ECN 211 - Final Exam Study Guide
Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.
The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.
Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor country to catch up? a) The poor country allows foreign direct investment. b) The poor country has outward-oriented trade policies. c) All of the above are correct. d) The poor country has poorly developed property rights.
The poor country has poorly developed property rights.
Refer to Figure 2-16. Suppose this economy is producing at point B. Which of the following statements would best explain this situation?
There is widespread unemployment in the economy.
A technological advance in the production of the first good increases the opportunity cost of the first good in terms of the second good.
True
Refer to Figure 2-17. The opportunity cost of producing an additional pair of shoes increases as more shoes are produced.
True
A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,
U.S. investment and GDP increase, but German GDP is unaffected.
The principle of comparative advantage does not provide answers to certain questions. One of those questions is
What determines the price at which trade takes place?
Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?
Y rose, V fell
Matilda just graduated from college. In order to devote all her efforts to college, she didn't hold a job. She is going to tour around the country on her motorcycle for a month before she starts looking for work. Other things the same, the unemployment rate
and the labor-force participation rate are both unaffected.
Which of the following is NOT an example of monetary policy?
The Federal Reserve facilitates bank transactions by clearing checks.
Which of the following is an example of the menu costs of inflation?
Tito's Restaurant has to print new menus to update its prices compared to other prices in the economy
Credit cards
are a method of deferring payment, and people who have credit cards hold less money on average.
Other things the same, an increase in the price level induces less spending on
household consumption and investment.
Which of the following decreases during recessions?
real GDP
People choose to hold a smaller quantity of money if
the interest rate increases, which causes the opportunity cost of holding money to increase.
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
buying bonds. This buying would increase the money supply.
The money supply increases when the Fed
buys bonds. The increase will be larger, the smaller is the reserve ratio.
When the Federal Reserve conducts open-market operations to increase the money supply, it
buys government bonds from the public.
You sell cupcakes. One day you double the time you spend and double all your inputs, and make twice as many cupcakes. Your cupcake production function has
constant returns to scale.
A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and operated by U.S citizens. In which of the following components of U.S. GDP is this transaction accounted for?
consumption and imports
Other things the same, continued increases in technology lead to
continued increases in real GDP and continued decreases in the price level.
According to the Phillips curve, policymakers can reduce inflation by
contracting aggregate demand. This contraction results in a temporarily higher unemployment rate.
Monetary neutrality means that a change in the money supply
does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.
Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation
does not change the real interest rate but reduces the after-tax real rate of interest.
A basis for the slope of the short-run Phillips curve is that when unemployment is high there are
downward pressures on prices and wages.
A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between
efficiency and equality.
According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also
either a rise in output or a fall in the rate at which money changes hands
According to liquidity preference theory, the money-supply curve would shift if the Fed
engaged in open-market operations
The unique point at which the supply and demand curves intersect is called
equilibrium
Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an
excess supply of money that will result in an increase in spending.
When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an
excess supply of money, so the price level will rise.
Which of the following are human capital and physical capital, respectively?
for a restaurant: the chefs' knowledge about preparing food and the equipment in the kitchen
High and unexpected inflation has a greater cost
for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation.
If an American-based firm opens and operates a factory in China, then it is engaging in
foreign direct investment.
From time to time, the demand for workers has risen in one region of the United States and fallen in another. This illustrates
frictional unemployment created by sectoral shifts.
The invention of the telegraph led to the loss of jobs for those who had delivered mail by horse but created jobs for telegraph operators and delivery persons. This is an example of
frictional unemployment created by sectoral shifts.
If inflation is less than expected, then the unemployment rate is
greater than the natural rate. In the long run the short-run Phillips curve will shift left.
Megan is a landscaper. Which of the following are included in her physical capital?
her landscaping equipment, but not her knowledge of landscaping learned in college
Which of the following is not a result of rent control?
higher quality housing
When inflation falls, people
make less frequent trips to the bank and firms make less frequent price changes
Higher inflation makes relative prices
more variable, making it less likely that resources will be allocated to their best use.
When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth
more, and the cost of living decreases.
Real GDP a) All of the above are correct. b) falls when households save a smaller fraction of their income. c) increases as production falls. d) moves in the opposite direction as unemployment.
moves in the opposite direction as unemployment.
Real GDP a)increases as production falls. b) falls when households save a smaller fraction of their income. c) All of the above are correct. d) moves in the opposite direction as unemployment.
moves in the opposite direction as unemployment.
Real GDP a) increases as production falls. b) All of the above are correct. c) falls when households save a smaller fraction of their income. d) moves in the opposite direction as unemployment.
moves in the opposite direction as unemployment.
Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by
moving to the right along the short-run Phillips curve.
Which of the following events would shift money demand to the left?
neither an increase in the interest rate nor an increase in the price level
Christopher is an unpaid, stay-at-home father who works as a volunteer at the local Habitat for Humanity chapter. Currently, Christopher is not looking for a paid job. The Bureau of Labor Statistics counts Christopher as
neither in the labor force nor unemployed.
Josh is a full-time college student who is not working or looking for a job. The Bureau of Labor Statistics counts Josh as
neither in the labor force nor unemployed.
According to the Phillips curve, unemployment and inflation are positively related in
neither the long run nor the short run.
When the dollar appreciates, U.S
net exports fall, which decreases the aggregate quantity of goods and services demanded.
When the dollar depreciates, U.S.
net exports rise, which increases the aggregate quantity of goods and services demanded.
Data on the unemployment rate in the U.S. since 1960 show that the unemployment rate is
never zero.
According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then
nominal GDP would rise by 5 percent; real GDP would be unchanged.
Refer to Figure 6-16. In this market, a minimum wage of $2.75 is
nonbinding and creates neither a labor shortage nor unemployment.
Sandra uses her sewing machine, thread, and yards of denim to produce jean skirts. The sewing machine is an example of
physical capital.
Refer to Table 24-5. The inflation rate was
positive in 2005 and positive in 2006.
Which of the following is not a rationing mechanism used by landlords in cities with rent control?
price
When a binding price floor is imposed on a market, a) the quantity demanded at the price floor exceeds the quantity that would have been demanded without the price floor. b) all sellers benefit. c) All of the above are correct. d) price no longer serves as a rationing device.
price no longer serves as a rationing device.
With respect to the consumer price index, the substitution bias arises because a) All of the above are correct. b) consumers are slow to adjust their buying patterns from year to year in response to price changes. c) consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them. d) prices of goods and services do not change in the same proportion from year to year.
prices of goods and services do not change in the same proportion from year to year.
Patents turn new ideas into
private goods, and increase the incentive to engage in research.
Which of the following is not included in U.S. GDP?
production of U.S citizens working in foreign countries.
If a country's saving rate increases, then in the long run
productivity and real GDP per person are both higher.
Suppose a country reduces restrictions on how many hours people can work. If reducing these restrictions increase the total number of hours worked in the economy, but all other factors that determine output are held fixed, then
productivity falls and output rises.
Your company discovers a better way to produce mousetraps, but your better methods are not apparent from the mousetraps themselves. Your knowledge of how to more efficiently produce mousetraps is
proprietary technological knowledge.
Which of the following is included in the consumption component of U.S. GDP? a) purchases of staplers, paper clips, and pens by U.S. business firms b) purchases of newly constructed homes by U.S. households c) All of the above are correct. d) purchases of natural gas by U.S. households
purchases of natural gas by U.S. households
Consumption consists of spending by households on goods and services, with the exception of
purchases of new houses.
Suppose John and Wayne are the only two demanders of cowboy movies. Each month, John buys six cowboy movies when the price is $10 each, and he buys four cowboy movies when the price is $15 each. Each month, Wayne buys four cowboy movies when the price is $10 each, and he buys two cowboy movies when the price is $15 each. Which of the following points is on the market demand curve?
quantity demanded = 10; price = $10
Over the last ten years productivity grew more slowly in Iberia than in Aire while the population and total hours worked remained the same in both countries. It follows that a) real GDP per person must be lower in Iberia than in Aire. b) the standard of living must be higher in Iberia than in Aire. c) All of the above are correct. d) real GDP per person grew more slowly in Iberia than in Aire.
real GDP per person grew more slowly in Iberia than in Aire.
The aggregate quantity of goods and services demanded changes as the price level rises because
real wealth falls, interest rates rise, and the dollar appreciates.
The term "productivity"
refers to the quantity of goods and services produced from each unit of labor input.
Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should
rent the room because the marginal benefit exceeds the marginal cost.
An increase in quantity supplied
results in a movement upward and to the right along a fixed supply curve.
A favorable supply shock will shift short-run aggregate supply
right, making output rise.
Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then inflation expectations rise to 2% and inflation rises to 3%. The increase in expected inflation shifts the short-run Phillips curve
right. Overall, unemployment moves below its natural rate.
An adverse supply shock shifts the short-run Phillips curve to the
right. This means the unemployment rate is higher at each inflation rate.
An economic expansion caused by a shift in aggregate demand causes prices to
rise in the short run, and rise even more in the long run.
Other things the same, if the price level rises, then domestic interest rates
rise, so domestic residents will want to hold fewer foreign bonds
Other things the same, if the price level rises, then domestic interest rates
rise, so domestic residents will want to hold fewer foreign bonds.
If the central bank increases the money supply, in the short run, the price level
rises and unemployment falls.
In the long run, a decrease in the money supply growth rate
shifts the short-run Phillips curve left so unemployment returns to its natural rate.
If the Federal Reserve decreases the money supply, then initially there is a
shortage in the money market, so people will want to sell bonds.
The substitution bias in the consumer price index refers to the
substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.
Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess
supply of money equal to the distance between points a and b.
The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of
the FOMC.
Menu costs refers to
the cost of more frequent price changes induced by higher inflation.
Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?
the crowding-out effect
According to the theory of liquidity preference,
the demand for money is represented by a downward-sloping line on a supply-and-demand graph.
According to the theory of liquidity preference, a) the demand for money is represented by a downward-sloping line on a supply-and-demand graph. b) if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created. c) All of the above are correct. d) if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created.
the demand for money is represented by a downward-sloping line on a supply-and-demand graph.
Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that
the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.
For a given level of inflation expectations, if the central bank increases the money supply growth rate, then in the short run
the economy moves up along the short-run Phillips curve.
Which of the following is an example of physical capital?
the equipment in a factory
If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then
the expected real interest rate is 1 percent
According to liquidity preference theory, if the price level decreases, then a) the interest rate rises because money supply shifts right. b) the interest rate rises because money supply shifts left. c) the interest rate falls because money demand shifts left d) the interest rate falls because money demand shifts right.
the interest rate falls because money demand shifts left.
According to the classical dichotomy, which of the following is influenced by monetary factors? a) the real wage. b) All of the above are correct. c) the real interest rate. d) the nominal interest rate.
the nominal interest rate.
According to the classical dichotomy, which of the following increases when the money supply increases?
the nominal wage
Which of the following can a country increase in the long run by increasing its money growth rate?
the nominal wage.
Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that
the price index in 2019 was lower than 151.2.
The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
the price level is higher than expected making production more profitable
The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
the price level is higher than expected making production more profitable.
Suppose that the economy is at long-run equilibrium. If there is a sharp rise in the stock market combined with a significant increase in the minimum wage, then in the short run
the price level will rise, and real GDP might rise, fall, or stay the same.
Which of the following is not held constant in a supply schedule?
the price of the good
Aggregate demand includes
the quantity of goods and services households, firms, the government, and customer abroad want to buy
Refer to Figure 34-2. Assume the money market is always in equilibrium. Under the assumptions of the model,
the quantity of money is the same at Y1 as it is at Y2.
When deflation exists,
the real interest rate is greater than the nominal interest rate.
In a particular production process, if the quantities of all inputs used double, then the quantity of output doubles as well. This means that
the relevant production function has the constant-returns-to-scale property.
If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in
the short run but not the long run.
The aggregate supply curve is upward sloping in
the short run, but not the long run.
Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run
the short-run Phillips curve shifts left.
Which of the following is downward-sloping?
the short-run Phillips curve, but not the long-run aggregate-supply curve
The primary reason people hold money is
to use it as a medium of exchange
Refer to Figure 2-6. A movement from point H to point K could be caused by a) fewer resources available for production of pillows. b) a decrease in society's preference for pillows. c) All of the above are correct. d) unemployment
unemployment
Refer to Monetary Policy in Flosserland. Suppose the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and actually reduces inflation to that level. Suppose at first that the public thought inflation would only drop to 18%, but eventually become convinced that the inflation rate will stay at 12.5%.
unemployment rises in the short run, and is the same as it's original value in the long run.
Wealth is redistributed from creditors to debtors when inflation is
unexpectedly high.
Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?
unmeasured quality change
According to classical macroeconomic theory, changes in the money supply affect
variables measured in terms of money but not variables measured in terms of quantities or relative prices
The money supply is 4,000, nominal GDP is 8,000, and real GDP is 2,000. Which of the following is 2?
velocity but not the price level.
Janet is a farmer. Which of the following are included in her human capital?
what she's learned from experience but not her tractor
The opportunity cost of an item is
what you give up to get that item.
In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about
$4.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.
If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and services as
$40.00 purchased in 1975.
Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be
$437.50.
Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?
$5,100 billion
Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?
$65,625
Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2001 salary in 2006 dollars is
$75,000; thus, Ruben's purchasing power increased between 2001 and 2006.
If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to
$8,000 of new money.
Suppose in the year 2000 Ken earned $60,000 per year. If the CPI in the year 2000 was 172.2 and in 2015 was 236.7, what is the minimum level of income Ken would have needed to earn in 2015 to have maintained the same standard of living he had in 2000?
$82,474
Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014. The consumer price index was 126 in 2004 and 170 in 2014. Janelle's 2004 salary in 2014 dollars is
$83,651.
Refer to Table 6-5. Which of the following price floors would be binding in this market?
$9
Proponents of rational expectations theory argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation and rational people understand that commitment and quickly lower their inflation expectations, the sacrifice ratio could be as small as
0
Refer to Figure 28-3. If the government imposes a minimum wage of $4, how many workers will be unemployed?
0
Refer to Figure 28-3. If the government imposes a minimum wage of $4, then employment will decrease by
0 workers.
Refer to Figure 28-3. If the government imposes a minimum wage of $4, then unemployment will increase by
0 workers.
Refer to Scenario 34-2. The marginal propensity to consume for this economy is
0.64.
If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is
0.8 and the multiplier is 5.
If the multiplier is 6, then the MPC is
0.83
You and your friend work together for 4 hours to produce a total of 8 bookcases. What is productivity?
1 bookcase per hour
Refer to Table 28-2. The number of adults not in the labor force of Aridia in 2012 was
1,400
If R represents the reserve ratio for all banks in the economy, then the money multiplier is
1/R.
Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement?
10 percent
Refer to Table 3-22. Zimbabwe's opportunity cost of one hairbrush is
10/3 toothbrushes and Portugal's opportunity cost of one hairbrush is 6/5 toothbrushes.
Refer to Table 24-5. If the base year is 2004, then the CPI in 2004 was
100
In one day Madison Laundry washed 4,000 pounds of laundry with 5 workers who each worked 8 hours. What was its productivity?
100 pounds of laundry per hour
Refer to Table 24-2. If 2012 is the base year, then the CPI for 2012 was
100.0.
If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced
11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.
Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then the value of the economy's money multiplier is
11.76.
A barber shop produces 192 haircuts a day. Each barber in the shop works 8 hours per day and produces the same number of haircuts per hour. If the shop's productivity is 2 haircuts per hour of labor, then how many barbers does the shop employ?
12
Refer to Table 28-2. The unemployment rate in Aridia in 2010 was
12.5%.
Suppose the typical household spends $3,500 on goods and services during the month of January, and $4,300 on the same goods and services in February. Using January as the base period, what is the consumer price index for February?
122.9
During a certain year, the nominal interest rate was 7 percent, the real interest rate was 4 percent, and the CPI was 198.3 at the end of the year. The CPI at the beginning of the year was
192.5
Refer to Figure 2-9, Panel (a). The opportunity cost of moving from point M to point L is
2 donuts.
The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?
2 percent
If the multiplier is 3, then the MPC is
2/3
If the price level increased from 120 to 144, then what was the inflation rate?
20 percent
If the price level increased from 120 to 144, then what was the inflation rate?
20 percent.
Refer to Scenario 29-1 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?
200 million dias
Refer to Scenario 29-2. Suppose the Bank of Tazi loaned the banks of Tazi 10 million tazes. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply change?
200 million tazes
Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. If the nominal interest rate for 2013 is 7.3 percent , then the consumer price index for 2013 is, in fact,
242.7
Refer to Table 3-22. Suppose Zimbabwe decides to increase its production of toothbrushes by 10. What is the opportunity cost of this decision?
3 hairbrushes
The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?
3 percent
Between October 2014 and October 2015, the CPI in Canada rose from 120 to 124 and the CPI in Mexico rose from 210 to 229.1. What were the inflation rates for Canada and Mexico over this one-year period?
3.3 percent for Canada and 9.1 percent for Mexico
Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?
33.3 percent.
If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is
37.5 percent.
If the MPC = 0.75, then the government purchases multiplier is about
4
Refer to Figure 3-18. The opportunity cost of 1 bowl for Bintu is
4 cups.
The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?
4.41 percent
Refer to Scenario 29-1. Suppose the Central Bank of Namdia loaned the banks of Namdia 5 million dias. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?
40 million dias
In 2016 based on people ages 15-74 the Swedish adult non-institutionalized population was about 7.3 million, the labor force was 5.2 million, and the number of people employed was 4.8 million. According to these numbers, the Swedish labor-force participation rate and unemployment rate were about
71.2% and 7.7%
If the price level increased from 120 to 130, then what was the inflation rate?
8.3 percent.
Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?
80 to 100
Refer to Table 28-2. The labor-force participation rate of Aridia in 2010 was
80%.
The adult population in the town of Shelbyville is 150 thousand. If 100 thousand people are employed and 20 thousand are unemployed, then the labor force participation rate is approximately
80%.
Refer to Table 24-6. If the base year is 2010, then the consumer price index was
83.33 in 2009, 100.00 in 2010, and 96.67 in 2011.
Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?
9.1
Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease? a) Money demand decreases. b) The price level decreases. c) The Federal Reserve increases the money supply. d) All of the above are correct.
All of the above are correct.
Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?
All of the above are correct.
The circular-flow diagram a) incorporates two types of decision makers: households and firms. b) represents the flows of inputs, outputs, and dollars. c) is an economic model. d) All of the above are correct.
All of the above are correct.
The long-run aggregate supply curve a) indicates monetary neutrality in the long run. b) is vertical. c) is a graphical representation of the classical dichotomy. d) All of the above are correct.
All of the above are correct.
Suppose Americans become concerned about saving for retirement and, as a result, reduce their current consumption expenditures. Which of the following would you expect to occur as a result of this change?
In the short run, unemployment will increase and inflation will fall.
Suppose a recession in Europe reduces U.S. net exports at every price level. Which of the following would you expect to occur in the U.S. as a result of this change?
In the short run, unemployment will increase and inflation will fall.
If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?
Inflation expectations fall which shifts the short-run Phillips curve to the left.
Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?
Inflation is 2 percent; the tax rate is 50 percent.
The banking system currently has $50 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds, then by how much does the money supply change?
It falls by $180 billion.
Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?
Jackie gets fewer job offers
The information below for 2008 in millions was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of real GDP per person from highest to lowest?
Kenya, Tanzania, Ghana
Which of the following statements about markets is most accurate?
Markets are usually a good way to organize economic activity.
Suppose that real GDP grew more in Country A than in Country B last year. a) Country A must have a higher standard of living than country B. b) Country A's productivity must have grown faster than country B's. c) Both of the above are correct. d) None of the above are correct.
None of the above are correct.
In the long run, an increase in the money supply growth rate a) shifts the long-run Phillips curve left and the short-run Phillips curve right. b) shifts the long-run Phillips curve right and the short-run Phillips curve left. c) None of the above is correct. d) shifts both the long-run and the short-run Phillips curves right.
None of the above is correct
In the long run, an increase in the money supply growth rate a) shifts the long-run Phillips curve left and the short-run Phillips curve right. b) None of the above is correct. c) shifts both the long-run and the short-run Phillips curves right. d) shifts the long-run Phillips curve right and the short-run Phillips curve left.
None of the above is correct.
Minimum-wage laws a) cause labor shortages, which further raise wages above equilibrium. b) reduce unemployment. c) affect highly-educated workers more than high school dropouts. d) None of the above is correct.
None of the above is correct.
When the government reduces taxes, which of the following decreases?
None of the above is correct.
Suppose that velocity rises while the money supply stays the same. It follows that
P x Y must rise.
Which of the following pairs of students has a double coincidence of wants?
Piper and Molly
Which of the following pairs of individuals has a double coincidence of wants?
Polly and Paul
Which of the following statements about real and nominal interest rates is correct?
Real interest rates can be either positive or negative, but nominal interest rates must be positive.
Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies? a) In the long run, a higher saving rate leads to a higher growth rate of productivity. b) In the long run, a higher saving rate leads to a higher growth rate of income. c) All of the above are correct. d)Returns to capital become increasingly smaller as the amount of capital per worker increases.
Returns to capital become increasingly smaller as the amount of capital per worker increases.
On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.
The $750 is a nominal variable. The 300 cups of coffee is a real variable
On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.
The $750 is a nominal variable. The 300 cups of coffee is a real variable.
Which of the following statements is correct?
The CPI can be used to compare dollar figures from different points in time.
Which of the following is an example of human capital? a) All of the above are correct. b) textbooks c) hand held power tools d) knowing how to repair cars
knowing how to repair cars
Today's supply curve for gasoline could shift in response to a change in
the expected future price of gasoline.
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
the nation is not using all available resources or is using inferior technology or both.
Fiscal policy is determined by
the president and Congress and involves changing government spending and taxation.
Suppose the price index was 100 in 2014, 109 in 2015, and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015. This means that
the price index in 2016 was lower than 118.9.
In a market with a binding price control, a) the costs of production are fully reflected in the price paid. b) the price observe reflects the scarcity of the good. c) all of the above are true. d) there is an imbalance between the quantity supplied by sellers and the quantity demanded by buyers.
there is an imbalance between the quantity supplied by sellers and the quantity demanded by buyers.
If the price level last year was 180 and this year it is 176, then
there was deflation of 2.2 percent
When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money
to decrease, while the equilibrium quantity of money increases
Refer to Figure 33-7. Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy moves to
Z in the long run.
Which of the following changes would not shift the supply curve for a good or service?
a change in the price of the good or service
Which of the following shifts the short-run aggregate supply curve to the right?
a decrease in the expected price level
Which of the following shifts aggregate demand to the left?
a decrease in the money supply
An adverse supply shock causes output to
fall. To counter this a central bank would increase the money supply.
During recessions, income
falls and unemployment rises.
People will buy more if the price level
falls because falling prices increase the real value of a dollar.
If over a short time a large number of teenagers become old enough to find employment and a much smaller number of people retire, then productivity
falls but real GDP per person rises.
Currently, U.S. currency is
fiat money with no intrinsic value.
People who are unemployed because of job search are best classified as
frictionally unemployed.
The city of Ann Arbor Michigan buys a police car manufactured in Germany. In the GDP accounts this transaction is included in
government expenditures and imports.
The existence of money leads to
greater specialization and to a higher standard of living.
The labor-force participation rate tells us the fraction of the population that
has chosen to participate in the labor market.
Other things the same, if the money supply rises by 2% and people were expecting it to rise by 5%, then some firms have
higher than desired prices, which depresses their sales
The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of
introduction of new goods.
Which of the following public policies would be least likely to result in more rapid economic growth for a poor or developing country?
inward-oriented policies
Inflation is problematic if
it distorts relative prices, causing a misallocation of resources.
Productivity is the
key determinant of living standards, and growth in productivity is the key determinant of growth in living standards.
Refer to Scenario 28-1. What is the unemployment rate?
10.7%
Refer to Table 24-1. What belongs in space D?
12%
For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was
126.1.
If the sacrifice ratio is 4, then reducing the inflation rate from 9 percent to 5 percent would require sacrificing
16 percent of annual output.
Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =
2
Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was
32.8 percent.
The CPI was 220 in 2012 and 231 in 2013. Phil borrowed money in 2012 and repaid the loan in 2013. If the nominal interest rate on the loan was 10 percent, then the real interest rate was
5 percent.
Refer to Figure 3-16. At which of the following prices would both Hosne and Merve gain from trade with each other?
5 wallets for 3.75 purses
Refer to Table 28-4. What is the adult male unemployment rate in Meditor?
5.6%
In 2015 the Japanese adult non-institutionalized population was 110.7 million, the labor force was 66 million, and the number of people employed was 63.7 million. According to these numbers, the Japanese labor-force participation rate and unemployment rate were about
59.6% and 3.5%
If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was
6 percent.
Refer to Table 3-10. Assume that Japan and Korea each has 2400 hours available. If each country divides its time equally between the production of cars and airplanes, then total production is
64 cars and 16 airplanes.
Refer to Table 3-29. Juanita's opportunity cost of programming one cellular phone is testing
7.5 cellular phones and Shantala's opportunity cost of programming one cellular phone is testing 5/2 cellular phones.
Refer to Scenario 24-3. In real terms, Sue Holloway's income amounts to about what percentage of Josh Holloway's income?
70.9 percent
Refer to Table 6-5. Suppose the government imposes a price ceiling of $3 on this market. What will be the size of the shortage in this market?
75 units
Which of the following best illustrates the medium of exchange function of money?
You pay for your oil change using currency.
The short-run effects of an increase in the expected price level include
a lower level of output and a higher price level.
Refer to Figure 4-8. Suppose the figure shows the market demand for Big Box e-readers. Suppose the price of the leading competitor's e-readers, a substitute good, decreases. Which of the following changes would occur?
a shift from D1 to D2
If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
selling bonds. This selling would reduce the money supply.
Refer to Table 3-24. If England and Spain each spends all its time producing the good in which it has a comparative advantage and the countries agree to trade 2 units of bread for 6 units of cheese, then England will consume
34 units of cheese and 2 units of bread and Spain will consume 6 units of cheese and 3 units of bread.
Refer to Figure 3-21. Azerbaijan's opportunity cost of one bolt is
4 nails and Uzbekistan's opportunity cost of one bolt is 2 nails.
Refer to Figure 28-3. If the government imposes a minimum wage of $8, then how many workers will be unemployed?
4,000
Refer to Figure 28-3. If the government imposes a minimum wage of $8, then unemployment will increase by
4,000 workers.
If M = 6,000, P = 3, and Y = 3,000, what is velocity?
1.5
If the MPC = 4/5, then the government purchases multiplier is
5
The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?
3.5 percent
If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year, the sacrifice ratio is
3/2
Suppose that the adult population is 6 million, the number of employed is 3.8 million, and the labor-force participation rate is 70%. What is the unemployment rate?
9.5%
For many years country A has had a lower unemployment rate than country B. According to the long-run Phillips curve which of the following could explain this? Country A has
a lower minimum wage than country B
Water pollution from pulp and paper mills harms plants, animals, and humans. This is an example of
a market failure caused by an externality.
When deciding how much to save, people care most about
after-tax real interest rates.
An increase in the interest rate causes investment to
fall and the exchange rate to appreciate.
Workers searching for jobs that best suit them is most closely associated with
frictional unemployment.
The goal of rent control is to
help the poor by making housing more affordable.
Minimum-wage laws are least likely to affect the wages paid to
highly-educated workers.
An increase in government spending
increases the interest rate and so investment spending decreases.
In the long run, a higher saving rate
increases the level of productivity.
An increase in the MPC
increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
An open-market purchase
increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.
When the money market is drawn with the value of money on the vertical axis, an increase in the money supply
increases the price level and decreases the value of money.
As the reserve ratio decreases, the money multiplier
increases.
According to the long-run Phillips curve, in the long run monetary policy influences
inflation but not the unemployment rate; this is consistent with classical theory
In the long run, if the Fed decreases the growth rate of the money supply,
inflation will be lower.
In the long run, if the Fed decreases the growth rate of the money supply, a) unemployment will be higher. b) real GDP will be lower. c) All of the above are correct. d) inflation will be lower.
inflation will be lower.
Prices direct economic activity in a market economy by
influencing the actions of buyers and sellers.
According to the theory of liquidity preference, a decrease in the price level causes the
interest rate to fall and investment to rise.
A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called
intermediate goods.
The existence of money
makes trade easier.
The labor-force participation rate measures the percentage of the
total adult population that is in the labor force.
When the Federal Reserve increases the Federal Funds target rate, it achieves this target by
selling government bonds. This action will reduce investment and shift aggregate demand to the left.
Tax increases
shift aggregate demand left while increases in government expenditures shift aggregate demand right.
When quantity demanded increases at every possible price, the demand curve has
shifted to the right.
When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to
spend less so the value of a dollar rises.
Dollar bills, rare paintings, and emerald necklaces are all a) units of account. b) media of exchange. c) All of the above are correct. d) stores of value.
stores of value.
People who are unemployed because wages are, for some reason, set above the level that brings labor supply and demand into equilibrium are best classified as
structurally unemployed.
A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the nail guns to a U.S. construction company. In which quarter(s) is (are) GDP higher?
the first but not the second
Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?
the inflation rate, but not the natural rate of unemployment
According to liquidity preference theory, if the price level decreases, then
the interest rate falls because money demand shifts left.
Which, if any, pairs of traders has a double coincidence of wants?
Tim with Amy
When the dollar depreciates, U.S.
exports increase, while imports decrease.
Which of the following can lead to market failure?
externalities and market power
An increase in expected inflation shifts
the short-run Phillips curve right.
If the MPC is 0, then the multiplier is
1
Refer to Table 3-23. The opportunity cost of 1 pound of pork for the rancher is
1 pound of tomatoes.
Refer to Scenario 34-2. For this economy, an initial increase of $500 in government purchases translates into a
$1,388.89 increase in aggregate demand in the absence of the crowding-out effect.
The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by
$1,600.
If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as
$10,000.
Refer to Table 23-6. In 2013, this country's real GDP was
$1200.
If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by
$600 billion
Refer to Figure 28-3. If unemployment is 2,000 workers, then the minimum wage must be
$7.
If the multiplier is 5.25, then the MPC is
0.81
Which of the following statements about inputs is correct?
A forest is an example of a natural resource; it is also an example of a renewable resource.
On the basis of theory and empirical evidence, economists have reached several conclusions about economic growth. Which of the following is not one of these conclusions?
A relatively simple way to increase growth rates permanently is to increase a country's saving rate.
Refer to Figure 33-4. In the short run, a favorable shift in aggregate supply would move the economy from
A to B.
Refer to Figure 34-7. Which of the following is correct?
All of the above are correct
Any policy change that reduced the natural rate of unemployment would
All of the above are correct.
Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda a) can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total benefit she would have enjoyed by drinking just two sodas. b) is likely different from the marginal benefit provided to Bridget by the second soda. c) determines Bridget's willingness to pay for the third soda. d) All of the above are correct.
All of the above are correct.
Government policies can change the costs and benefits that people face. Those policies have the potential to a) alter people's behavior. b) alter people's decisions at the margin. c) produce results that policymakers did not intend. d) All of the above are correct.
All of the above are correct.
Other things the same, the aggregate quantity of goods demanded decreases if
All of the above are correct.
Other things the same, which of the following happens if the price level rises? a) Initially there is an excess demand for money in the money market. b) Money demand shifts rightward. c) The interest rate rises. d) All of the above are correct.
All of the above are correct.
Which of the following is accurate?
Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.
Transfer payments a) alter household income, but they do not reflect the economy's production. b) are payments that flow from government to households. c) are not made in exchange for currently produced goods or services. d) All of the above are correct.
All of the above are correct.
Which of the following effects helps to explain the slope of the aggregate-demand curve? a) the wealth effect b) the exchange-rate effect c) the interest-rate effect d) All of the above are correct.
All of the above are correct.
Which of the following is correct?
All of the above are correct.
Which of the following policy actions shifts the aggregate-demand curve?
All of the above are correct.
Who is included in the labor force by the Bureau of Labor Statistics? a) Tina, who worked most of the week in a steel factory b) Kelly, who is temporarily laid off but expects to be recalled c) DJ, who does not have a job but is looking for work d) All of the above are correct.
All of the above are correct.
Which of the following is not included in GDP? a) the honey produced and sold by a beekeeper b) the services of an exterminator c) a can of bug spray d) All of the above are included in GDP.
All of the above are included in GDP.
Which of the following is not included in GDP? a) the services of an exterminator b) the honey produced and sold by a beekeeper c) a can of bug spray d) All of the above are included in GDP.
All of the above are included in GDP.
Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp increase in the supply of labor, a major new discovery of oil, and new environmental regulations that raise the cost of electricity production. In the short run
All of the above are possible.
Which of the following are residents of rich countries likely to have in greater quantities, or better quality, than residents of poor countries? a) life expectancy b) housing c) healthcare d) All of the above.
All of the above.
Which of the following is an example of crowding out?
An increase in government spending increases interest rates, causing investment to fall.
Refer to Figure 2-1. Which arrow represents the flow of goods and services?
B
Which of the following lists contains, in this order, natural resources, human capital, and physical capital?
For a furniture company: wood, the skills and knowledge of its workers, saws.
Refer to Figure 33-4. If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from
C to D.
Refer to Table 4-2. Whose demand does not obey the law of demand?
Carrie's
Which of the following is not correct?
Countries that have had higher output growth per person have typically done so without higher productivity growth.
The theory of liquidity preference assumes that the nominal supply of money is determined by the
Federal Reserve
Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $80 billion to the left. The government wants to change spending to offset this decrease in demand. The MPC is 0.75. Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in real GDP?
Raise both taxes and expenditures by $80 billion dollars.
When an American household purchases a bottle of Italian wine for $100,
U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change.
Which of the following is an example of a capital input?
a computer
If the stock market crashes, then
aggregate demand decreases, which the Fed could offset by purchasing bonds.
Credit cards
are not considered money.
What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?
decrease taxes or increase the money supply
Permanent tax cuts shift the AD curve
farther to the right than do temporary tax cuts.
The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change
in the price level, but not output.
Other things the same, if the price level falls, people
increase foreign bond purchases, so the dollar depreciates.
If the Fed raised the reserve requirement, the demand for reserves would
increase, so the federal funds rate would rise.
According to liquidity preference theory, an increase in the price level causes the interest rate to
increase, which decreases the quantity of goods and services demanded.
The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called
natural resources.
Apple founder Steve Jobs received patents on many of his ideas. While the patents existed, his ideas were
private goods and proprietary knowledge.
Electronics firms may be able to get patents on their ideas. Doing so makes their ideas
private goods rather than public goods. This gives people more incentive to engage in research.
Proprietary technology is technology
that is known or controlled only by the company that discovered it.
When the Fed buys government bonds,
the money supply increases and the federal funds rate decreases.
Refer to Table 29-7. Assume the Fed's reserve requirement is 10 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 10 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase?
$18,000
In 1986, Ken bought a Ford Mustang for $8,000. If the price index was 122 in 1986 and the price index was 280 in 2011, then what is the price of the Mustang in 2011 dollars?
$18,360.66
In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer price index in 2007 was 125, then how much did a magazine cost in 2007?
$2.50
In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $1.7 million. A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000. According to these numbers, the hospital cost about
$2.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.
In the economy of Talikastan in 2015, exports were $500, GDP was $6400, government purchases were $1700, imports were $400, and investment was $1800. What was Talikastan's consumption in 2015?
$2800
If the reserve ratio is 4 percent, then $81,250 of new money can be generated by
$3,250 of new reserves.
Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been
$300.
If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as
$31.20 purchases today.
Which of the following is not correct?
The unemployment rate occasionally falls to zero.
Refer to Table 24-4. The inflation rate was
23.8 percent in 2013 and 7.7 percent in 2014.
An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.
Her real and nominal salary have risen.
A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement.
It has $40,000 in deposits.
When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.
The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable.
Refer to Pessimism. What happens to the expected price level and what's the result for wage bargaining?
The expected price level falls. Bargains are struck for lower wages.
Unemployment would decrease and prices would increase if
aggregate demand shifted right
A decrease in government spending initially and primarily shifts
aggregate demand to the left.
Which of the following results in higher inflation and higher unemployment in the short run?
an adverse supply shock such as an increase in the price of oil
Which of the following both shift aggregate demand left?
an increase in taxes and at a given price level consumers feel less wealthy
Paper dollars
are fiat money and gold coins are commodity money.
In the late 1960s, economist Edmund Phelps published a paper that
argued that there was no long-run tradeoff between inflation and unemployment.
The federal funds rate is the interest rate
banks charge each other for short-term loans of reserves.
Refer to Figure 6-17. A government-imposed price of $24 in this market is an example of a
binding price floor that creates a surplus.
Which of the following can explain faster growth of real GDP in country A than in Country B?
both greater population growth and greater productivity growth in Country A
Wages in excess of their equilibrium level help explain
both structural unemployment and the natural rate of unemployment.
A legal maximum on the price at which a good can be sold is called a price
ceiling
Which of the following does the Federal Reserve not do?
convert Federal Reserve Notes into gold
A person who is not employed and claims to be trying hard to find a job but really is not trying hard to find a job is
counted as unemployed but should be counted as out of the labor force.
Minimum-wage laws
create unemployment.
If the economy unexpectedly went from inflation to deflation,
creditors would gain at the expense of debtors.
Which list ranks assets from most to least liquid?
currency, demand deposits, money market mutual funds
A favorable supply shock will cause inflation to
fall and shift the short-run Phillips curve left
If inflation is lower than what was expected,
debtors pay a higher real interest rate than they had anticipated.
If the Fed increases the reserve ratio from 5 percent to 12.5 percent, then the money multiplier
decreases from 20 to 8.
Deflation
decreases incomes and reduces the ability of debtors to pay off their debts.
People will want to hold less money if the price level
decreases or if the interest rate increases.
An increase in the minimum wage
decreases the quantity of labor demanded but increases the quantity of labor supplied.
The opportunity cost of holding money
decreases when the interest rate decreases, so people desire to hold more of it.
As the price level rises, the value of money
decreases, so people must hold more money to purchase goods and services.
If there is excess money supply, people will
deposit more into interest-bearing accounts, and the interest rate will fall.
The traditional view of the production process is that capital is subject to
diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
The unemployment rate is computed as the number of unemployed
divided by the labor force, all times 100.
If he devotes all of his available resources to cantaloupe production, a farmer can produce 120 cantaloupes. If he sacrifices 1.5 watermelons for each cantaloupe that he produces, it follows that
his opportunity cost of one watermelon is 2/3 of a cantaloupe.
Shoeleather costs arise when higher inflation rates induce people to
hold less money
Which of the following shifts aggregate demand to the left?
households decide to save a larger fraction of their income.
Refer to Table 24-6. If the base year is 2011, then the CPI
increased from 2009 to 2010 and decreased from 2010 to 2011.
Refer to Table 24-4. The cost of the basket
increased from 2012 to 2013 and increased from 2013 to 2014.
At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply
increased. The central bank could have reduced the size of this increase by selling bonds.
When taxes decrease, consumption
increases as shown by a shift of the aggregate demand curve to the right.
The CPI differs from the GDP deflator in that
increases in the prices of domestically produced goods that are sold to the U.S. government show up in the GDP deflator but not in the CPI.
An increase in the minimum wage
increases structural unemployment.
According to the liquidity preference theory, an increase in the overall price level of 10 percent
increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.
Sheamous loses his job and decides to sit on the beach rather than look for work during the next few months. Other things the same, the unemployment rate
increases, and the labor-force participation rate decreases.
Which of the following is an example of human capital? a) a student loan b) All of the above are correct. c) training videos for new corporate employees d) knowledge learned from reading books
knowledge learned from reading books
In the circular-flow diagram, a) services flow from households to firms. b) profit flows from households to firms. c) All of the above are correct. d) labor flows from households to firms.
labor flows from households to firms.
Which of the following rises during recessions?
layoffs but not consumer spending
Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the
left by $500 billion.
A reduction in U.S net exports would shift U.S. aggregate demand
leftward. In an attempt to stabilize the economy, the government could increase expenditures.
If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?
lenders and people holding a lot of currency
Other things the same, a decrease in the price level motivates people to hold
less money, so they lend more, and the interest rate falls.
Other things the same, an increase in the price level makes the dollars people hold worth
less, so they can buy less.
If a country were to increase its saving rate, then in the long run it would also increase its a) growth rate of productivity. b) growth rate of income. c) All of the above are correct. d) level of income.
level of income.
For a given year, productivity in a particular country is most closely matched with that country's
level of real GDP divided by hours worked over that year.
Refer to Figure 35-6. Curve 1 is the
long-run Phillips curve
Refer to Figure 35-6. Curve 1 is the
long-run Phillips curve.
Which of the following, other things the same, would make the price level decrease and real GDP increase?
long-run aggregate supply shifts right
If people decide to hold less money, then
money demand decreases, there is an excess supply of money, and interest rates fall.
When the money market is drawn with the value of money on the vertical axis, the price level increases if
money demand shifts left or money supply shifts right.
When the money market is drawn with the value of money on the vertical axis, the price level decreases if
money demand shifts right or money supply shifts left
If an increase in inflation permanently reduced unemployment, then
money would not be neutral and the long-run Phillips curve would slope downward.
If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold
more reserves, so the reserve ratio will rise.
Real GDP
moves in the opposite direction as unemployment
Noah is an unpaid stay-at-home father who is not currently searching for paid work. Pete is a full-time student who is not looking for a job. Who is included in the labor force by the Bureau of Labor Statistics?
neither Noah nor Pete
Norma receives an increase in her nominal income. She complains that the current inflation rate of six percent erodes the real purchasing power of her additional nominal income. This is true
only if the increase in her nominal income is less than six percent
A decrease in the expected price level shifts
only the short-run aggregate supply curve right.
When there is an excess supply of money
people will try to get rid of money causing interest rates to fall. Investment increases
Inflation can be measured by the
percentage change in the consumer price index.
In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have
raised inflation and reduced unemployment.
In the long run, an increase in the money supply growth rate a) raises expected inflation so the short-run Phillips curve shifts right. b) raises expected inflation so the short-run Phillips curve shifts left. c) None of the above is correct. d) reduces expected inflation so the short-run Phillips curve shifts left.
raises expected inflation so the short-run Phillips curve shifts right.
When a minimum-wage law forces the wage to remain above the equilibrium level, it
raises the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level.
Dilbert's Incorporated produced 5,000,000 units of accounting software in 2010. At the start of 2011 the pointy-haired boss reduced total annual hours of employment from 10,000 to 8,000 and production was 4,800,000. These numbers indicate that productivity
rose by 20%.
The Fisher effect
says there is a one for one adjustment of the nominal interest rate to the inflation rate.
If the Federal Reserve decided to raise interest rates, it could
sell bonds to lower the money supply.
Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could
sell bonds to raise interest rates.
During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent . This difference between actual and expected inflation
transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
High-school athletes who skip college to become professional athletes
understand that the opportunity cost of attending college is very high.
As the aggregate demand curve shifts leftward along a given aggregate supply curve,
unemployment is higher and inflation is lower.
Refer to Scenario 34-1. The marginal propensity to consume for this economy is
0.750
Velocity is
(P x Y)/M and increases if dollars are exchanged more frequently.
Jenna is searching for a job that suits her tastes about where to live. Mary is looking for a job that makes best use of her skills.
Jenna and Mary are both frictionally unemployed.
Who was appointed Chair of the Board of Governors in 2014 by President Barack Obama?
Janet Yellen
A policy change that changes the natural rate of unemployment changes
both the long-run Phillips curve and the long-run aggregate supply curve.
The Central Bank of Wiknam increases the money supply at the same time the Parliament of Wiknam passes a new investment tax credit. Which of these policies shift aggregate demand to the right?
both the money supply increase and the investment tax credit
Suppose that the money supply increases. In the short run this decreases unemployment according to
both the short-run Phillips curve and the aggregate demand and aggregate supply model
In a perfectly competitive market, at the market price, buyers
can buy all they want, and sellers can sell all they want.
To say that a price floor is binding is to say that the price floor a) is set below the equilibrium price. b) All of the above are correct. c) results in a shortage. d) causes quantity supplied to exceed quantity demanded.
causes quantity supplied to exceed quantity demanded.
Which of the following is a source of frictional unemployment?
changes in the composition of demand among industries or regions
Positive statements are
claims about how the world is.
The primary difference between commodity money and fiat money is that
commodity money has intrinsic value but fiat money does not.
You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should
compare the cost of staying one more semester to the benefits of staying one more semester.
Other things the same, if the long-run aggregate supply curve shifts right, prices
decrease and output increases.
If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves
decrease by $25.5 million and the money supply eventually decreases by $170 million.
In the short run, an increase in the money supply causes interest rates to
decrease, and aggregate demand to shift right.
Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment
falls. As inflation expectations adjust, the short-run Phillips curve shifts right.
If people decide to hold more currency relative to deposits, the money supply
falls. The larger the reserve ratio is, the less the money supply falls.
If aggregate demand shifts right then in the short run
firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.
Wealth is redistributed from creditors to debtors when inflation was expected to be
low and it turns out to be high.
Sticky nominal wages can result in
lower profits for firms when the price level is lower than expected.
Which of the following is included in GDP? a) marijuana purchased illegally from a drug dealer. b) All of the above are included in GDP. c) marijuana produced and consumed by a man in his attic d) marijuana purchased legally in Colorado.
marijuana purchased legally in Colorado.
Refer to Scenario 25-1. K represents the quantity of
physical capital only.
Investment in
physical capital, like investment in human capital, has an opportunity cost.
From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have
raised inflation and reduced unemployment.
The classical dichotomy refers to the separation of
real and nominal variables.
Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problems in the construction of the CPI does this situation represent?
substitution bias and introduction of new goods
The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead
to a lower unemployment rate and a higher inflation rate than policy B.
Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because
when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.
Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after-tax real rate of interest
will be 1.2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
When the Fed makes open-market sales bank
withdrawals increase and lending decreases.
If an inexpensive alternative to oil were found, the price of oil adjusted for inflation
would decline as the alternative would reduce the demand for oil.
Consider the market for gasoline. Buyers
would lobby for a price ceiling, whereas sellers would lobby for a price floor.
Any policy change that reduced the natural rate of unemployment
would shift the long-run aggregate-supply curve to the right
Refer to Figure 4-24. All else equal, the premature deaths of thousands of turkeys would cause a move from
x to y.
Refer to Figure 4-25. All else equal, buyers expecting paper to be more expensive in the future would cause a current move from
x to y.
Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes
your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
Refer to Figure 2-6. The opportunity cost of this economy moving from point K to point H is
zero.
For which rate of inflation given below will the real interest rate be higher than the nominal interest rate?
-0.5%
Refer to Table 24-14. The inflation rate in 2013 was approximately
1.5%.
