ECON 202 Study Guide

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 a. $75,000; thus, Ruben's purchasing power increased between 2001 and 2006. b. $75,000; thus, Ruben's purchasing power decreased between 2001 and 2006. c. $85,000; thus, Ruben's purchasing power increased between 2001 and 2006. d. $85,000; thus, Ruben's purchasing power decreased between 2001 and 2006.

$75,000; thus, Ruben's purchasing power increased between 2001 and 2006.

In the economy of Talikastan in 2015, consumption was two-thirds of GDP, government purchases were $1000 more than investment, investment was one-ninth of GDP, and the value of exports exceeded the value of imports by $500. What was Talikastan's GDP in 2015? a. $1688 b. $9000 c. $13,500 d. $15,000

$13,500

Refer to Table 23-1. Gross national product for Chereaux in 2015 is a. $186. b. $214. c. $200. d. $204.

$204.

The CPI was 172 in 2007, and the CPI was 46.5 in 1982. If your parents put aside $1,000 for you in 1982, then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982? a. $270.35 b. $1,255.00 c. $2,698.92 d. $3,698.92

$3,698.92

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 a. $40. b. $437.50. c. $71.42. d. $428.57.

$437.50.

Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to a. $6,352. b. $6,380. c. $6,426. d. $6,651.

$6,380.

AA Appliances sells refrigerators. In 2015 it added $100,000 to its inventory. $10,000 of this addition was from used refrigerators, and the remaining $90,000 was from their purchases of newly manufactured refrigerators. How much of AA's inventory is included in 2015 GDP? a. $0 b. $10,000 c. $90,000 d. $100,000

$90,000

Refer to Scenario 5-3. The price elasticity of supply for aged cheddar cheese could be a. -1. b. 0. c. 0.5. d. 1.5.

-1.

Refer to Figure 28-3. At the equilibrium wage, how many workers are unemployed? a. 0 b. 4,000 c. 5,000 d. 8,000

0

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about a. 1.5% in the short run and 6% in the long run. b. 6% in the short run and 1.5% in the long run. c. 16.7% in the short run and 4.2% in the long run. d. 4.2% in the short run and 16.7% in the long run.

1.5% in the short run and 6% in the long run.

Refer to Table 4-4. Suppose the market consists of Adam, Barb, and Carl. If the price falls by $2, the quantity demanded in the market increases by a. 4 units. b. 6 units. c. 8 units. d. 10 units.

10 units.

In one day Madison Laundry washed 4,000 pounds of laundry with 5 workers who each worked 8 hours. What was its productivity? a. 4000 pounds of laundry b. 500 pounds of laundry per hour c. 100 pounds of laundry per hour d. None of the above is correct.

100 pounds of laundry per hour

Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112, 112 to 118, or 118 to 124? a. 106 to 112 b. 112 to 120 c. 118 to 126 d. All of these changes produce the same rate of inflation.

106 to 112

Refer to Figure 2-6. The opportunity cost of this economy moving from point I to point H is a. 120 pillows. b. 120 blankets. c. 120 blankets and 120 pillows. d. 200 blankets.

120 blankets.

Refer to Figure 2-5. The opportunity cost of this economy moving from point A to point B is a. 20 dryers. b. 20 washers. c. 20 dryers and 20 washers. d. 60 dryers.

20 dryers.

Refer to Figure 2-10, Panel (a). The opportunity cost of one sofa is highest when the economy produces a. 0 sofas. b. 12 sofas. c. 20 sofas. d. 24 sofas.

24 sofas.

The consumer price index was 120 in 2013 and 126 in 2014. The nominal interest rate during this period was 8 percent. What was the real interest rate during this period? a. 3 percent b. 2 percent c. 3.3 percent d. 12.8 percent

3 percent

Refer to Figure 5-5. Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about a. 0.33. b. 0.4. c. 1.33. d. 3.

3.

According to the traditional view of the production function, which of the following values of the additions to output per worker would be consistent with moving from 5 to 6, and then from 6 to 7, and then from 7 to 8 units of capital per worker in that order? a. 40, 40, 40 b. 40, 35, 38 c. 40, 34, 32 d. 40, 43, 48

40, 34, 32

If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is a. 1/5. b. 2. c. 5/2. d. 5.

5.

The Bureau of Labor Statistics reported in 2005 that there were 59.98 million people over age 25 whose highest level of education was a high school degree or equivalent, 36.40 million of whom were employed and 1.93 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group? a. 60.7% and 3.2% b. 60.7% and 5.0% c. 63.9% and 3.2% d. 63.9% and 5.0%

63.9% and 5.0%

Which of the following is not correct? a. The model of aggregate demand and aggregate supply is used by most economists to analyze short-run fluctuations. b. During a recession firms cut back production and workers are laid off. c. A recession is a period of declining real incomes and declining unemployment. d. A depression is a severe recession.

A recession is a period of declining real incomes and declining unemployment.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was a. 100 in 2012. b. 105 in 2013. c. 109.5 in 2014. d. All of the above are correct.

All of the above are correct.

Which of the following is a determinant of productivity? a. human capital per worker b. physical capital per worker c. natural resources per worker d. All of the above are correct.

All of the above are correct.

Which of the following is a store of value? a. currency b. U.S. government bonds c. fine art d. All of the above are correct.

All of the above are correct.

Which of the following statements is correct? a. NASDAQ is an important stock exchange in the United States. b. The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future. c. Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations. d. All of the above are correct.

All of the above are correct.

If WarmWear, a U.S.manufacturer of winter clothing, opens a new factory in Austria, then a. Austrian GNP increases by more than Austrian GDP, because GDP includes income earned by foreigners working in Austria. b. Austrian GNP increases by more than Austrian GDP, because GDP excludes income earned by foreigners working in Austria. c. Austrian GNP increases by less than Austrian GDP, because GDP includes income earned by foreigners working in Austria. d. Austrian GNP increases by less than Austrian GDP, because GDP excludes income earned by foreigners working in Austria.

Austrian GNP increases by less than Austrian GDP, because GDP includes income earned by foreigners working in Austria.

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct? a. Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth. b. Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth. c. Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth. d. Both Operation Methbust and Say No would reduce the equilibrium price of meth; Operation Methbust would reduce the equilibrium quantity, whereas Say No would increase the equilibrium quantity of meth.

Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth.

Of Social Security benefits and federal income tax brackets, which is indexed? a. Both are indexed. b. Only Social Security benefits are indexed. c. Only federal income tax brackets are indexed. d. Neither is indexed.

Both are indexed.

The Bureau of Labor Statistics produces data on unemployment and other aspects of the labor market from a regular survey of households called the a. Census. b. Labor Survey. c. Survey of Economic Indicators. d. Current Population Survey.

Current Population Survey.

GDP is used as the basic measure of a society's economic well-being. A better measure of the economic well-being of individuals in society is a. saving per person. b. GDP per person. c. government expenditures per person. d. investment per business firm.

GDP per person.

Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand? a. It would have to have shifted left by less than aggregate supply. b. It would have to have shifted left by more than aggregate supply. c. It would have to have shifted right by less than aggregate supply. d. It would have to have shifted right by more than aggregate supply.

It would have to have shifted left by more than aggregate supply.

Refer to Figure 2-7. Efficient production is represented by which point(s)? a. L, M b. L, M, N, P, Q c. N, O, P d. Q

L, M Points on the line are efficient dots inside are inefficient dots outside are impossible

Suppose that garbage collectors and landscaping workers have no unions. Now suppose that garbage collectors form unions. What does this do the labor supply and wages of landscaping workers? a. Both labor supply and wages increase. b. Labor supply increases, and wages decrease. c. Labor supply decreases, and wages increase. d. Both labor supply and wages increase.

Labor supply increases, and wages decrease.

According to the Phillips curve, policymakers could reduce both inflation and unemployment by a. increasing the money supply. b. increasing government expenditures. c. raising taxes. d. None of the above is correct.

None of the above is correct.

Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation. If in the process of bringing inflation down by 2 percentage points, real GDP falls by 6 percent for a year, the sacrifice ratio is a. 5. b. 2. c. 12. d. None of the above is correct.

None of the above is correct.

Refer to Scenario 5-1. What can you deduce about the type of good Patty's Pizza is and about the relationship between Patty's Pizza and Sue's Subs? a. Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes. b. Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are complements. c. Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are substitutes. d. Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are complements.

Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes.

Refer to Figure 4-6. Suppose that the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. We could illustrate the tax as producing a movement from a. Point A to Point B in Panel 1. b. Point B to Point A in Panel 1. c. Point A to Point C in Panel 2. d. Point C to Point A in Panel 2.

Point A to Point B in Panel 1.

Which of the following is not an example of a natural experiment an economist might use to evaluate a theory? a. Transit ridership increased in Atlanta following an increase in gas prices. b. Federal tax revenue increased following a decrease in the tax rate. c. Students in a principles of microeconomics course are asked to play a game with classmates to determine what decisions they make under certain circumstances. d. Following the imposition of austerity measures, the growth rate of the economy in Greece slowed.

Students in a principles of microeconomics course are asked to play a game with classmates to determine what decisions they make under certain circumstances.

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely? a. The 2 percent bond is more risky than the 5 percent bond. b. The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond. c. The 2 percent bond has a longer term than the 5 percent bond. d. The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.

The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.

Consider three different closed economies with the following national income statistics. Country A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion. County B has private savings of $60 billion, and investment expenditures of $40 billion. Country C has GDP of $300 billion, investment of $90, consumption of $180 billion, taxes of $60 billion and transfers of $20 billion. From this information, we know that a. country A has the largest government budget deficit. b. country B has the largest government budget deficit. c. country C has the largest government budget deficit. d. The government budget deficit is equal in all three countries.

The government budget deficit is equal in all three countries.

Refer to Table 2-3. Which of the following statements is correct? a. The opportunity cost of an additional 200 shoes is constant at 200 socks. b. The opportunity cost of an additional 200 shoes is constant at 300 socks. c. Footville's production possibilities frontier is a straight, downward-sloping line. d. The opportunity cost of an additional 200 shoes increases as more socks are produced.

The opportunity cost of an additional 200 shoes increases as more socks are produced.

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe? a. The quality of beef deteriorates and beef becomes more expensive relative to other goods. b. The quality of beef deteriorates and beef becomes less expensive relative to other goods. c. The quality of beef improves and beef becomes more expensive relative to other goods. d. The quality of beef improves and the price of beef relative to other prices remains unchanged.

The quality of beef deteriorates and beef becomes more expensive relative to other goods.

Which of the following is not a reason perfect competition is a useful simplification, despite the diversity of market types we find in the world? a. Perfectly competitive markets are the easiest to analyze because everyone participating in the market takes the price as given by market conditions. b. Some degree of competition is present in most markets. c. There are many buyers and many sellers in all types of markets. d. Many of the lessons that we learn by studying supply and demand under perfect competition apply in more complicated markets as well.

There are many buyers and many sellers in all types of markets.

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Which of the following statements is correct? a. These points are consistent with the theoretical long-run Phillips curve, but not with the short-run Phillips curve. b. These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips curve. c. These points are consistent with both the theoretical short-run and long-run Phillips curves. d. These points are not consistent with either the theoretical short-run or long-run Phillips curves.

These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips curve.

Refer to Figure 2-6. If this economy moves from point F to point G, then which of the following statements is correct? a. This economy has moved from a point of inefficient production to a point of efficient production. b. This economy has experienced economic growth. c. This economy has experienced an increase in employment. d. None of the above is correct.

This economy has experienced economic growth.

When an American household purchases a bottle of Italian wine for $100, a. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP decreases by $100. b. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP increases by $100. c. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change. d. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases by $100.

U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change.

A German citizen buys an automobile produced in the United States by a Japanese company. As a result, a. U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. b. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, German GNP is unaffected, and German GDP decreases. c. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. d. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net exports, GNP, and GDP decrease.

U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.

Which of the following involves financial intermediation? a. a bank makes a loan b. a household buys stock issued by a corporation c. a foreign government purchases U.S. government bonds d. All of the above are correct.

a bank makes a loan

A basic principle of economics is that a country's standard of living depends on its a. quantity of physical capital. b. abundance of natural resources. c. ability to produce goods and services. d. ability to thrive economically without having to interact with other countries.

ability to produce goods and services.

Other things the same, an increase in the amount of capital firms wish to purchase would initially shift a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left.

aggregate demand right.

If a study by medical researchers finds that eating brown rice causes weight loss while eating white rice causes weight gain, then we likely would see a. an increase in demand for brown rice and a decrease in demand for white rice. b. a decrease in demand for brown rice and an increase in demand for white rice. c. an increase in demand for both brown and white rice. d. no change in demand for either type of rice because weight loss is not a determinant of demand.

an increase in demand for brown rice and a decrease in demand for white rice.

Which of the following shifts both the short-run and long-run aggregate supply right? a. an increase in the actual price level b. an increase in the expected price level c. an increase in the capital stock d. None of the above is correct.

an increase in the capital stock

Refer to Figure 35-9. Which of the following events could explain the shift of the aggregate-supply curve from AS1 to AS2? a. a reduction in firms' costs of production b. a reduction in taxes on consumers c. an increase in the price level d. an increase in the world price of oil

an increase in the world price of oil

According to the classical model, which of the following would double if the quantity of money doubled? a. prices but not nominal income b. nominal income but not prices c. both prices and nominal income d. neither prices nor nominal income

both prices and nominal income

Refer to Financial Crisis. What happens to the price level and real GDP in the short run? a. both the price level and real GDP rise b. the price level rises and real GDP falls c. the price level falls and real GDP rises d. both the price level and real GDP fall

both the price level and real GDP fall

A budget deficit a. changes the supply of loanable funds. b. changes the demand for loanable funds. c. changes both the supply of and demand for loanable funds. d. does not influence the supply of or the demand for loanable funds.

changes the supply of loanable funds.

Economists speaking like scientists make a. normative statements. b. prescriptive statements. c. claims about how the world is. d. claims about how the world should be.

claims about how the world is.

Which of the following effects results from the change in the interest rate created by an increase in government spending? a. the investment accelerator and crowding out b. the investment accelerator but not crowding out c. crowding out but not the investment accelerator d. neither crowding out nor the investment accelerator

crowding out but not the investment accelerator

You have been asked by your economics professor to graph the market for lumber and then to analyze the change that would occur in equilibrium price as a result of recent forest fires in the west. Your first step would be to a. decide which direction to shift the curve. b. decide whether the fires affected demand or supply. c. graph the shift to see the effect on equilibrium. d. None of the above is correct.

decide whether the fires affected demand or supply.

Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's a. demand for cigarettes is perfectly inelastic. b. price elasticity of demand for cigarettes is infinite. c. income elasticity of demand for cigarettes is 0. d. More than one of the above is correct.

demand for cigarettes is perfectly inelastic.

Monetary neutrality means that a change in the money supply a. does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run. b. 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. c. does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run. d. does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.

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.

There was hyperinflation during the a. period 1880-1896 in the United States. b. 1970s in the United States. c. early part of the current century in Zimbabwe. d. All of the above are correct.

early part of the current century in Zimbabwe.

Refer to Figure 5-4. The section of the demand curve from A to B represents the a. elastic section of the demand curve. b. inelastic section of the demand curve. c. unit elastic section of the demand curve. d. perfectly elastic section of the demand curve.

elastic section of the demand curve.

At the equilibrium price, the quantity of the good that buyers are willing and able to buy a. is greater than the quantity that sellers are willing and able to sell. b. exactly equals the quantity that sellers are willing and able to sell. c. is less than the quantity that sellers are willing and able to sell. d. Either a) or c) could be correct.

exactly equals the quantity that sellers are willing and able to sell.

What do we call financial institutions through which savers can indirectly provide funds to borrowers? a. stock markets b. financial institutions c. financial markets d. financial intermediaries

financial intermediaries

If aggregate demand shifts right then in the short run a. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. b. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. c. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. d. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.

firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.

Economists make assumptions to a. mimic the methodologies employed by other scientists. b. minimize the number of experiments that yield no useful data. c. minimize the likelihood that some aspect of the problem at hand is being overlooked. d. focus their thinking on the essence of the problem at hand.

focus their thinking on the essence of the problem at hand.

In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engaged in a. foreign portfolio investment. b. indirect domestic investment. c. foreign direct investment.

foreign portfolio investment.

Which of the following do unions not cause? a. frictional unemployment b. the wage to rise above the equilibrium level c. conflict between insiders who benefit from high union wages and outsiders who do not get the union jobs d. reduced wages in industries without unions

frictional unemployment

You watch a lot of HGTV during your summer vacation, and you notice that most housing buyers list granite countertops in their "must have" lists when buying a new or existing house. You expect the demand for a. granite countertops to shift to the left. b. granite countertops to shift to the right. c. substitute products such as marble countertops to shift to the right. d. substitute products such as marble countertops to be unaffected by buyers' preferences for granite.

granite countertops to shift to the right.

Countries with low GDP per person tend to have a. lower rates of child malnutrition. b. fewer infants with low birth weight. c. higher rates of infant mortality. d. more access to safe drinking water.

higher rates of infant mortality.

Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In 2011, he employed 5 bakers who produced a total of 200 cakes each day. In 2012, he employed 6 bakers who produced a total of 249 cakes each day. The bakery's productivity a. decreased by 2.33%. b. increased by 2.33%. c. increased by 3.75%. d. increased by 24.50%.

increased by 3.75%.

In the fourteenth century it is estimated that deaths resulting from the bubonic plague reduced the population by about a third. Assuming diminishing returns, the decrease in population should have a. increased productivity and real GDP per person. b. increased productivity but decreased real GDP per person. c. increased real GDP per person, but decreased productivity. d. decreased productivity and real GDP per person.

increased productivity and real GDP per person.

An increase in the minimum wage a. reduces structural unemployment. b. reduces frictional unemployment, c. increases structural unemployment. d. increases frictional unemployment.

increases structural unemployment.

Refer to Table 5-5. When price is between $5 and $9, demand is a. elastic. b. unit elastic. c. inelastic. d. There is not enough information given to determine whether demand is elastic, unit elastic, or inelastic.

inelastic.

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement a. is an assertion that production functions have the property of constant returns to scale. b. is consistent with the view that capital is subject to diminishing returns. c. is inconsistent with the view that it is easier for a country to grow fast if it starts out relatively poor. d. All of the above are correct.

is consistent with the view that capital is subject to diminishing returns.

The equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation), a. is the equation of the short-run Phillips curve. b. implies the short-run Phillips curve shifts every time there is a change in actual inflation. c. reflects the reasoning of Samuelson and Solow. d. All of the above are correct.

is the equation of the short-run Phillips curve.

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument a. is completely correct. b. is completely wrong. c. is true for the short run but not the long run. d. is true for the long run but not the short run.

is true for the short run but not the long run.

Classical economist David Hume observed that as the money supply expanded after gold discoveries a. prices and output both increased immediately. b. prices increased immediately while output remained unchanged. c. it took time for prices to rise; in the meantime output was lower. d. it took time for prices to rise; in the meantime output was higher.

it took time for prices to rise; in the meantime output was higher.

Suppose the price for one gallon of gasoline rises from $3.50 to $4.00 and the price of one gallon of milk rises from $3.00 to $3.20. If the CPI rises from 120 to 132, then people likely will buy a. more gasoline and more milk. b. more gasoline and fewer milk. c. less gasoline and more milk. d. less gasoline and fewer milk.

less gasoline and more milk.

In the United States, real interest rates were a. high in the 1970s and 1990s. b. low in the 1970s and 1990s. c. high in the 1970s and low in the 1990s. d. low in the 1970s and high in the 1990s.

low in the 1970s and high in the 1990s.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will a. raise both price and total revenues. b. lower both price and total revenues. c. raise price and lower total revenues. d. lower price and raise total revenues.

lower both price and total revenues.

Economists make assumptions to a. provide issues for political discussion. b. make a complex world easier to understand. c. make it easier to teach economic concepts and analysis. d. create policy alternatives that are incomplete or subject to criticism.

make a complex world easier to understand.

The primary economic function of the financial system is to a. keep interest rates low. b. provide expert advice to savers and investors. c. match one person's consumption expenditures with another person's capital expenditures. d. match one person's saving with another person's investment.

match one person's saving with another person's investment.

According to liquidity preference theory, an increase in the price level shifts the a. money demand curve rightward, so the interest rate increases. b. money demand curve rightward, so the interest rate decreases. c. money demand curve leftward, so the interest rate decreases. d. money demand curve leftward, so the interest rate increases.

money demand curve rightward, so the interest rate increases.

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the a. money supply to fall. To reduce the impact of this the Fed could lower the discount rate. b. money supply to fall. To reduce the impact of this the Fed could raise the discount rate. c. money supply to rise. To reduce the impact of this the Fed could lower the discount rate. d. money supply to rise. To reduce the impact of this the Fed could raise the discount rate.

money supply to fall. To reduce the impact of this the Fed could raise the discount rate.

The slope of the demand for loanable funds curve represents the a. positive relation between the real interest rate and investment. b. negative relation between the real interest rate and investment. c. positive relation between the real interest rate and saving. d. negative relation between the real interest rate and saving.

negative relation between the real interest rate and investment.

The residents of Ireland earn $200 million of income from abroad. Residents of other countries earn $300 million in Ireland. Therefore, Ireland's a. net factor payments from abroad are positive, and its GDP is larger than its GNP. b. net factor payments from abroad are positive, and its GNP is larger than its GDP. c. net factor payments from abroad are negative, and its GDP is larger than its GNP. d. net factor payments from abroad are negative, and its GNP is larger than its GDP.

net factor payments from abroad are negative, and its GDP is larger than its GNP.

If Martina's income increases and, as a result, she chooses to buy more lattés per month at each price, then her demand curve will a. shift to the right. b. shift to the left. c. not shift; instead, Martina will move along her demand curve downward and to the right. d. not shift; instead, Martina will move along her demand curve upward and to the left.

not shift; instead, Martina will move along her demand curve downward and to the right.

The tool most often used by the Fed to control the money supply is a. changing reserve requirements. b. open market operations. c. buying and selling of equities. d. altering the discount rate.

open market operations.

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result? a. both the price level and output b. the price level but not output c. output but not the price level d. neither output nor the price level

output but not the price level

By not taking into account the possibility of consumer substitution, the CPI a. understates the cost of living. b. overstates the cost of living. c. may overstate or understate the cost of living, depending on how quickly prices rise. d. may overstate or understate the cost of living, regardless of how quickly prices rise.

overstates the cost of living.

A high demand for a company's stock is an indication that a. the company is in need of funds. b. the company has recently sold a large quantity of bonds. c. people are optimistic about the company's future. d. people are pessimistic about the company's future.

people are optimistic about the company's future.

The inflation rate is the a. absolute change in real GDP from one period to another. b. percentage change in real GDP from one period to another. c. absolute change in the price level from one period to another. d. percentage change in the price level from one period to another.

percentage change in the price level from one period to another.

Refer to Table 24-5. The inflation rate was a. negative in 2005 and negative in 2006. b. negative in 2005 and positive in 2006. c. positive in 2005 and negative in 2006. d. positive in 2005 and positive in 2006.

positive in 2005 and positive in 2006.

When drawing a demand curve, a. demand is measured along the vertical axis, and price is measured along the horizontal axis. b. quantity demanded is measured along the vertical axis, and price is measured along the horizontal axis. c. price is measured along the vertical axis, and demand is measured along the horizontal axis. d. price is measured along the vertical axis, and quantity demanded is measured along the horizontal axis.

price is measured along the vertical axis, and quantity demanded is measured along the horizontal axis.

When supply and demand both increase, equilibrium a. price will increase. b. price will decrease. c. quantity may increase, decrease, or remain unchanged. d. price may increase, decrease, or remain unchanged.

price may increase, decrease, or remain unchanged.

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through a. sales of government bonds, which reduces interest rates and causes people to hold less money. b. purchases of government bonds, which reduces interest rates and causes people to hold less money. c. purchases of government bonds, which reduces interest rates and causes people to hold more money. d. sales of government bonds, which reduces interest rates and causes people to hold more money.

purchases of government bonds, which reduces interest rates and causes people to hold more money.

Refer to The Economy in 2008. In the short run the increased prices of world commodities a. raised both the price level and output. b. raised the price level and reduced output. c. reduced the price level and raised output. d. reduced both the price level and output.

raised both the price level and output.

On a bank's T-account, which are part of the bank's assets? a. both deposits made by its customers and reserves b. deposits made by its customers but not reserves c. reserves but not deposits made by its customers d. neither deposits made by its customers nor reserves

reserves but not deposits made by its customers

When the price of a good is higher than the equilibrium price, a. a shortage will exist. b. buyers desire to purchase more than is produced. c. sellers desire to produce and sell more than buyers wish to purchase. d. quantity demanded exceeds quantity supplied.

sellers desire to produce and sell more than buyers wish to purchase.

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 a. buying bonds. This buying would reduce reserves. b. buying bonds. This buying would increase reserves. c. selling bonds. This selling would reduce reserves. d. selling bonds. This selling would increase reserves.

selling bonds. This selling would reduce reserves.

Cyclical unemployment is closely associated with a. long-term economic growth. b. short-run ups and downs of the economy. c. fluctuations in the natural rate of unemployment. d. changes in the minimum wage.

short-run ups and downs of the economy.

Refer to Figure 4-22. At a price of $12, there is a a. surplus of 2 units. b. surplus of 4 units. c. shortage of 2 units. d. shortage of 4 units.

shortage of 4 units.

Average income has been stagnant for many years in a. Western European counties. b. some Asian countries like South Korea and Singapore. c. some Sub-Saharan African countries. d. All of the above are correct.

some Sub-Saharan African countries.

When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to a. spend more so the value of a dollar rises. b. spend more so the value of a dollar falls. c. spend less so the value of a dollar rises. d. spend less so the value of a dollar falls.

spend less so the value of a dollar rises.

The amount of unemployment varies a. little over time and across countries. b. little over time but substantially across countries. c. substantially over time but little across countries. d. substantially over time and across countries.

substantially over time and across countries.

The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and a. society's preferences. b. the available production technology. c. a fair distribution of the output. d. the available demand for the output.

the available production technology.

Which of the following is an example of physical capital? a. the strength of workers b. on the job training c. financial assets like cash and bonds d. the equipment in a factory

the equipment in a factory

According to liquidity preference theory, if the price level decreases, then a. the interest rate falls because money demand shifts right. b. the interest rate falls because money demand shifts left. c. the interest rate rises because money supply shifts right. d. the interest rate rises because money supply shifts left.

the interest rate falls because money demand shifts left.

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller? a. the interest rate falls and aggregate supply is relatively flat b. the interest rate falls and aggregate supply is relatively steep c. the interest rate rises and aggregate supply is relatively flat d. the interest rate rises and aggregate supply is relatively steep

the interest rate rises and aggregate supply is relatively steep

In which case below is the real interest rate the highest? a. the nominal interest rate = 1% and inflation = 3% b. the nominal interest rate = 6% and inflation = 4% c. the nominal interest rate = 2% and inflation = -1% d. the nominal interest rate = 2% and inflation = 1%

the nominal interest rate = 1% and inflation = 3%

Which of the following adjust to bring aggregate supply and demand into balance? a. the price level and real output b. the real rate of interest and the money supply c. government expenditures and taxes d. the saving rate and net exports

the price level and real output

In the long run, if there is an increase in the money supply growth rate, which of the following curves shifts right? a. the short-run and the long run Phillips curves b. the short-run but not the long run Phillips curve c. the long-run but not the short-run Phillips curve d. neither the short-run nor the long-run Phillips curves

the short-run but not the long run Phillips curve

When the price of a good or service changes, a. the demand curve shifts in the opposite direction. b. the supply curve shifts in the opposite direction. c. the supply curve shifts in the same direction. d. there is a movement along a given supply curve.

there is a movement along a given supply curve.

A problem that the Fed faces when it attempts to control the money supply is that a. the 100-percent-reserve banking system in the U.S. makes it difficult for the Fed to carry out its monetary policy. b. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. c. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. d. the Fed does not control the amount of money that households choose to hold as deposits in banks.

tthe Fed does not control the amount of money that households choose to hold as deposits in banks.

The purchase of rice produced this period is included in GDP if the rice is a. used in a meal a restaurant sells during the same period they buy the rice. b. purchased by a family who uses it to make tuna casserole for its supper. c. purchased by a frozen food company to increase its inventory. d. B and C are correct.

used in a meal a restaurant sells during the same period they buy the rice.

Samuelson and Solow argued that a combination of low unemployment and low inflation a. was impossible given the historical data as summarized by the Phillips curve. b. could be achieved with an "appropriate" fiscal policy. c. could be achieved with an "appropriate" monetary policy. d. could be achieved with an "appropriate" mix of monetary and fiscal policies.

was impossible given the historical data as summarized by the Phillips curve.

Refer to Figure 4-24. All else equal, the premature deaths of thousands of turkeys would cause a move from a. DA to DB . b. DB to DA. c. x to y. d. y to x.

x to y.