lenders need to raise the nominal rate when inflation increases to maintain their desired real return. C. The nominal rate of interest is the real rate of interest plus the rate of inflation; lenders need to raise the nominal rate when inflation increases to stabilize credit market activity. D. The nominal rate of interest and the inflation rate are inversely related; lenders need to raise the nominal rate when inflation increases to satisfy government regulations on lending practices. Usury laws place an upper limit on the nominal rate of interest that lenders can charge on their loans. In the 1970s, some credit card companies moved to states where there were no ceilings on interest rates to avoid usury laws. Why would credit card companies move to states without usury laws during a period of high inflation, like the 1970s? A. By moving to states without usury laws, lenders can guarantee themselves a profit during inflationary periods. B. Because states with usury law ceilings force lenders to charge negative real rates, lenders have an incentive to move to states without such laws. C. Because states with usury law ceilings give rise to credit shortages during periods of high inflation, lenders have an incentive to move to states without such laws. D. Because usury law ceilings may limit the real return lenders can earn during inflationary periods, lenders have an incentive to move to states without such laws.

A. The nominal rate of interest is the real rate of interest plus the rate of inflation; lenders need to raise the nominal rate when inflation increases to maintain their desired real return. D. Because usury law ceilings may limit the real return lenders can earn during inflationary periods, lenders have an incentive to move to states without such laws.

What did Malthus predict about economic growth? A. The number of children per family would adjust so that income would remain close to a subsistence level. B. There would be a demographic transition as the economy moved from agriculture to industry. C. As income increased, the number of children per family would decrease so that income would remain close to a subsistence level. D. Rural areas would continue to go through a Malthusian cycle of fertility adjustment while urban areas would not. Did his predictions come true? A. No, because his prediction failed to account for the transition from rural to urban areas. B. No, because he failed to account for the demographic transition and the impact of the Industrial Revolution. C. Yes, because as the world population has grown, so has poverty. D. Yes, even though average GDP per capita increased over time, the distribution of income has become more unequal.

A. The number of children per family would adjust so that income would remain close to a subsistence level. B. No, because he failed to account for the demographic transition and the impact of the Industrial Revolution.

Which of the following is not one of the four major factors that shifts the supply curve when it changes? A. The price of the good itself. B. Sellers' beliefs about the future. C. The scale of sellers. D. Prices of inputs used in production.

A. The price of the good itself.

Which of the following statements regarding economic questions is not correct? A. The questions must have implication on individuals' choices and their budget. B. The questions should contribute to the welfare of society. C. The questions should be such that they can be answered with past data. D. The questions should be associated with some economic research.

A. The questions must have implication on individuals' choices and their budget.

What is meant by capital depreciation? A. The reduction in the value of physical capital due to obsolescence or wear and tear. B. The depreciation of financial assets due to unexpected inflation. C. The reduction in the value of physical and human capital due to the emergence of new technologies and globalization. D. The decrease in the productivity of physical capital due to its overuse. Why might one consider the value of depreciation in estimates of national income? A. Ignoring depreciation will result in firms paying more taxes than is justified. B. Failing to do so overstates what society can consume (in the broadest sense of the term). C. Including depreciation gives a more complete picture of economic production. D. B and C only. E. All of the above.

A. The reduction in the value of physical capital due to obsolescence or wear and tear. D. B and C only.

Advances in wireless communication technology reduce the non-financial costs of long commutes: People who ride trains can get work done, and people who drive cars have more entertainment options. Given this information, which of the following will be an effect on the geographic area of cities? A. The total cost of commuting from any given distance to work will reduce because the indirect cost of the commute will fall. B. The total cost of commuting from any given distance to work will increase because the indirect cost of the commute will rise. C. The total cost of commuting from any given distance to work will increase because the direct cost of the train ticket will rise. D. The total cost of commuting from any given distance to work will reduce because the direct cost of the train ticket will fall. How will this result impact people as they decide how close to live to the city where they work? They will be _______________________ (unaffected by this when making location decisions/ more likely to locate closer to the city/ more willing to locate farther from the city.)

A. The total cost of commuting from any given distance to work will reduce because the indirect cost of the commute will fall. more willing to locate further from the city

In deciding whether to place economic sanctions on another country because of international political conflicts, what are the macroeconomic issues? A. There are macroeconomic issues for both countries such as the effect on the overall level of economic activity and unemployment. B. There may be a number of economic effects (microeconomic, international trade, labor market, etc.), but none of them are macroeconomic. C. The macroeconomic issues center on the cost of those sanctions on the other country in terms of economic growth, unemployment, and inflation. D. The only economic issues are microeconomic.

A. There are macroeconomic issues for both countries such as the effect on the overall level of economic activity and unemployment.

What are the costs associated with inflation? (Check all that apply.) A. Unproductive policies such as price controls, which may be due to voter dissatisfaction. B. Logistical costs related to the need to frequently change prices. C. Indexing of pensions and mortgages to inflation. D. Stagnant real wages. E. Uncertainty about the aggregate price level, which can distort prices and make planning difficult.

A. Unproductive policies such as price controls, which may be due to voter dissatisfaction. B. Logistical costs related to the need to frequently change prices. E. Uncertainty about the aggregate price level, which can distort prices and make planning difficult.

Which of the following is more susceptible to the free-rider problem: state parks or public roads? A. Use of public roads is more susceptible since even those who don't pay taxes still benefit, while state parks can charge for admission, so that everyone who goes pays their share. B. State parks, since admission cannot be denied to anyone so everyone benefits, while public roads only benefit a small number of people at any given time. C. Both are equally susceptible to the free-rider problem. D. Neither are susceptible to the free-rider problem.

A. Use of public roads is more susceptible since even those who don't pay taxes still benefit, while state parks can charge for admission, so that everyone who goes pays their share.

Which of the following questions is not an example of a normative question? A. What do I have to do if I want to increase the return to my investments? B. Should you ask what your country can do for you? Or ask what you can do for your country? C. Do trade restrictions hurt the nations that impose them? D. Does government have any business regulating the sale of medicine?

A. What do I have to do if I want to increase the return to my investments?

Which of the following is a macroeconomic question? A. Would an increase in the minimum wage increase inflation? B. How should a firm in a perfectly competitive market react to an increase in input prices? C. What happens to the level of exports when the exchange rate changes? D. What effect do higher interest rates have on a firm's willingness to invest?

A. Would an increase in the minimum wage increase inflation?

Excluding cases where banks had accumulated a lot of non-deposit liabilities that are not covered by FDIC insurance, would analysts generally agree that deposit insurance has been successful in preventing bank runs? A. Yes, since bank runs and bank failures have been relatively rare since the advent of deposit insurance. B. No, since institutional bank runs are resistant to the preventive effect of deposit insurance. C. Yes, deposit insurance has eliminated any chance that a bank run or bank failure can occur. D. No, bank runs and bank failures still occur at an alarmingly high rate in countries with deposit insurance programs.

A. Yes, since bank runs and bank failures have been relatively rare since the advent of deposit insurance.

A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell. How would you test this model? A. You should run a natural experiment by analyzing bus ridership and price changes. B. You should randomly question people to see if they prefer taking the bus to other forms of transportation. C. You should determine whether increased bus ridership implies causation or correlation. D. All of the above are appropriate ways to test your model.

A. You should run a natural experiment by analyzing bus ridership and price changes.

The aggregate production function describes the relationship between the ____________. A. aggregate GDP of a nation and its factors of production. B. gender pay gap and the growth of GDP per capita. C. amount of discrimination and the level of income inequality. D. level of income inequality and the national fairness index.

A. aggregate GDP of a nation and its factors of production.

National income accounting is ____________. A. an accounting system used by businesses to calculate their profits during a given production period. B. a system of accounts designed to measure aggregate economic activity in a country. C. a system used by tax accountants to calculate the tax liabilities of transnational corporations. D. used by international organizations such as the World Bank to determine individual country assessments (fees).

A. an accounting system used by businesses to calculate their profits during a given production period. ???

The concept of multipliers was one of the key elements of John Maynard Keynes's theory of fluctuations. A multiplier is ____________. A. an economic mechanism that causes an initial shock to be amplified by follow-on effects. B. a change in productivity that leads to increases in aggregate economic activity. C. a factor that causes a change in the money supply to generate activity larger than the change in the money supply. D. a change in expectations about future economic activity. An example of a multiplier is when ____________. (Check all that apply.) A. a reduction in business investment is offset by increases in consumption and net exports. B. a drop in consumer confidence reduces household spending, causing firms to cut production and lay off employees, leading to a greater reduction in household spending. C. an increase in business confidence causes firms to increase production and hire employees, leading to an increase in household spending, causing firms to further increase production and employment. D. a decrease in labor demand with rigid wages causes a larger increase in unemployment than the same decrease with flexible wages.

A. an economic mechanism that causes an initial shock to be amplified by follow-on effects. B. a drop in consumer confidence reduces household spending, causing firms to cut production and lay off employees, leading to a greater reduction in household spending.?? D. a decrease in labor demand with rigid wages causes a larger increase in unemployment than the same decrease with flexible wages.??

An open market operation is ____________. A. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. B. the process of selling Fed-issued IOUs between banks. C. an exchange between private banks where the banks buy or sell bonds to each other. D. where a bank borrows reserves or bonds from the Federal Reserve's discount window. The Federal Reserve conducts open market operations when it wants to ____________. A. influence the discount rate. B. influence the federal funds rate. C. change the liquidity levels of banks. D. change the level of reserves it holds for banks. When the Fed buys government bonds from private banks, it __________ (decreases/ maintains/ increases) the electronic reserves that banks hold.

A. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. B. influence the federal funds rate. decreases

Over the past 200 years, the U.S. economy has shown ____________. A. an increase in income per capita, albeit not an entirely steady one. B. decreasing income per capita prior to the Great Depression and then increasing income per capita after. C. a flat growth rate in income per capita. D. a steady increase in income per capita.

A. an increase in income per capita, albeit not an entirely steady one.

The standards by which one can judge whether a normative frame of reference is a good one: A. are the same as the standards for judging how good a positive frame of reference is. B. include the notion of efficiency. C. do not exist because normative frames of reference are based on personal values. D. include the notion of fairness.

A. are the same as the standards for judging how good a positive frame of reference is.

The culture hypothesis states ____________. A. cultural beliefs are responsible for differences in prosperity. B. shared experiences are reducing differences in prosperity. C. prosperity may affect a country's societal values. D. cultural beliefs are proximate causes of prosperity.

A. cultural beliefs are responsible for differences in prosperity.

Siffing refers to: A. distoring arguments and the representation of data to trick people into making unjustified conclusions. B. sorting through arguments to find the best conclusion possible. C. acting with intellectual courage in the face of conflict. D. the analysis of complex issues by breaking them into subissues.

A. distoring arguments and the representation of data to trick people into making unjustified conclusions.

Factors that help households decide whether to consume or save their income are ___________. (Check all that apply.) A. expectations about taxes. B. expectations of the nation's investment needs. C. expectations of future income growth. D. the interest rate.

A. expectations about taxes. C. expectations of future income growth. D. the interest rate.

Convertibility is the ability to convert ____________. A. fiat money into a physical commodity, such as gold. B. a physical commodity such as gold into fiat money. C. a cryptocurrency into fiat money. D. one nation's currency into another nation's currency.

A. fiat money into a physical commodity, such as gold.

Market demand is derived by __________. A. fixing the price and adding up the quantities that each buyer demands. B. dividing each buyer's demand by the total number of consumers in the market. C. adding up both the prices each buyer pays and the quantities that each buyer demands. D. fixing the quantity and adding up the prices that each buyer pays.

A. fixing the price and adding up the quantities that each buyer demands.

The saving rate in an economy is defined as the ____________. A. fraction of total income that households save. B. fraction of total income that households invest. C. rate of private saving minus the rate of government spending, G. D. level of total income that households save.

A. fraction of total income that households save.

Suppose the production of U.S.-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States. For the United States, ____________. A. gross national product (GNP) is larger than gross domestic product (GDP) B. gross domestic product (GDP) is larger than gross national product (GNP)

A. gross national product (GNP) is larger than gross domestic product (GDP) ???

A pest attack on the tomato crop increases the cost of producing ketchup. At the same time, we see the price of hamburgers falls. Suppose that after both of these events the consumption of ketchup is left unchanged. In this situation, the Law of Demand __________. A. holds, since the demand curves for both ketchup and hamburgers are downward-sloping; it is their shifts that are determining the impact on the quantity consumed. B. does not hold, since the product sold is a necessity, so increasing the price will not likely affect consumption. C. does not hold, since there was no change in the quantity of ketchup demanded. D. holds, since the Law of Demand must hold for all goods in all instances.

A. holds, since the demand curves for both ketchup and hamburgers are downward-sloping; it is their shifts that are determining the impact on the quantity consumed.

According to the aggregate production function, GDP increases when a nation ____________. (Check all that apply.) A. improves its technology, A. B. increases the human capital of its workers, H. C. increases its consumption, C. D. increases its stock of physical capital, K.

A. improves its technology, A. B. increases the human capital of its workers, H. D. increases its stock of physical capital, K.

If new irrigation technology improves the average yield of a vineyard, then the supply curve for sparkling wine would __________. A. increase (shift right). B. remain unchanged. C. decrease (shift left).

A. increase (shift right).

According to the Taylor rule, the Federal Reserve should raise the federal funds rate when the ____________. (Check all that apply.) A. inflation rate rises. B. exchange rate falls. C. Fed's long-run target for the federal funds rate rises. D. Fed's inflation rate target falls. E. output gap rises.

A. inflation rate rises. C. Fed's long-run target for the federal funds rate rises. D. Fed's inflation rate target falls. E. output gap rises.

Factors of production are the ____________. A. inputs used to produce other goods and services in an economy. B. items needed to reduce income inequality. C. inputs that are used to redistribute income and thus reduce inequality. D. resources needed to produce new technology.

A. inputs used to produce other goods and services in an economy.

Explain whether each of these individuals will be counted as a part of the labor force. Alex is a full minus time student that volunteers on the weekends at an animal shelter. John recently retired after working for the same company for 30 years. We know that Alex is ____________, and we know that John is ____________. A. not in the labor force; not in the labor force. B. in the labor force; not in the labor force. C. not in the labor force; in the labor force. D. in the labor force; in the labor force.

A. not in the labor force; not in the labor force.

Suppose a new off-campus university apartment complex could rent its rooms on the open market for $900 a month. If, instead, the university chooses to cap the price of rooms to $500 a month for students, the result would be that ____________. A. quantity demanded would exceed the quantity supplied, resulting in a shortage. B. quantity demanded would exceed the quantity supplied, resulting in a surplus. C. quantity supplied would exceed the quantity demanded, resulting in a surplus. D. quantity supplied would exceed the quantity demanded, resulting in a shortage. Suppose the university is trying to determine the most efficient way to allocate the rooms such that those who value the rooms the most get them. Which of the following would you suggest as the most efficient? A. Allocating rooms based on seniority. Seniors get first choice, then juniors, and so on. B. Auctioning the rooms to the highest bidders. C. Using a random lottery to allocate rooms, with each student having equal odds of receiving a room. D. Allocating rooms based on grades, with students with the highest GPAs getting first choice.

A. quantity demanded would exceed the quantity supplied, resulting in a shortage. B. Auctioning the rooms to the highest bidders.

If an economic boom is present, it is likely to be represented by a ____________. A. shift to the left of the Phillips curve. B. shift to the right of the Phillips curve. C. movement down the Phillips curve. D. movement up the Phillips curve.

A. shift to the left of the Phillips curve.??

Productivity varies across countries because of differences in ____________. (Check all that apply.) A. technology. B. GDP. C. physical capital. D. human capital. E. income. Human capital is _______________ (the ability to use labor and capital more efficiently/ any good, including machines and buildings, used for production/ each person's stock of skills to produce output or economic value). Physical capital is _______________ (each person's stock of skills to produce output or economic value/ the ability to use labor and capital more efficiently/ any good, including machines and buildings, used for production). Technology is _______________ (each person's stock of skills to produce output or economic value/ any good, including machines and buildings, used for production/ the ability to use labor and capital more efficiently).

A. technology. C. physical capital. D. human capital. each person's stock of skills to produce output or economic value. any good, including machines and buildings, used for production the ability to use labor and capital more efficiently

An example of sustained growth is ____________. A. the United States, which demonstrated sustained growth between 1820 and 2007. B. the Democratic Republic of Congo, which despite a negative growth rate at times, has shown mainly steady growth. C. the steady increase in the saving rate in countries such as China and the United Kingdom. D. Kenya, which has managed to maintain a steady growth rate over the last 50 years.

A. the United States, which demonstrated sustained growth between 1820 and 2007.

According to Keynes's view on animal spirits, ____________. A. the economy could fluctuate beyond the level that could be explained by the underlying economic fundamentals. B. technological breakthroughs could cause rapid increases in output. C. downward wage rigidity could lead to pessimism in the economy, resulting in the self-fulfilling prophecy of a decline in economic output. D. the economy will fluctuate in line with the underlying economic fundamentals. Keynes's theory of multipliers involved an element of the self-fulfilling prophecy. Which of the following illustrates the concept of a self-fulfilling prophecy? A. Labor demand decreases due to a recession in Europe and a reduction in exports from the United States, which causes U.S. consumption to drop and thus leads to additional decreases in labor demand. B. Firms expect an increase in demand in the future and so hire additional workers now, which leads to an increase in consumption demand. C. The government expects a war to occur and so increases spending on military equipment, which leads to increased labor demand. D. The Federal Reserve increases interest rates, which leads to lower business investment and hiring.

A. the economy could fluctuate beyond the level that could be explained by the underlying economic fundamentals. B. Firms expect an increase in demand in the future and so hire additional workers now, which leads to an increase in consumption demand.

The Malthusian cycle ___________. A. was common prior to the Industrial Revolution. B. primarily impacted economies during the Great Depression. C. was common between the time of the Industrial Revolution and the Great Depression. D. has its roots in the demographic transition post-1800.

A. was common prior to the Industrial Revolution???

There was no sustained growth in living standards prior to the Industrial Revolution because __________. A. with output increasing at a decreasing rate, it is not possible to increase living standards, especially as the population continues to grow. B. with output increasing at a decreasing rate, the level of per capita output will start to decrease, leading to a decrease in living standards. C. with income below the subsistence level, as was common prior to the Industrial Revolution, people starved, which prohibited growth. D. the transition from agriculture and rural areas toward industry and city areas did not occur until after the Industrial Revolution, and it was only this urbanization that allowed increases in living standards.

A. with output increasing at a decreasing rate, it is not possible to increase living standards, especially as the population continues to grow.

Anthony owns a landscaping business that has 4 employees. His company is able to earn revenue of $600 per day. He knows that if he hires another worker, he would have to pay that worker $50 per day and the company would earn revenue of $680 per day if the new worker is hired. Determine the value of the marginal product of labor of the employee that Anthony is considering hiring. A. $80. B. $30. C. $680. D. $50.

A. $80.

Suppose your New Year resolution is to get back in shape. You are considering various ways of doing this: you sing up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet. When making your decision about which activity to choose, you should consider the monetary cost __________ (as well as/ instead of) the opportunity cost of the activities. The goal is to choose the option that offers the greatest __________ (overall/ net) benefit.

As well as; net

What is meant by comparative statics? Explain with an example. A. Changes in net benefits when a person switches from one alternative, such as work, to another, such as no work. B. A change in an outcome, such as work, that results from a change in a factor, such as the wage. C. Equilibria across multiple markets, such as labor markets, financial markets, and service markets. D. The effect of the best feasible choice, such as work, on its marginal cost.

B. A change in an outcome, such as work, that results from a change in a factor, such as the wage.

The Bureau of Economic Analysis calculates a number of different measures of inflation -the GDP Deflator, the Consumer Price Index, the Wholesale Price Index, etc.. Given that, which of the following is an accurate description of the question, "According to the Bureau of Economic Analysis, what has been the average annual level of inflation (as measured by the GDP Deflator) over the past 10 years?": A. A microeconomic factual question. B. A macroeconomic factual question. C. A microeconomic reasoned judgment question. D. A macroeconomic reasoned judgment question.

B. A macroeconomic factual question.

Which of the following is an accurate description of the question, "Do free trade agreements lead to faster economic growth?": A. A microeconomic taste question. B. A macroeconomic reasoned judgment question. C. A macroeconomic factual question. D. A microeconomic factual question.

B. A macroeconomic reasoned judgment question.

The question, "Do businesses primarily fail because of mismanagement?" is an example of a: A. A combination of two or more of the other answers. B. A reasoned judgment question. C. Factual question. D. A taste question.

B. A reasoned judgment question.

The question, "Does the minimum wage result in higher unemployment?" is an example of a: A. A combination of two or more of the other answers. B. A reasoned judgment question. C. Factual question. D. A taste question.

B. A reasoned judgment question.

The question, "Do you like the handling of a Toyota more than a Subaru?" is an example of a: A. A combination of two or more of the other answers. B. A taste question. C. Factual question. D. A reasoned judgment question.

B. A taste question.

If nominal GDP increases, what might be the cause of this increase? If nominal GDP increases, this could be caused by: (Select all that apply.) A. An increase in the price level B. An increase in real GDP C. A decrease in the price level D. Deflation Given the following information, what is the growth rate of nominal GDP? Y0 real GDP = $1200 (in millions) Y1 real GDP = $1400 (in millions) Y0 price level = 125 Y1 price level = 140 The growth rate of nominal GDP is _____%. (Round your answer to the nearest hundredth.)

B. An increase in real GDP C. A decrease in the price level 76.53??

Briefly explain how an increase in the quantity of reserves that commercial banks hold at the Federal Reserve could lead to inflation. A. An increase in reserves enables the central bank to increase the amount of money in circulation, and with more money in circulation, inflation becomes inevitable. B. An increase in reserves triggers a multiple expansion of bank loans and deposits, which generates an increase in the stock of money. If the money supply grows faster than real GDP, inflation will occur. C. An increase in the reserves that commercial banks hold at the Federal Reserve enables the central bank to increase its bond purchases from investors, giving the bond sellers more discretionary income. The higher incomes fuel more spending on goods and services, forcing the price level higher. D. An increase in reserves triggers a multiple expansion of bank loans and deposits, which generates an increase in asset prices and, as a consequence, rapid growth in private spending. If spending grows faster than real GDP, inflation will occur.

B. An increase in reserves triggers a multiple expansion of bank loans and deposits, which generates an increase in the stock of money. If the money supply grows faster than real GDP, inflation will occur.

Households, like banks, maintain balance sheets. Although assets and liabilities may not be written down in a neat table, they still influence household decision making. For banks, assets are equal to liabilities. Which of the following is likely to be true of a household's balance sheet? A. The assets of a household include interest payments, stocks, and mortgage payments. B. Assets and liabilities will not necessarily be equal because many households face large debts and their liabilities are greater than their assets. C. The liabilities of a household include bonds and long-term investments. D. Assets will always be equal to liabilities as households practice budgeting. Which of the following assets is an average household likely to hold? A. Salaries payable, stocks, bonds, and goodwill B. Cash, retirement accounts, and equities C. Capital stock, retained earnings, and demand deposits The most liquid assets for a household are __________ (cash and checking accounts/ physical investments like cars and jewelry/ bonds and equities.) On a household's annual balance sheet, a one-time loan made to a relative would __________ (be included as a loan on the assets side/ be included as a loan on the liabilities side/ increase the cash available with the lender) and purchasing a car with cash would __________ (decrease the cash available to the buyer on the assets side/ be included as a long-term liability on the buyer's liabilities side/ increase the cash available to the buyer on the assets side.) During the financial crisis of 2007-2008, the federal government decided to bail out the big banks, but not any of the households that had lost money because of their investments or house purchases. Which of the following justifies this type of government federal policy? A. As households have large and complicated balance sheets compared to banks, the impact of government intervention on household investments is minimal. B. The government can easily impose restrictions on the transactions of banks, but it is difficult for the government to monitor the finances of individuals. C. The government bailed out the big banks to prevent bank runs during the crisis period.

B. Assets and liabilities will not necessarily be equal because many households face large debts and their liabilities are greater than their assets. B. Cash, retirement accounts, and equities cash and checking accounts be included as a loan on the asset side increase the cash available to the buyer on the assets side B. The government can easily impose restrictions on the transactions of banks, but it is difficult for the government to monitor the finances of individuals.

Initial phases of the growth process are often accompanied by increasing income inequality within a country. Using concepts developed in the chapter, explain why this might be the case. A. Extractive economic institutions protect private property rights. B. Creative destruction creates economic winners and losers. C. Political creative destruction generates political power among the elite. D. Inclusive economic institutions discourage entrepreneurs from starting companies.

B. Creative destruction creates economic winners and losers.

Which of the following statements regarding the principle of optimization is true? (Check all that apply.) A. It applies only in the case of monetary and financial matters. B. It is the unifying principle that connects various seemingly unrelated decisions. C. It takes into account and evaluates multiple trade-offs. D. It means always choosing the best feasible option.

B. It is the unifying principle that connects various seemingly unrelated decisions. C. It takes into account and evaluates multiple trade-offs.

Every five years, the Bureau of Economic Analysis (BEA) revises past GDP figures and the methodology involved in computing national income. In June 2013, the BEA decided to increase the weighting given to the creation of intellectual property in the national income accounts. This means that the intellectual property involved in the creation of books, movies, photographs, and even greeting cards will be included in GDP. Moreover, the initial cost of producing intellectual property will be treated as a capital investment and future flows of revenue from the book or TV show will be added later on. What are the possible difficulties that the BEA could face with this new approach? A. Identifying the qualifying expenditures that lead to the creation of the intellectual property. B. Deciding how broadly or narrowly to define the concept of intellectual property. C. Separating the effect of intellectual property on growth and productivity from the effect of real tangible assets. D. All of the above. E. A and B only.

B. Deciding how broadly or narrowly to define the concept of intellectual property. ???

Zimbabwe, formerly known as Rhodesia, was a British colony for around ninety years. It became independent in 1980. The prime minister of newly formed Zimbabwe, Robert Mugabe, implemented a forced land redistribution policy, where commercial farms were confiscated from white farmers. Mugabe also proceeded to confiscate shares in companies owned by whites. In the following years, agricultural production in the country fell sharply. Zimbabwe, the country that used to be called the breadbasket of Africa, is now seeing food shortages in certain parts of the country. Would Zimbabwe be considered to have extractive or inclusive institutions? Explain your answer. A. Inclusive institutions, because there are food shortages. B. Extractive institutions, because it doesn't protect property rights. C. Extractive institutions, because it upholds contracts. D. Inclusive institutions, because income inequality has increased. Why would a government undertake policies that would adversely affect the lives of its citizens? A. To change political institutions. B. To promote economic growth. C. To maintain its power. D. To invest in future prosperity.

B. Extractive institutions, because it doesn't protect property rights. C. To maintain its power.

Which of the following statements about foreign aid is true? A. Foreign aid increases efficiency of labor and capital. B. Foreign aid does not have an impact on technology. C. Foreign aid is mostly used to feed and sustain citizens. D. Foreign aid increases efficiency of labor but not capital.

B. Foreign aid does not have an impact on technology.

What type of unemployment does job search lead to? A. Search unemployment. B. Frictional unemployment. C. Structural unemployment. D. Cyclical unemployment.

B. Frictional unemployment.

In 1968, Paul Ehrlich, a Stanford University professor, claimed that overpopulation would lead to famines and starvation in the 1970s and 1980s. In his book The Population Bomb, he said that unless population growth was curbed, millions around the world would die. However, as we now know, this did not happen. What do you think was the flaw in Ehrlich's argument? A. He failed to account for all the successes from international poverty reduction policies. B. He did not account for the role that technology can play in increasing the food supply. C. He underestimated the size and scope of the demographic transition as more people moved from rural to urban areas. D. He did not take into account the fertility adjustment that would result in fewer births and therefore a lower death toll.

B. He did not account for the role that technology can play in increasing the food supply.

Which of the following is a macroeconomic question? A. What effect does a rise in the stock market have on the age at which one retires? B. How much would the unemployment rate fall if the economy grows by 4% this year? C. Should the Federal government increase the level of regulation of the airline industry? D. What is the effect of unemployment on a worker's lifetime earnings?

B. How much would the unemployment rate fall if the economy grows by 4% this year?

What policies can be used to raise real GDP in a country? (Check all that apply.) A. Reduce the amount of investment spending in R&D. B. Improve efficiency in the allocation of resources. C. Raise physical and human capital. D. Increase technology. E. Lower income per worker.

B. Improve efficiency in the allocation of resources. C. Raise physical and human capital. D. Increase technology.

In the book "Dead Aid," economist Dambisa Moyo argues that humanitarian aid-provision of food or medicine to poor families, for example-is an ineffective tool for promoting growth in the developing world. Instead, she argues in favor of foreign aid policies that encourage/subsidize foreign investments in the businesses of developing countries. Which of the following will be the short-term and long-term effects of foreign investments on aggregate growth? A. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, the effect on the GDP per capita of the economy will not depend on the productivity enhancing investment. B. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, the effect on the GDP per capita of the economy will depend on the productivity enhancing investment. C. In the short run, the productivity of workers and the GDP per capita of an economy will decrease, while in the long run, the impact of foreign investment will be ambiguous. D. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, there will be a decline in the GDP per capita. The effect of foreign investments on the poverty rate will depend on the __________ (redistribution of income among the poor segments of society/ productivity level of the poor segments of society/ monetary and exchange rate policies in an economy). If you were trying to improve macroeconomic growth and lower poverty rates in the developing world, which of the following would you encourage the U.S. government to fund? A. A program that aims at improving growth in the urban areas of society. B. A mix of well-targeted programs that improves the productivity and provides financial aid to poor segments of the population. C. A program that aims at stabilizing the aggregate growth rate of an economy in the long run.

B. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, the effect on the GDP per capita of the economy will depend on the productivity enhancing investment. redistribution of income among the poor segments of society B. A mix of well-targeted programs that improves the productivity and provides financial aid to poor segments of the population.

Why was there no sustained economic growth before modern times, that is, before 1800? (Check all that apply.) A. People could not easily survive in the subsistence level. B. Increases in aggregate income were offset by increases in population, keeping per capita income low. C. There were no national income or product accounts and so there was no way to accurately measure the economy. D. The pace of technological change was much slower than in modern times.

B. Increases in aggregate income were offset by increases in population, keeping per capita income low. D. The pace of technological change was much slower than in modern times.

The great disparity in economic prosperity between North and South Korea can best be explained by the _____________. A. Culture hypothesis B. Institutions hypothesis C. Fundamental prosperity hypothesis D. Geography hypothesis

B. Institutions hypothesis

In February 2014, the United States added 175,000 jobs to the economy. Given this information, what can we say about the unemployment rate of the country? A. It must decrease, since as more jobs are added to the economy, the country's overall unemployment rate falls. B. It may increase, decrease, or not change depending on how many people started searching for jobs during the month. C. It will not change, since the number of new jobs in the economy has no impact on the unemployment rate. D. It will increase, since an increase in the number of jobs will always result in an increase in the unemployment rate. Suppose that in January there were 4,000,000 workers in the labor force, with 3,736,000 employed and 264,000 unemployed, implying a 6.6 percent unemployment rate. A month later, there were 4,170,000 workers in the labor force, with 3,911,000 employed and 259,000 unemployed. (Notice the number employed went from 3,736,000 to 3,911,000, an increase of 175,000.) The unemployment rate in February is _____%. (Round your response to two decimal places.)

B. It may increase, decrease, or not change depending on how many people started searching for jobs during the month. 6.21??

Early theories of business cycles assumed that economic fluctuations had a pendulum-like structure with systematic swings in economic growth. Which property of economic fluctuations do these early theories contradict? A. The inverse relationship of GDP growth and the unemployment rate. B. Limited predictability. C. Persistence in the rate of growth. D. Co-movement. Using your answer above, how does a pendulum-like structure contradict this property in economic fluctuations? A. Pendulums swing in an easily-measured rhythm that would make predicting fluctuations simple. B. Unlike the economy, a pendulum has a maximum and minimum point that constrains the frequency of swings. C. Pendulums eventually come to a stop, which is not the case with an economy. D. There is no beginning or end to a pendulum swing, unlike with economic booms and busts.

B. Limited predictability. C. Pendulums eventually come to a stop, which is not the case with an economy.

Before 1800, a pattern developed showing that increases in aggregate income led to an expanding population, which in turn reduced income per capita and put downward pressure on the population. This pattern is known as the ___________. A. fertility cycle. B. Malthusian cycle. C. poverty cycle. D. demographic transition.

B. Malthusian cycle.

What is the difference between marginal values and average values? A. Marginal values show the total benefit or cost from consuming a good, while average values are the total benefit or cost from consuming a good divided by the amount of the good consumed. B. Marginal values show the additional benefit or cost from consuming an additional unit of a good, while average values are the benefit or cost per unit of a good. C. Marginal values show the benefit or cost from consuming one unit of a good, while average values are the benefit or cost from consuming all units of a good. D. Marginal values show the ordinal benefit or cost from consuming an additional unit of a good, while average values are the cardinal benefit or cost from consuming an additional unit of a good. E. Marginal values show the benefit from consuming an additional unit of a good, while average values are the cost from consuming an additional unit of a good.

B. Marginal values show the additional benefit or cost from consuming an additional unit of a good, while average values are the benefit or cost per unit of a good.

Does an increase in GDP per capita of a nation imply that all its citizens have become richer? A. Yes, but only if the average is above the poverty level of $1.25 per day. B. No, because the average income per capita of a nation is not the same as the income of each individual in that nation. C. No, because the average income per capita does not give as good a measure as the purchasing power parity (PPP) of the average citizen in a nation. D. Yes, because an increase in the average income per capita means that purchasing power parity (PPP) has also increased, making all citizens richer.

B. No, because the average income per capita of a nation is not the same as the income of each individual in that nation.

In 2011, China revised its poverty line upward to 2,300 yuan per year, or 6.3 yuan per day. At the prevailing exchange rate, this was equal to a little less than a single U.S. dollar. Some commentators felt that China's poverty line fell short of the World Bank's poverty line of $1.25 per day, in 2005 purchasing power parity (PPP) U.S. dollars. Would you agree? A. Yes, since it is important to measure poverty between countries so that action can be taken. B. No, since the Chinese poverty measure is not stated in 2005 PPP U.S. dollars. C. No, since it is not a good comparison to measure Chinese poverty against the world. D. Yes, since both values are adjusted by the prevailing exchange rate.

B. No, since the Chinese poverty measure is not stated in 2005 PPP U.S. dollars.

Sometimes new technology in production reduces the time that a worker takes to complete a task. Technological innovations can also completely replace a factory worker. Does this mean that technological progress will lead to large-scale unemployment? A. Yes, since the new technology allows firms to replace workers with machines, there will likely be widespread unemployment across the country. B. No, some sectors may experience unemployment as a result of the innovations but overall productivity and incomes will increase, leading to more employment opportunities. C. Yes, initially only a few sectors will experience unemployment as a result of the innovations; however, over time workers' productivity and unemployment levels will increase. D. No, the new technology innovations will make workers less efficient and require firms to hire more workers to produce the same amount of output.

B. No, some sectors may experience unemployment as a result of the innovations but overall productivity and incomes will increase, leading to more employment opportunities.

Amidst discussions on budget cuts to rein in the U.S. fiscal deficit, some commentators were of the opinion that foreign aid spending should be reduced. Others felt that reducing foreign aid would adversely affect the recipient countries. How effective has foreign aid been in reducing poverty? A. Very effective, because it has allowed poorer countries to purchase technology from richer countries, such as the United States and those in the European Union. B. Not very effective, because the aid has not been directed at activities that increase sustained growth. C. Not effective, because many poor countries produce agricultural goods, and these goods are not very responsive to foreign aid. D. Somewhat effective, by decreasing trade barriers, it allows poor countries to pay the tariffs imposed by richer countries on imports from poor countries.

B. Not very effective, because the aid has not been directed at activities that increase sustained growth.

The Evidence-Based Economics in the chapter identifies three key factors that caused the recession of 2007-2009. How would Keynes's concept of animal spirits explain the creation of a housing bubble? A. Home builders reduced their level of construction and investment, which led to higher prices and profits due to decreased supply, and as inventory declined, prices continued to climb. B. People believed that a house was a worthwhile investment, which led to an increased demand for housing and thus pushed prices up. This confirmed to people that housing was a worthwhile investment, which led to more demand, resulting in an upward spiral driven by optimism. C. The increase in mortgage defaults led to reduced lending by banks, which in turn reduced demand for housing, leading to more defaults and higher prices for those who could buy as banks attempted to recoup losses. D. With an expanding economy, real wages were driven up, leading to higher demand for housing, which expanded the economy further and drove up wages again, resulting in an upward spiral driven by optimism. The national income identity shows that ___________. A. The growth rate of real GDP is inversely related to the unemployment rate. B. economic fluctuations are directly related to the movement of real variables. C. nominal variables are linked to real variables through inflation. D. output is a function of consumption, investment, government spending, and net exports. The recession of 2007-2009 affected the components of the national income identity by primarily affecting ____________. A. all components of the national income identity equally in terms of percentage changes. B. the C and I components through a reduction in consumer wealth and a drop in housing construction. C. the G component as the government attempted to offset the fall in demand through increased spending. D. the NX component due to an appreciation of the U.S. dollar and secondarily affecting the C and I components as consumers purchased fewer imports and businesses produced fewer goods for export.

B. People believed that a house was a worthwhile investment, which led to an increased demand for housing and thus pushed prices up. This confirmed to people that housing was a worthwhile investment, which led to more demand, resulting in an upward spiral driven by optimism. D. output is a function of consumption, investment, government spending, and net exports. B. the C and I components through a reduction in consumer wealth and a drop in housing construction.

What are some factors that explain why people save for the future? (Check all that apply.) A. People save because there are shortages of goods. B. People save for a 'rainy day.'a 'rainy day.' C. People save to avoid being too materialistic. D. People save for retirement. E. People save for predictable large expenses for predictable large expenses.

B. People save for a 'rainy day.'a 'rainy day.' D. People save for retirement. E. People save for predictable large expenses for predictable large expenses.

Suppose that the GDP in current dollars for Polonia is higher than Ruritania's GDP. However, using purchasing power parity-adjusted dollars, Ruritania's GDP is higher than Polonia's GDP. Based on this information, you can conclude ___________. A. Polonia's standard of living is likely to be better than Ruritania's. B. Ruritania's standard of living is likely to be better than Polonia's. C. Ruritania's standard of living is falling and Polonia's is rising. D. Ruritania's standard of living is rising and Polonia's is falling.

B. Ruritania's standard of living is likely to be better than Polonia's.

Suppose that you have to make a presentation about the recent behavior of GDP. What is it called if you want to persuade people that the last recession was a deep one and so stretch the veritical axis of a graph containing GDP time-series data so that the GDP downturn looks visually bigger? A. Classical analysis B. Siffing C. Positive analysis D. Keynesian analysis

B. Siffing

How would an increase in demand affect the equilibrium price in a market? A. The equilibrium price would remain the same. B. The equilibrium price increases. C. The equilibrium price decreases. D. More information is needed. It may increase, decrease, or remain the same.

B. The equilibrium price increases.

What is the relationship between the question, "Does innovation lead to economic growth?" and the question "Should government encourage innovation"? A. Both questions are positive questions. B. The first question is a positive one; the second question is a normative one. C. Both questions are normative questions. D. The first question is a normative one; the second question a positive one.

B. The first question is a positive one; the second question is a normative one.

How are the proximate causes of prosperity different from the fundamental causes of prosperity? A. The fundamental causes of prosperity are the factors that result from the proximate causes of prosperity. B. The fundamental causes of prosperity are the factors that explain the levels of the proximate causes of prosperity. C. The fundamental causes of prosperity are the factors that measure the proximate causes of prosperity. D. The fundamental causes of prosperity are the factors that evaluate the effects of the proximate causes of prosperity.

B. The fundamental causes of prosperity are the factors that explain the levels of the proximate causes of prosperity.

Which of the following is not true regarding the natural rate of unemployment? A. The natural rate is calculated by averaging the unemployment rate over an extended time period. B. The natural rate of unemployment is 0 percent when the U.S. economy is not in a recession. C. The natural rate of unemployment does not include cyclical unemployment. D. The natural rate includes both frictional and structural unemployment.

B. The natural rate of unemployment is 0 percent when the U.S. economy is not in a recession.

What does it mean to say that an economic fluctuation involves the co-movement of many aggregate macroeconomic variables? A. Real variables move in the same direction as the economic fluctuation, whereas nominal variables move opposite. B. These variables grow or contract together during booms and recessions. C. These variables grow during booms and contract during recessions. D. Economic fluctuations in one period lead to movement of these variables in the next period.

B. These variables grow or contract together during booms and recessions.

The subsistence level is the ___________. A. maximum level of saving that keeps consumption at the optimal rate. B. minimum level of income per person that is generally necessary for an individual to survive. C. minimum level of the saving rate that is necessary to maintain the current level of physical capital. D. rate at which an economy grows that keeps income per capita stable.

B. minimum level of income per person that is generally necessary for an individual to survive.

In which of the following situations is optimization a good description of behavior? A. John is careless and irresponsible causing him to make a lot of mistakes in his work. B. Tia is a very fun loving person. She chooses to go on a vacation with friends instead of volunteering at NGO as a vacation is more enjoyable. C. Rita watches movies late at night. The next day, she wakes up late causing her to be late to her exam. D. Kat, the MIT business management graduate, starts his first business and incurs huge financial losses despite graduating from MIT.

B. Tia is a very fun loving person. She chooses to go on a vacation with friends instead of volunteering at NGO as a vacation is more enjoyable.

In a recent study for the National Bureau of Economic Research (NBER), four researchers looked at the effect of generous unemployment benefits on the local unemployment rate. They compared the unemployment situation in adjoining counties, which happened to lie in two different states that had different laws regarding the amount and duration of unemployment benefits. (Re-read the section on "A Natural Experiment of History" in Chapter 8 of the text to understand how the NBER research is based on a "natural experiment.") The authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so? Based on Hagedorn, Karahan, et al., "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects." NBER working paper 19499, October 2013. A. The longer the duration of benefits, the lower the wages become that firms will offer new workers. This caused upward wage rigidity, causing unemployment to rise dramatically. B. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment. C. The longer duration of unemployment benefits encouraged those workers who were unemployed to seek work sooner to avoid having their skills diminish, which increased the time for job search, leading to higher unemployment. D. All of the above.

B. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment.

The national income accounting identity associated with the expenditure-based accounting method is represented by ___________. A. Y=X-M+I+G. B. Y=C+I+G+X-M. C. Y=C+I+G+X. D. Y=C+I+G+M-X. E. C=Y+I+G+M-X.

B. Y=C+I+G+X-M.

Which of the following national income accounting identities are true for a closed economy in the absence of a government? (Check all that apply.) A. Y=C+I+X-M. B. Y=C+I. C. Y=C+I+G+X-M. D. Y=C+S.

B. Y=C+I.???

Suppose that you have just acquired a chemical manufacturing company and are trying to figure out what to produce. You talk to the plant manager and discover that the company can produce formaldehyde and sulfuric acid. You also find out that the maximum amount of formaldehyde that the company can produce in a month is 1 million liters if that is all it produces, while the maximum amount of sulfuric acid it can produce in a month (again assuming that is all it produces) is 5 million liters. Given these facts, take a sheet of paper and graphically represent the company's production possibility frontier and label that frontier with the letter A. Now suppose that you invent a new process for manufacturing sulfuric acid that is more efficient so that you can produce more sulfuric acid than before but with the same amount of inputs. Given that innovation, graphically represent the company's new production possibilities frontier on the same graph you just drew and label that new frontier with the letter B. Finally, based on your graph (do not turn in the graph), which statement below most accurately describes your sketch of the frontiers A and B (both their locations and their shapes): A. Your sketch is based entirely on taste thinking. B. Your sketch is based on both factual thinking and reasoned judgment thinking. C. Your sketch is based entirely on reasoned judgment thinking. D. Your sketch is based entirely on factual thinking.

B. Your sketch is based on both factual thinking and reasoned judgment thinking.

The "right to the status quo" is an example of: A. a positive frame or reference B. a fairness norm C. an efficiency norm D. Utilitarianism

B. a fairness norm

For banks and other financial institutions, the discrepancy between the short-term maturities of their deposits and the long-term maturities of their assets is referred to as ____________. A. a credit squeeze. B. a maturity mismatch. C. longitudinal disparity. D. latent insolvency.

B. a maturity mismatch.

The Industrial Revolution affected economic growth ____________. A. through the demographic transition, whereby families sustained lower fertility rates and broke the Malthusian cycle that kept per capita income close to subsistence levels. B. because technological changes, such as new machinery and new methods of production, became more systematic and pervasive, underpinning economic growth. C. because better drugs and basic sanitation improvements allowed workers to improve their knowledge base and increase efficiency and productivity, increasing the marginal product of labor and therefore overall economic growth. D. by replacing the agricultural underpinnings of most economies with an urban one, which allowed children to go to school more easily and therefore increased human capital.

B. because technological changes, such as new machinery and new methods of production, became more systematic and pervasive, underpinning economic growth.

When assessing the desirability of a new macroeconomic policy, it will generally be useful to: A. focus only on the policy's effects on inflation. B. begin by looking at the effect of the policy on various aspects of the economy such as unemployment, inflation, and economic growth. C. focus only on the policy's effects on economic growth. D. focus only on the policy's effects on unemployment.

B. begin by looking at the effect of the policy on various aspects of the economy such as unemployment, inflation, and economic growth.

Banks usually meet their liquidity needs by ____________. A. selling bonds to either the public or to the Federal Reserve. B. borrowing from each other in the federal funds market. C. selling equity or stock. D. borrowing from the Federal Reserve's discount window.

B. borrowing from each other in the federal funds market.

The Taylor rule states that ___________. A. central banks should set their money supply growth rates according to a formula that incorporates the real GDP growth rate and the rate of change in the velocity of money. B. central banks should set their policy rates (in the United States, the federal funds rate) according to a formula that incorporates the long-term target for the policy rate, the output gap, and the deviation of inflation from its target. C. central banks should set the quantity of their actual money stocks according to a formula that incorporates a fixed price for gold and an index of the country's exchange rate. D. central banks should set their policy rates (in the United States, the federal funds rate) according to a formula that incorporates the long-term target for the policy rate, the inflation rate, and the unemployment rate.

B. central banks should set their policy rates (in the United States, the federal funds rate) according to a formula that incorporates the long-term target for the policy rate, the output gap, and the deviation of inflation from its target.

The goal of a country with a healthy economy is to have ____________ equal to zero. A. the overall unemployment rate. B. cyclical unemployment. C. frictional unemployment. D. all of the above.

B. cyclical unemployment.

When there is an increase in acceptance for people taking 5 or 6 years to earn their college degrees instead of 4 years, the supply of labor will ____________. A. increase and move up along the curve. B. decrease and shift to the left. C. decrease and move down along the curve. D. increase and shift to the right. When there are changes that improve the quality and value of leisure time, the supply of labor will ____________. A. decrease and move down along the curve. B. increase and move up along the curve. C. decrease and shift to the left. D. increase and shift to the right.

B. decrease and shift to the left. D. increase and shift to the right. ???

The concept of diminishing marginal benefits means that __________. A. the more of a good that you consume, the lower is your overall benefit from that good. B. each additional unit consumed is worth less to you than the previous one. C. each additional unit consumed is worth more to you than the previous one, but the additional benefit grows at a diminishing rate. D. as you consume more of a good, your willingness to pay for that good increases faster than the benefit you receive.

B. each additional unit consumed is worth less to you than the previous one.

The existence of extractive institutions discourages entrepreneurship in an economy by ____________. A. failing to regulate markets. B. failing to ensure property rights. C. eliminating barriers to entry. D. allowing excessive profitability.

B. failing to ensure property rights.

The geography hypothesis states ____________. A. climate is responsible for differences in prosperity. B. geography is a proximate cause of prosperity. C. climate has a common effect on prosperity in all countries. D. prosperity may affect a country's geography.

B. geography is a proximate cause of prosperity.???

The duration of an economic fluctuation ____________. A. is completely unpredictable. B. has limited predictability. C. is completely predictable. D. is predictable but only in developed economies with good data. Using sophisticated statistical techniques, economists can usually predict ____________. A. the beginning of a recession. B. the co-movement of macroeconomic variables. C. the end of a recession. D. the end of an expansion.

B. has limited predictability. C. the end of a recession.

Unemployment statistics are measured and released by the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor. The BLS officially classifies a person as being employed ____________. A. only if that person has worked full time over the previous week. B. if that person holds either a part-time or full-time paid job. C. when a person has worked at the same job for one year continuously. D. if that person holds a paid job or may not be working but has looked for work in the previous week.

B. if that person holds either a part-time or full-time paid job.

According to the quantity theory of money, ____________. A. the inflation rate will stay constant over the long run. B. in the long run, the growth in the money supply is directly related to the inflation rate. C. in the short run, the growth in the money supply is directly related to the inflation rate. D. the ratio of the money supply to nominal GDP is constantly fluctuating. Which of the following equations is the equation for velocity in the quantity theory of money? A. Real GDP/Money supply. B. Nominal GDP/Money supply. C. Money supply/Nominal GDP. D. Inflation rate/Money supply.

B. in the long run, the growth in the money supply is directly related to the inflation rate. B. Nominal GDP/Money supply.

If opportunity cost were to suddenly increase, total cost would A. increase and net benefit would increase. B. increase and net benefit would decrease. C. decrease and net benefit would increase. D. decrease and net benefit would decrease.

B. increase and net benefit would decrease.

Critical reading: A. is a method for presenting your research. B. is a method for more fully understanding the work of others. C. focuses on identifying flaws in the work of others. D. none of above.

B. is a method for more fully understanding the work of others.

Households play a role in physical capital accumulation because ____________. A. the interest rate on investment is determined by households. B. it is households that determine their level of consumption and therefore the rate of saving. C. the population growth rate determines the number of efficiency units of labor and therefore output. D. households provide the human capital that produces the physical capital.

B. it is households that determine their level of consumption and therefore the rate of saving.

The Human Development Index measures ____________. A. the relative lifespan and education in third-world countries. B. living standards across various countries. C. how fairly income is distributed across countries. D. the amount of ethnic welfare and disease in third-world countries. The correlation between this index and real income per capita in a country is ____________. A. a positive association is apparent but only for high-income economies. B. the correlation between this index and real income per capita is weakly negative. C. no discernable association exists between this index and income per capita. D. countries with higher real income per capita tend to have higher levels of this index.

B. living standards across various countries. D. countries with higher real income per capita tend to have higher levels of this index.

The return-to-entrepreneurship curve shows the ____________. A. opportunity cost of engaging in entrepreneurial activities. B. number of entrepreneurs with at least a particular level of returns. C. net benefit to entrepreneurship for different enforcement levels of property rights. D. return to entrepreneurship ranked across countries.

B. number of entrepreneurs with at least a particular level of returns.

Banks usually hold a small pool of reserves because ____________. A. regulations require that banks invest most of the deposits they accept into non-reserve assets. B. on most days the withdrawals of existing deposits are roughly offset by inflows of new deposits. C. reserves pose more risk and require more managerial attention than other assets. D. all of the above.

B. on most days the withdrawals of existing deposits are roughly offset by inflows of new deposits.

When repaying a loan, the payment a borrower makes consists of ____________. A. legal tender and interest. B. principal and interest. C. interest and capital. D. collateral and principal.

B. principal and interest.

The term efficiency units of labor is the ____________. A. slope of the production function at the steady-state equilibrium point. B. product of the number of workers and the level of human capital. C. number of workers that can be used in a production process before diminishing marginal product of labor sets in. D. number of workers that can efficiently work in a production process, given current levels of technology and physical capital.

B. product of the number of workers and the level of human capital.???

Expansionary monetary policy shifts the labor demand curve to the right by ____________. A. pushing long-term interest rates up, thereby causing greater private expenditures and inducing firms to want to hire more workers. B. pushing long-term interest rates down, thereby causing greater private expenditures and inducing firms to want to hire more workers. C. increasing the private sector's expectation of inflation, causing private expenditures to be accelerated (as people try to beat the higher future prices) and inducing firms to want to hire more workers. D. increasing households' after-tax income, thereby causing greater private expenditures and inducing firms to want to hire more workers.

B. pushing long-term interest rates down, thereby causing greater private expenditures and inducing firms to want to hire more workers.

When current market prices are used to determine the value of each unit that is produced in an economy, the resulting aggregate is known as ____________. A. unadjusted GDP. B. real GDP. C. constant dollar GDP. D. nominal GDP. In order for comparisons of production across time to be meaningful, we must use __________ (nominal GDP/ real GDP).

B. real GDP. real GDP ???

The Law of Supply states that, in most cases, the quantity supplied of a good ___________ when the price of the good rises. This means we would expect a typical supply curve to be___________. A. rises; downward-sloping. B. rises; upward-sloping. C. falls; downward-sloping. D. falls; upward-sloping.

B. rises; upward-sloping.

The changes in technology that serve as the basis for the sustained growth we observe today began with ____________. A. the invention of the computer. B. the Industrial Revolution. C. ancient Greece and Rome, as early as the fifteenth and sixteenth centuries. D. the Great Depression.

B. the Industrial Revolution.

You and your friend, Jim, have just moved out of your dorm and into a new apartment. Both of you decide that you need to get a couch. Jim thinks you should get a new one from a furniture store nearby. You feel that, given your budget, it is best to buy a used one. Your other options are to buy one online or get a couch custom-made at the same furniture store. How would you arrive at an optimal solution here? Assume that your opportunity cost of time is $5 per hour. You and Jim would need to consider ___________. A. only the marginal benefit of each couch. B. the direct costs and the indirect opportunity cost of your time required to shop. C. only the price of each couch. D. the direct costs of the price of each couch and the cost of having each couch moved to your apartment. E. the indirect costs of traveling to the furniture store and the opportunity cost of your time required to shop. Now suppose that you have a summer job that pays you $15 per hour. How would your analysis change? With a $15-per-hour summer job, __________________ (the fuel cost of traveling/the cost of having the couch moved/the opportunity cost of your time/the price of the couch) would increase.

B. the direct costs and the indirect opportunity cost of your time required to shop. the opportunity cost of your time

Holding all other factors constant, the Law of Diminishing Marginal Product states that ____________. A. the marginal contribution of labor increases as the quantity of capital used in production increases. B. the marginal contribution of labor decreases as the quantity of labor used in production increases. C. the aggregate contribution of labor increases as the quantity of capital used in production increases. D. the marginal contribution of labor increases as the quantity of labor used in production increases.

B. the marginal contribution of labor decreases as the quantity of labor used in production increases.???

Give an intuitive explanation of the concept of "efficiency of production." Efficiency of production is the ability of the economy to produce ____________. A. a high rate of job growth so that income equality is improved and the level of fairness is increased. B. the maximal amount of output at a given cost or for given amounts of the factors of production. C. enough income so that wage inequality is sustained at a fair level over a given period of time. D. a given amount of output at a given cost using a minimum amount of the factors of production.

B. the maximal amount of output at a given cost or for given amounts of the factors of production.

An economic expansion is defined as ___________. A. positive real GDP growth lasting at least two quarters. B. the period between two economic recessions. C. a period of positive real GDP growth and unemployment below the rate dictated by Okun's Law. D. a period of positive real GDP growth that is above the long-run average for the economy. An economic expansion begins ____________. A. when real GDP growth first breaks above the long-run trend for the economy. B. just after the trough of a recession. C. in the month after the second consecutive quarter of positive real GDP growth. D. when the unemployment rate bottoms out.

B. the period between two economic recessions. B. just after the trough of a recession.

Recall the discussion in the chapter about the "quantity theory of money." The quantity theory of money assumes that ____________. A. in the short run, velocity is stable. B. the ratio of money supply to nominal GDP is exactly constant. C. in the long run, velocity fluctuates with real GDP. D. the ratio of money supply to nominal GDP grows over time. This implies that if the money supply grows by 10 percent, then nominal GDP needs to grow by _____ (10 percent/ less than 10 percent/ more than 10 percent). It follows that the growth rate of money supply and the growth rate of nominal GDP will be the same. In this case, inflation is ____________. A. always zero. B. always greater than the growth rate of money supply. C. equal to the growth rate of real GDP. D. equal to the gap between the growth rate of money supply and the growth rate of real GDP. If the growth rate of money supply is larger than the growth rate of real GDP, the inflation rate is __________ negative/ positive/ not affected). Are the predictions of the quantity theory of money borne out by historical data? A. No, the data show many outliers such as Argentina, Nicaragua, and Poland. B. Yes, the short-run data show a one-for-one growth rate of money supply and inflation. C. No, countries that experience hyperinflation break the relationship between the growth rate of money supply and inflation. D. Yes, the long-run data show a one-for-one growth rate of money supply and inflation.

B. the ratio of money supply to nominal GDP is exactly constant. 10% D. equal to the gap between the growth rate of money supply and the growth rate of real GDP. positive D. Yes, the long-run data show a one-for-one growth rate of money supply and inflation.

According to the geography hypothesis, incomes in poor countries are ____________. A. likely to be increased by government policies to improve their geography. B. unlikely to be changed, because ecology is largely out of their control. C. likely to decrease with the spread of disease related to climate change. D. unlikely to be changed, because poor countries will not invest to improve technology.

B. unlikely to be changed, because ecology is largely out of their control.

John Maynard Keynes's remark that "When the facts change, I change my mind; What do you do?": A. was a reference to Keynes's uncertainty over future policy. B. was a reference to Keynes's belief that all economic theories should be held tentatively and should be changed if empirical evidence warrants it. C. is inconsistent with the notion of intellectual courage. D. all of the above.

B. was a reference to Keynes's belief that all economic theories should be held tentatively and should be changed if empirical evidence warrants it.

Okun's Law states that ____________. A. when growth of GDP is positive, it tends to be positive in subsequent quarters. B. when growth in real GDP is above 2%, unemployment drops and when it is below 2%, unemployment increases. C. during recessions, firms tend to not lay off workers if they believe the slowdown will be temporary. D. when growth in real GDP is below 2%, unemployment drops and when it is above 2%, unemployment increases.

B. when growth in real GDP is above 2%, unemployment drops and when it is below 2%, unemployment increases.

What is stockholders' equity? A. The appraised value of a bank's outstanding shares of stock. B. The difference between a bank's total reserves and total demand deposits. C. The difference between a bank's total assets and total liabilities. D. A bank's revenues less its operating costs.

C. The difference between a bank's total assets and total liabilities.

Suppose that country A has higher real income per capita than country B. Explain why this does not imply that most citizens of country A have higher real income than most citizens of country B. A. Most citizens in country B may be employed, while the majority of those in country A may not work. B. The higher per capita income in country A could be the result of most citizens there having unearned income. C. A high degree of income inequality in country A may result in most of its citizens having incomes below the average income of country B. D. All of the above are plausible.

C. A high degree of income inequality in country A may result in most of its citizens having incomes below the average income of country B.

The Bureau of Economic Analysis calculates a number of different measures of inflation - the GDP Deflator, the Consumer Price Index, the Wholesale Price Index, etc. Given that, which of the following is an accurate description of the question, "What is the best measure of the average annual level of inflation over the past 10 years?": A. A macroeconomic reasoned judgment question. B. A microeconomic factual question. C. A microeconomic reasoned judgment question. D. A macroeconomic factual question.

C. A microeconomic reasoned judgment question.

What are the two models that are used to describe inflationary expectations? (Check only two.) A. Real expectations. B. Belief-formed expectations. C. Adaptive expectations. D. Rational expectations.

C. Adaptive expectations. D. Rational expectations.

What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve? A. All variables in the model are set to equal values. B. everything else in the economy is held constant, including the price of the good. C. All variables that can affect the demand for the good are held constant. D. All of the above.

C. All variables that can affect the demand for the good are held constant.

A useful method for sorting through a complex issue when sources conflict is to: A. break the issue into smaller, more manageable subissues. B. use a matrix to present the conflicts in a clearer manner. C. Both of the above. D. None of the above.

C. Both of the above.

Which of the following does not cause the labor supply curve to shift? A. Changing opportunity cost of time. B. Changes in the level of immigration. C. Changes in the wage rate paid to workers. D. Changing social norms and their impact on people's willingness to take a job.

C. Changes in the wage rate paid to workers.

Two economists estimate the government expenditure multiplier and come up with different results. One estimates the multiplier at 0.6, while the other comes up with an estimate of 1.25. Explain why these estimates are different in terms of the assumptions that each economist is making. A. Compared to the first economist, the second economist must be assuming either a smaller induced increase in consumption, a larger crowding out effect, or both. B. Compared to the first economist, the second economist is assuming a longer time frame for the effects of the increased expenditure to be observed. C. Compared to the first economist, the second economist must be assuming either a larger induced increase in consumption, a smaller crowding out effect, or both. D. Unlike the first economist, the second economist must be assuming that the government expenditure is devoted to useful projects. If the current value of GDP is $13.28 trillion and the government is planning to increase spending by $800 billion (all in one year), the percentage increase in GDP using the multiplier estimate of the first economist is _____percent. (Round your response to two decimal places.) Using the multiplier estimate of the second economist and the same current value of GDP, the percentage increase in GDP is _____ percent. (Round your response to two decimal places.)

C. Compared to the first economist, the second economist must be assuming either a larger induced increase in consumption, a smaller crowding out effect, or both. 3.61 7.53

Which of the following statements is not an example of a positive question? A. Do major league baseball teams generate millions of dollars in additional income for the local economies that they are located in? B. Is the normalizing of international trade between Cuba and the US likely to happen? C. Does China have the right policy when it comes to foreign trade? D. Are minimum wage laws the result of labor unions interested in protecting their position by driving up the cost of hiring non-union labor?

C. Does China have the right policy when it comes to foreign trade?

Which of the following is not an example of causation? A. Playing contact sports will lead to knee injuries. B. Exercising daily will lead to weight loss. C. Driving without car insurance will lead to getting into an accident. D. All of the above are examples of causation.

C. Driving without car insurance will lead to getting into an accident.

The period from 2007 to 2009 was a time of economic contraction that came to be known as the "Great Recession." During periods of recession, most firms experience a decline in demand for their product, as well as a decline in the product's equilibrium price. All other things being equal, macroeconomic theory predicts that the wage of most workers should decline in recessionary periods. However, this was not the case in the Great Recession, or during many other economic downturns throughout recent history. Based on the discussion in the chapter, explain why this might be so, and what the implications are for unemployment. A. Since most workers in the economy earn at or near the minimum wage, it is not possible for firms to lower the wages of workers during downturns. This keeps unemployment artificially low. B. During downturns firms do not have an incentive to lower wages since the lower price level throughout the economy already decreases the buying power of workers' wages. C. During downturns workers are resistant to the lowering of wages and firms try to avoid doing so. This downward wage rigidity keeps the quantity of labor supplied greater than demand, causing unemployment. D. Since most workers in the economy earn at or near the minimum wage, it is not possible for firms to lower the wages of workers during downturns. This keeps unemployment artificially high.

C. During downturns workers are resistant to the lowering of wages and firms try to avoid doing so. This downward wage rigidity keeps the quantity of labor supplied greater than demand, causing unemployment.

How would the equilibrium price in a market be affected if there were a small increase in demand and a large increase in supply? A. The equilibrium price would remain the same. B. The equilibrium price increases. C. The equilibrium price decreases. D. More information is needed. It may increase, decrease, or remain the same.

C. The equilibrium price decreases.

How can expansionary expenditure-based fiscal policy lead to crowding out in the economy? A. Expenditure-based fiscal policy increases the national debt, inducing forward-looking households and firms to reduce expenditures in anticipation of having to pay higher future taxes. B. Expenditure-based fiscal policy requires the collection of additional taxes, which reduce household incomes and expenditures. C. Expenditure-based fiscal policy leads to more government borrowing, absorbing funds that would have otherwise been borrowed and expended by the private sector. D. Expenditure-based fiscal policy raises inflation expectations and interest rates, causing private sector expenditures to fall.

C. Expenditure-based fiscal policy leads to more government borrowing, absorbing funds that would have otherwise been borrowed and expended by the private sector.

Sometimes development aid goes toward disaster relief. For example, after the Indian Ocean tsunami of 2004, non-governmental organizations helped devastated countries to rebuild. Based on your understanding of the chapter, which of the following statements are true of foreign aid? (Select all that apply). A. Foreign aid is efficient when it is given directly to an extractive government. B. Foreign aid is inefficient when it is directly used to rebuild capital and promote growth in an economy. C. Foreign aid is inefficient when it is given directly to an extractive government. D. Foreign aid is efficient when it is directly used to rebuild capital and promote growth in an economy.

C. Foreign aid is inefficient when it is given directly to an extractive government. D. Foreign aid is efficient when it is directly used to rebuild capital and promote growth in an economy.

Which of the following statements regarding the aggregate production function is true? A. GDP increases at a decreasing rate for every unit increase in the efficiency units of labor. B. GDP increases by a constant amount for every unit increase in the physical capital stock. C. GDP increases at an increasing rate for every unit increase in the physical capital stock. D. GDP decreases by a constant amount for every unit increase in the efficiency units of labor.

C. GDP increases at an increasing rate for every unit increase in the physical capital stock. ???

Suppose that you are on a date with an economics major, and you want to impress them by talking about economics. Your date challenges you to state your knowledge of positive and normative questions. Which of the following do you provide as a positive question? A. Who is the most to blame for the national debt? B. Is passing on a high national debt to our children an immoral act? C. How much is the national debt? D. Will our high national debt lead to a breakdown of family values?

C. How much is the national debt?

The old Soviet Union devoted enormous resources exclusively to increasing its physical capital stock, and yet eventually the increase in the country's real GDP came to an end. Based on the discussion in the chapter, explain why this was inevitable. A. Soviet leaders elevated the need for social justice above the need for profits, which lowered productivity. B. Companies' profits went directly to fund the massive military, which was meant to defend against NATO invasion. C. In the absence of technological innovation, massive capital investments yielded diminishing marginal returns. D. The lack of a profit motive caused the workers to drive output at increasing rates of return.

C. In the absence of technological innovation, massive capital investments yielded diminishing marginal returns.

Which of the following statements is true? A. The income of all workers always increases with a growth in income per capita of the economy. B. Countries with lower income inequality have lower poverty as well. C. Income per capita doesn't inform us about the distribution of income in the economy. D. The income of all citizens always increases with a growth in income per capita of the economy.

C. Income per capita doesn't inform us about the distribution of income in the economy.

How does the Federal Reserve obtain a particular value for the federal funds rate? A. It finds the point on the supply curve that corresponds to that federal funds rate and makes available the exact level of reserves associated with that point on the supply curve. B. It finds the point on the supply curve that corresponds to that federal funds rate and then shifts the demand curve so that the equilibrium rate is the one chosen. C. It finds the point on the demand curve that corresponds to that federal funds rate and makes available the exact level of reserves associated with that point on the demand curve. D. It electronically changes the amount of reserves that private banks hold at the Fed.

C. It finds the point on the demand curve that corresponds to that federal funds rate and makes available the exact level of reserves associated with that point on the demand curve.

In his book The Elusive Quest for Growth, development economist William Easterly discusses the relationship between foreign aid and investment in poor countries. He posits that to establish the effectiveness of aid in promoting investment, two tests should be passed: First, there should be a positive statistical association between aid and investment; second, aid should pass into investment 1 for 1, that is, a 1 percent (of GDP) increase in aid should result in a 1 percent (of GDP) increase in investment. Using a data set of 88 countries from 1965 to 1995, he finds that only 17 of 88 countries pass the first test, and of them, only 6 pass the second. Based on the information in the chapter, and perhaps your own reading, explain why foreign aid designed to spur investment usually does not work. A. It spurs the expanse of inclusive economic institutions. B. It is sufficient to remove the need to increase human capital. C. It is insufficient to sustain growth. D. It promotes political creative destruction.

C. It is insufficient to sustain growth.

Which of the following is true regarding wage rigidity? A. It results in frictional unemployment. B. It usually causes the quantity of labor demanded to be greater than the quantity of labor supplied. C. It occurs when wages are held fixed above the competitive equilibrium level. D. All of the above. Which of the following is not one of the factors that can increase wage rigidity in the labor market? A. The economy falling into a recession. B. Minimum wage legislation. C. Increased union membership. D. Efficiency wages.

C. It occurs when wages are held fixed above the competitive equilibrium level. A. The economy falling into a recession.

As the Choice and Consequence box on "Too Big to Fail" notes, bank regulators worry about the prospect of the failure of large financial institutions, dubbed "systemically important financial institutions" (SIFIs). How would the failure of a systemically important financial institution (SIFI) affect the economy? A. The financial system would be badly damaged, but there would be little or no effect on the overall economy. B. Financial intermediation would likely be impaired, with negative consequences for the economy's performance. C. It would very likely cause intermediation to cease, with catastrophic consequences for the economy. D. Given the size, strength, and diversity of the U.S. financial system, the effect would be negligible. What steps do bank regulators take to prevent SIFIs from failing or to minimize the effect of such failures? A. Require banks to take on less risk. B. Require banks to establish "living wills," procedures for their treatment in the event they become insolvent. C. Mandate that banks hold more stockholders' equity. D. All of the above. E. A and C only.

C. It would very likely cause intermediation to cease, with catastrophic consequences for the economy. D. All of the above.

Which of the following is not an example of a normative frame or reference? A. Efficiency B. Libertarianism C. Macroeconomics D. Utilitarianism

C. Macroeconomics

A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell. Is the model incorrect? A. Yes, it's possible that certain factors, such as the price of gas, were not included in the model. B. Yes, because it does not predict the outcome with 100 percent accuracy. C. No, because it predicts the outcome of increased bus ridership on average. D. No, because it is based on an incorrect assumption.

C. No, because it predicts the outcome of increased bus ridership on average.

Determine if the following statements better describe optimization in levels or optimization in differences. John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a net benefit than the new Spiderman movie. A. Neither type of optimization, since he is considering the total benefits of alternatives. B. Optimization in levels, since he is comparing the net benefits between alternatives. C. Optimization in differences, since he is calculating the change in net benefits between alternatives. D. Both types of optimization, since he is not considering the net benefits of alternatives. E. Optimization in differences, since he is not making marginal comparisons.

C. Optimization in differences, since he is calculating the change in net benefits between alternatives.

Determine if the following statements better describe optimization in levels or optimization in differences. Marcia finds that the net benefit of flying from Chicago to Honolulu on a non-stop United Airlines flight is $400, and the net benefit for the same trip flying on a one-stop American Airlines flight is $200. A. Both types of optimization, since she is not considering the total benefits of alternatives. B. Optimization in differences, since she is calculating the change in net benefits between alternatives. C. Optimization in levels, since she is comparing the net benefits between alternatives. D. Optimization in levels, since she is making marginal comparisons. E. Neither type of optimization, since she is considering the net benefits of alternatives.

C. Optimization in levels, since she is comparing the net benefits between alternatives.

Determine if the following statements better describe optimization in levels or optimization in differences. Reagan determined that the net benefit of taking the combination of two lecture courses and an online lecture course was $100. The same three courses online gave her a net benefit of $80, and all three in a lecture-based format gave her a net benefit of $90. A. Neither type of optimization, since she is not considering the net benefits of alternatives. B. Optimization in differences, since she is comparing total benefits between alternatives. C. Optimization in levels, since she is comparing the net benefits between alternatives. D. Both types of optimization, since she is considering the total benefits of alternatives. E. Optimization in differences, since she is making marginal comparisons.

C. Optimization in levels, since she is comparing the net benefits between alternatives.

Which of the following characteristics of economic fluctuations does the Great Depression illustrate? (Check all that apply.) A. Bank volatility. B. Stock market volatility. C. Persistence. D. Limited predictability. E. Co-movement in economic aggregates.

C. Persistence. D. Limited predictability. E. Co-movement in economic aggregates.

According to the aggregate production function, which inputs drive production? (Check all that apply.) A. Depreciation rate of physical capital. B. Growth rate. C. Physical capital. D. Total efficiency units of labor. E. Level of technology.

C. Physical capital. D. Total efficiency units of labor. E. Level of technology.

Suppose that you are on a date with an economics major, and you want to impress them by talking about economics. Your date challenges you to state your knowledge of positive and normative questions. Which of the following examples do you provide as a normative question? A. How many people are on food stamps? B. How much does welfare drive up the deficit? C. Should welfare be repealed? D. What is the rate of change of disability enrollment?

C. Should welfare be repealed?

Suppose that you have to make a presentation about the recent behavior of GDP. What is it called if you want to persuade people that the last recession was not that deep and so compress the veritical axis of a graph containing GDP time-series data so that the GDP downturn looks visually smaller? A. Positive analysis B. Keynesian analysis C. Siffing D. Classical analysis

C. Siffing

An example of catch-up growth is ____________. A. when you move your money from a bank account earning 2 percent simple interest to one that earns 2 percent compounded interest. B. the change France made in 2008 by eliminating the 35-hour work week, which allowed workers to put in more hours and therefore earn more. C. South Korea, which by 1970 had become poorer relative to the United States, but over the last 40 years grew faster than the United States, closing the gap that had opened up previously. D. Kenya, which has managed to maintain a steady growth rate over the last 50 years.

C. South Korea, which by 1970 had become poorer relative to the United States, but over the last 40 years grew faster than the United States, closing the gap that had opened up previously.???

Why is the rise in housing prices between the late 1990s and 2006 characterized as a bubble by some economists? A. The rate of home foreclosures increased over its long-run average. B. Houses became too expensive for ordinary people to buy. C. The large increase in the price of housing assets did not reflect the true long-run value of the assets. D. Speculators had purchased houses strictly to sell later at a higher price. How did the fall in housing prices cause the entire financial system in the United States to freeze up? The fall in housing prices resulted in __________ (a decrease in the money supply/ increased unemployment/ increased defaults), leading to enormous __________ (government unemployment costs/ bank account closures/ bank losses), disrupting the banks' ability and willingness to make loans to __________ (the central bank/ consumers and firms/ the government).

C. The large increase in the price of housing assets did not reflect the true long-run value of the assets. increased defaults; bank losses; consumers and firms

How is the mean calculated from a series of observations? A. It is calculated as the difference of all the different items divided by the number of items. B. The mean is the median value of a set of observations. C. The mean is the sum values of the observations divided by the number of observations. D. It is calculated as the product of all the different items divided by the number of items.

C. The mean is the sum values of the observations divided by the number of observations.

The sharpest one-day percentage decline in the Dow Jones Industrial Average (DJIA) took place on October 19, 1987. The DJIA fell 23 percent on this one day. Foreign exchange markets and other asset markets also exhibit large fluctuations on a daily basis. Eugene F. Fama, Robert J. Shiller, and Lars Peter Hansen shared the Nobel Prize in Economic Sciences in 2013 for their work on the "empirical analysis of asset prices." Based on the information given in this chapter, which of the following factors could explain why asset prices fluctuate? (Check all that apply.) A. Fluctuations reflect the distortion of underlying economic fundamentals by passive and inactive government policy. B. There are swings in the degree to which monopoly power envelops different sectors of the economy. C. There are psychological factors and biases that can produce excessive reactions to booms and busts. D. Fluctuations reflect the rational appraisals by investors of new information relevant to asset profitability.

C. There are psychological factors and biases that can produce excessive reactions to booms and busts. D. Fluctuations reflect the rational appraisals by investors of new information relevant to asset profitability.

Which of the following questions is not an example of an issue a researcher could study to contribute to the welfare of society? A. What will be the side effects of watching television on a child? B. What is the average unemployment age group in a country? C. What combination of colors can one use to paint his bedroom wall? D. What will be the turnout of the next Woody Allen film in theaters?

C. What combination of colors can one use to paint his bedroom wall?

How do increases in technology affect the aggregate production function? A. Even with technology increases, the aggregate production function will remain constant unless the technology increases are matched by increases in the physical capital stock. B. As technology increases, diminishing marginal product sets in such that each unit of technology produces less output. C. With increases in technology, the aggregate production function shifts up, indicating more output is produced from the same amount of inputs. D. With better technology, the aggregate production function shifts down because fewer workers are needed.

C. With increases in technology, the aggregate production function shifts up, indicating more output is produced from the same amount of inputs.

Which of the following is not a macroeconomics question? A. What is the effect of higher levels of education on a nation's economic prosperity? B. How much will the nation's economy grow if household consumption rises by 10%? C. Would legalization of marijuana nationwide result in a fall in the demand for cigarettes? D. Does an increase in business inventories predict a recovery from a recession?

C. Would legalization of marijuana nationwide result in a fall in the demand for cigarettes?

Barter is a method of exchange whereby goods or services are traded directly for other goods or services without the use of money or any other medium of exchange. Suppose you need to get your house painted. You register with a barter Web site and want to offer your car cleaning services to someone who will paint your house in return. What are the problems you are likely to encounter? (Check all that apply.) A. Inflation would create problems when there is a time difference in the provision of services. B. The house painter may not do a good job since he isn't being paid in money. C. You might find it difficult to find someone who needs you to wash his car and is willing to paint your house in return. D. It may take a lot of time to negotiate and finally settle on a deal that you both find fair. E. It might be difficult to agree on how many car washes is equivalent to painting a house. Some barter Web sites allow the use of "barter dollars." The registration fee that you pay to a barter Web site gets converted into barter dollars that can be exchanged with other users to buy goods and services. Would the use of barter dollars resolve the problems you identified above? A. Yes, because the "barter dollars" would not be convertible. B. No, because during a recession, the central bank would have no ability to stimulate the economy. C. No, because "barter dollars" are not legal tender. D. Yes, because you could both pay and be paid in "barter dollars."

C. You might find it difficult to find someone who needs you to wash his car and is willing to paint your house in return. D. It may take a lot of time to negotiate and finally settle on a deal that you both find fair. E. It might be difficult to agree on how many car washes is equivalent to painting a house. D. Yes, because you could both pay and be paid in "barter dollars."

Household saving decisions impact investment in the economy by having ___________. A. very little impact on investment, as banks are primarily involved with investment. B. no impact on investment in the economy. C. a direct impact on investment, as saving is correlated with investment. D. a direct impact on investment, as saving is inversely correlated with investment.

C. a direct impact on investment, as saving is correlated with investment.

Firms, households, and governments use the credit market for borrowing. The credit demand curve shows the relationship between the quantity of credit demanded and the real interest rate. The credit demand curve slopes downward because ____________. A. households seek to borrow more when their outlook for the future improves. B. a lender's ability to make loans falls as the real interest rate rises. C. a lower real interest rate raises a borrowing firm's profit and hence its willingness to borrow. D. government borrowing increases when budget deficits increase, and vice versa. A shift in the credit demand curve can be caused by ___________. A. changes in household preferences or expectations. B. changes in government policy. C. changes in perceived business opportunities for firms. D. all of the above. E. A and B only.

C. a lower real interest rate raises a borrowing firm's profit and hence its willingness to borrow. D. all of the above.

Contractionary monetary policy can lead to an economy-wide recession through ____________. (Check all that apply.) A. an increase in the price level, leading to a reduction in employment because of downward wage rigidity. B. a reduction in the real interest rate, leading to a decrease in production costs and therefore lower demand for labor. C. a reduction in the price level, leading to a reduction in employment because of downward wage rigidity. D. an increase in the real interest rate, leading to an increase in production costs and therefore lower demand for labor.

C. a reduction in the price level, leading to a reduction in employment because of downward wage rigidity. D. an increase in the real interest rate, leading to an increase in production costs and therefore lower demand for labor.

Groceries Galore is a new start-up company that provides grocery shopping, grocery delivery, and catering services for busy professionals with no time to shop. The initial research shows good growth potential. Groceries Galore is most likely to be funded by ____________. A. a credit card company. B. a hedge fund. C. a venture capital fund. D. an asset management company.

C. a venture capital fund.

A bank run is ____________. A. an unexpected attempt of one bank to initiate a hostile takeover of another, usually smaller, bank. B. an extraordinarily large volume of withdrawals from all banks driven by a concern that inflationary forces are poised to diminish the purchasing power of money. C. an extraordinarily large volume of withdrawals driven by a concern that a bank will run out of liquid assets with which to pay withdrawals. D. a sudden desire on the part of a bank's shareholders to sell their bank stock.

C. an extraordinarily large volume of withdrawals driven by a concern that a bank will run out of liquid assets with which to pay withdrawals.

To say that economists use the scientific method means that they are using ___________. A. a method to determine the best course of action for fiscal and monetary policy. B. a process to develop models that are intended to exactly represent all the details of a system. C. an ongoing process to develop models of the world and then test and evaluate those models. D. a method to develop recommendations for policy makers to run economies.

C. an ongoing process to develop models of the world and then test and evaluate those models.

The labor supply curve is derived from the concept that ____________. A. as prices increase, the opportunity cost of leisure increases, leading people to work fewer hours. B. as wages increase, the opportunity cost of leisure decreases, leading people to work more hours. C. as wages increase, the opportunity cost of leisure increases, leading people to work more hours. D. as wages increase, the opportunity cost of leisure decreases, leading people to work fewer hours.

C. as wages increase, the opportunity cost of leisure increases, leading people to work more hours.

The Industrial Revolution had a positive impact on living standards __________. A. because as capital depreciated, it needed to be replaced, which created an increase in production, shifting the production curve upward. B. with the transition from agriculture to industry, which allowed people to rely less on child labor, it created incentives for smaller families and thus increased per capita income and living standards. C. because of the introduction of new capital and technology that shifted the production curve upward. D. by eliminating the impact of diminishing marginal returns at most levels of production, shifting the production curve upward.

C. because of the introduction of new capital and technology that shifted the production curve upward.

Hidden macroeconomic biases can arise from one's: A. personal prejudices. B. political beliefs. C. both of the above. D. neither of the above.

C. both of the above.

In searching for possible answers to macroeconomic questions, the value of starting with yourself is that it helps: A. avoid unconscious biases that lead to ignoring or dismissing possibly good answers. B. decide how much effort to put into a search for an answer. C. both of the above. D. none of the above.

C. both of the above.

Utilitarianism: A. can be described by the phrase "the greatest good for the greatest number". B. provides the foundation for the economic notion of utility. C. both of the above. D. none of the above.

C. both of the above.

An economic expansion that occurs close to full employment ____________. A. will not be accompanied by any multiplier effects. B. can increase real wages, but not nominal wages. C. can cause inflation with very little employment and output growth. D. can increase nominal wages, but not price levels.

C. can cause inflation with very little employment and output growth.

Suppose a relatively poor country receives foreign aid to be used for education. However, a large portion of the money is stolen by local government officials. Nevertheless, some of the schools do receive some of the money that was intended for them. Suppose the schools that receive the aid tend to be those in richer areas that have more resources to start with and better connections. In this case, the foreign aid for education is likely to ____________. A. have more of a permanent effect on prosperity. B. result in political creative destruction. C. contribute to greater inequality of resources. D. force economic institutions to become more inclusive.

C. contribute to greater inequality of resources.

The two basic types of financial capital are ____________. A. stocks and bonds. B. credit and debt. C. credit and equity. D. equity and stock.

C. credit and equity.

If people began to believe that SUVs were causing global warming, then the demand for the Toyota Rav4 SUV would __________. A. increase (shift right) B. remain unchanged. C. decrease (shift left)

C. decrease (shift left)

Total efficiency units of labor in an economy can be increased by ____________. A. reducing physical capital. B. increasing workers' skills through training. C. decreasing the number of workers. D. exporting more physical capital.

C. decreasing the number of workers.???

Seignorage is the ____________. A. increase in the price level when a government prints money to fund its budget deficit. B. difference between the amount of money a government prints and the tax revenue that the government brings in from individuals and businesses. C. difference between the cost of printing paper money and the value of the goods and services that the government can purchase with the newly printed money. D. costs that governments incur in printing money and minting coins.

C. difference between the cost of printing paper money and the value of the goods and services that the government can purchase with the newly printed money.

Suppose you had information on the sales of similar homes just east and just west of the boundary between two school districts. Also suppose schools on one side of the school boundary are better than the schools on the other side in terms of test scores. You could estimate the average value that parents place on a one-point increase in test scores by ___________. A. multiplying the price of a home in either district by the difference in test scores between districts. B. dividing the difference in the prices of big homes in one district and small homes in the other district by the difference in test scores between districts. C. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts. D. dividing the difference in the prices of similar homes between districts by the average test score for both districts combined. E. dividing the difference in the prices of big and small homes in a district by the average test score in that district.

C. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts.

Frictional unemployment can result when ____________. (Check all that apply.) A. firms and workers have imperfect information about each other. B. government regulations may limit the number of people that a firm can hire. C. firms and workers have imperfect information about the state of the economy. D. it takes time for applicants to prepare a resume and line up references.

C. firms and workers have imperfect information about the state of the economy. D. it takes time for applicants to prepare a resume and line up references. ???

Inflation is the ____________. A. ratio of money supply to nominal GDP. B. growth rate of nominal GDP. C. growth rate of the overall price level in the economy. D. growth rate of real GDP. Deflation is ____________. A. the rate of decrease of the overall price level in the economy. B. a decrease in nominal GDP. C. a decrease in real GDP. D. a decrease in the inflation rate. Hyperinflation is ____________. A. inflation rates in excess of 50 percent per month. B. inflation rates that fluctuate by +/minus−50 percent. C. a doubling of the price level within three years. D. a doubling of the price level within three months.

C. growth rate of the overall price level in the economy. A. the rate of decrease of the overall price level in the economy. C. a doubling of the price level within three years.

If an increase in the immigration of unskilled labor leads to a fall in the wages of wine minus grape pickers, then the supply curve for sparkling wine would __________. A. remain unchanged. B. decrease (shift left). C. increase (shift right).

C. increase (shift right).

Based on your understanding of the chapter, poverty can best be reduced by ____________. (Check all that apply.) A. increasing the rate of consumption in poor countries. B. increasing the average GDP per capita in poor countries. C. increasing international trade. D. improving the knowledge and technologies available in the world economy.

C. increasing international trade. D. improving the knowledge and technologies available in the world economy.

The real wage is the ____________. A. wage that would prevail in the absence of government intervention, such as a minimum wage. B. amount of money an individual keeps after paying all taxes. C. inflation-adjusted wage. D. price level divided by the nominal wage. What is the significance of the real wage as it relates to inflation? A. Since an increase in inflation reduces the real wage that firms must pay, firms are more willing to hire workers, thus stimulating economic activity. B. The real wage is linked to the real interest rate, and so a change in the real wage will impact business investment. C. Since an increase in inflation increases the real wage that firms must pay, firms are less willing to hire workers, thus depressing economic activity. D. The real wage drives inflation, and so a decrease in the real wage will decrease inflation and the overall price level in the economy.

C. inflation-adjusted wage. A. Since an increase in inflation reduces the real wage that firms must pay, firms are more willing to hire workers, thus stimulating economic activity.

The federal funds rate is the ____________. A. interest rate at the discount window where banks obtain overnight loans of reserves from the Federal Reserve. B. interest rate at the discount window where banks obtain overnight loans of reserves from one another. C. interest rate in the federal funds market where banks obtain overnight loans of reserves from one another. D. interest rate in the federal funds market where banks obtain overnight loans of reserves from the Federal Reserve. The funds that are lent in this market are ____________. A. deposits at the lending bank. B. seignorage for the Federal Reserve. C. withdrawals at the Federal Reserve Bank. D. reserves at the Federal Reserve Bank. The factors that would shift the demand curve for reserves include ____________. (Check all that apply.) A. an economic expansion or contraction. B. a changing deposit base. C. the federal funds rate. D. anticipated liquidity shocks. E. an anticipated change in inflation.

C. interest rate in the federal funds market where banks obtain overnight loans of reserves from one another. D. reserves at the Federal Reserve Bank. A. an economic expansion or contraction. B. a changing deposit base. D. anticipated liquidity shocks.

In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________. A. see a small decrease in its number of customers. B. see no change in its number of customers. C. lose all or almost all of its customers. D. All of the above are equally likely.

C. lose all or almost all of its customers.

Economic fluctuations are ____________. A. changes to the trend line of GDP growth. B. long-run changes in the growth of GDP. C. short-run changes in the growth of GDP. D. economic shocks characterized by downward wage rigidity and multipliers. Recessions are periods in which the economy ____________, while economic expansions are defined as the periods ____________ ____________. An economic expansion begins ____________. A. at the midpoint between the trough and peak of GDP growth. B. at the end of a recession. C. in the middle of a recession. D. after the peak of GDP growth. In the United States, recessions are usually defined as ____________. A. two consecutive quarters of negative growth in real GDP. B. any period of negative growth in real GDP. C. two consecutive months of negative growth in real GDP. D. two consecutive quarters of negative growth in nominal GDP.

C. short-run changes in the growth of GDP. contracts; between recessions B. at the end of a recession. A. two consecutive quarters of negative growth in real GDP.

According to real business cycle theory, the economic impact of changing input prices is similar to the economic impact from ____________. A. sentiment changes. B. changes in monetary factors. C. technology changes. D. multipliers. If oil, which is a major input to most production processes, abruptly jumps in price, the impact on the economy would be similar to ____________. A. an economic multiplier increase, with a resultant increase in real GDP. B. a productivity decrease, with a resultant decrease in real GDP. C. a productivity increase, with a resultant increase in real GDP. D. an economic multiplier decrease, with a resultant decrease in real GDP.

C. technology changes. B. a productivity decrease, with a resultant decrease in real GDP.

A central bank is the government institution ____________. A. that runs a country's fiscal system. B. that lends money to the government. C. that runs a country's monetary system. D. responsible for printing money. The functions of a central bank are to ____________. (Check all that apply.) A. lend money to large multinational corporations. B. directly control the money supply. C. regulate the government's spending. D. indirectly control the money supply. E. control certain key interest rates. F. monitor financial institutions.

C. that runs a country's monetary system. D. indirectly control the money supply. E. control certain key interest rates. F. monitor financial institutions.

You and your friend, Jim, have just moved out of your dorm and into a new apartment. Both of you decide that you need to get a couch. Jim thinks you should get a new one from a furniture store nearby. You feel that, given your budget, it is best to buy a used one. Your other options are to buy one online or get a couch custom-made at the same furniture store. How would you arrive at an optimal solution here? Assume that your opportunity cost of time is $5 per hour. You and Jim would need to consider ___________. A. the direct costs of the price of each couch and the cost of having each couch moved to your apartment. B. only the marginal benefit of each couch. C. the direct costs and the indirect opportunity cost of your time required to shop. D. only the price of each couch. E. the indirect costs of traveling to the furniture store and the opportunity cost of your time required to shop.

C. the direct costs and the indirect opportunity cost of your time required to shop.

According to the quantity theory of money, the inflation rate is A. the gap between the growth rate of money supply and the growth rate of nominal GDP. B. the gap between the nominal and real interest rates. C. the gap between the growth rate of money supply and the growth rate of real GDP. D. the ratio of money supply to nominal GDP. If the inflation rate is positive, what must be true? A. The growth rate of nominal GDP greater than> the growth rate of money supply. B. The growth rate of real GDP greater than> the growth rate of money supply. C. The growth rate of real GDP less than< the growth rate of money supply. D. The growth rate of nominal GDP less than< the growth rate of money supply.

C. the gap between the growth rate of money supply and the growth rate of real GDP. C. The growth rate of real GDP less than< the growth rate of money supply.

he total efficiency units of labor are ____________. A. how much cheaper a third-world worker is than a first-world worker. B. the average of the total number of workers and the amount of output each worker produces. C. the product of the total number of workers and the average human capital of each worker. D. how much more efficient a first-world worker is than a third-world worker. The relationship between this concept and human capital is described as: An increase in the average worker's level of human capital will, all else equal, ____________ the total efficiency units of labor in an economy. A. decrease. B. not alter. C. increase.

C. the product of the total number of workers and the average human capital of each worker. C. increase

One major difference between modeling economic busts and booms is that ____________. A. rigid wages are a much larger factor when modeling booms. B. technological changes have a much larger short-run effect for busts. C. there is no issue of rigid nominal wages when modeling booms. D. multipliers have a much smaller effect when modeling busts. While economic booms are generally positive, they also have a dark side. This is because ____________. A. politicians often like to "fan the flames" of booms to increase their popularity, especially during an election year. B. firms may decide to increase worker productivity at the expense of hiring new workers, leading to an increase in firms' profits but not an increase in employment. C. workers will continue to demand higher wages as labor demand shifts to the right, leading to a decrease in firms' profits and a decrease in business investment. D. if the economy is close to full employment and full capacity utilization before the beginning of the boom, the economy might eventually experience a leftward shift in labor demand, causing a recession rather than a gentle fall to pre-boom levels.

C. there is no issue of rigid nominal wages when modeling booms. D. if the economy is close to full employment and full capacity utilization before the beginning of the boom, the economy might eventually experience a leftward shift in labor demand, causing a recession rather than a gentle fall to pre-boom levels.

As used in finance, the term maturity refers to the ____________. A. appreciation of assets above their purchase price. B. time until an asset is liquidated. C. time until a debt must be repaid. D. time it takes for an investor to recoup an asset's acquisition cost.

C. time until a debt must be repaid.

Suppose the return and cost of entrepreneurship curves are described by the following equations (with numbers measured in the thousands): R = 1,000 - 50N C = 200 + 150N, where R = returns to entrepreneurship, C = cost of entrepreneurship, and N = number of entrepreneurs. Based on the equations given, the cost-of-entrepreneurship curve differs from the one drawn in the chapter because it is ____________. A. upward-sloping, indicating specialization as the number of entrepreneurs increases. B. horizontal, indicating a constant marginal cost of entrepreneurship as the number of entrepreneurs increases. C. upward-sloping, indicating the opportunity cost of entrepreneurship increases with the number of entrepreneurs. D. downward-sloping, indicating economies of scale as the number of entrepreneurs increases. The equilibrium number of entrepreneurs is N= _____ thousand. (Round your response to two decimal places.) The equilibrium returns to entrepreneurship is R= _____ thousand. (Round your response to two decimal places.) The government enacts a license fee of $100 thousand to file the paperwork necessary to start a firm. The new equilibrium number of entrepreneurs is N= _____ thousand. (Round your response to two decimal places.) The new equilibrium returns to entrepreneurship is R= $_____ thousand. (Round your response to two decimal places.)

C. upward-sloping, indicating the opportunity cost of entrepreneurship increases with the number of entrepreneurs. 4; 800; 3.5; 825

The opportunity cost of entrepreneurship is the ____________. A. start-up cost of business for a new entrepreneur. B. cost borne by society from the entrepreneur's activities. C. value to a potential entrepreneur of her best alternate activity. D. additional cost to the entrepreneur of increasing her activity by one unit.

C. value to a potential entrepreneur of her best alternate activity.

You read a newspaper report that compares wages paid to employees at Starbucks in India and in the United Kingdom. At the time, 1 pound was equal to 87 rupees. The report says that Starbucks baristas in India are paid a mere 56 pence an hour, which is lower than the cheapest coffee that Starbucks sells in the United Kingdom. A friend of yours who read the report is appalled by this information and thinks that Starbucks ought to raise its salaries substantially in India. Is your friend necessarily correct? A. Yes, the report accurately points out that baristas in India are being exploited with low wages. B. Yes, the report correctly highlights the fact that workers are paid the lowest amount possible in third world countries. C. No, the flaw in the report is that it converts the wages paid in India to pounds using the current exchange rate, but does not account for the cost of living (or the prices of goods) in India. D. No, the flaw in the report is that U.K. workers are smarter and better trained than workers in India; therefore, the exchange rate is not a fair representation.

C. No, the flaw in the report is that it converts the wages paid in India to pounds using the current exchange rate, but does not account for the cost of living (or the prices of goods) in India.

What are the similarities and the differences between monetary and fiscal policies? To answer this, complete the following table by identifying those features that both policies share and those features where the policies differ. Do this by inserting the letter S (for similarity) or D (for difference) in each response box. The manner (or ways) in which they work. __________ The aspect of the labor market they impact. __________ The result their implementation seeks to achieve. __________ The entities (or authorities) that oversee them. __________

D S S D

The equation for the labor force participation rate is defined as ____________. A. 100% x (Unemployed/Labor force) B. 100% x (Unemployed/Potential workers) C. 100% x (Employed/Labor force) D. 100% x (Labor force/Potential workers)

D. 100% x (Labor force/Potential workers)

For a trade to take place, a buyer's willingness to pay must be ____________. A. higher than the seller's willingness to accept. B. equal to the seller's willingness to accept. C. lower than the seller's willingness to accept. D. A and B only. E. All of the above.

D. A and B only.

Economists include the word final in the definition of GDP because we ____________. A. must avoid the error of double counting. B. only seek to value the end product in a chain of production. C. cannot accurately measure the value of intermediate or component goods. D. A and B only. E. all of the above.

D. A and B only. ???

Which of the following is an accurate description of the question, "How much of a premium would consumers be willing to pay for a solar powered car?": A. A microeconomic factual question. B. A macroeconomic factual question. C. A macroeconomic reasoned judgment question. D. A microeconomic reasoned judgment question.

D. A microeconomic reasoned judgment question.

The question "Slower economic growth increase income inequality?" is an example of: A. Neither a positive nor a normative macroeconomic question. B. A normative macroeconomic question. C. Both a positive and normative macroeconomic question. D. A positive macroeconomic question.

D. A positive macroeconomic question.

What is deposit insurance? A. A bailout program funded by taxpayers for financial intermediaries deemed too big to fail. B. A type of insurance that a bank's depositors can purchase either from the bank itself or from the government that protects deposits. C. A system of protection for banks in the event that depositors seek to make large and simultaneous withdrawals. D. A program implemented in most countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its withdrawals.

D. A program implemented in most countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its withdrawals.

If Moore's Law is correct, then which variable in the production function will most directly be impacted? A. K B. H C. X D. A

D. A???

Aidan, Bianca, Caitlyn and Dmitri want jobs as management consultants. XY Corporation is a management consulting firm in a perfectly competitive market which has advertised a job opening for the post of a management consultant paying the equilibrium salary. Who is voluntarily unemployed based on the information given below? A. Dmitri has given up looking for a job as a management consultant, after his ten month long unsuccessful job search. B. Bianca is ready to accept the job at XY Corporation at the salary offered but is not offered a position. C. Caitlyn wasn't aware that XY Corporation had advertised a job opening for a management consultant. D. Aidan receives a job offer from XY Corporation but rejects it as the salary offered was below his expectations. In the scenario described above, __________ (Bianca/ Dmitri/ Caitlyn) suffers from frictional unemployment.

D. Aidan receives a job offer from XY Corporation but rejects it as the salary offered was below his expectations. Caitlyn

Why is it important to keep good records of your sources? A. To protect your credibility B. For social reasons C. To help make your research efforts more efficient D. All of the above

D. All of the above

How does the zero lower bound on interest rates affect the working of monetary policy? A. It makes the implementation of expansionary monetary policy more difficult since it effectively blocks the central bank's use of its primary tool. B. It reduces the effectiveness of monetary policy by impairing the ability of the public (including investors) to understand the central bank's actions and signals. C. It complicates the formulation of expansionary monetary policy because it forces the central bank to rely on nontraditional and less familiar tools such as quantitative easing. D. All of the above. E. A and C only.

D. All of the above.

In which of the following areas will taking an economics course help benefit you throughout your life? A. It will help you analyze and predict human behavior in a variety of situations. B. It will give you the logic behind using cost-benefit analysis when evaluating decisions. C. It will instill the concept that what activity is given up by a decision plays an important role when making choices. D. All of the above.

D. All of the above.

Which of the following is an example of what economists refer to as job search? A. An individual that engages in the job hunt by determining who is hiring and how much they pay. B. A person who applies for a high-paying job but does not qualify, so she begins searching for an appropriate position. C. People that engage in the job hunt by sending out resumes. D. All of the above.

D. All of the above.

Which of the following may account for variations in real income per capita or real income per worker across countries? A. Differences in the stock of equipment and structures. B. Differences in available technology. C. Differences in human capital. D. All of the above. E. A and B only.

D. All of the above.

When is the output gap, defined as the percent difference between GDP and potential GDP, negative? A. When the economy experiences a recession. B. When the economy's capacity to produce exceeds its actual production. C. When actual real GDP falls below potential GDP. D. All of the above. E. A and C only. According to the Taylor rule, should the Fed raise or lower the federal funds rate when the output gap is negative? A. It should raise the federal funds rate. B. It should lower the federal funds rate. C. Gaps are self-correcting, so it should do neither. D. It should do neither and instead let fiscal policy close the gap.

D. All of the above. B. It should lower the federal funds rate.

Recall from the chapter that banks in the United States hold a fraction of their checking deposits as reserves, either as vault cash or as deposits with the Federal Reserve (where they earn very little interest). Regulations require them to hold a certain percentage (currently 10 percent) of their checking deposits as reserves. However, banks are free to hold additional reserves if they choose. The latter are called excess reserves. Ordinarily, banks held very few excess reserves. However, starting in the financial crisis of 2007dash-2009, the amount of excess reserves held by banks went from virtually zero to over 1.8 trillion dollars. Explain why banks would be expected to try to minimize the amount of excess reserves that they hold. A. Banks are privately owned businesses and thus have the goal of maximizing profits for their shareholders. B. Excess reserves yield little in the way of earnings for banks, thus making difficult the generation of satisfactory profit. C. Normally, other assets can be expected to generate much higher returns for banks. D. All of the above. E. A and C only. Based on what you learned about banking in the chapter, explain why you think that the crisis prompted banks to dramatically expand the amount of excess reserves they held. A. The Federal Reserve made excess reserves attractive to hold by paying interest for the first time in history. B. There was a sharp decline in profitable private sector lending opportunities for financial intermediaries. C. Confidence was shaken so severely by the crisis that banks chose to effectively ration credit among viable borrowers, including other banks. D. All of the above

D. All of the above. D. All of the above.

Milton Friedman, the renowned monetary economist, gave the following analogy about the Fed: "Imagine your house is being heated by a heater. The heater is controlled by a thermostat. The way it's set up, when the house gets a little too warm, the thermostat turns off the heater; if it gets too cold, the thermostat turns the heater back on. If everything works as planned, the room temperature in the house should roughly be the targeted temperature all the time. Now suppose the thermostat is not in the same room as the heater. In fact, it's in the last room that is affected by the heater. Say, the attic. And the radiators through which the heater works are really old, and it takes them at least twenty minutes to react. Then, instead of making the temperature more stable, the thermostat would make the temperature swing wildly. For example, if the house is cold, then the thermostat will turn the heater on. But it will turn the heater off only when the attic is warm. By then, the entire house will be scorching hot. When it turns the heater off, it will not turn it back on until the attic is cooler. By then, the house will be freezing." (In this analogy, the thermostat is the Fed; the house is the entire economy.) What do you think Milton Friedman was referring to? A. A central bank's inability to accurately forecast changes in the macroeconomic environment. B. The presence of long, variable, and imperfectly understood linkages between monetary policy and the behavior of the overall economy. C. A central bank's inability to fine tune an economy through the continuous manipulation of monetary policy. D. All of the above. As in the thermostat analogy, what might be some possible unintended consequences of monetary policy? A. Greater business cycle volatility as policy swings from possibly being too contractionary to too expansionary. B. Excessive instability in the export and import sectors as exchange rates potentially exhibit greater volatility. C. Less efficient investment because credit availability may lack stability. D. All of the above. Might there be a similar effect for fiscal policy? If yes, how does it differ from monetary policy? A. No, fiscal policy has more oversight and is much more transparent than monetary policy. B. Yes, fiscal policy can be mismanaged and/or poorly timed, and the consequences may be worse since it is often imbued with political goals. C. Possibly, but this issue has not received any research from economists.

D. All of the above. D. All of the above. B. Yes, fiscal policy can be mismanaged and/or poorly timed, and the consequences may be worse since it is often imbued with political goals.

When nominal interest rates have hit the zero lower bound, can central banks use interest rates to stimulate the economy? Explain. A. Yes, but the mechanism by which central banks manipulate the interest rates that matter for spending must deviate from the banks' traditional method. B. No, once the zero lower bound is hit, central banks can no longer employ interest rates to stimulate economic activity. C. Yes, since the zero lower bound applies to nominal rates, not real rates, and it is real rates that are relevant for investment decisions. D. Both A and C are correct.

D. Both A and C are correct.

When a bank experiences withdrawals of deposits and short-term loans by firms and other banks, the situation is described as ____________. A. cutthroat competition. B. an interindustry bank run. C. financial consolidation. D. an institutional bank run. When large firms and the general banking community lose confidence in a weak bank, FDIC insurance is __________ (incapable of alleviating/ legally barred from treating/ an adequate remedy for) the situation.

D. an institutional bank run. incapable of alleviating

What does Moore's Law predict? A. There will be a fixed relationship between progress in computer technology and government support for research. B. Advances in computer technology will naturally decelerate with the passage of time. C. There will be a positive but variable link between improvements in computer technology and the passage of time. D. Computer processing power would double approximately every 2 years. Is Moore's Law borne out by historical data? A. Yes, Moore's prediction has been remarkably accurate. B. No, the law has actually understated the rate of progress in computer processing power. C. No, advances in computer power have been impressive but not at the steady rate predicted by Moore's Law.

D. Computer processing power would double approximately every 2 years. A. Yes, Moore's prediction has been remarkably accurate.

What is the distinction between cross-sectional data and time-series data? A. Cross-sectional data can be presented in tables, while time-series data requires the use of graphs. B. Cross-sectional data is only used in microeconomics while time-series data is only used in macroeconomics. C. Cross-sectional data provides information about one section of the economy, while time-series data provides information about the entire economy. D. Cross-sectional data provides information about economic behavior at an instant in time, while time-series data provides information about how an economic variable behaves over time.

D. Cross-sectional data provides information about economic behavior at an instant in time, while time-series data provides information about how an economic variable behaves over time.

The process of thinking critically is best described as: A. Analyzing an issue, supporting that analysis with data, and making a judgment. B. Choosing a question to answer, justifying your choice of question, and positing an answer. C. Deciding what the issue is, finding a solution to the issue, and criticizing other solutions. D. Deciding what the issue is, becoming aware of your initial frame of reference, gathering information, and constructing a conclusion.

D. Deciding what the issue is, becoming aware of your initial frame of reference, gathering information, and constructing a conclusion.

Which of the following statements is true about economic fluctuations? A. Investment and business expansion would show co-movement. B. Once in an expansion, the probability of recession increases. C. Recessions are always short and therefore harder to see coming. D. Economic fluctuations are fairly easy to predict.

D. Economic fluctuations are fairly easy to predict.??

How does fiat money differ from commodities like gold and silver that were used as money? A. Fiat money is easier to carry around than gold or silver coins. B. The unit of account measures can be tuned better to the prices in the economy. C. It is more resistant to hyperinflationary forces than commodity money. D. Fiat money is intrinsically worthless, whereas gold and silver have intrinsic value. If fiat money is intrinsically worthless, then why is it valuable? A. It is the most useful type of money. B. Fiat money is used as legal tender by government decree and other people will accept it as payment for transactions. C. The government earns seignorage revenue from it. D. Fiat money is always convertible to gold or silver reserves.

D. Fiat money is intrinsically worthless, whereas gold and silver have intrinsic value. B. Fiat money is used as legal tender by government decree and other people will accept it as payment for transactions.

GDP is estimated using expenditure-based accounting by using the equation ____________. A. GDP = C + I + G +X. B. GDP = C + I + G. C. GDP = C + I + G + X + M. D. GDP = C + I + G + X - M.

D. GDP = C + I + G + X - M. ???

Which of the following is not a macroeconomics question? A. How often has the country experienced a recession since World War II? B. Would the nation's growth rate increase if marijuana were legalized in all 50 states? C. Was the Federal Reserve right to try to stimulate the economy by reducing interest rates? D. How much will the California drought drive up the price of fresh vegetables?

D. How much will the California drought drive up the price of fresh vegetables?

Which of the following activities of the central bank do not constitute monetary policy? A. Monitoring financial institutions. B. Controlling certain key interest rates. C. Indirectly controlling the money supply. D. Monitoring key stock prices. The Fed's dual mandate includes maintaining ____________________ (low and predictable levels of inflation/ maximum and sustainable levels of unemployment/ maximum and sustainable levels of money supply).

D. Monitoring key stock prices. maximum and sustainable levels of money supply??

Which of the following best relays the events of the 2007-2009 recession after the bust in housing prices? A. Mortgage foreclosures, a credit expansion, a rightward shift in the demand for labor, and an increase in consumption B. Mortgage foreclosures, a credit contraction, a rightward shift in the demand for labor, and an increase in consumption C. Mortgage foreclosures, a credit expansion, a leftward shift in the demand for labor, and a strong drop in consumption D. Mortgage foreclosures, a credit contraction, a leftward shift in the demand for labor, and a strong drop in consumption

D. Mortgage foreclosures, a credit contraction, a leftward shift in the demand for labor, and a strong drop in consumption

Libertarianism: A. cannot be reconciled with Utilitarianism. B. argues that coercion can be justified if everyone benefits from it. C. both of the above. D. None of the above.

D. None of the above.

In the context of this chapter, what is meant by an institution? A. Climate. B. Geography. C. Prosperity. D. Regulations.

D. Regulations.

Suppose you thought income inequality in the United States had increased over time. Based on your answers to this question, would you expect the ratio of the mean income in the United States to the median income has risen or fallen? Explain. A. Fallen, because means change less with standard deviation. B. Risen, because means increase but medians decrease with income. C. Risen, because medians increase with variance but means do not. D. Risen, because means change more with extreme values.

D. Risen, because means change more with extreme values.

In his book The Optimum Quantity of Money, Milton Friedman talks about a helicopter dropping $2,000 over a community. The cash dropped by the helicopter gives the people in this community more money to spend. A tax cut also has the same effect: it increases disposable income. Suppose tax cuts, analogous to the helicopter drop, were proposed as a method to shift the labor demand curve to the right following a recession. How effective do you think this policy would be? A. Very effective, since tax cuts are concentrated among wealthy individuals who usually spend all or most of the extra income. B. Not effective, since the tax cuts go to consumers rather than to the employers (demanders) of labor. C. Not effective, since the majority of the tax cut is saved and any portion spent leads to complete crowding out. D. Somewhat effective, but only to the extent that most of the tax cut is concurrently spent on domestic output, that multiplier effects occur, and crowding out is small.

D. Somewhat effective, but only to the extent that most of the tax cut is concurrently spent on domestic output, that multiplier effects occur, and crowding out is small.

What is the correlation between income per capita and welfare measures like absolute poverty and life expectancy? A. Weak positive correlation. B. Strong negative correlation. C. Weak negative correlation. D. Strong positive correlation. What does this correlation suggest about real income per capita as a measure of welfare? A. Real income per capita is a reliable---though not perfect---indicator of human welfare within and across countries. B. Correlation is a statistical quirk and suggests nothing about the use of real income per capita as a measure of welfare. C. Real income per capita can be trusted to give unquestionable assessments of human welfare within and across countries. D. Since correlation does not mean causality, real income per capita should not be used to measure welfare.

D. Strong positive correlation A. Real income per capita is a reliable---though not perfect---indicator of human welfare within and across countries.

Which factor is the most important contributor to growth in the United States? A. Physical capital (K). B. Number of hours worked per capita. C. Human capital (H). D. Technology (A).

D. Technology (A).

Which of the following is not true regarding the natural rate of unemployment? A. The natural rate includes both frictional and structural unemployment. B. The natural rate of unemployment does not include cyclical unemployment. C. The natural rate is calculated by averaging the unemployment rate over an extended time period. D. The natural rate of unemployment is 0 percent when the U.S. economy is not in a recession.

D. The natural rate of unemployment is 0 percent when the U.S. economy is not in a recession.

Which of the following is one of the three important elements that define institutions? A. They are outside human control. B. They change very slowly. C. They are independent from prosperity. D. They place constraints on behavior.

D. They place constraints on behavior.

Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in? A. When you buy the first battery. B. When you buy the second battery. C. When you buy the third battery. D. When you buy the fourth battery.

D. When you buy the fourth battery.

You and a friend are debating the merits of using monetary policy during a severe recession. Your friend says that the central bank needs to lower interest rates all the way down to zero. According to him, zero nominal interest rates will boost lending and investment; consumers and firms will surely borrow and spend when interest rates are zero. Given that inflation in your country is currently 3 percent, would you agree with his reasoning? Explain your answer. A. No, a slumping economy responds poorly to interest rate reductions, especially when nominal rates approach zero. The preferred policy option is expansionary fiscal policy. B. Yes, a zero nominal interest rate means that money is costless to borrow, and this is sure to spur investment spending in the economy. C. No, a zero nominal interest rate coupled with a 3 percent inflation rate yields a positive value for the real rate, and this will very likely discourage investment spending. D. Yes, a zero nominal interest rate coupled with a 3 percent inflation rate yields a negative value for the real rate, which is the rate that is meaningful for investment decisions.

D. Yes, a zero nominal interest rate coupled with a 3 percent inflation rate yields a negative value for the real rate, which is the rate that is meaningful for investment decisions.

Is real income per capita more relevant in understanding differences in international living standards than real income per worker? A. No, since it does not account for the welfare of the nonworking population. B. Yes, as it is considered to be the "gold standard" of living standard measurements by the World Bank. C. No, since it obscures the magnitude of labor's productivity within a country. D. Yes, as it conveys the conditions of the whole population including children and the elderly.

D. Yes, as it conveys the conditions of the whole population including children and the elderly.

Does the effectiveness of monetary policy depend on inflation expectations? Explain. A. No, inflation expectations do not affect nominal interest rates, and these are the rates monetary policy directly impacts. B. Yes, long-term inflation expectations can interfere with the central bank's control over the short-term nominal interest rate. C. No, the effectiveness of monetary policy is solely determined by the supply of reserves from the central bank and the demand for reserves from private banks. D. Yes, the central bank's ability to influence the long-term expected real interest rate is partly determined by the public's long-term expectations of the inflation rate.

D. Yes, the central bank's ability to influence the long-term expected real interest rate is partly determined by the public's long-term expectations of the inflation rate.

Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client wants to know what will happen to gasoline demand if it increases gasoline prices by one cent higher than its nearest competitors. One of the members of your consulting team, Debbie, shares that one time in college she stopped buying gasoline from a service station that was one cent more expensive. Instead of relying on Debbie's college story to make a conclusion, you decide it is smarter to collect and analyze __________. A. a survey of other team members' anecdotes. B. a small sample of empirical data. C. a survey of anecdotes collected on the Internet. D. a large amount of empirical data.

D. a large amount of empirical data.

As the text explains, it can sometimes be very difficult to sort out the direction of causality. Causation occurs when there is ____________. A. a mythical-known relationship. B. an anecdotal cause-and-effect relationship. C. a historical-known relationship. D. a logical cause-and-effect relationship.

D. a logical cause-and-effect relationship.

In response to a region-wide power outage cause by a hurricane, a retailer increases the price of generator from $350 to $2 comma 900. The most likely purchaser would be A. the first person in line, who has $300 of worth of refrigerated food to save. B. no one, as consumers would boycott such price gouging. C. a wealthy individual, who has $700 worth of refrigerated food to save. D. a restaurant owner, who has $3 comma 500 worth of refrigerated food to save.

D. a restaurant owner, who has $3 comma 500 worth of refrigerated food to save.

What questions should you ask to determine if a source is reliable? A. Who are the authors? B. What are the authors' credentials? C. Is there corroborating evidence from credible sources? D. all of the above

D. all of the above

Where would you look for basic or general information so that you can get oriented about a macroeconomic issue? A. the reference room in a library B. Wikipedia C. a textbook D. all of the above

D. all of the above

Intellectual courage in a macroeconomic context is: A. the willingness to fairly assess material that we haven't previously thought about seriously despite a strong negative reaction to that material. B. being aware of any potential conflicts that might compromise the critical-thinking process and bring those conflicts into that same critical-thinking process. C. valuable when one has strongly held beliefs about the macroeconomy. D. all of the above.

D. all of the above.

Productivity varies across countries because ___________. A. human capital per worker varies substantially from country to country. B. the level of technology differs across countries. C. the quantity of physical capital that workers can access varies greatly across countries. D. all of the above. E. A and B only.

D. all of the above.

The first step in searching for an answer to a macroeconomic question is to: A. to reflect on prior experiences, information, and initial opinions you might have about the question. B. take stock of your frame of reference. C. be aware of whether the question is a positive or normative one. D. all of the above.

D. all of the above.

When wages exhibit downward rigidity and a recession occurs, the decline in employment will be ____________. A. unaffected by the elasticity of labor supply. B. larger than what would occur if wages were flexible. C. accentuated because none of the decline in labor demand is absorbed by a fall in wages. D. all of the above. E. A and C only.

D. all of the above.

Quantitative easing is ____________. A. the central bank's purchase of long-term bonds in the open market. B. a variation on the central bank's traditional manner of conducting open market operations. C. an attempt by the central bank to more directly impact long-term interest rates. D. all of the above. E. B and C only. Central banks undertake quantitative easing programs to ____________. A. more forcefully and directly impact the interest rates relevant for investment decisions. B. give a boost to the prices of publicly traded equities. C. work around the problems when short-term nominal interest rates approach zero. D. all of the above. E. A and C only.

D. all of the above. E. A and C only.

The level of economic activity is calculated using the income method by ____________. A. tracking the flow of funds from firms to the owners of the factors of production. B. adding together the income payments received by the various agents in the economy. C. summing labor income and capital income. D. all of the above. E. A and C only.

D. all of the above. ???

In developing a set of sources to investigate: A. never use yourself; the point of research is to get new ideas. B. include yourself if you have specific expertise in the area. C. only include professional economists. D. always use yourself to develop a theory to give you a more solid foundation for researching the work of others.

D. always use yourself to develop a theory to give you a more solid foundation for researching the work of others.

A firm's value added refers to the dollar value of ____________. A. a firm's total sales revenue. B. a firm's sales revenue minus the firm's profits. C. the intermediate products a firm buys from other producers. D. a firm's sales revenue minus the firm's purchases of intermediate products from other firms.

D. a firm's sales revenue minus the firm's purchases of intermediate products from other firms. ???

Economists mostly use optimization in differences, as opposed to optimization in levels, because ____________. A. contrasting the total benefit of alternatives is intuitive. B. calculating cost-benefit ratios is complicated. C. examining the net benefits of alternatives is counterintuitive. D. comparing different features of alternatives is simple.

D. comparing different features of alternatives is simple.

Comparing a set of feasible alternatives and picking the best one is an optimization process called _________. A. normative analysis. B. statistical inference. C. likelihood estimation. D. cost-benefit analysis.

D. cost-benefit analysis.

D. design and execute an experiment.

The price of anti minus venom serum, sold to those with snake bites, increased from $45 to $52, but consumption has still remained the same. In this situation, the Law of Demand __________. A. holds, since a change in the price of the product resulted in a change in the quantity demanded of the product. B. holds, since the Law of Demand must hold for all goods in all instances. C. does not hold, since the product is not sold in normal markets, so it cannot follow the Law of Demand. D. does not hold, since the product sold is required for survival, so increasing the price did not affect consumption. The demand curve for anti minus venom serum is __________. A. downward-sloping, since the demand for anti minus venom serum reacts the same to changes in price as any other good. B. near horizontal, since even a small rise in the price will result in bite victims cutting back on the quantity they demand. C. near vertical, since even if the price rises bite victims will be willing to buy the same quantity.

D. does not hold, since the product sold is required for survival, so increasing the price did not affect consumption. C. near vertical, since even if the price rises bite victims will be willing to buy the same quantity.

Cyclical unemployment is the unemployment that arises ____________. A. from workers' imperfect information about available jobs. B. when wage rigidity creates a persistent gap between labor supply and labor demand. C. from the average of the unemployment rates over an extended period of time. D. during recessions when the unemployment rate is above the natural rate.

D. during recessions when the unemployment rate is above the natural rate.

Political creative destruction refers to ____________. A. existing regimes limiting economic development. B. governments subsidizing new technologies. C. political leaders blocking the adoption of new technologies. D. economic growth destabilizing political regimes. The potential process of political creative destruction could lead to extractive institutions because ____________. A. new economic activities may fall outside of the control of existing rulers. B. economic growth will limit the entry of new leaders into government. C. political leaders will become more powerful. D. upholding contracts increases prosperity and reduces poverty.

D. economic growth destabilizing political regimes. A. new economic activities may fall outside of the control of existing rulers.

Real business cycle theory ____________. A. explains how initial economic shocks are amplified through the multiplier process. B. emphasizes the role of sentiments that create the self-fulfilling prophecies that drive economic fluctuations. C. explains how monetary factors drive business cycles. D. emphasizes the role of changing productivity and technology in causing economic fluctuations.

D. emphasizes the role of changing productivity and technology in causing economic fluctuations.

The market value of the final goods and services produced within the borders of a country is ____________. A. net national product (NNP). B. gross national income (GNI) C. gross national product (GNP) D. gross domestic product (GPD)

D. gross domestic product (GPD) ???

When government statisticians gather and analyze data on the income of various agents in the domestic economy, they are measuring GDP using the ____________. A. expenditure-based accounting method. B. production-based accounting method. C. circular flow-based accounting method. D. income-based accounting method.

D. income-based accounting method.

To say that private property rights are well-enforced in an economy means that ____________. A. governments are authorized to tax property. B. businesses are owned by shareholders. C. government assets are public property. D. individuals can securely hold assets.

D. individuals can securely hold assets.

Physical capital accumulation is driven by ____________. A. the marginal product of capital. B. government purchases. C. the growth rate of GDP. D. investment.

D. investment.

In general, the subsistence level ____________. A. is identical across all environments. B. does not apply in developed countries, such as the United States, that have high per capita incomes. C. declines as a country becomes wealthier. D. is unique in each environment.

D. is unique in each environment.

Hyperinflation is most likely caused by ____________. A. an increase in the prices of everyday goods. B. large budget deficits financed by borrowing from the public. C. recessions or depressions. D. large budget deficits financed by printing more money.

D. large budget deficits financed by printing more money.

According to the concept of persistence in the rate of growth, if the economy grows this quarter, it will ____________. A. definitely grow next quarter. B. likely contract next quarter. C. definitely contract next quarter. D. likely grow next quarter.

D. likely grow next quarter.

The value of the marginal product of labor is the ____________. A. cost to a firm of hiring an additional worker. B. value that workers place on labor relative to leisure. C. change in output from hiring an additional worker. D. market value of a worker's additional output for a firm.

D. market value of a worker's additional output for a firm.

In 2005, $320 million of the federal government's budget was allocated toward building a "bridge to nowhere" in Alaska that connected two small towns. In 2006, $500,000 was allocated toward a teapot museum in North Carolina, $1 million toward a water-free urinal initiative in Michigan, and $4.5 million toward a museum and park at an abandoned mine in Maine. These projects were requested by specific legislators in order to boost their popularity in their constituencies. These types of expenditures are known as ___________. A. pork barrel spending. B. over-the-barrel spending. C. sunk costs. D. pork belly spending. Since government spending increases employment by shifting the labor demand curve to the right, is it always a good idea for the government to increase expenditure? Explain your answer. A. No, continual increases in government expenditures will crowd out expenditures by households and firms, very likely leaving labor demand little changed.likely leaving labor demand little changed. B. No, government efforts aimed at shifting the labor demand curve to the right should only be used during recessions. C. No, continual increases in government expenditures may result in projects that are not socially desirable. D. All of the above. E. A and C only.

D. pork belly spending D. All of the above.

Exponential growth is the ____________. A. growth rate that grows at an exponential rate greater than one (that is, g Superscript n, where n>1). B. rate differential between growth in a baseline period and growth in the current period. C. process by which the growth rate in the economy increases each year by a (roughly) constant rate. D. process by which new growth builds on past growth, leading to a (roughly) constant growth rate.

D. process by which new growth builds on past growth, leading to a (roughly) constant growth rate.

Catch-up growth is the ____________. A. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. B. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement. C. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. D. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations.

D. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations.

Sustained growth is the ____________. A. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations. B. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. C. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement. D. process where GDP per capita grows at a positive and relatively steady rate for long periods of time.

D. process where GDP per capita grows at a positive and relatively steady rate for long periods of time.

A country's gross national product would exceed its gross domestic product when the ____________. A. amount of the national debt owed to foreigners is less than the amount of foreign debt owed to residents of the domestic economy. B. production of foreign-owned factors operating in the United States exceeds the production of domestically-owned factors operating abroad. C. country's residents own more assets abroad than foreigners own in the domestic economy. D. production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States.

D. production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States.

The competitive equilibrium price equates A. supply to demand. B. price to quantity supplied. C. price to quantity demanded. D. quantity supplied to quantity demanded.

D. quantity supplied to quantity demanded.

Suppose the country of Burondo is one of the poorest countries in the world. Its economy is heavily reliant on income from the export of oil. There are only two oil-extracting companies in Burondo. Both are owned by the government. A large part of the earnings from oil exports goes toward financing the president's lifestyle and entourage. Burondo has not had a single democratic election ever since it gained independence 50 years ago. Although Burondo is said to have abundant oil resources, only a small proportion is extracted every year because the extraction process is so inefficient. Transporting goods in and out of the country is costly, as Burondo is surrounded by lofty mountain ranges. School enrollment in this country is very low and as a result, most of the adult population is illiterate. Life expectancy is also quite low. Agriculture is collectivized in Burondo and so food shortages are common in the country. Using the information given, distinguish between the fundamental and proximate causes of prosperity (or its absence) in Burondo. Proximate causes of Burondo's lack of prosperity are ___________. (Check all that apply.) A. there are few constraints to the exercise of power. B. the geography is unfavorable. C. the agricultural industry is collectivized. D. school enrollment is low. E. food shortages affect health. Fundamental causes of Burondo's lack of prosperity are ____________. (Check all that apply.) A. the government is an extractive political institution. B. the agricultural industry is collectivized. C. the topography is not favorable. D. most of the adult population is illiterate. E. the workforce is not skilled.

D. school enrollment is low. E. food shortages affect health. the oil extraction process is inefficient most of the adult population is illiterate A. the government is an extractive political institution. B. the agricultural industry is collectivized. C. the topography is not favorable. the farmers have limited incentive to bring their produce to the market there are few constraints to the exercises of power the geography is not favorable

In economics, the standard reference style is based on: A. the American Economic Association's (AEA) standards B. the Modern Language Association's (MLA) standards C. the Chicago citation style D. the American Psychological Association's (APA) standards

D. the American Psychological Association's (APA) standards

Potential workers are classified as being unemployed when ____________. A. they do not have a paid job, have looked for work in the previous 4 months, and are available for work. B. they want a full-time job and instead have a part-time job or are not working at all. C. they do not have a paid job and are currently not available for work. D. they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work.

D. they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work.

Optimization in levels examines ___________, while optimization in differences analyzes ____________. A. total benefits of alternatives; net benefits of alternatives. B. total net benefits of feasible alternatives; total net benefits of infeasible alternatives. C. total benefits of alternatives; total costs of alternatives. D. total net benefits of alternatives; the change in net benefits. E. marginal benefits of alternatives; the change in marginal benefits.

D. total net benefits of alternatives; the change in net benefits.

Maturity transformation is the process by which banks ____________. A. transfer long-term liabilities into short-term investments. B. transform interest earnings from investments into stockholders' equity. C. convert short-term assets into long-term assets. D. transfer short-term liabilities into long-term investments.

D. transfer short-term liabilities into long-term investments.

The Troubled Asset Relief Program (TARP) is considered to be an example of a countercyclical policy that represents a mix of fiscal and monetary effects because it ____________. A. was formulated and undertaken jointly by Fed and Treasury officials. B. provided public monies to private, nonfinancial business enterprises. C. gave the government ownership rights in selected private banks. D. was a congressionally authorized expenditure by the U.S. Treasury that sought, in part, to provide financial resources to elements of the banking system.

D. was a congressionally authorized expenditure by the U.S. Treasury that sought, in part, to provide financial resources to elements of the banking system.

In August, 1979, the annual rate of inflation in the U.S. was nearly 12%, and the U.S. short-term nominal interest rate was nearly 10%. Over the next 35 years, both the rate of inflation and short-term nominal interest rate tended to fall. By August 2014, the rate of inflation was about 2% and the short-term nominal interest rate was close to 0%. How has the real short-term interest rate changed from 1979 to 2014? A. The real rate remained stable at minus−2%. B. The real rate declined by 10%. C. The real rate increased by 10%. D. The real rate remained stable at 2%. Why do the inflation rate and the nominal interest rate tend to move together over the long-run? A. This synchronized movement indicates that credit market conditions have tended to be relatively stable over time. B. Their up and down together movement tells us that the real interest rate is relatively stable in the long run. C. This joint movement is the result of the Fisher equation. D. All of the above. E. A and B only.

E. A and B only.

What could explain why a decrease in taxes could lead to a less-than-proportionate increase in output? A. As a result of diminishing returns to current consumption, consumers may choose to spread the extra spending over the long term rather than consuming the proceeds of a tax cut all at once. B. Consumers may choose to save much of the tax cut in anticipation of having to pay higher taxes in the future. C. A decrease in taxes will necessitate lower government outlays, thus largely offsetting the higher consumption expenditures of households. D. All of the above. E. A and B only.

E. A and B only.

What is an accounting identity? A. It is an equality that must be true regardless of the value of its variables. B. It is a statement that by definition must be true. C. It is a technique accountants employ in the preparation of income statements. D. All of the above. E. A and B only.

E. A and B only. ???

The purpose of countercyclical policy is to ____________. A. smooth the growth rates of employment, GDP, and prices. B. promote greater equity in the distribution of income. C. reduce the intensity of economic fluctuations. D. all of the above. E. A and C are correct.

E. A and C are correct.

Parts of the world that were relatively more prosperous 500 years ago have experienced a reversal of fortune and are relatively poorer today. What factors could explain this? A. The establishment in those previously prosperous places of extractive institutions by European colonialists. B. Changing geographic and climatic conditions that have evolved to work against previously prosperous areas. C. The establishment of inclusive institutions by European colonialists in areas previously not well developed. D. All of the above can explain the reversal of fortune. E. A and C only.

E. A and C only.

Production-based accounting is used to estimate GDP by ____________. A. computing for each firm the difference between sales revenue and the purchase of intermediate products, then summing this difference across all firms. B. adding up the incomes received by all the resources that contributed to production. C. summing each firm's value added to the production process. D. all of the above. E. A and C only.

E. A and C only.

What is the difference between nominal and real interest rates? A. The nominal interest rate is the rate you pay on a loan. B. The nominal interest rate always exceeds the real interest rate. C. The real interest rate is the nominal interest rate adjusted for inflation. D. All of the above. E. A and C only.

E. A and C only.

Which of the following are important determinants of the technology available to an economy? A. The vibrancy of entrepreneurship. B. Thievery of foreign intellectual property. C. Research and development activities. D. All of the above. E. A and C only.

E. A and C only.

The former chairman of the Federal Reserve, Alan Greenspan, used the term "irrational exuberance" in 1996 to describe the high levels of optimism among stock market investors at the time. Stock market indexes such as the S&P Composite Price Index were at an all-time high. Some commentators believed that the Fed should intervene to slow the expansion of the economy. Why would central banks want to clamp down when the economy is growing? A. To block the formation of unsustainable speculative asset bubbles. B. To curtail excessive profits in the banking system. C. To prevent inflationary forces from gathering momentum. D. All of the above. E. A and C only. What policies could the government and the central bank use to achieve the goal of slowing down the economic expansion? A. The government could impose wage and price controls, while the central bank could raise interest rates. B. The government could raise taxes and/or reduce expenditures, while the central bank could raise interest rates. C. The government could reduce the value of the dollar and the central bank could retire currency from circulation. D. The government could lower taxes and/or raise expenditures, while the central bank could lower interest rates.

E. A and C only. B. The government could raise taxes and/or reduce expenditures, while the central bank could raise interest rates.

Magnolia's GDP differs from its GNP because the ____________. A. income Magnolian residents earned abroad exceeds the income earned by foreigners working in Magnolia. B. value of Magnolia's exports is exceeded by the value of its imports. C. value of the output produced by factors possessed or owned by residents of Magnolia exceeds the value of the output produced within the borders of Magnolia. D. all of the above. E. A and C only.

E. A and C only. ???

Countercyclical policy that seeks to raise GDP growth and the level of employment is appropriate when ____________. A. the nation has an international trade surplus. B. the economy is experiencing a recession. C. excessively pessimistic sentiments about the economy are prevalent. D. all of the above. E. B and C are correct.

E. B and C are correct.

Why is it essential to differentiate between real and nominal growth rates of GDP? A. The nominal growth rate is more informative than the real growth rate since it is broader in the sense that it captures both price and output changes. B. The nominal growth rate combines the effect of price changes along with changes in the production of goods and services and thus gives a less clear indication of the impact on living standards. C. It is the real growth rate that is meaningful since it indicates the change in the production of goods and services, a very significant source of improved living standards. D. All of the above. E. B and C only.

E. B and C only ???

Households and firms with savings lend money to banks and other financial institutions. The credit supply curve shows the relationship between the quantity of credit supplied and the real interest rate. The credit supply curve slopes upward because a ____________. A. higher real interest rate induces more investment. B. higher real interest rate discourages current consumption. C. higher real interest rate encourages more saving. D. all of the above. E. B and C only. A shift in the credit supply curve can be caused by ____________. (Check all that apply.) A. an increase in the nominal rate of interest adjusted for inflation. B. an elevated perception on the part of households that the future may hold many "rainy days." C. a decrease in the government's budget deficit. D. a heightened desire on the part of firms to internally fund their future activities. E. an aging population that is ill-prepared for retirement.

E. B and C only. B. an elevated perception on the part of households that the future may hold many "rainy days." D. a heightened desire on the part of firms to internally fund their future activities. E. an aging population that is ill-prepared for retirement.

Some people choose to live close to the city center; others choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being irrational? A. No, because people face the same living costs in and away from the city. B. Yes, because their direct commuting costs must be higher. C. Yes, because people have different preferences. D. Yes, because people face direct and indirect commuting costs. E. No, because their opportunity cost of commuting must be lower.

E. No, because their opportunity cost of commuting must be lower.

Determine if the following statements better describe optimization in levels or optimization in differences. Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available space had a $5 premium compared with all other possible spaces since she did not want to risk being late for her exam. A. Optimization in levels, since she is making marginal comparisons. B. Neither type of optimization, since she is considering the net benefits of alternatives. C. Both types of optimization, since she is not considering the total benefits of alternatives. D. Optimization in levels, since she is comparing the net benefits between alternatives. E. Optimization in differences, since she is calculating the change in net benefits between alternatives.

E. Optimization in differences, since she is calculating the change in net benefits between alternatives.

Optimization in levels examines ___________, while optimization in differences analyzes ____________. A. total benefits of alternatives; net benefits of alternatives. B. total benefits of alternatives; total costs of alternatives. C. total net benefits of feasible alternatives; total net benefits of infeasible alternatives. D. marginal benefits of alternatives; the change in marginal benefits. E. total net benefits of alternatives; the change in net benefits.

E. total net benefits of alternatives; the change in net benefits.

How to calculate GNP

GNP countryA=GDP countryA + revenue countryA-owned produced in countryB - revenue countryB-owned produced in countryA

The value of the output produced by the factors of production possessed or owned by a country is known as __________ (GDP/GNP), whereas the value of output produced within a country's borders is called (GDP/GNP).

GNP;GDP

Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client wants to know what will happen to gasoline demand if it increases gasoline prices by one cent higher than its nearest competitors. One of the members of your consulting team, Debbie, shares that one time in college she stopped buying gasoline from a service station that was one cent more expensive. Based on this story, should you conclude that demand will fall to zero if the client raises gas prices by one cent? __________ (Yes/ No), since this is an __________ (argument by survey/ argument by college experience/ argument by anecdote/ argument by empirical data), which can lead to __________ (testable conclusions/ optimal conclusions/ correct conclusions/ wrong conclusions).

No; argument by anecdote; wrong conclusions

Suppose that you allocate $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Your budget constraint for entertainment illustrates the concept of __________, since as you increase your purchases of one item, you ______________________________________________.

Trade-offs; must decrease your purchases of the other item

The opportunity cost of an activity is a measure of _____________ when you do that activity.

What is given up

What's the formula for the aggregate production function

Y = F(K,H) Where Y is real GDP K is the physical capital stock of the nation H is the efficiency units of labor used in production and F is described as a relationship between the variables [ f(x) ]

A decrease in the total efficiency units of labor results from __________ (an increase/ a decrease) in the average efficiency of workers and/or __________ (an increase/ a decrease) in the total number of workers in the economy.

a decrease; a decrease???

Suppose your New Year resolution is to get back in shape. You are considering various ways of doing this: you sing up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet. How would you evaluate these options and choose and optimal one? a. Do a cost-benefit analysis to compare the alternatives. b. It makes the most sense to do the action that costs the least amount of money c. You should choose an activity randomly to avoid regretting your decision later d. You should do the activity that gives you the greatest personal benefit, regardless of the cost.

a. Do a cost-benefit analysis to compare the alternatives.

The three principles of economics include optimization, equilibrium, and empiricism. Equilibrium describes a situation where a. No one would benefit from changing his or her behavior b. People weigh costs and benefits when making a decision c. Economists use data to analyze what is happening in the world.

a. No one would benefit from changing his or her behavior

The average American is so much richer than the average Indian due to differences in ___________. (Check all that apply.) A. technology. B. religion and culture. C. human capital. D. geography. E. the capital stock.

a. technology c. human capital e. the capital stock

How does the sample size affect the validity of an empirical argument? a. the larger the sample size the better b. the sample size is not relevant if it is greater than 50 c. the smaller the sample size the better d. the sample size is not relevant if it is greater than 30

a. the larger the sample size the better

Since prices usually rise over time, a CPI in excess of 100 suggests that the current period (month/year) falls __________ (after/before) the base year.

after

When deciding whether to install visible countdown timers for pedestrians at crosswalks, which of the following would be considered in the cost-benefit analysis? (Check all that apply.) A. The value of the pedestrians' lives saved by having the timers to assist in crossing the street. B. The higher maintenance bill associated with fixing these more complex signals when they break down. C. The cost in terms of dollars of installing these new timers all over the city. D. The value of the lives lost by drivers who watch the countdown timers and try to make it through a light.

all apply

Identify the cause and effect in the following examples: Lower infant mortality is __________ (the cause/ an effect) and an improvement in nutrition is __________ (the cause/ an effect) . A surge in cocoa prices is __________ (the cause/ an effect) and a pest attack on the cocoa crop is __________ (the cause/ an effect) .

an effect; the cause; an effect; the cause

Suppose that you allocate $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Given this information, which of the following would represent your budget constraint for entertainment? a. Amount spent on iTunes + Amount spent at Redbox = $20 b. Amount spent on iTunes + Amount spent at Redbox = $1 c. Amount spent on iTunes - Amount spent at Redbox = $20 d. Amount spent on iTune - Amount spent at Redbox - $1 = $20

b. Amount spent on iTunes + Amount spent at Redbox = $1

The three principles of economics include optimization, equilibrium, and empiricism. Optimization describes a situation where a. No one would benefit from changing his or her behavior b. People weigh costs and benefits when making a decision c. Economists use data to analyze what is happening in the world.

b. People weigh costs and benefits when making a decision

Economics is divided into two broad fields of study: microeconomics and macroeconomics. Microeconomics studies __________, while macroeconomics studies__________. a. issues relating to businesses; choices made by individuals and consumers b. a small piece of the overall economy; the economy as a whole c. economy-wide phenomena; decisions made by the government d. money; policy

b. a small piece of the overall economy; the economy as a whole

The median income of a household in Alabama was $43,464 in 2012 and the median income of a household in Connecticut was $64,247 in 2012. This could best be represented with a _______________ (time series graph/ bar graph/ pie chart/ scatter plot).

bar graph

Suppose a country has well-enforced private property rights for entrepreneurs, but a large fraction of the population does not have access to education and thus cannot become entrepreneurs. Moreover, their productivity as workers is low. This country is likely to have __________ (inclusive/ extractive) economic institutions, which will likely __________ (prevent/ allow/ not affect) its ability to achieve a high level of economic development.

extractive; prevent

Suppose you have just landed a job near the center of a city and you now need to decide where to live. If you live close to the city center, your round-trip commute will be 15 minutes. If you live in the distant suburbs, your round-trip commute will be 60 minutes. There are lots of workers like you who work downtown. Since there are only a limited number of apartments near the city center, these apartments will be allocated based on ________________ (both the costs and benefits/ only the benefits/ only the costs) that you face. This process is known as _______________ (differentiation/ optimization/ "more bang for your buck").

both the costs and benefits; optimization

The three principles of economics include optimization, equilibrium, and empiricism. Empiricism describes a situation where a. No one would benefit from changing his or her behavior b. People weigh costs and benefits when making a decision c. Economists use data to analyze what is happening in the world.

c. Economists use data to analyze what is happening in the world.

During the process of optimization economists believe that people are considering __________ a. What they would do it they had no money or time constraints of any kind. b. The benefits of their choices for others more than the benefits to themselves c. The feasibility of a choice, given the information available at the time d. Only the decisions that will result in the least cost to the individual.

c. The feasibility of a choice, given the information available at the time

The ethical implications of a hotly debated government policy would best be considered a a. normative question, since it deals with an objective issue based on factual evidence b. positive question, since it deals with an objective issue based on factual evidence c. normative question, since it deals with a subjective issue based on personal preferences d. positive question, since it deals with a subjective issue based on personal preferences.

c. normative question, since it deals with a subjective issue based on personal preferences

Suppose the price of tea increases and the demand for sugar decreases. You determine that these goods must be __________ (complements/ substitutes/ unrelated).

complements

Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice price increases. Debbie, a member of your team, advocates finding random people and then breaking them up into two groups. Group A would be shown an increase in the price of gas before taking the survey. Group B would be told there was no increase in the price of gas before taking the survey. Troy, another member of your team, recommends finding two groups of people already sorted by whether or not they have recently noticed an increase in the price of gas. Debbie's method is a __________ (surveyed experiment/ controlled experiment/ laboratory experiment/ natural experiment) and Troy's method is a __________ (natural experiment, laboratory experiment, controlled experiment, surveyed experiment).

controlled experiment; natural experiment

Economics, anthropology, psychology, sociology, and political science all study human behavior. Economics differs from these other social sciences because it also addresses these three key concepts: a. Empiricism, ideology, and social responsibility b. Culture, optimization, and trade c. Equilibrium, government actions, and incentives d. Optimization, equilibrium, and empiricism

d. Optimization, equilibrium, and empiricism

The definition of economics states that it is the study of how a. money influences the economy in the short run and the long run b. businesses make decisions and how those decisions impact other firms, the government, and consumers c. the government determines policies, businesses set prices, and consumers choose how much to buy d. agents choose to allocate scarce resources and the impact of those choices on society.

d. agents choose to allocate scarce resources and the impact of those choices on society.

The intersection where the nominal GDP and the real GDP intersect is the a. point where nominal and real GDP coincide b. point where the GDP deflator = 100 c. base period d. all of the above

d. all of the above

You decide to hire a lawn care company rather than mow your own lawn. As a result, GDP estimates will __________ (not change; increase; decrease).

decrease ???

For a market to be in equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions. The amount produced by sellers must be __________ (less than/ equal to/ greater than) the amount purchased by buyers. The costs of making a product must be __________ (less than/ equal to/ greater than) the final price at which the product sells. Buyers must place a value on the uses of the product that is __________ (less than/ equal to/ greater than) the cost of buying the product.

equal to; less than; greater than

Imagine a new technology emerged, allowing for increased productivity and driving U.S. real GDP growth from 4.5 percent one year to 6.5 percent in the next year. Given this information, the change in the unemployment rate when the growth rate is 4.5 percent will be to __________ (decrease/ increase) by __________ percent. (Round your response to the nearest two decimals) The change in the unemployment rate when the growth rate increases is 6.5 percent will be to __________ (decrease/ increase) by __________ percent. (Round your response to the nearest two decimals) Using Okun's Law, we can infer that the change in the growth rate of GDP will ____________________________ (accelerate the decrease in the unemployment rate/ decelerate the increase in the unemployment rate/ cause no change in the unemployment rate). Using the real business cycle approach, it can be concluded that the new technology will __________________ (stimulate both employment and GDP/ decrease the value of the marginal product of labor/ increase the unemployment rate). Which of the following statements explains why the new technology is likely to lead to higher unemployment than estimated using Okun's Law? A. The new technology would reduce the marginal product of labor, leading to a decrease in the demand for laborers. B. The effect of the new technology on the unemployment rate would be moderated by substituting capital for labor. C. The new technology would increase the marginal product of labor, leading to an increase in the demand for laborers.

decrease; 1.25 decrease; 2.25 accelerate the decrease in the unemployment rate stimulate both employment and GDP B. The effect of the new technology on the unemployment rate would be moderated by substituting capital for labor.

Suppose that from period 1 to period 2, the unemployment rate in the economy increases. Everything else remains unchanged. The total efficiency units of labor will _______________ (decrease/ increase) because _______________ (more workers are employed/ less workers are employed). What are the consequences of this increase in unemployment for GDP? A. H1 > Y2. B. Y1 > Y2. C. K1 < Y1. D. Y1 < Y2 What are the consequences of this decrease in real GDP for real GDP per capita and real GDP per worker? A. RealGDP per capita will increase. B. Real GDP per worker will decrease. C. Both of these items will increase. D. Both of these items will decrease. Suppose that there is technological advance from period 1 to period 2 but, at the same time, a decrease in the physical capital stock? Can you say whether real GDP will increase or decrease? A. Not really, since the two items have offsetting effects. B. Yes, since real GDP will increase when technology increases. C. No, since real GDP will decrease when the capital stock decreases.

decrease; less workers are employed B. Y1 > Y2 D. Both of these items will decrease. A. Not really, since the two items have offsetting effects.

Currently, some of the fastest-growing countries in the world remain desperately poor. For example, of the top five fastest-growing economies, three---Sierra Leone, Mongolia, and Niger---have real per capita GDPs that are 203rd, 154th, and 221st in the world, respectively. This seems like something of a contradiction. Using the equation for growth given in the chapter, explain why a country that has a very low per capita GDP can also have a very high growth rate. A country with a very low per capita GDP can have a very high growth rate because mathematically, when the __________ (denominator/ numerator/ ratio) is __________ (higher/ the same/ lower), even a small difference in the __________ (numerator/ denominator/ ratio) will result in a large growth rate. Consider a $100 increase in GDP per capita. In 2012, Niger had a GDP per capita of approximately $800, and the United States had a GDP per capita of $50700. Calculate the corresponding growth rates for these two countries. Niger's growth rate is _____ percent, and the U.S. growth rate is nothing percent. (Round your responses to two decimal places.) Thus, __________ (Niger/ the United States) started out with a lower base and had __________ (a higher/ a lower/ the same/ growth rate).

denominator; lower; numerator; 12.5; 0.20; Niger; a higher???

Suppose that a deep and prolonged recession induces some job seekers to discontinue their job search efforts due to the belief that no jobs are available for them. These individuals are known as __________ workers, and an increase in their numbers, all else constant, will cause the unemployment rates computed above to __________ .

discouraged; decrease

GDP per capita __________ (does/ does not) account for distribution; consequently, economic growth may actually reduce __________ (inequality/ equality).

does not; equality???

The United States is currently a relatively rich country. How do the following items support U.S. economic strength? Sam Walton, the founder of Walmart, is an example of the power of __________ (technology/ human capital/ entrepreneurship/ physical capital), which creates economic growth. Your university or college is an example of __________ (entrepreneurship/ physical capital/ technology/ human capital), which contributes to economic growth. The nation's ports are examples of __________ (technology/ physical capital/ human capital/ entrepreneurship), which contributes to economic growth. New developments that enable natural gas and oil fracking are examples of __________ (technology/ entrepreneurship/ physical capital/ human capital), which contribute to economic growth.

entrepreneurship; human capital; physical capital; technology

Suppose your firm has a marginal revenue given by the equation MR= 10 - Q, where Q is the quantity produced and sold. This means that the seventh unit of output brings in 10 - 7 = $3 of additional revenue. The marginal cost for your firm is given by the equation MC = 2 + Q. This means that the seventh unit of output increases the marginal cost by 2+7=$9. If the firm produces the seventh unit of output, marginal cost will be __________ (greater than/ less than/ equal to) marginal revenue. In which of the following cases, will the profit of the firm be maximized? A. When the average cost of producing an additional unit is less than the marginal revenue from that unit. B. When the marginal cost of producing an additional unit equals the marginal revenue from that unit. C. When the average cost of producing an additional unit equals the marginal revenue from that unit. D. When the marginal cost of producing an additional unit is less than the marginal revenue from that unit. The profit-maximizing level of output is _____ units.

greater than B. When the marginal cost of producing an additional unit equals the marginal revenue from that unit. 4 ????

As a firm produces more of a good, the cost of producing each additional unit __________ (stays the same/ decreases/ increases). This implies that the marginal cost of producing a good __________ (increases/ decreases/ does not change) as you make more of that good. The supply curve represents ___________. A. the maximum price sellers are willing to accept to sell an extra unit of a good. B. the maximum price buyers are willing to pay to buy an extra unit of a good. C. the minimum price sellers are willing to accept to sell an extra unit of a good. D. the minimum price buyers are willing to pay to buy an extra unit of a good.

increases; increases C. the minimum price sellers are willing to accept to sell an extra unit of a good.

Identify how the following factors affect the amount of total savings. An increase in the interest rate. __________ (unaffected/ increases/ decreases) Expectation of rapid growth in future income. __________ (decreases/ unaffected/ increases) Expectation of higher taxes in future. __________ (increases/ unaffected/ decreases)

increases; increases; decreases???

The following table contains some investment data from FRED* for the second quarter of 2019. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. TITLE (1)Gross Private Domestic Investment (2)Private Nonresidential Fixed Investment (3)Private Residential Fixed Investment VALUE (1)$3751.783 billion (2)$2892.447 billion (3)$784.768 billion The difference between gross private domestic investment and fixed private investment represents _______________ (inventory investment/ depreciation. For the the second quarter of 2019 this amount was $________ billion.

inventory investment 74.6

GDP at purchasing power parity (PPP) takes into account variations in ___________ (inequality/ living costs/ exchange rates). PPP attempts to work out how much currency will be needed to buy __________ (the same/ a lower/ a greater) quantity of goods and services in different countries. GDP per capita in PPP is the most useful for comparing __________ (degrees of inequality/ education levels/ living standards.

living costs; the same; living standards

What distinguishes "physical" capital and capital stock from natural resources? Natural resources are produced by _______________ (nature/ society), while capital must be produced by _______________ (society/ nature).

nature; society

__________ (real/ nominal) GDP is the total value of production (final goods and services) using current prices. Consider an illustrative economy that produces luxury pens. Assume that in 2012 this economy produced 30 luxury pens at a market price of $300 per pen. In 2013, the number of luxury pens produced remains the same but the market price has increased to $400 per pen. If 2012 is the base year, the real GDP in 2013 is $_____ The nominal GDP in 2013 has __________ (decreased/ increased) by _______ percent from what it was the year before. (Round your answer to two decimal places.) Which of the following statements are true regarding the quantity theory of money? (Check all that apply.) A. Growth rate of money supply=Growth rate of nominal GDP−Inflation rate. B. Growth rate of money supply=Growth rate of real GDP. C. Growth rate of money supply=Inflation rate+Growth rate of real GDP. D. Growth rate of money supply=Growth rate of nominal GDP.

nominal? 12000? 33.33? C. Growth rate of money supply=Inflation rate+Growth rate of real GDP. D. Growth rate of money supply=Growth rate of nominal GDP.

The statement that the United States has too many illegal immigrants is a __________ (positive/ normative) statement since it describes what people __________ (actually do/ ought to do).

normative; ought to do

The Conference Board publishes data on Business Cycle Indicators (BCI). The Composite Index of Leading Economic Indicators is one of the three components of the BCI. Changes in leading economic indicators usually precede changes in GDP. Some of the variables tracked by the index are listed below. i. The average weekly hours worked by manufacturing workers ii. The average number of initial applications for unemployment insurance iii. The amount of new orders for capital goods unrelated to defense iv. The amount of new building permits for residential buildings v. The S&P 500 stock index vi. Consumer sentiment Examine each variable and explain whether it is likely to be positively correlated, negatively correlated, or uncorrelated with real GDP. The average weekly hours worked by manufacturing workers is likely to be __________ (uncorrelated/ negatively correlated/ positively correlated) with real GDP. The average number of initial applications for unemployment insurance is likely to be __________ (uncorrelated/ negatively correlated/ positively correlated) with real GDP. The amount of new orders for capital goods unrelated to defense is likely to be __________ (negatively correlated/ uncorrelated/ positively correlated) with real GDP. The amount of new building permits for residential buildings is likely to be __________ (positively correlated/ negatively correlated/ uncorrelated) with real GDP. The S&P 500 stock index is likely to be __________ (negatively correlated/ positively correlated/ uncorrelated) with real GDP. Consumer sentiment is likely to be __________ (uncorrelated/ positively correlated/ negatively correlated) with real GDP.

positively correlated negatively correlated positively correlated positively correlated positively correlated positively correlated

The chapter discusses different models of how people form their expectations regarding inflation. Consider the following two investors, who are trying to forecast what inflation will be for next year. Sean reasons as follows: "Inflation was 2.5 percent last year. Therefore, I think it is likely to be 2.5 percent this year." Carlos, on the other hand, thinks this way: "The economy has recovered from recession sufficiently that inflationary pressures are likely to build. Likewise, a weaker dollar means that imports are going to be more expensive. I don't think the Fed will risk slowing the recovery and raising unemployment by raising interest rates to fight inflation. So, in light of all these factors, I expect inflation to increase to 5 percent next year." How would you best describe how each investor is forming his expectations of inflation? Sean is forming his forecast based on the __________ (rational expectations/ seignorage /expected real interest rate/ adaptive expectations/ quantity theory) model of inflation and Carlos is forming his forecast based on the __________ (seignorage/ rational expectations/ adaptive expectations/ quantity theory/ expected real interest rate) model of inflation. What are possible criticisms of the way each investor is forming his expectations? Economists might argue that A. Sean can not be as good at understanding how the economy works as he thinks he is, and Carlos is not maximally rational. B. Sean is looking back too far, and Carlos is ignoring the past. C. Sean is not looking back far enough, and Carlos is overconfident in his understanding of how the economy works. D. Sean is not maximally rational, and Carlos can not be as good at understanding how the economy works as he thinks he is.

quantity theory rational expectations D. Sean is not maximally rational, and Carlos can not be as good at understanding how the economy works as he thinks he is.

The red line represents __________ (real/nominal); the blue line represents __________ (real/nominal).

real; nominal

When one of the four major factors changes, causing an increase in supply, the supply curve shifts __________ (upward; up and to the right; rightward).

rightward

If an economic shock increases labor demand, equilibrium employment __________ and real GDP __________. If wages are flexible, the increase in employment and real GDP will be __________ the increase if wages are rigid. When workers are laid off, what happens to physical capital? A. Laborers become more productive, leading firms to increase capacity utilization. B. Physical capital becomes less productive, leading firms to reduce capacity utilization. C. Physical capital becomes more productive, leading firms to increase capacity utilization. D. Capacity utilization does not change.

rises rises smaller than B. Physical capital becomes less productive, leading firms to reduce capacity utilization.

ABC Bank has borrowed $10,000 from XYZ Investment House for capital improvements. It must pay this amount back with interest in exactly one year. ABC Bank has taken on a __________ (long-term/ short-term) debt, which is recorded as __________ (a liability/ an asset) on its balance sheet.

short-term liability

You are a professor of economics at a university. You've been offered the position of serving as department head, which comes with an annual salary that is $5,500 higher than your current salary. However, the position will require you to work 200 additional hours per year. Suppose the next best use of your time is spending it with your family, which has value of $30 per hour. To optimize, you __________ (should not/ should) become a department head.

should not

The lowest price that a seller is willing to receive to sell an extra unit of a good is called __________ (willingness to pay/ willingness to exchange/ willingness to accept), while the highest price that a buyer is willing to pay for an extra unit of a good is called __________ (willingness to exchange/ willingness to pay/ willingness to accept).

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