econ103 final exam

In 2010, Canada's GDP was approximately $1,357 billion, and its population was about 34.12 million. What was Canada's approximate GDP per person in 2010? a. $3,980 b. $26,246 c. $46,060 d. $39,770

d. $39,770

What is Sri Lanka's GDP deflator if its nominal GDP is $88.9 billion (in current US$) and the real GDP is $59.34 billion? a. 100 b. 66.7 c. 136.5 d. 149.8

d. 149.8

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $665. How much will your work cost your employer? a. $725.52 b. $60.52 c. $41.23 d. $604.48

a. $725.52

The aggregate production function Y = f(L, H, K) shows that economic growth can occur if:(i) more labor is employed.(ii) human capital is reduced.(iii) the dependency ratio rises.(iv) the capital stock stays constant. a. (i) only b. (i) and (iv) c. (iii) only d. (i), (ii), (iii), and (iv)

a. (i) only

Which of the following tasks are performed by banks?(i) Print new money.(ii) Provide zero-interest loans.(iii) Create long-term loans from short-term deposits.(iv) Pool savings from many savers. a. (iii) and (iv) b. (iii) only c. (i) and (ii) d. (i) and (iv)

a. (iii) and (iv)

If expected inflation is 2%, and actual inflation is 2.8%, then unexpected inflation is: a. 0.8%. b. 4.8%. c. 2.0%. d. 2.8%.

a. 0.8%.

You are sitting at your desk in your new job as the Chair of the Federal Reserve Bank of the United States. The interest rate where potential GDP meets real GDP is 2%, the inflation rate is 1%, and the output gap is -1%. What is the appropriate new nominal federal funds rate that you should set for the economy? a. 1.5% b. 2.5% c. 0.5% d. 1%

a. 1.5%

Consider the following basket of goods: 50 bottles of milk, 100 avocadoes, 50 apples, and eight pineapples. Suppose that last year, each bottle of milk was $2.50, each avocado was $1.50, each apple was $0.75, and each pineapple was $4. This year, each bottle of milk is $2.50, each avocado is $1.80, each apple is $0.80, and each pineapple is $4.30. What is the inflation rate between last year and this year? a. 10.13% b. -10% c. 8.99% d. -9.09%

a. 10.13%

What was the Fed's inflation target in 2019? a. 2%. b. 5%. c. 0.75%. d. 3.5%.

a. 2%.

The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation. a. IS; MP; Phillips b. dollar demand; dollar supply; AS c. demand for loanable funds; supply of loanable funds; AD d. AD; AS; Phillips

a. IS; MP; Phillips

Which of the following will probably rise when the economy is in a recession? a. Initial unemployment claims b. Real GDP growth c. Real retail sales d. Employment

a. Initial unemployment claims

Which of the following correctly describes the business cycle? a. It is the fluctuations of GDP around the potential output. b. It is the constant rise in GDP over time. c. It refers to ups and downs in business revenue during expansions and recessions. d. It refers to excess unemployment during recessionary periods.

a. It is the fluctuations of GDP around the potential output.

How do interest rates affect investment in the economy? a. Lower interest rates lower the cost of borrowing for firms, and so investment rises. b. Higher interest rates increase government expenditure and thus raise investment. c. Higher interest rates lower the cost of borrowing for firms, and so firms save more in banks. d. Lower interest rates lower the after-tax profit for firms, and thus investment falls.

a. Lower interest rates lower the cost of borrowing for firms, and so investment rises.

Which of the following is correct about a financial instrument and its future value, keeping all other things constant? a. The higher the interest rate on the instrument, the higher the future value. b. The lower the present value of the instrument, the higher the future value. c. The lower the interest rate on the instrument, the higher the future value. d. The longer the time to maturity of the instrument, the lower the future value.

a. The higher the interest rate on the instrument, the higher the future value.

Which of the following is correct about a financial instrument and its future value, keeping all other things constant? a. The longer the time to maturity of the instrument, the higher the future value. b. The higher the interest rate on the instrument, the lower the future value. c. The lower the present value of the instrument, the higher the future value. d. The shorter the time to maturity of the instrument, the lower the future value.

a. The longer the time to maturity of the instrument, the higher the future value.

In 1711, a company called the South Sea Company was set up as a merchant trader between Great Britain and South America. Although the company failed to make any real profits, the company's share price rose substantially in a very short time. Eventually, the share price collapsed and returned to the original sale price. This scenario describes: a. a financial bubble. b. liquidity risk. c. term risk. d. the process of fundamental analysis.

a. a financial bubble.

The Federal Reserve was created after: a. a series of bank runs and bankruptcies. b. an increase in the inflation rate. c. a period of very high unemployment. d. an extended period of economic stagnation.

a. a series of bank runs and bankruptcies.

If there is a temporary rise in income, a consumption smoother will exhibit _____ in consumption, and a hand-to-mouth consumer will exhibit _____ in consumption. a. a small increase; a large increase b. a large increase; no change c. no change; a large increase d. a large increase; a large increase

a. a small increase; a large increase

The efficient market hypothesis states that: a. at any point in time, stock prices reflect all publicly available information. b. market supply and market demand interact to reach equilibrium for the stock price. c. at any point in time, a firm selling a stock has engaged in efficient production methods. d. the market price for a stock will always exceed the book value of the stock.

a. at any point in time, stock prices reflect all publicly available information.

The Great Moderation refers to the: a. decreased volatility of the U.S. economy. b. longstanding effect of the Great Recession. c. stable level of inflation in the United States. d. increase in globalization.

a. decreased volatility of the U.S. economy.

A bond that is issued by a firm in financial distress is most likely to have: a. default risk. b. inflation indexation. c. liquidity risk. d. term risk.

a. default risk.

Equilibrium in the loanable funds market determines the: a. equilibrium real interest rate. b. up-front cost of capital. c. point where there is excess demand for loanable funds. d. amount of inventories in an economy.

a. equilibrium real interest rate.

In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes. a. expansionary; raises; lowers b. contractionary; lowers; raises c. expansionary; lowers; raises d. contractionary; raises; lowers

a. expansionary; raises; lowers

Forward guidance occurs when the Federal Reserve: a. provides information about the future course of monetary policy in order to influence expectations about future interest rates. b. provides information about current monetary policy in order to influence expectations about future interest rates. c. follows the same future course of monetary policy that it has been following in the past. d. carries out open market operations to influence future interest rates.

a. provides information about the future course of monetary policy in order to influence expectations about future interest rates.

If the output gap is positive, the Federal Reserve will _____ the real interest rate to _____. a. raise; cool inflationary pressures b. lower; reduce unemployment c. raise; reduce unemployment d. lower; cool inflationary pressures

a. raise; cool inflationary pressures

Suppose that an economy is in a recession. You would expect to see the unemployment rate: a. rise above the equilibrium unemployment rate. b. be zero. c. be equal to the equilibrium unemployment rate. d. fall below the equilibrium unemployment rate.

a. rise above the equilibrium unemployment rate.

If the fundamental value of a stock is above the current market price of the stock, there will be a: a. rise in the price and demand of its stock. b. fall in the price and demand of its stock. c. fall in the price and supply of its stock. d. decrease in the demand and supply of its stock.

a. rise in the price and demand of its stock.

An export is a good or service: a. sold to a foreign buyer. b. sold to a domestic buyer. c. purchased from a foreign seller. d. purchased from a domestic seller.

a. sold to a foreign buyer.

Which of the following is LEAST likely to be traded internationally? a. sports arenas b. sports trading cards c. sports broadcasts d. sporting equipment

a. sports arenas

The three major pillars of the financial sector are the: a. stock market, the bond market, and the banks. b. stock market, the labor market, and the bond market. c. foreign exchange market, the bond market, and the government. d. banks, the goods market, and the labor market.

a. stock market, the bond market, and the banks.

What is a reserve requirement? a. the minimum amount of reserves that each bank must hold b. a maximum loan amount on the overnight loan market c. the ceiling on the federal funds rate d. the amount of money that the Federal Reserve spends on buying bonds

a. the minimum amount of reserves that each bank must hold

Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the: a. unexpected inflation from the Phillips curve. b. potential GDP level. c. price level from the Phillips curve. d. unemployment rate from the labor market.

a. unexpected inflation from the Phillips curve.

Refer to the following statistics. Based on these statistics, the level of business investment is:Inventories: $12 millionHousing: $400 millionEquipment: $500 millionBusiness structures: $350 millionIntellectual property: $700 million a. $1,562 million. b. $1,550 million. c. $500 million. d. $1,050 million.

b. $1,550 million.

If the interest rate is 4%, what is the approximate future value of $15,000 in 10 years? a. $17,949 b. $22,204 c. $15,900 d. $10,133

b. $22,204

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. If your employer owes you $665, approximately how much will you get after these deductions? a. $41.23 b. $604.49 c. $60.52 d. $19.29

b. $604.49

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $850. How much will your work cost your employer? a. $77.35 b. $927.35 c. $24.65 d. $52.70

b. $927.35

You are a financial adviser. Your client, Mena, does not like risk and wants Federal Deposit Insurance Corporation (FDIC) insurance. Which of the following instruments should she invest in? a. Bonds issued by a corporation in financial distress b. A bank savings account c. An index fund d. Treasury bills

b. A bank savings account

If an economy has a positive output gap of 1.5%, this means: a. unemployment is 1.5% above the natural rate of unemployment. b. GDP is 1.5% above potential GDP. c. inflation is 1.5% above the long-run rate of inflation. d. GDP is 1.5% below potential GDP.

b. GDP is 1.5% above potential GDP.

Which of the following is a reason to worry about government debt? a. Most of the debt is domestic debt. b. High and rising debt slows economic growth. c. The government never really needs to repay the debt. d. Future generations can help repay the debt.

b. High and rising debt slows economic growth.

The government passes a new investment tax credit initiative. Which input in the production function changes, and what is the effect on economic growth in the country? a. Human capital is enhanced, and economic growth is positively affected. b. The capital stock increases, and economic growth is positively affected. c. The capital stock decreases, and economic growth is negatively affected. d. Technological advance occurs, but there is no effect on economic growth.

b. The capital stock increases, and economic growth is positively affected.

Which of the following is a narrow indicator? a. The consumer price index b. The stock price for JPMorgan Chase & Co. c. Real GDI d. Non-farm payrolls

b. The stock price for JPMorgan Chase & Co.

Henry Ford's $5 per day wage is an example of: a. a government regulated wage. b. an efficiency wage. c. an equilibrium wage. d. a minimum wage law.

b. an efficiency wage.

A financial shock is any change in: a. potential GDP in the economy. b. borrowing conditions that changes the real interest rate at which people can borrow. c. production costs that leads suppliers to change the prices they charge at any given level of output. d. aggregate expenditure, at a given interest rate and level of income.

b. borrowing conditions that changes the real interest rate at which people can borrow.

The Affordable Care Act is an example of: a. health care spending. b. discretionary spending. c. mandatory spending. d. military defense spending.

b. discretionary spending.

When unexpected inflation is zero, the corresponding unemployment rate is the _____ unemployment rate. a. minimum b. equilibrium c. zero d. maximum

b. equilibrium

Demand-pull inflation is inflation resulting from: a. insufficient demand. b. excess demand. c. a surplus. d. excess supply.

b. excess demand.

Planned investment is the: a. use of electricity and water by factories. b. expenditure on capital goods by businesses. c. expenditure on goods and services by consumers. d. planned purchases of stocks and bonds by consumers.

b. expenditure on capital goods by businesses.

Which of the following cause shifts in the MP curve? a. spending shocks b. financial shocks c. changes in tariffs d. changes in tax rates

b. financial shocks

In the long run, inflation is determined by: a. the business cycle. b. inflation expectations. c. the level of output relative to potential output. d. the unemployment rate.

b. inflation expectations.

If the output gap is negative, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment. a. lower; down b. lower; up c. raise; up d. raise; down

b. lower; up

The intersection of the IS curve and the MP curve determine: a. the risk-free interest rate in the economy. b. macroeconomic equilibrium. c. the largest output gap. d. the federal funds rate.

b. macroeconomic equilibrium.

A bank run occurs when: a. many bank customers deposit small amounts of money at the bank. b. many bank customers try to withdraw their savings at the same time. c. a lender makes both long-term and short-term loans. d. bank customers expect the bank to open new branches.

b. many bank customers try to withdraw their savings at the same time.

The rational rule of consumption is to consume more today if the: a. price of consumption today exceeds the dollar-plus-interest in the future. b. marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future. c. marginal benefit of a dollar of consumption today is less than the marginal benefit of spending a dollar plus interest in the future. d. real interest rate in the future is expected to be higher than the real interest rate today.

b. marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future.

The benefit of an extra dollar of consumption is called the: a. average price of goods and services consumed. b. marginal benefit of consumption. c. real interest rate. d. average benefit of consumption.

b. marginal benefit of consumption.

If the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment. a. lower; up b. raise; down c. lower; down d. raise; up

b. raise; down

What kind of data adjustment removes the effect of sales spikes due to the holiday season? a. nominal data b. seasonally adjusted data c. real data d. annual data

b. seasonally adjusted data

A tariff is a: a. limit on the quantity of a good that can be imported. b. tax on imported products. c. tax on exported products. d. limit on the quantity of a good that can be exported.

b. tax on imported products.

Suppose a high-income person, a middle-income person, and a low-income person all purchase identical houses that are financed by similar mortgages. Who spends the most on tax-preferred goods? a. They all spend the same on tax-preferred goods. b. the high-income person c. the low-income person d. the middle-income person

b. the high-income person

Suppose you want to realize a future value of $150,000 in 30 years on an investment you make. The average annual rate of return is 8.75%. What will be the present value of your investment? a. $150,000 b. $163,125 c. $12,112 d. $1,857,673

c. $12,112

A new assembly line robot with a price tag of $2.5 million is expected to depreciate by 3% at the end of next year. The real interest rate is 2.5%. What is the user cost of the robot for one year? a. $62,500 b. $12,500 c. $137,500 d. $75,000

c. $137,500

If government spending rises by $62 billion and GDP rises by $110 billion, then the multiplier in the economy is approximately: a. 1.12. b. 2.77. c. 1.77. d. 0.56.

c. 1.77.

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 1%, and the output gap is -0.5%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy? a. 0.5% b. 1% c. 2% d. 3%

c. 2%

Which of the following will fall when the economy is expanding? a. Consumer confidence b. Nonfarm payrolls c. Applications for unemployment benefits d. Business confidence

c. Applications for unemployment benefits

The Fed model links the IS, MP, and Phillips curves. In the IS-MP analysis, an increase in exports will shift the: a. MP curve up. b. IS curve to the left. c. IS curve to the right. d. MP curve down.

c. IS curve to the right.

Which economic indicator tells you how fast wages and benefits are rising? a. Nonfarm payrolls b. S&P 500 c. The employment cost index d. Business confidence

c. The employment cost index

You have saved $747. Where should you go if you want to open a checking account? a. the Federal Reserve in Washington, D.C. b. your local federal reserve district bank c. a commercial bank d. the New York Federal Reserve district bank

c. a commercial bank

You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy? a. a rise in the real interest rate, an unchanged output gap, and unexpected deflation b. an unchanged real interest rate, falling output, and unexpected inflation c. an unchanged real interest rate, an unchanged output gap, and unexpected inflation d. a rise in the real interest rate, rising output, and unexpected inflation

c. an unchanged real interest rate, an unchanged output gap, and unexpected inflation

Stock prices are an important macroeconomic indicator because they: a. can predict inflation in the economy. b. display a random walk. c. can predict changes in GDP. d. do not have any correlation with the state of the economy.

c. can predict changes in GDP.

When a spending shock occurs, the IS curve shifts by the: a. change in spending. b. size of the multiplier. c. change in spending times the multiplier. d. change in spending divided by the multiplier.

c. change in spending times the multiplier.

Monetary policy is defined as the: a. change in government spending to change economic conditions. b. implementation of ceilings on the federal funds rate in the economy. c. change of the tax code to achieve economic changes. d. adjustment of interest rates to influence economic conditions.

c. change of the tax code to achieve economic changes.

Suppose rubber prices rise in international markets. For countries that import rubber, this scenario would lead to: a. demand-pull inflation. b. a positive supply shock. c. cost-push inflation. d. an increase in potential output.

c. cost-push inflation.

If the government lowers the corporate tax rate, then the ______ loanable funds shifts to the _______ . a. demand for; left b. supply of; left c. demand for; right d. supply of; right

c. demand for; right

Which of the following is consistent with the view that "fairness" means equality of outcomes? a. equal access to education b. nondiscrimination in hiring processes c. equal incomes d. equal productivity that yields equal pay

c. equal incomes

An initial public offering occurs when a company: a. first sells stock directly to the government. b. first opens for business and offers its goods and services for sale to the public. c. first sells stock directly to the public. d. experiences a rise in the price and demand for its stock.

c. first sells stock directly to the public.

You are driving to see your grandparents when you get caught in traffic caused by construction on the interstate. The construction is an example of: a. planned investment. b. consumption. c. government expenditure. d. exports.

c. government expenditure.

A budget deficit occurs when: a. government revenue exceeds government spending. b. imports exceed exports. c. government spending exceeds government revenue. d. discretionary spending exceeds automatic spending.

c. government spending exceeds government revenue.

A good proxy for the risk-free interest rate is the interest rate on a: a. loan to a member of the public who has a good credit rating. b. junk bond. c. loan to the U.S. government. d. corporate bond.

c. loan to the U.S. government.

Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be: a. equal to the neutral interest rate. b. equal to the inflation rate. c. lower than the neutral interest rate. d. higher than the neutral interest rate.

c. lower than the neutral interest rate.

With a progressive tax, those with _____ income tend to pay a _____. a. more; lower share of their income in taxes b. more; flat tax rate c. more; higher share of their income in taxes d. less; higher share of their income in taxes

c. more; higher share of their income in taxes

In the IS-MP analysis in the Fed model, a fall in the interest rate causes a: a. movement to the left along the IS curve. b. right shift of the IS curve. c. movement to the right along the IS curve. d. left shift of the IS curve.

c. movement to the right along the IS curve.

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the horizontal axis will show you the: a. equilibrium real interest rate. b. unexpected inflation. c. output gap. d. actual inflation.

c. output gap.

The four stages of the business cycle are: a. full employment, potential GDP, recessionary gap, and inflationary gap. b. consumption, investment, government expenditure, and net exports. c. peak, recession, trough, and expansion. d. expansion, growth, contraction, and depression.

c. peak, recession, trough, and expansion.

The fundamental value of a business is the: a. stock price. b. earnings per share. c. present value of the future profits it will earn. d. value of the forecasted future profits.

c. present value of the future profits it will earn.

If managers have an expectation of ongoing inflation, then it is likely that: a. prices will fall. b. the cost of inputs will fall. c. prices will rise. d. prices will not change.

c. prices will rise.

An import is a good or service: a. sold to a foreign buyer. b. purchased from a domestic seller. c. purchased from a foreign seller. d. sold to a domestic buyer.

c. purchased from a foreign seller.

If the output gap is positive, then the Federal Reserve will use its floor framework to _____ the federal funds rate, influence short- and long-term interest rates _____, and _____ total spending in the economy. a. raise; upward; increase b. lower; downward; decrease c. raise; upward; decrease d. lower; downward; increase

c. raise; upward; decrease

If government expenditure rises by $27.5 billion and the multiplier in the economy is 2.5, then: a. real GDP falls by $11 billion, but the IS curve does not shift. b. real GDP falls by $55 billion, and the IS curve shifts to the left. c. real GDP rises by $68.75 billion, and the IS curve shifts to the right. d. real GDP rises by $27.5 billion, and the IS curve shifts to the right.

c. real GDP rises by $68.75 billion, and the IS curve shifts to the right.

If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then: a. real wages have gone up by 2.5%. b. inflation decreases by 1.5%. c. real wages have fallen by 2.5%. d. inflation rises by 1.5%.

c. real wages have fallen by 2.5%.

In macroeconomics, the difference between saving and investment is that: a. saving is created by the government, and investment is specific to firms. b. saving does not depend on income, but investment depends on profitability. c. saving is the money left over after paying for spending, and investment is the purchase of new capital. d. saving is the money left over after paying for spending, and investment is the purchase of stocks and bonds.

c. saving is the money left over after paying for spending, and investment is the purchase of new capital.

The Philippines government provides retirement benefits, unemployment benefits, maternity leave benefits, death and funeral benefits, and other benefits. These are examples of: a. consumption. b. taxes. c. social insurance. d. items that count toward GDP.

c. social insurance.

Tariffs on inputs lead to a _____ shock. a. spending b. financial c. supply d. deflation

c. supply

Insufficient demand leads to a: a. shortage and falling prices. b. shortage and rising prices. c. surplus and falling prices. d. surplus and rising prices.

c. surplus and falling prices.

Money illusion is the: a. inability to understand that prices always rise. b. illusion that one's earnings this year are higher than they were last year. c. tendency to focus on nominal values instead of inflation-adjusted values. d. increase in the amount of money that it takes to purchase goods and services when prices rise.

c. tendency to focus on nominal values instead of inflation-adjusted values.

If actual GDP is greater than potential GDP: a. businesses can easily increase supply. b. unemployment must be higher than the natural rate of unemployment. c. the economy can experience inflation. d. businesses are not producing at maximum capacity.

c. the economy can experience inflation.

An economy's potential output level is: a. the output when unemployment is zero. b. equivalent of the GDP at current market value. c. the output that is possible when all resources are fully employed. d. the level at which no resources are available in the economy.

c. the output that is possible when all resources are fully employed.

Even though deposit insurance existed, the United States experienced a major financial crisis from 2007 to 2009 because: a. there was excess competition from other countries. b. banks refused to honor the deposit insurance scheme. c. there was a run on shadow banks, which were not covered by deposit insurance. d. the deposit insurance system failed during that time.

c. there was a run on shadow banks, which were not covered by deposit insurance.

Fiscal policy works best when it is: a. discretionary. b. not countercyclical. c. timely, targeted, and temporary. d. general, nonspecific, and long-lasting.

c. timely, targeted, and temporary.

Which of the following did the New Deal create? a. tariffs b. quotas c. unemployment benefits d. the stock exchange

c. unemployment benefits

If the interest rate is 6% and the average inflation rate is 3.1%, what is the approximate future value of $75,000 in 20 years? a. $240,535 b. $89,743 c. $42,340 d. $132,852

d. $132,852

Suppose you have $5,000 to invest in a Treasury bill for 20 years. The average annual rate of return is 1.5%. What is the real future value of your investment after 20 years? a. $3,712 b. $5,075 c. $5,000 d. $6,734

d. $6,734

On which of the following is there a tax incentive in the United States?(i) health insurance purchased through employers(ii) employer contributions for life insurance(iii) rental value on owner-occupied housing(iv) your mortgage a. (iv) only b. (i), (ii), (iii), and (iv) c. (iii) and (iv) d. (i), (iii), and (iv)

d. (i), (iii), and (iv)

Which of the following changes could create a more positive output gap?(i) The U.S. dollar appreciates.(ii) The U.S. dollar depreciates.(iii) Trading partners reduce tariffs on U.S. exports.(iv) Monetary policy actions boost the economy. a. (i) only b. (ii) only c. (iv) only d. (ii), (iii), and (iv)

d. (ii), (iii), and (iv)

If the risk-free rate is 1.5% and the risk premium is 2%, the MP curve is at: a. 4%. b. 2%. c. 1.5%. d. 3.5%.

d. 3.5%.

You are a financial adviser. Your client, Archie, wants professional management of his investments but also wants a diversified portfolio. Which of the following investments is right for Archie? a. Small corporation stocks b. Corporate bonds c. Large corporation stocks d. A mutual fund

d. A mutual fund

Bond A is a five-year bond issued by a company with a very good credit rating. Bond B is a five-year bond issued by a different company in financial distress. Which of the following is likely? a. Bond A will have a higher interest rate than Bond B. b. Bond B will have a higher term risk than Bond A. c. Bond A will have a higher default risk than Bond B. d. Bond B will have a higher interest rate than Bond A.

d. Bond B will have a higher interest rate than Bond A.

Which of the following is an investment? a. Dan purchases $6,800 worth of gold. b. Frank buys a used car. c. Ben's computer depreciates by 15%. d. Fred pays a contractor to add two new rooms to his house.

d. Fred pays a contractor to add two new rooms to his house.

In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the: a. MP curve down. b. MP curve up. c. IS curve to the right. d. IS curve to the left.

d. IS curve to the left.

Why is the discount rate the upper bound for the federal funds rate? a. The discount rate is the highest interest rate that banks can charge the public when they make loans. b. The discount rate does not change over time. c. It is set lower than the federal funds rate. d. It is set higher than the federal funds rate.

d. It is set higher than the federal funds rate.

You have four friends. Which of your friends can be described as "cyclically unemployed"? a. Martha, who is a full-time stay-at-home parent b. Regan, who is in a nursing home c. Arthur, who quit his job to look for a better job d. Keele, who lost her job after her company lost a lot of customers during an economic downturn

d. Keele, who lost her job after her company lost a lot of customers during an economic downturn

In the IS-MP analysis in the Fed model, a decrease in the risk-free rate shifts the: a. MP curve up. b. IS curve to the right. c. IS curve to the left. d. MP curve down.

d. MP curve down.

Why don't most tax expenditures help much if your federal tax bill is zero? a. Taxes are an automatic stabilizer. b. Most tax expenditures are specifically for high-income people. c. You don't qualify for tax breaks if your federal tax bill is zero. d. Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill.

d. Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill.

Which of the following is a broad indicator? a. Starbucks stock returns b. Agricultural sector output c. Labor demand in the agricultural industry d. Real gross domestic income

d. Real gross domestic income

Which economic indicator tells you about the future expected profits of businesses? a. Initial unemployment claims b. Consumer price index c. Nonfarm payrolls d. S&P 500

d. S&P 500

Which of the following causes shifts in the IS curve? a. The real interest rate decreases. b. Financial shocks occur. c. The real interest rate increases. d. Spending shocks occur.

d. Spending shocks occur.

What is the floor framework that the Federal Reserve uses to influence the federal funds rate? a. Operations by the Open Market Trading Desk at the Fed b. The Fed's approach of setting the discount rate above the federal funds rate c. The use of open market operations by the Fed d. The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go

d. The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go

When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by _____ shock. a. a supply b. an inflation c. a spending d. a financial

d. a financial

A debt crisis occurs when: a. bond markets weaken. b. consumers spend too much on credit cards. c. interest rates rise. d. a government cannot repay its loans.

d. a government cannot repay its loans.

If you see a newspaper headline that says "Steel prices rise sharply," this is an example of _____ shock. a. a spending b. an interest rate c. a financial d. a supply

d. a supply

The liquidity of an asset is defined as the: a. ability to index the asset's returns to the inflation rate. b. ability to predict the future cash flow of the asset. c. risk that if you need to sell the asset quickly, you may not be able to get a good price for it. d. ability to quickly and easily convert the asset to cash, with little or no loss in value.

d. ability to quickly and easily convert the asset to cash, with little or no loss in value.

The IS curve is constructed by: a. adding consumption and savings at each real interest rate. b. adding up consumption and investment and plotting these two expenditure levels to income. c. plotting savings at each real interest rate. d. adding up the level of aggregate expenditure at each real interest rate.

d. adding up the level of aggregate expenditure at each real interest rate.

A rise in nominal wages represents: a. n increase in employment. b. a right shift of supply for firms. c. a decrease in production costs. d. an increase in production costs.

d. an increase in production costs.

Which of the following services are provided by local government? a. Pell grants b. Medicare c. military defense d. bus services

d. bus services

The moral of the story of the Solow growth model is that: a. capital accumulation is the key to sustained economic growth. b. human capital growth does not lead to economic growth. c. technological advance cannot sustain continuous economic growth. d. capital accumulation alone cannot lead to sustainable economic growth.

d. capital accumulation alone cannot lead to sustainable economic growth.

Which of the following cause(s) shifts in the MP curve? a. spending shocks b. consumer pessimism c. business optimism d. changes in monetary policy

d. changes in monetary policy

In the IS-MP analysis in the Fed model, the MP curve shows you the: a. price level in the economy. b. output level in the economy. c. potential GDP level in the economy. d. current real interest rate.

d. current real interest rate.

If the U.S. government lowers personal income tax rates: a. government expenditure rises, and this leads to a right shift of the IS curve. b. investment decreases, and this leads to a left shift in the IS curve. c. government expenditure falls, and this leads to a left shift of the IS curve. d. disposable income increases, and this leads to an increase in consumption and a right shift of the IS curve.

d. disposable income increases, and this leads to an increase in consumption and a right shift of the IS curve.

The risk premium is the: a. extra rise in interest rates when the Federal Reserve identifies an output gap. b. federal funds rate. c. risk-free rate of interest. d. extra interest charged by lenders to account for risk.

d. extra interest charged by lenders to account for risk.

Holding everything else equal, the _____ the interest rate on saving, the _____ the future value of that saving. a. lower; greater b. lower; the more negative c. higher; lower d. higher; greater

d. higher; greater

When using the Fed model, the first step is to: a. find the output gap. b. assess inflation. c. increase the federal funds rate. d. identify the shock and shift the curve.

d. identify the shock and shift the curve.

If inflation is 0%, and a firm wants to lower real wages by 1%, it will need to: a. lower real wages by 2%. b. raise nominal wages by 1%. c. raise inflation by 2%. d. lower nominal wages by 1%.

d. lower nominal wages by 1%.

The higher the opportunity cost of consumption, the: a. higher the consumption. b. more to the right the economy is along the IS curve. c. higher the investment in the economy. d. lower the aggregate expenditures.

d. lower the aggregate expenditures.

A bank run occurs when: a. too many borrowers want to take out loans from a bank, and the bank is unable to meet loan demands. b. interest rates are too high. c. consumers increase their deposits at banks faster than the bank can loan out the funds. d. many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand.

d. many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand.

A supply shock is any change in: a. aggregate expenditure at a given interest rate and level of income. b. potential GDP in the economy. c. borrowing conditions that changes the real interest rate at which people can borrow. d. production costs that leads suppliers to change the prices they charge at any given level of output.

d. production costs that leads suppliers to change the prices they charge at any given level of output.

If a spending shock increases aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift: a. left by $35 billion. b. left by $14 billion. c. right by $35 billion. d. right by $87.5 billion.

d. right by $87.5 billion.

Based on Okun's rule of thumb, if you forecast that the output gap will decline from 0% to -3%, the unemployment rate will: a. fall by 1.5%. b. fall by 2%. c. rise by 3%. d. rise by 1.5%.

d. rise by 1.5%.

The cash-assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution are known as the: a. social insurance. b. progressive tax system. c. offset tax system. d. social safety net.

d. social safety net.

Along the same aggregate production function, the level of _____ is the same. a. capital b. economic growth c. labor d. technology

d. technology

The government's debt is: a. the current year's deficit. b. the equivalent of the country's imports. c. always zero by the end of the year. d. the accumulation of all the deficits.

d. the accumulation of all the deficits.

Which of the following is NOT a trade cost? a. the hassle of working across language barriers b. adapting to different ways of doing business c. dealing with foreign laws d. the cost of producing a good

d. the cost of producing a good

Suppose a high-income person, a middle-income person, and a low-income person purchase identical houses that are financed by similar mortgages. Who gets the largest tax benefit? a. the low-income person b. They all pay the same tax rate. c. the middle-income person d. the high-income person

d. the high-income person

Fiscal policy is increased in its effectiveness through: a. administrative lags. b. monetary policy. c. crowding out. d. the multiplier effect.

d. the multiplier effect.

An example of a leading indicator is: a. unemployment. b. unemployment insurance claims. c. nonfarm payrolls. d. the stock market.

d. the stock market.

What is excess demand? a. higher equilibrium quantity d. fast-changing consumer preferences c. too much supply for too few buyers d. too many buyers for too few goods

d. too many buyers for too few goods

Which of the following is an example of transfer payments? a. interest earned on savings in banks b. military salaries c. government loans d. unemployment benefits

d. unemployment benefits

Suppose a labor market is described by the demand equation, Qd = 60 - 2w, and the supply equation, Qs = -10 + w, where Qd is the quantity demanded of labor, Qs is the quantity supplied of labor, and w is the wage (in dollars). If the government institutes a minimum wage of $25, how many workers will be willing to work in this market? a. 15,000,000 b. 20,000,000 c. 10,000,000 d. 5,000,000

a. 15,000,000

As prices _____, they provide useful business intelligence. a. aggregate information b. are constant c. create incentives d. vary randomly

a. aggregate information

An underemployed person is one who is: a. employed in the underground economy. b. retired or outside of the labor force. c. cyclically unemployed. d. working but whose skills are not fully utilized.

d. working but whose skills are not fully utilized.

Which of the following is an example of a durable good? a. fresh flowers from the florist b. a soft drink c. your haircut d. your new car

d. your new car

Countries benefit from trade by exporting goods in which their opportunity costs are relatively _____ and importing goods in which their opportunity costs are relatively _____. a. low; low b. high; low c. low; high d. high; high

c. low; high

Which of the following is NOT true of the incidence of poverty in the United States? a. Elderly people are more likely than other age groups to be in poverty. b. People of color are more likely than others to experience poverty. c. Most people in poverty will spend much of their lives in poverty, but most people will spend some time in poverty during their lifetime. d. Children and single moms are most likely to be in poverty.

a. Elderly people are more likely than other age groups to be in poverty.

You purchase a new car (produced this year) for $38,000. After six months, you sell the car for $31,500. How much does GDP rise because of these two transactions? a. GDP rises by $38,000. b. GDP rises by $31,500. c. GDP rises by $69,500. d. GDP rises by $6,500.

a. GDP rises by $38,000.

Suppose that one hour of labor in Singapore can produce 20 computers or 40 cellphones. Further, suppose that one hour of labor in Ireland can produce 10 computers or 15 cellphones. _____ has a comparative advantage in the production of computers. _____ has a comparative advantage in the production of cellphones. a. Ireland; Singapore b. Singapore; Ireland c. Singapore; Singapore d. Ireland; Ireland

a. Ireland; Singapore

Which of the following countries enjoyed significant catch-up economic growth in the second half of the twentieth century? a. South Korea b. United States c. Argentina d. Spain

a. South Korea

Which of the following is a negative result of redistributing income toward equality? a. Work incentives are reduced. b. The poor have a higher standard of living. c. Average income rises. d. Government expenses fall, and tax revenues rise.

a. Work incentives are reduced.

During the Great Recession, the United States Congress increased the length of time that unemployment benefits could be received from 52 weeks to 99 weeks. This change caused: a. an increase in the costs for the government. b. a decrease in unemployment. c. an increase in the number of employed people in the economy. d. an increase in the labor force participation rate.

a. an increase in the costs for the government.

Which of the following would lead to a slowdown in economic growth? a. an increase in the dependency ratio b. an increase in human capital c. reduced inefficiency in production d. an increase in capital accumulation in the economy

a. an increase in the dependency ratio

The neutral interest rate occurs when the economy is: a. at its potential. b. experiencing very high inflation. c. above its potential. d. below its potential.

a. at its potential.

Hyperinflation is: a. extremely high rates of inflation. b. inflation that occurs when the economy is in a recession. c. a period of high money growth in an economy. d. very high rates of economic growth.

a. extremely high rates of inflation.

In the United States, the poverty line income: a. is adjusted based on family size. b. is the same for all households. c. excludes medical care costs. d. is based on estimated medical care costs.

a. is adjusted based on family size.

The equilibrium unemployment rate is also known as the _____ unemployment rate. a. long-run b. structural c. frictional d. cyclical

a. long-run

Which of the following lists the functions of money? a. medium of exchange, store of value, and unit of account b. medium of exchange, measure of inflation, and benchmark of quality c. store of value, store of interest, and buffer against inflation d. carrier of exchange, unit of account, and measure of inflation

a. medium of exchange, store of value, and unit of account

If you see that inflation between last year and this year is 3%, this means that: a. on average, prices went up across the economy by 3%. b. the prices of each and every good and service went up by 3%. c. the consumer price index rose by 3% more than the producer price index. d. economic growth is also 3%.

a. on average, prices went up across the economy by 3%.

An income level below which a family is defined to be in poverty is known as the: a. poverty line. b. needs-based indicator. c. bottom quintile. d. relative poverty measure.

a. poverty line.

Which of the following is NOT a cost of the redistribution of income? a. reduced marginal benefits to extra income b. administrative costs c. reduced incentive to work and earn d. tax avoidance and fraud

a. reduced marginal benefits to extra income

Government social insurance programs are funded by: a. taxes and fees that are assessed on workers and employers specifically for each program. b. a premium paid by those who choose to participate in the insurance programs. c. progressive taxes on income. d. a pay-back system where beneficiaries repay benefits over a 10-year period.

a. taxes and fees that are assessed on workers and employers specifically for each program.

In 1971, the cost of a four-year college degree from a public university was about $1,410. The consumer price index was 40.48 in January 1971. If the current consumer price index is 251.1, what is the approximate cost of the four-year degree in current dollars? a. $227 b. $8,746 c. $1,410 d. $9,422

b. $8,746

In order to be considered unemployed, a person must:(i) be part of the working-age population.(ii) be actively looking for work.(iii) not have been self-employed.(iv) must be noninstitutionalized. a. (i) and (ii) b. (i), (ii), and (iv) c. (iii) and (iv) d. (ii) and (iv)

b. (i), (ii), and (iv)

If a $100 million increase in total income leads to a $62 million increase in consumption, the slope of the consumption function is: a. zero. b. 0.62. c. 0.38. d. negative.

b. 0.62.

You purchase a certificate of deposit and expect an inflation rate of 1.25% over the next year. Your nominal rate of interest is 2.1%. What is your expected real rate of return? a. 1.25% b. 0.85% c. -0.85% d. -2.1%

b. 0.85%

According to diminishing marginal utility, which of the following people would gain the lowest marginal benefit from an extra $100 of income? a. Devin, head of a three-person household with an annual household income of $120,000 b. Ariana, an actress with an annual household income of $1,500,000 c. Shawna, a single mother of three young children with an annual household income of $19,000 d. Chin, a single person with an annual household income of $20,000

b. Ariana, an actress with an annual household income of $1,500,000

Why does an anticipated change in income lead to no change in consumption for a consumption smoother? a. There is a failure of the permanent income hypothesis. b. Consumption is based on permanent income, which is already factored into anticipated future changes in income. c. The consumer is not aware of anticipated changes in future income. d. There are high tax rates on anticipated changes in future income.

b. Consumption is based on permanent income, which is already factored into anticipated future changes in income.

Which of the following correctly shows the steps needed to calculate the inflation rate? a. Collect prices from the stores where people shop, assess the substitution that people make from low inflation to high inflation products, and calculate the difference in the prices that people pay. b. Find out what people typically buy, collect the prices from the stores where people shop, tally up the cost of the basket of goods and services, and calculate the inflation rate. c. Tally up the cost of the basket of goods and services, subtract the value of goods and services that are no longer counted in the basket, and then calculate the inflation rate. d. Find the total value of the basket of goods and services, assess quality changes from one period to the next, and measure the inflation rate.

b. Find out what people typically buy, collect the prices from the stores where people shop, tally up the cost of the basket of goods and services, and calculate the inflation rate.

What is the difference between spending from a microeconomic standpoint versus spending from a macroeconomic standpoint? a. In microeconomics, spending refers to domestic spending, whereas in macroeconomics, spending refers to foreign spending. b. In microeconomics, spending refers to spending by you, or your family, or your company, whereas in macroeconomics, spending refers to the spending by all consumers, all businesses, and the government in the economy. c. In microeconomics, spending refers to one individual's spending, whereas in macroeconomics, spending refers to government expenditure. d. In microeconomics, spending refers to expenditure on consumer goods only, whereas in macroeconomics, spending refers to business expenditures only.

b. In microeconomics, spending refers to spending by you, or your family, or your company, whereas in macroeconomics, spending refers to the spending by all consumers, all businesses, and the government in the economy.

In 2018, the unemployment rate in the United States went as low as 3.7%, as measured by the Bureau of Labor Statistics. This historically low level of unemployment occurred simultaneously with a large trade deficit. This provides evidence against which of the following arguments against international trade? a. International trade may hurt national security. b. International trade may lead to job loss. c. International trade may promote unfair competition. d. International trade may hurt infant industries.

b. International trade may lead to job loss.

What happens to the investment line if the government institutes a tax break for funds invested? a. There is a movement up and to the left along the same investment line. b. The investment line shifts to the right. c. There is a movement down and to the right along the same investment line. d. The investment line shifts to the left.

b. The investment line shifts to the right.

If Marios is a consumption smoother and has just won a prize of $12,000, we can expect Marios to exhibit: a. a large change in consumption. b. a small change in consumption. c. zero change in saving. d. no change in MPC.

b. a small change in consumption.

Managers can harness market forces by setting up internal markets, which: a. have a geographic scope limited to one country with no international transactions. b. are organized within a company to buy and sell scarce resources. c. trade only with employees rather than companies and governments. d. buy and sell raw materials rather than finished products.

b. are organized within a company to buy and sell scarce resources.

Argentina and Chile both produce copper and timber. If Chile produces copper much more efficiently than Argentina and timber slightly more efficiently than Argentina, _____ can benefit from trading copper and timber with each other. a. neither country b. both countries c. only Chile d. only Argentina

b. both countries

Which of the following is a scaled number? a. the country's national debt b. government budget deficit as a percentage of GDP c. the sum of all incomes earned in the economy d. total tax revenues in the economy

b. government budget deficit as a percentage of GDP

The higher the minimum wage, as compared to the equilibrium wage, the: a. higher the cyclical unemployment rate. b. higher the structural unemployment rate. c. lower the structural unemployment rate. d. lower the natural rate of unemployment.

b. higher the structural unemployment rate.

When the definition of poverty focuses on relative poverty, a person is in poverty if the household income is: a. below $3.10 per day. b. in the bottom 10% of household incomes in the nation. c. is less than three times the cost of a basic food plan. d. insufficient to provide basic food, shelter, medical care, and transportation.

b. in the bottom 10% of household incomes in the nation.

If you see that the consumer price index this year is lower than the consumer price index last year, this means that: a. the consumer price index is lower than the producer price index. b. on average, prices went down across the economy. c. the prices of each and every good and service went down. d. economic growth also decreased.

b. on average, prices went down across the economy.

In the field of economics, the observation that the living standard of a household is more stable than its income, because people think in terms of their long-term earnings as they spend, is known as: a. wealth and inequality of purchasing power. b. permanent income versus current income. c. intergenerational mobility and inequality of opportunity. d. consumption and inequality of living standards.

b. permanent income versus current income.

The GDP deflator is an index that tracks the: a. average price that consumers pay over time for a representative basket of goods and services. b. price of all goods and services produced domestically. c. highest prices consumers pay over time for imported goods and services. d. price that businesses pay over time for the inputs used in the production process.

b. price of all goods and services produced domestically.

You have an absolute advantage in producing a product if you: a. have the most capital to work with. b. can produce the product at the lowest opportunity cost. c. can produce the product using the fewest inputs. d. have training in producing it.

c. can produce the product using the fewest inputs.

What is Uganda's real GDP if its nominal GDP is $27.5 billion (in current US$), and the GDP deflator is 163.4? a. $44.9 billion b. $27.5 billion c. $16.8 billion d. $12.4 billion

c. $16.8 billion

The aggregate production function Y = f(L, H, K) shows that economic growth can occur if:(i) human capital increases.(ii) labor productivity falls.(iii) the capital stock in the country depreciates.(iv) the depreciation rate increases. a. (i), (ii), (iii), and (iv) b. (iii) only c. (i) only d. (i) and (iv)

c. (i) only

The news of an impending recession in the economy will lead to a:(i) fall in consumption.(ii) rise in precautionary saving.(iii) rise in national saving.(iv) rise in consumption. a. (ii) only b. (i), (ii), (iii), and (iv) c. (i), (ii), and (iii) d. (i) and (iii)

c. (i), (ii), and (iii)

Which of the following is (are) included in investment?(i) military spending(ii) the purchase of an aircraft by a domestic airline(iii) the purchase of $45,000 worth of bonds(iv) the purchase of $32,000 worth of stock(v) social security payments(vi) the construction of a highway by the federal government a. (ii), (iii), and (iv) b. (i), (ii), (v), and (vi) c. (ii) only d. (i) and (vi)

c. (ii) only

In May 2019, there were approximately 68,980,000 people in Japan's labor force. About 1,650,000 people were unemployed. What was the unemployment rate? a. 6.1% b. 1.8% c. 2.4% d. 5.0%

c. 2.4%

Which of the following taxes is regressive? Raj pays a 10% tax on the first $10,000 he earns plus a _____ tax on any additional income. a. 15% b. 10% c. 5% d. 25%

c. 5%

Which of the following shows the medium of exchange function of money? a. Mena saves his money in a certificate of deposit at the bank. b. Darius goes window shopping. c. Daniela goes to the store and purchases roses with U.S. dollars. d. Wilma wants to sell her old car, and she values it at $2,400.

c. Daniela goes to the store and purchases roses with U.S. dollars.

Which of the following is NOT one of the four key reasons that the government provides in-kind benefits rather than cash benefits? a. Taxpayers may care more about reducing homelessness or hunger than what will make the recipient happiest. b. An in-kind benefit like child care is a complement to work, which provides some incentive for recipients to provide for themselves rather than rely on the safety net. c. In-kind benefits give the recipient the greatest flexibility to choose what matters most. d. Giving goods rather than cash prevents recipients from making bad choices.

c. In-kind benefits give the recipient the greatest flexibility to choose what matters most.

What is the difference between microeconomics and macroeconomics? a. Microeconomics focuses only on the forces of individual demand and individual supply, whereas macroeconomics focuses only on policy making for the economy. b. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of government policies. c. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole. d. Microeconomics is the study of the economy as a whole, whereas macroeconomics is the study of individual decisions in specific markets.

c. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole.

Dale is a stay-at-home-parent whose typical day consists of getting the kids ready for school, doing the laundry, cooking three meals, and cleaning the house. How are Dale's home activities counted in GDP? a. They are counted by subtracting Dale's opportunity cost in terms of lost income. b. They are counted at market value. c. They are not counted. d. They are counted by assigning a value that is equivalent to what it would have taken to pay a housekeeper to perform the same tasks.

c. They are not counted.

Why would a company set up internal markets? a. To gain access to resources that were previously unavailable. b. To prevent the product price from falling. c. To solve the knowledge problem. d. To solve a problem with product design.

c. To solve the knowledge problem.

Which of the following would lead to a slowdown in economic growth? a. an increase in capital accumulation coupled with technological advancement b. an increase in innovation in the economy c. a reduction in the birth rate coupled with an increase in the retirement rate of a population d. the institution of a savings tax credit

c. a reduction in the birth rate coupled with an increase in the retirement rate of a population

If there is _____ rise in income, there will be an intermediate increase in total consumption in the economy. a. a permanent b. zero c. a temporary d. no news of a

c. a temporary

Credit constraints limit the: a. interest rates that banks can charge. b. amount of money that banks can accept as deposits. c. amount of money that people can borrow. d. amount of saving that people can make.

c. amount of money that people can borrow.

You have a comparative advantage if you can complete a task: a. using fewer inputs than anyone else. b. at a higher opportunity cost than anyone else. c. at a lower opportunity cost than anyone else. d. using more inputs than anyone else.

c. at a lower opportunity cost than anyone else.

To get maximum output, you should allocate each task to the person who: a. has an absolute advantage in completing the task. b. can do the task with the smallest amount of input. c. can do the task with the lowest opportunity cost. d. has a cost advantage in completing the task.

c. can do the task with the lowest opportunity cost.

Menu costs are the: a. total costs of producing goods and services. b. costs of producing restaurant meals. c. marginal costs of adjusting prices. d. variety of costs that cause producers to change their prices.

c. marginal costs of adjusting prices.

The real interest rate is the: a. percentage of the nominal interest that is inflation. b. economic growth rate adjusted for the effects of inflation. c. nominal interest rate minus the rate of inflation. d. nominal interest rate plus the rate of inflation.

c. nominal interest rate minus the rate of inflation.

Which of the following encourages the development of new ideas and inventions? a. capital accumulation b. government control of resources c. patents d. negative economic growth

c. patents

A prediction market is a market where: a. information is disaggregated. b. information is missing to make a good decision. c. payoffs are linked to whether an uncertain event occurs. d. signals lead to future actions.

c. payoffs are linked to whether an uncertain event occurs.

Technological advancement is NOT represented by which of the following? a. the invention of robotic meal preparation b. the invention of the light bulb c. the adoption of an existing technology by new firms d. the creation of new apps designed to enhance efficiency and reduce wastage in production lines

c. the adoption of an existing technology by new firms

In May 2019, Texas reported a civilian labor force of 14,012,711. The number of employed people was 13,516,387. What was the unemployment rate? a. 5.3% b. 96.5% c. 4.9% d. 3.5%

d. 3.5%

Which of the following is a social insurance program in the United States? a. housing assistance b. earned income tax credit c. Medicaid d. Social Security

d. Social Security

The aggregate production function is represented as: a. H = f(L, Y, K). b. L = f(Y, H, K). c. K = f(L, H, Y). d. Y = f(L, H, K).

d. Y = f(L, H, K).

Which of the scenarios represents consumption spending? a. You take out a bank loan. b. Your parents pay their income taxes. c. A new hospital is constructed in your town. d. You eat at a fancy restaurant for Valentine's Day.

d. You eat at a fancy restaurant for Valentine's Day.

Which tax is regressive? Arturo pays an 8% tax on the first $9,000 he earns plus _____ tax on any additional income. a. a 25% b. an 8% c. a 10% d. a 5%

d. a 5%

A decreasing returns to scale production function is one where increasing all inputs by a certain proportion leads to output rising by: a. a larger proportion. b. the same proportion. c. exactly double the proportion. d. a smaller proportion.

d. a smaller proportion.

A minimum wage that is above the equilibrium wage is: a. an efficiency wage. b. an unemployment benefit. c. a labor union negotiated wage. d. an example of a price floor.

d. an example of a price floor.

Specialization will increase output when it is based on: a. absolute advantage. b. who can produce at the least comparative cost. c. who can produce the fastest. d. comparative advantage.

d. comparative advantage.

If a bakery buys a second oven, hires a second baker, buys double the number of ingredients, doubles the size of the bakery, and then produces double the number of cakes, then the bakery is experiencing: a. technological advancement. b. increasing returns to scale. c. an increase in labor productivity. d. constant returns to scale.

d. constant returns to scale.

Property rights refer to: a. the time it takes to start a business venture. b. patents owned by a business. c. the number of properties owned by an entrepreneur. d. control over a tangible or intangible resource.

d. control over a tangible or intangible resource.

If Bishan wants to capitalize on comparative advantage in his life, then he should: a. compare his preferences to those of others and trade with those who like things he does not like. b. produce either goods or services but not both. c. do more of what he has an absolute advantage in and trade for other things. d. do more of what he is relatively good at and then trade for other things.

d. do more of what he is relatively good at and then trade for other things.

Which of the following is a mean-tested social safety net program in the United States? a. worker's compensation b. Medicare c. Social Security d. earned income tax credit

d. earned income tax credit

The main role of markets is: a. preventing waste in choices. b. providing jobs and products. c. facilitating consumption. d. reallocating resources to better uses.

d. reallocating resources to better uses.

A constant returns to scale production function means that if all inputs are increased by 75%, this should lead to output: a. falling by more than 75%. b. rising by more than 75%. c. falling by less than 75%. d. rising by 75%.

d. rising by 75%.

Which of the following is an example of a trade cost associated with a U.S. citizen importing a sweater produced in India? a. the cost of the wool used in producing the sweater b. the final price of the sweater c. the cost of the labor used in producing the sweater d. the cost of the tariff on imported sweaters from India

d. the cost of the tariff on imported sweaters from India

If the frictional rate of unemployment is 1.45%, the structural rate of unemployment is 2.3%, and the total unemployment rate is 6%, then we can conclude that: a. the economy is experiencing an economic boom. b. there is 2.25% actual unemployment. c. the labor force participation rate has fallen significantly. d. the equilibrium rate of unemployment is 3.75%.

d. the equilibrium rate of unemployment is 3.75%.