QN=1 (17719) When an economist points out that you and millions of other people are

interdependent, he or she is referring to the fact that we all

a. rely upon the government to provide us with the basic necessities of life.
b. rely upon one another for the goods and services we consume.
c. have similar tastes and abilities.
d. are concerned about one another’s well-being.

QN=2 (17723) When each person specializes in producing the good in which he or she has a
comparative advantage, total production in the economy
a. falls.
b. stays the same.
c. rises.
d. may fall, rise, or stay the same.

QN=3 (17730) Assume for Namibia that the opportunity cost of each hut is 200 bowls. Then which of
these pairs of points could be on Namibia's production possibilities frontier?
a. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls)
b. (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls)
c. (300 huts, 50,000 bowl) and (200 huts, 60,000 bowls)
d. (300 huts, 60,000 bowls) and (200 huts, 80,000 bowls)

QN=4 (17733) Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of
fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units
of fish per year. There are 30 workers in each country. No trade occurs between the
two countries. Boatland produces and consumes 75 units of wheat and 375 units of
fish per year while Farmland produces and consumes 375 units of wheat and 75 units
of fish per year. If trade were to occur, Boatland would trade 90 units of fish to
Farmland in exchange for 80 units of wheat. If Boatland now completely specializes in
fish production, how many units of fish could it now consume along with the 80 units
of imported wheat?
a. 490 units
b. 500 units
c. 610 units
d. 660 units

QN=5 Refer to Figure 3-7. The opportunity cost of 1 bowl for Juba is
(17761
)
a. 1/4 cup.
b. 2/3 cup.
c. 3/2 cups.
d. 4 cups.

QN=6 (17718) People who provide you with goods and services
a. are acting out of generosity.
b. do so because they get something in return.
c. have chosen not to become interdependent.
d. are required to do so by the government.

QN=7 (17732) Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of
oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels
of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the
two countries do not trade, Cornland will produce and consume 400 bushels of corn
and 100 bushels of oats, while Oatland will produce and consume 60 bushels of corn
and 400 bushels of oats. If each country made the decision to specialize in producing
the good in which it has a comparative advantage, then the combined yearly output of
the two countries would increase by
a. 280 bushels of corn and 450 bushels of oats.
b. 340 bushels of corn and 500 bushels of oats.
c. 360 bushels of corn and 520 bushels of oats.
d. 360 bushels of corn and 640 bushels of oats.

QN=8 Refer to Figure 3-3. Enid has an absolute advantage in the production of
(17758
)
a. burritos and a comparative advantage in the production of tacos.
b. burritos and a comparative advantage in the production of burritos.
c. neither good and a comparative advantage in the production of tacos.
d. neither good and a comparative advantage in the production of burritos.

QN=9 (17728) By definition, imports are

a. people who work in foreign countries.
b. goods in which a country has an absolute advantage.
c. limits placed on the quantity of goods leaving a country.
d. goods produced abroad and sold domestically.

QN=10 Refer to Table 3-11. Assume that Falda and Varick each has 1 hour available. If each person divides
(17755 their time equally between the production of wheat and cloth, then total production is
)
a. 4 bushels of wheat and 7.5 yards of cloth.
b. 7 bushels of wheat and 13.5 yards of cloth.
c. 8 bushels of wheat and 15 yards of cloth.
d. 14 bushels of wheat and 27 yards of cloth.

QN=11 Refer to Table 3-5. Spain should export

(17752
)

a. cheese and import bread.

b. bread and import cheese.
c. both goods and import neither good.
d. neither good and import both goods.

QN=12 Refer to Table 3-6. The opportunity cost of 1 dress for Carlos is
(17739
)
a. 1/2 quilt.
b. 2 hours of labor.
c. 2 quilts.
d. 45 hours of labor.

QN=13 Refer to Table 3-4. The opportunity cost of 1 pound of potatoes for the farmer is
(17749
)

a. 1/5 pound of meat.

b. 2 hours of labor.
c. 5 pounds of meat.
d. 5 hours of labor.

QN=14 Refer to Table 3-2. At which of the following prices would both Aruba and Iceland gain from trade
(17736 with each other?
)
a. 2 radios for 4 coolers
b. 2 radio for 6 coolers
c. 2 radio for 10 coolers
d. Aruba and Iceland could not both gain from trade with each other at any price.

QN=15 Refer to Figure 3-4. If Perry and Jordan each spends all their time producing the good in which they
(17740 have a comparative advantage and trade takes place at a price of 1 novel for 7 poems, then
)

a. Perry and Jordan will both gain from this trade.

b. Perry will gain from this trade, but Jordan will not.
c. Jordan will gain from this trade, but Perry will not.
d. neither Perry nor Jordan will gain from this trade.

QN=16 Refer to Figure 3-6. Daisy has an absolute advantage in the production of
(17760
)

a. both goods and a comparative advantage in the production of pies.

b. both goods and a comparative advantage in the production of tarts.
c. neither good and a comparative advantage in the production of pies.
d. neither good and a comparative advantage in the production of tarts.

QN=17 (17720) What must be given up to obtain an item is called

a. out-of-pocket cost.
b. comparative worth.
c. opportunity cost.
d. absolute value.

QN=18 Refer to Figure 3-5. Puneet has an absolute advantage in the production of
(17759
)
a. purses and Chirag has an absolute advantage in the production of wallets.
b. wallets and Chirag has an absolute advantage in the production of purses.
c. both goods and Chirag has an absolute advantage in the production of neither good.
d. neither good and Chirag has an absolute advantage in the production of both goods.

QN=19 (17725) Adam Smith

a. and David Ricardo both opposed free trade.
b. opposed free trade, but David Ricardo supported it.
c. supported free trade, but David Ricardo opposed it.
d. and David Ricardo both supported free trade.

QN=20 Refer to Table 3-11. Varick has a comparative advantage in the production of
(17756
)

a. wheat.
b. cloth.
c. both goods.
d. neither good.

QN=21 (17731) Suppose that a worker in Radioland can produce either 4 radios or 1 television per
year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year.
Each nation has 100 workers. Also suppose that each country completely specializes in
producing the good in which it has a comparative advantage. If Radioland trades 100
radios to Teeveeland in exchange for 100 televisions each year, then each country's
maximum consumption of new radios and televisions per year will be
a. 100 radios, 300 televisions in Radioland and 300 radios, 100 televisions in Teeveeland.
b. 300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland.
c. 200 radios, 100 televisions in Radioland and 100 radios, 200 televisions in Teeveeland.
d. 300 radios, 100 televisions in Radioland and 100 radios, 400 televisions in Teeveeland.

QN=22 Refer to Table 3-1. What is Sardi’s opportunity cost of producing one bushel of corn?
(17735
)

a. 3/5 pound of pork

b. 6/5 pounds of pork
c. 4/3 pounds of pork
d. 5/3 pounds of pork

QN=23 Refer to Table 3-5. The opportunity cost of 1 unit of cheese for Spain is
(17750
)
a. 1/2 unit of bread.
b. 2 hours of labor.
c. 2 units of bread.
d. 4 hours of labor.

QN=24 (17742) Refer to Figure 3-9. If Uzbekistan and Azerbaijan switch from each country dividing its
time equally between the production of bolts and nails to each country spending all of
its time producing the good in which it has a comparative advantage, then total
production will increase by
a. 5 bolts and 10 nails.
b. 15 bolts and 40 nails.
c. 20 bolts and 50 nails.
d. 30 bolts and 80 nails.

QN=25 Refer to Table 3-9. Barb has an absolute advantage in

(17754
)

a. both setting up and testing computers and a comparative advantage in setting up computers.
b. both setting up and testing computers and a comparative advantage in testing computers.
c. neither setting up nor testing computers and a comparative advantage in setting up computers.
d. neither setting up nor testing computers and a comparative advantage in testing computers.

QN=26 (17722) Which of the following is not correct?

a. The producer who requires a smaller quantity of inputs to produce a good is said to
have an absolute advantage in producing that good.
b. The producer who gives up less of other goods to produce Good X has the smaller
opportunity cost of producing Good X.
c. The producer who has the smaller opportunity cost of producing a good is said to have
a comparative advantage in producing that good.
d. The gains from specialization and trade are based not on comparative advantage but
on absolute advantage.

QN=27 (17727) Which of the following is not correct?

a. Economists are generally united in their support of free trade.
b. The conclusions of Adam Smith and David Ricardo on the gains from trade have held
up well over time.
c. David Ricardo argued that Britain should not restrict imports of grain.
d. Economists’ opposition to trade restrictions is still based largely on the principle of
absolute advantage.

QN=28 (17726) Which famous economist developed the principle of comparative advantage as we
know it today?
a. Adam Smith
b. David Ricardo
c. John Maynard Keynes
d. Milton Friedman

QN=29 (17747) A country that currently does not trade with other countries could benefit by
a. restricting imports and promoting exports.
b. promoting imports and restricting exports.
c. restricting both imports and exports.
d. not restricting trade.

QN=30 Refer to Figure 3-3. If Enid must work 0.25 hour to produce each taco, then her production
(17757 possibilities frontier is based on how many hours of work?
)
a. 40 hours
b. 100 hours
c. 400 hours
d. 1600 hours

QN=31
(17744 If the production possibilities frontier is bowed outward, then “?” could be
)

a. 50.
b. 75.
c. 100.
d. 125.

QN=32 (17729) By definition, exports are

a. limits placed on the quantity of goods brought into a country.
b. goods in which a country has an absolute advantage.
c. people who work in foreign countries.
d. goods produced domestically and sold abroad.
QN=33 Refer to Table 3-6. Assume that Hilda and Carlos each has 90 hours available. Originally, each
(17738 person divided their time equally between the production of quilts and dresses. Now, each person
) spends all their time producing the good in which they have a comparative advantage. As a result,
the total output of dresses increased by

a. 3.5.
b. 4.5.
c. 5.5.
d. 9.0.

QN=34 Refer to Table 3-2. Aruba’s opportunity cost of one cooler is

(17737
)

a. 0.4 radio and Iceland’s opportunity cost of one cooler is 0.25 radio.
b. 0.4 radio and Iceland’s opportunity cost of one cooler is 4 radios.
c. 2.5 radios and Iceland’s opportunity cost of one cooler is 0.25 radio.
d. 2.5 radios and Iceland’s opportunity cost of one cooler is 4 radios.

QN=35 (17745) Absolute advantage is found by comparing different producers’

a. opportunity costs.
b. payments to land, labor, and capital.
c. input requirements per unit of output.
d. locational and logistical circumstances.

QN=36 Refer to Figure 3-4. The opportunity cost of 1 novel for Jordan is
(17741
)

a. 1/3 poem.
b. 3 poems.
c. 4 poems.
d. 12 poems.

QN=37 Refer to Table 3-5. England has a comparative advantage in the production of
(17751
)

a. cheese and Spain has a comparative advantage in the production of bread.

b. bread and Spain has a comparative advantage in the production of cheese.
c. both goods and Spain has a comparative advantage in the production of neither good.
d. neither good and Spain has a comparative advantage in the production of both goods.

QN=38 (17724) Two people can benefit from specialization and trade by obtaining a good at a price
that is
a. lower than his or her opportunity cost of that good.
b. the same as his or her opportunity cost of that good.
c. higher than his or her opportunity cost of that good.
d. different than his or her opportunity cost of that good.

QN=39 (17746) For two individuals who engage in the same two productive activities, it is impossible
for one of the two individuals to
a. have a comparative advantage in both activities.
b. have an absolute advantage in both activities.
c. be more productive per unit of time in both activities.
d. gain from trade with each other.

QN=40 Refer to Table 3-7. Korea should specialize in the production of

(17753
)

a. cars and import airplanes.

b. airplanes and import cars.
c. both goods and import neither good.
d. neither good and import both goods.

QN=41 Refer to Table 3-1. At which of the following prices would both Sardi and Tinaka gain from trade
(17734 with each other?
)
a. 6 bushels of corn for 10.5 pounds of pork
b. 12 bushels of corn for 19 pounds of pork
c. 24 bushels of corn for 34 pounds of pork
d. Sardi and Tinaka could not both gain from trade with each other at any price.

QN=42 (17721) The opportunity cost of an item is

a. the number of hours that one must work in order to buy one unit of the item.
b. what you give up to get that item.
c. always less than the dollar value of the item.
d. always greater than the cost of producing the item.

QN=43 (17743) When can two countries gain from trading two goods?
a. (i) when the first country can only produce the first good and the second country can
only produce the second good
b. (ii) when the first country can produce both goods, but can only produce the second
good at great cost, and the second country can produce both goods, but can only
produce the first good at great cost
c. (iii) when the first country is better at producing both goods and the second country is
worse at producing both goods
d. Two countries could gain from trading two goods under all of the conditions in (i), (ii),
and (iii).

QN=44 Refer to Table 3-3. Assume that Zimbabwe and Portugal each has 180 machine minutes available.
(17748 If each country divides its time equally between the production of toothbrushes and hairbrushes,
) then total production is
a. 24 toothbrushes and 12 hairbrushes.
b. 48 toothbrushes and 24 hairbrushes.
c. 96 toothbrushes and 48 hairbrushes.
d. 720 toothbrushes and 1440 hairbrushes.

QN=45 (17763) If an economy’s GDP falls, then it must be the case that the economy’s
a. income falls and saving rises.
b. income and saving both fall.
c. income falls and expenditure rises.
d. income and expenditure both fall.

QN=46 (17778) Which of the following topics are more likely to be studied by a macroeconomist than
by a microeconomist?
a. the effect of taxes on the prices of airline tickets, the profitability of automobile-
manufacturing firms, and employment trends in the food-service industry
b. the price of beef, wage differences between genders, and antitrust laws
c. how consumers maximize utility, and how prices are established in markets for
agricultural products
d. the percentage of the labor force that is out of work, and differences in average
income from country to country

QN=47 (17787) The value of the housing services provided by the economy's owner-occupied houses
is
a. included in GDP, and the estimated rental values of the houses are used to place a
value on these housing services.
b. included in GDP, and the actual mortgage payments made on the houses are used to
estimate the value of these rental services.
c. excluded from GDP since these services are not sold in any market.
d. excluded from GDP since the value of these housing services cannot be estimated with
any degree of precision.

QN=48 (17783) Which of the following items is counted as part of government purchases?
a. (i) The federal government pays the salary of a Navy officer.
b. (ii) The state of Nevada pays a private firm to repair a Nevada state highway.
c. (iii) The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.
d. All (i), (ii), and (iii) are correct.

QN=49 (17764) Gross domestic product is defined as

a. (i) the quantity of all final goods and services demanded within a country in a given
period of time.
b. (ii) the quantity of all final goods and services supplied within a country in a given
period of time.
c. (iii) the market value of all final goods and services produced within a country in a
given period of time.
d. Both (i) and (ii) are correct.

QN=50 (17779) Spots, Inc. produces ink and sells it to Write on Target, which makes pens. The ink
produced by Spots, Inc. is called
a. an inventory good.
b. a transitory good.
c. a preliminary good.
d. an intermediate good.

QN=51 Refer to Table 23-5. In 2007, Batterland’s nominal GDP was

(17770
)

a. $300.
b. $390.
c. $400.
d. $540.
QN=52 (17765) The consumption component of GDP includes spending on
a. durable goods and nondurable goods, but not spending on services.
b. durable goods and services, but not spending on nondurable goods.
c. nondurable goods and services, but not spending on durable goods.
d. durable goods, nondurable goods, and services.

QN=53 (17768) Suppose an economy’s production consists only of corn and soybeans. In 2005, 20
bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per
bushel. In 2004, the price of corn was $2 per bushel and the price of soybeans was $1
per bushel. Using 2004 as the base year, it follows that, for 2005,
a. nominal GDP is $50, real GDP is $100, and the GDP deflator index is 50.
b. nominal GDP is $50, real GDP is $100, and the GDP deflator index is 200.
c. nominal GDP is $100, real GDP is $50, and the GDP deflator index is 50.
d. nominal GDP is $100, real GDP is $50, and the GDP deflator index is 200.

QN=54 (17788) Which of the following statements is correct?

a. The value of intermediate goods is always included in GDP.
b. The value of intermediate goods is included in GDP only if those goods were produced
in the previous year.
c. The value of intermediate goods is included in GDP only if those goods are added to
firms’ inventories to be used or sold at a later date.
d. The value of intermediate goods is never included in GDP.

QN=55 (17775) A good is produced by a firm in 2010, added to the firm’s inventory in 2010, and sold
to a household in 2011. It follows that
a. the value of the good is added to the investment category of 2010 GDP and added to
the investment category of 2011 GDP.
b. the value of the good is added to the investment category of 2010 GDP and subtracted
from the investment category of 2011 GDP.
c. the value of the good is subtracted from the investment category of 2010 GDP and
added to the investment category of 2011 GDP.
d. the value of the good is subtracted from the investment category of 2010 GDP and
subtracted from the investment category of 2011 GDP.

QN=56 (17782) GDP is defined as

a. the market value of all goods and services produced within a country in a given period
of time.
b. the market value of all goods and services produced by the citizens of a country,
regardless of where they are living, in a given period of time.
c. the market value of all final goods and services produced within a country in a given
period of time.
d. the market value of all final goods and services produced by the citizens of a country,
 regardless of where they are living, in a given period of time.

QN=57 (17784) In the economy of Wrexington in 2008, consumption was 60% of GDP, government
purchases were $212, imports were $67 and 67% of the value of exports, investment
was one-half of the value of consumption. What was Wrexington’s GDP in 2008?
a. $1450
b. $1790
c. $2450
d. $2790

QN=58 (17790) Net exports equal

a. exports plus imports.
b. exports minus imports.
c. imports minus exports.
d. GDP minus imports.

QN=59 (17791) 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, and 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.

QN=60 Refer to Table 23-5. In 2008, Batterland’s real GDP was

(17769
)
a. $100.
b. $390.
c. $400.
d. $540.

QN=61 (17780) In 2007, Corny Company grows and sells $2 million worth of corn to Tasty Cereal
Company, which makes corn flakes. Tasty Cereal Company produces $6 million worth
of corn flakes in 2007, with sales to households during the year of $4.5 million. The
unsold $1.5 million worth of corn flakes remains in Tasty Cereal Company’s inventory
at the end of 2007. The transactions just described contribute how much to GDP for
2007?
a. $4.5 million
b. $6 million
c. $6.5 million
d. $8 million

QN=62 The information below was reported by the World Bank. On the basis of this information, which list
(17781 below contains the correct ordering of GDP per person from highest to lowest?
)

a. Kenya, Tanzania, Zimbabwe

b. Tanzania, Kenya, Zimbabwe
c. Zimbabwe, Kenya, Tanzania
d. Zimbabwe, Tanzania, Kenya

QN=63 (17777) Def01 stands for GDP deflator in year 1. Def02 stands for GDP deflator in year 2. The
inflation rate in year 2 equals
a. 100*(Def02-Def01)/Def01.
b. 100*(Def02-Def01)/Def02.
c. 100*(Def01-Def02)/Def01.
d. 100*(Def01-Def02)/Def02.

QN=64 (17762) Macroeconomists study

a. the decisions of households and firms.
b. the interaction between households and firms.
c. economy-wide phenomena.
d. regulations on firms and unions.

QN=65 (17767) Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and
sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000
of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it
for $3,000. Neither firm had any inventory at the beginning of 2009. During that year,
Cowhide produced enough leather for 20 couches. Couches, Inc. bought 80% of that
leather for $16,000 and promised to buy the remaining 20% for $4,000 in 2010. What
was the economy's GDP for the 2009?
a. $48,000
b. $52,000
c. $64,000
d. $68,000

QN=66 (17774) Household spending on education is counted in which component or subcomponent of

GDP?
a. consumption of durable goods
b. consumption of nondurable goods
c. consumption of services
d. investment

QN=67 (17776) Which of the following statistic is usually regarded as the best single measure of a
society’s economic well-being?
a. the unemployment rate
b. the inflation rate
c. gross domestic product
d. the trade deficit
QN=68 (17773) Quality Motors is a Japanese-owned company that produces automobiles; all of its
automobiles are produced in American plants. In 2007, Quality Motors produced $20
million worth of automobiles, with $12 million in sales to Americans, $6 million in sales
to Canadians, and $2 million worth of automobiles added to Quality Motors’ inventory.
The transactions just described contribute how much to U.S. GDP for 2007?
a. $12 million
b. $14 million
c. $20 million
d. $34 million

QN=69 (17789) What word do economists use to refer to the purchase of goods that will be used in
the future to produce more goods and services?
a. capital
b. consumption
c. investment
d. costs

QN=70 (17785) In the economy of Wrexington in 2008, nominal GDP was $20 billion and the GDP
deflator ratio was 500. What was Wrexington’s real GDP in 2008?
a. $2.5 million
b. $10 million
c. $40 million
d. $100 million

QN=71 Refer to Table 23-6. Which of the following is not correct?

(17766
)

a. This economy experienced growth from 1974 to 1975.

b. This economy experienced growth from 1975 to 1976.
c. This economy experienced growth from 1976 to 1977.
d. This economy experienced inflation from 1974 to 1975, from 1975 to 1976, and from 1976 to 1977.
QN=72 (17786) If you buy a burger and fries at your favorite fast food restaurant,
a. then neither GDP nor consumption will be affected because you would have eaten at
home had you not bought the meal at the restaurant.
b. then GDP will be higher, but consumption spending will be unchanged.
c. then GDP will be unchanged, but consumption spending will be higher.
d. then both GDP and consumption spending will be higher.

QN=73 (17771) A transfer payment is

a. a payment for moving expenses a worker receives when he or she is transferred by an
employer to a new location.
b. a payment that is automatically transferred from your bank account to pay a bill or
some other obligation.
c. a form of government spending that is not made in exchange for a currently produced
good or service.
d. the benefit that a person receives from an expenditure by government minus the taxes
that were collected by government to fund that expenditure.

QN=74 (17772) When economists talk about growth in the economy, they measure that growth as the
a. absolute change in nominal GDP from one period to another.
b. percentage change in nominal GDP from one period to another.
c. absolute change in real GDP from one period to another.
d. percentage change in real GDP from one period to another.

QN=75 (17802) Suppose a basket of goods and services has been selected to calculate the CPI and
2002 has been selected as the base year. In 2002, the basket’s cost was $50; in 2004,
the basket’s cost was $52; and in 2006, the basket’s cost was $54.60. The value of the
CPI in 2004 was
a. 96.2.
b. 102.0.
c. 104.0.
d. 152.0.

QN=76 (17807) In computing the consumer price index, a base year is chosen. Which of the following
statements about the base year is correct?
a. The base year is always the first year among the years for which computations are
being made.
b. It is necessary to designate a base year only in the simplest case of two goods; in more
realistic cases, it is not necessary to designate a base year.
c. The value of the consumer price index is always 100 in the base year.
d. The base year is always the year in which the cost of the basket was highest among the
years for which computations are being made.

QN=77 (17800) 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
a. $2.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in
2000 dollars.
b. $2.1 million in 2000 dollars, which is more than the cost of the courthouse restoration
in 2000 dollars.
c. $2.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in
2000 dollars.
d. $2.6 million in 2000 dollars, which is more than the cost of the courthouse restoration
in 2000 dollars.

QN=78 (17806) The CPI is more commonly used as a gauge of inflation than the GDP deflator is
because
a. the CPI is easier to measure.
b. the CPI is calculated more often than the GDP deflator is.
c. the CPI better reflects the goods and services bought by consumers.
d. the GDP deflator cannot be used to gauge inflation.

QN=79 (17817) Table 24-3

The table below pertains to Studious, an economy in which the typical consumer’s
basket consists of 5 books and 10 calculators.

Refer to Table 24-3. The cost of the basket

a. increased from 2006 to 2007 and increased from 2007 to 2008.

b. increased from 2006 to 2007 and decreased from 2007 to 2008.
c. decreased from 2006 to 2007 and increased from 2007 to 2008.
d. decreased from 2006 to 2007 and decreased from 2007 to 2008.

QN=80 (17799) The economy's inflation rate is the

a. price level in the current period.
b. absolute change in the price level from the previous period.
c. change in the gross domestic product from the previous period.
d. percentage change in the price level from the previous period.

QN=81 (17792) When the consumer price index rises, the typical family
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can offset the effects of rising prices by saving more.

QN=82 (17796) Table 24-1

The table below pertains to Pieway, an economy in which the typical consumer’s
basket consists of 10 bushels of peaches and 15 bushels of pecans.

Refer to Table 24-1. If 2005 is the base year, then the CPI for 2005 was

a. 83.3.
b. 100.0.
c. 120.0.
d. 200.0.

QN=83 (17801) The consumer price index was 225 in 2006 and 236 in 2007. The nominal interest rate
during this period was 6.5 percent. What was the real interest rate during this period?
a. 1.6 percent
b. 4.9 percent
c. 6.82 percent
d. 11.4 percent

QN=84 (17820) Scenario 24-4

Quinn has job offers in Wrexington and across the country in Charlieville. The
Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would
pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in
Charlieville is 90.
 Refer to Scenario 24-4. If Quinn only cares about maximizing her purchasing power,
then she should
a. take the Charlieville job.
b. take the Wrexington job.
c. take either job because they both have the same purchasing power.
d. The answer cannot be determined from the information given because a salary is not
the same as purchasing power.

QN=85 (17805) Economists use the term inflation to describe a situation in which
a. some prices are rising faster than others.
b. the economy's overall price level is rising.
c. the economy's overall price level is high, but not necessarily rising.
d. the economy's overall output of goods and services is rising faster than the economy's
overall price level.

QN=86 (17803) Most, but not all, athletic apparel sold in the United States is imported from other
nations. If the price of athletic apparel increases, the GDP deflator will
a. increase less than will the consumer price index.
b. increase more than will the consumer price index.
c. not increase, but the consumer price index will increase.
d. increase, but the consumer price index will not increase.

QN=87 (17814) The price of domestically produced DVD players increases dramatically, causing a 1
percent increase in the CPI. The price increase will most likely cause the GDP deflator
to increase by
a. (i) more than 1 percent.
b. (ii) less than 1 percent.
c. (iii) 1 percent.
d. None of (i), (ii), and (iii) is correct; this particular price increase will not affect the GDP
deflator.

QN=88 (17813) The price index was 120 in 2006 and 127.2 in 2007. What was the inflation rate?
a. 5.7 percent
b. 6.0 percent
c. 7.2 percent
d. 27.2 percent

QN=89 (17809) The GDP deflator reflects the

a. level of prices in the base year relative to the current level of prices.
b. current level of prices relative to the level of prices in the base year.
c. level of real output in the base year relative to the current level of real output.
d. current level of real output relative to the level of real output in the base year.
QN=90 (17793) In the CPI, goods and services are weighted according to
a. how long a market has existed for each good or service.
b. the extent to which each good or service is regarded by the government as a necessity.
c. how much consumers buy of each good or service.
d. the number of firms that produce and sell each good or service.

QN=91 (17798) The consumer price index tries to gauge how much incomes must rise to maintain
a. an increasing standard of living.
b. a constant standard of living.
c. a decreasing standard of living.
d. the highest standard of living possible.

QN=92 (17795) The real interest rate tells you

a. how fast the number of dollars in your bank account rises over time.
b. how fast the purchasing power of your bank account rises over time.
c. the number of dollars in your bank account today.
d. the purchasing power of your bank account today.

QN=93 (17815) The CPI was 120 in 2000 and 132 in 2001. Dorgan borrowed money in 2000 and repaid
the loan in 2001. If the nominal interest rate on the loan was 12 percent, then the real
interest rate was
a. 2 percent.
b. 10 percent.
c. 12 percent.
d. 22 percent.

QN=94 (17804) The consumer price index is used to

a. convert nominal GDP into real GDP.
b. turn dollar figures into meaningful measures of purchasing power.
c. characterize the types of goods and services that consumers purchase.
d. measure the quantity of goods and services that the economy produces.

QN=95 (17816) Table 24-2

The table below pertains to Iowan, an economy in which the typical consumer’s basket
consists of 3 pounds of pork and 4 bushels of corn.

Refer to Table 24-2. The cost of the basket in 2008 was

a. $108.
b. $147.
c. $160.
d. $224.

QN=96 (17810) Indexation refers to

a. a process of adjusting the nominal interest rate so that it is equal to the real interest
rate.
b. using a law or contract to automatically correct a dollar amount for the effects of
inflation.
c. using a price index to deflate dollar values.
d. an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in
line with the GDP deflator.

QN=97 (17808) 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 inflation
rate in 2007 was 16 percent, then how much did a magazine cost in 2007?
a. $1.87
b. $2.08
c. $2.32
d. $3.00

QN=98 (17811) The consumer price index is used to

a. monitor changes in the level of wholesale prices in the economy.
b. monitor changes in the cost of living over time.
c. monitor changes in the level of real GDP over time.
d. monitor changes in the stock market.

QN=99 (17819) Scenario 24-3

Grant Gant was a doctor in 1944 and earned $12,000 that year. His daughter, Gretta
Gant, is a doctor today and she earned $210,000 in 2005. The price index was 17.6 in
1944 and 184 in 2005.
 Refer to Scenario 24-3. Grant Gant’s 1944 income in 2005 dollars is
a. $1,147.83.
b. $113,454.55.
c. $125,454.55.
d. $1,996,800.00.

QN=100 (17794) Scenario 24-1

The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in
2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.

Refer to Scenario 24-1. The price of a 1975 tennis ball in 2005 dollars is
a. $0.03.
b. $0.27.
c. $0.37.
d. $1.00.

QN=101 (17812) When the overall level of prices in the economy is increasing, economists say that the
economy is experiencing
a. economic growth.
b. stagflation.
c. inflation.
d. deflation.

QN=102 (17797) Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where
the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New
York job have to pay in order for the two salaries to represent the same purchasing
power?
a. $23,040
b. $52,000
c. $79,200
d. $100,000

QN=103 (17818) Scenario 24-2

The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005
read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.

Refer to Scenario 24-2. The price of a 1975 golf ball in 2005 dollars is
a. $0.05.
b. $0.53.
c. $0.73.
d. $2.00.
QN=104 (17840) Which of the following is correct?
a. Although levels of real GDP per person vary substantially from country to country, the
growth rate of real GDP per person is similar across countries.
b. Productivity is not closely linked to government policies.
c. The level of real GDP per person is a good gauge of economic prosperity, and the
growth rate of real GDP per person is a good gauge of economic progress.
d. Productivity may be measured by the growth rate of real GDP per person.

QN=105 (17831) On a production function, as capital per worker increases, output per worker
a. increases. This increase is larger at larger values of capital per worker.
b. increases. This increase is smaller at larger values of capital per worker.
c. decreases. This decrease is larger at larger value of capital per worker.
d. decreases. This decrease is smaller at larger value of capital per worker.

QN=10 3. Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker
6 increases because of
(17836
)

a. increasing returns to capital.

b. increasing returns to labor.
c. diminishing returns to capital.
d. diminishing returns to labor.

QN=107 (17839) The level of real GDP person

a. differs widely across countries, but the growth rate of real GDP per person is similar
across countries.
b. is very similar across countries, but the growth rate of real GDP per person differs
widely across countries.
c. and the growth rate of real GDP per person are similar across countries.
d. and the growth rate of real GDP per person vary widely across countries.

QN=108 (17833) An economy’s production function has the constant-returns-to-scale property. If the
economy’s labor force doubled and all other inputs stayed the same, then real GDP
would
a. stay the same.
b. increase by exactly 50 percent.
c. increase by exactly 100 percent.
d. increase, but not necessarily by either 50 percent or 100 percent.

QN=109 (17828) If an economy with constant returns to scale were to double its physical capital stock,
its available natural resources, and its human capital, but leave the size of the labor
force the same,
a. (i) its output would stay the same and so would its labor productivity.
b. (ii) its output and labor productivity would increase, but less than double.
c. (iii) its output and labor productivity would increase by more than double.
d. None of (i), (ii), and (iii) is correct.

QN=110 (17838) Which of the following best states economists' understanding of the facts concerning
the relationship between natural resources and economic growth?
a. A country with no or few domestic natural resources is destined to be poor.
b. Differences in natural resources have virtually no role in explaining differences in
standards of living.
c. Some countries can be rich mostly because of their natural resources and countries
without natural resources need not be poor, but can never have very high standards of
living.
d. Abundant domestic natural resources may help make a country rich, but even
countries with few natural resources can have high standards of living.

QN=111 (17830) Inward-oriented policies

a. (i) are generally supported by economists.
b. (ii) are primarily concerned with the development of human capital.
c. (iii) in some ways are like prohibiting the use of certain technologies.
d. All of (i), (ii), and (iii) are correct.

QN=112 (17821) Over the past 100 years, U.S. real GDP per person has doubled about every 35 years. If,
in the next 100 years, it doubles every 25 years, then a century from now U.S. real GDP
per person will be
a. 4 times higher than it is now.
b. 8 times higher than it is now.
c. 12 times higher than it is now.
d. 16 times higher than it is now.

QN=113 (17832) In the past there have been violent protests against the World Bank and the World
Trade Organization. The protesters argued that these institutions promote free trade
and also encourage corporations in rich countries to invest in poor countries. The
protesters contended that these practices make rich countries richer and poor
countries poorer. An economist would
a. disagree with the protesters because these practices will help make both rich and poor
countries richer.
b. disagree with the protesters about free trade, but would agree with the protesters
about corporate investment.
c. disagree with the protesters about corporate investment, but would agree with the
protesters about free trade.
d. agree with the protesters.

QN=114 (17824) An understanding of the best ways to produce goods and services is called
a. human capital.
b. physical capital.
c. technology.
d. productivity.

QN=115 (17829) Which of the following is a determinant of productivity?

a. (i) human capital per worker
b. (ii) physical capital per worker
c. (iii) natural resources per worker
d. All of (i), (ii), and (iii) are correct.

QN=116 (17823) One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The
growth that arises from capital accumulation is not a free lunch. It requires that society
a. (i) conserve resources for future generations.
b. (ii) sacrifice consumption goods and services now in order to enjoy more consumption
in the future.
c. (iii) recycle resources so that future generations can produce goods and services with
the accumulated capital.
d. None of (i), (ii), and (iii) is correct.

QN=117 (17841) A barber shop produces 96 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 3
haircuts per hour of labor, then how many barbers does the shop employ?
a. 2
b. 3
c. 4
d. 6

QN=118 (17827) If there are diminishing returns to capital, then

a. capital produces fewer goods as it ages.
b. old ideas are not as useful as new ones.
c. increases in the capital stock eventually decrease output.
d. increases in the capital stock increase output by ever smaller amounts.

QN=119 (17826) In a market economy, we know that a resource has become scarcer when
a. both the demand for the good and the supply of the good have increased.
b. both the demand for the good and the supply of the good have decreased.
c. the demand for the good has increased and the supply has decreased.
d. the demand for the good has decreased and the supply has remained constant.

QN=120 (17847) Scenario 25-1.

An economy’s production form takes the form Y = AF(L, K, H, N)

Refer to Scenario 25-1. If the production function has the constant-returns-to-scale

property, and output is zero whenever some input is zero, then it is possible that the
specific form of the production function is
a. Y = 4L + 2K + 3H + N
b. Y = (L + K + H + N)/4
c. Y =2(LKHN)^0.25
d. Y = 4(L^3 × K^4 × H × N)^0.5

QN=121 (17846) The Peapod Restaurant uses all of the following to produce vegetarian meals. Which of
them is an example of physical capital?
a. the owner's knowledge of how to prepare vegetarian entrees
b. the money in the owner's account at the bank from which she borrowed money
c. the tables and chairs in the restaurant
d. the land the restaurant was built on

QN=122 (17837) All else equal, if there are diminishing returns, then which of the following is true if a
country increases its capital by one unit?
a. Output will rise by more than it did when the previous unit was added.
b. Output will rise but by less than it did when the previous unit was added.
c. Output will fall by more than it did when the previous unit was added.
d. Output will fall but by less than it did when the previous unit was added.

QN=123 (17822) Perry accumulated a lot of mathematical skills while in high school, college, and
graduate school. Economists include these skills as part of Perry’s
a. standard of learning.
b. technological knowledge.
c. physical capital.
d. human capital.

QN=124 (17834) Human capital is the

a. knowledge and skills that workers acquire through education, training, and experience.
b. stock of equipment and structures that is used to produce goods and services.
c. total number of hours worked in an economy.
d. same thing as technological knowledge.

QN=125 (17845) Dilbert’s Incorporated produced 6,000,000 units of software in 2005. At the start of
2006 the pointy-haired boss raised employment from 10,000 total annual hours to
14,000 annual hours and production was 7,000,000 units. Based on these numbers
what happened to productivity?
a. It fell by about 16.7%.
b. It stayed the same.
c. It rose by about 16.7%.
d. It rose by about 40%.

QN=126 (17848) Given that a country’s real output has increased, in which of the following cases can
we be sure that its productivity also has increased?
a. (i) The total number of hours worked rose.
b. (ii) The total number of hours worked stayed the same.
c. (iii) The total number of hours worked fell.
d. Both (ii) and (iii) are correct.

QN=127 (17843) Rapid population growth

a. was hailed by Thomas Robert Malthus as the key to future economic growth.
b. tends to lead to higher levels of educational attainment.
c. is the main reason that less developed nations are poor.
d. may depress economic prosperity by reducing the amount of capital which each
worker has to work with.

QN=128 (17844) What term do economists use to describe the relationship between the quantity of
inputs used and the quantity of output produced?
a. production function
b. input function
c. capital function
d. returns to scale

QN=129 (17835) Suppose that real GDP grew more in Country A than in Country B last year.
a. (i) Country A must have a higher standard of living than country B.
b. (ii) Country A's productivity must have grown faster than country B's.
c. Both (i) and (ii) are correct.
d. None of (i) and (ii) is correct.

QN=130 (17842) Last year a country had 800 workers who worked an average of 8 hours and produced
12,800 units. This year the country had 1000 workers who worked an average of 8
hours and produced 14,000 units. This country’s productivity was
a. higher this year than last year. A possible source of this change in productivity is a
change in the size of the capital stock.
b. higher this year than last year. A change in the size of the capital stock does not affect
productivity.
c. lower this year than last year. A possible source of this change in productivity is a
change in the size of the capital stock.
d. lower this year than last year. A change in the size of the capital stock does not affect
productivity.

QN=131 (17825) If a production function has constant returns to scale, output can be doubled if
a. (i) labor alone doubles.
b. (ii) all inputs but labor double.
c. (iii) all of the inputs double.
d. None of (i), (ii), and (iii) is correct.

QN=132 (17861) World Wide Delivery Service Corporation develops a way to speed up its deliveries and
reduce its costs. We would expect that this would
a. raise the demand for existing shares of the stock, causing the price to rise.
b. decrease the demand for existing shares of the stock, causing the price to fall.
c. raise the supply of the existing shares of stock, causing the price to rise.
d. raise the supply of the existing shares of stock, causing the price to fall.

QN=133 (17866) What would happen in the market for loanable funds if the government were to
increase the tax on interest income?
a. Interest rates would rise.
b. Interest rates would be unaffected.
c. Interest rates would fall.
d. The effect on the interest rate is uncertain.

QN=134 (17859) People who buy newly issued stock in a corporation such as Crate and Barrel provide
a. debt finance and so become part owners of Crate and Barrel.
b. debt finance and so become creditors of Crate and Barrel.
c. equity finance and so become part owners of Crate and Barrel.
d. equity finance and so become creditors of Crate and Barrel.
QN=135 (17863) Which of the following is correct?
a. In the national income accounts, investment and private saving refer to the same
thing.
b. In a closed economy if national saving is greater than zero, then everyone must be
saving.
c. The financial system channels funds from savers to borrowers.
d. People whose consumption exceeds their income are savers.

QN=136 (17864) Suppose the economy is closed and consumption is 6,500, taxes are 1,500, and
government purchases are 2,000. If national saving amounts to 1,000, then what is
GDP?
a. (i) 9,500
b. (ii) 10,000
c. (iii) 10,500
d. None of (i), (ii), and (iii) is correct.

QN=137 (17854) Two of the economy’s most important financial intermediaries are
a. suppliers of funds and demanders of funds.
b. banks and the bond market.
c. the stock market and the bond market.
d. banks and mutual funds.

QN=138 (17856) In examining the national income accounts of the closed economy of Nepotocracy you
see that this year it had taxes of $100 billion, government transfers of $40 billion, and
government purchases of goods and services of $80 billion. You also notice that last
year it had private saving of $50 billion and investment of $70 billion. In which year did
Nepotocracy have a budget deficit of $20 billion?
a. this year and last year
b. this year but not last year
c. last year but not this year
d. neither this year nor last year

QN=139 (17853) The source of the supply of loanable funds is

a. saving, and the source of the demand for loanable funds is investment.
b. consumption, and the source of the demand for loanable funds is investment.
c. investment, and the source of the demand for loanable funds is saving.
d. the interest rate, and the source of the demand for loanable funds is saving.

QN=140 (17871) Which of the following lists correctly identifies the four expenditure categories of
GDP?
a. consumption, government purchases, investment, net-exports
b. consumption, investment, depreciation, net-exports
c. consumption, saving, investment, depreciation,
d. consumption, government purchases, investment, savings

QN=141 (17858) If the nominal interest rate is 6 percent and the real interest rate is 2 percent, then
what is the inflation rate?
a. (i) 8 percent
b. (ii) 4 percent
c. (iii) 3 percent
d. None of (i), (ii), and (iii) is correct.

QN=142 (17868) When a country saves a larger portion of its GDP than it did before, it will have
a. more capital and higher productivity.
b. more capital and lower productivity.
c. less capital and higher productivity.
d. less capital and lower productivity.

QN=143 (17850) In a closed economy, what does (T - G) represent?

a. national saving
b. investment
c. private saving
d. public saving

QN=144 (17865) For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2
trillion and the government runs a deficit of $1 trillion. What are private saving and
national saving?
a. $4 trillion and $1 trillion, respectively
b. $4 trillion and $-1 trillion, respectively
c. $2 trillion and $1 trillion, respectively
d. $2 trillion and $-1 trillion, respectively

QN=145 (17860) If the government instituted an investment tax credit, then which of the following
would be higher in equilibrium?
a. saving and the interest rate
b. saving but not the interest rate
c. the interest rate but not saving
d. neither saving nor the interest rate

QN=146 (17852) The supply of loanable funds would shift to the right if either
a. tax reforms encouraged greater saving or the budget deficit became smaller.
b. tax reforms encouraged greater saving or investment tax credits were increased.
c. the budget deficit became larger or investment tax credits were increased.
d. the budget deficit became larger or tax reforms discouraged saving.
QN=147 (17849) Which of the following is not always correct for a closed economy?
a. National saving equals private saving plus public saving.
b. Net exports equal zero.
c. Real GDP measures both income and expenditures.
d. Private saving equals investment.

QN=148 (17870) If the government's expenditures exceeded its receipts, it would likely
a. lend money to a bank or other financial intermediary.
b. borrow money from a bank or other financial intermediary.
c. buy bonds directly from the public.
d. sell bonds directly to the public.

QN=149 (17862) Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500
consumption equals 7,500 and government purchases equal 2,000. What are private
saving, public saving, and national saving?
a. (i) 1,500, 1,000, and 500, respectively
b. (ii) 1,000, 500, and 1,500, respectively
c. (iii) 500, 1,500, and 1,000, respectively
d. None of (i), (ii), and (iii) is correct.

QN=150 (17855) If the government's expenditures exceeded its receipts, it would likely
a. lend money to a bank or other financial intermediary.
b. borrow money from a bank or other financial intermediary.
c. buy bonds directly from the public.
d. sell bonds directly to the public.

QN=15 Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-
1 funds curves.
(17867
)
Refer to Figure 26-3. A shift of the demand curve from D1 to D2 is called
a. an increase in the demand for loanable funds, and that increase would originate from people who
had some extra income they wanted to lend.
b. an increase in the demand for loanable funds, and that increase would originate from households
and firms who wish to borrow to make investments.
c. a decrease in the demand for loanable funds, and that decrease would originate from people who
had some extra income they wanted to lend.
d. a decrease in the demand for loanable funds, and that decrease would originate from households
and firms who wish to borrow to make investments.

QN=152 (17851) For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2
trillion and the government runs a deficit of $1 trillion. What are private saving and
national saving?
a. $4 trillion and $1 trillion, respectively
b. $4 trillion and $-1 trillion, respectively
c. $2 trillion and $1 trillion, respectively
d. $2 trillion and $-1 trillion, respectively

QN=15 Refer to Table 26-1. What was Hershey's earnings per share?
3
(17857
)
a. $38
b. $1.64
c. $1.31
d. $0.61

QN=154 (17872) A change in the tax laws that increases the supply of loanable funds will have a bigger
effect on investment when
a. the demand for loanable funds is more elastic and the supply of loanable funds is more
inelastic.
b. the demand for loanable funds is more inelastic and the supply of loanable funds is
more elastic.
c. both the demand for and supply of loanable funds are more elastic.
d. both the demand for and supply of loanable funds are more inelastic.

QN=155 (17869) If national saving in a closed economy is greater than zero, which of the following must
be true?
a. (i) Either public saving or private saving must be greater than zero.
b. (ii) Investment is positive.
c. (iii) Y - C - G > 0
d. All of (i), (ii), and (iii) are correct.

QN=156 (17880) The labor-force participation rate measures the percentage of the
a. total adult population that is in the labor force.
b. total adult population that is employed.
c. labor force that is employed.
d. labor force that is either employed or unemployed.

QN=157 (17885) Suppose some country had an adult population of about 50 million, a labor-force
participation rate of 60 percent, and an unemployment rate of 5 percent. How many
people were unemployed?
a. 1.425 million
b. 1.5 million
c. 2.5 million
d. 5 million

QN=158 (17883) Unemployment that exists because it takes time for workers to search for the jobs that
 suit them best is
a. frictional unemployment, which contributes to the natural rate of unemployment.
b. frictional unemployment, which does not contribute to the natural rate of
unemployment.
c. structural unemployment, which contributes to the natural rate of unemployment.
d. structural unemployment, which does not contribute to the natural rate of
unemployment.

QN=159 (17874) Collective bargaining refers to

a. the process by which the government sets exemptions from the minimum wage law.
b. setting the same wage for all employees to prevent conflict among workers.
c. firms colluding to set the wages of employees in order to keep them below
equilibrium.
d. the process by which unions and firms agree on the terms of employment.

QN=160 (17892) A person who is counted as unemployed by the Bureau of Labor Statistics
a. (i) is also in the labor force.
b. (ii) must have recently looked for work or be on temporary layoff.
c. (iii) be at least 16 years old.
d. All of (i), (ii), and (iii) are correct.

QN=161 (17882) Suppose that efficiency wages become more common in the economy. Economists
would predict that this would
a. increase the quantity demanded and decrease the quantity supplied of labor, thereby
decreasing the natural rate of unemployment.
b. decrease the quantity demanded and increase the quantity supplied of labor, thereby
increasing the natural rate of unemployment.
c. increase the quantity demanded and decrease the quantity supplied of labor, thereby
increasing the natural rate of unemployment.
d. decrease the quantity demanded and increase the quantity supplied of labor, thereby
decreasing the natural rate of unemployment.

QN=162 (17898) Public policy

a. can reduce both frictional unemployment and the natural rate of unemployment.
b. can reduce frictional unemployment, but it cannot reduce the natural rate of
unemployment.
c. cannot reduce frictional unemployment, but it can reduce the natural rate of
unemployment.
d. cannot reduce either frictional unemployment or the natural rate of unemployment.

QN=163 (17873) Consumers decide to buy more computers and fewer typewriters. As a result,
computer companies expand production while typewriter companies lay-off workers.
This is an example of
a. frictional unemployment created by efficiency wages.
b. frictional unemployment created by sectoral shifts.
c. structural unemployment created by efficiency wages.
d. structural unemployment created by sectoral shifts.

QN=164 (17878) Which of the following is not an explanation for the existence of structural
unemployment?
a. efficiency wages
b. job search
c. minimum-wage laws
d. unions

QN=165 (17886) The natural rate of unemployment

a. (i) arises from a single problem that has a single solution.
b. (ii) is easy for policymakers to reduce.
c. (iii) Both (i) and (ii) are correct.
d. None of (i), (ii), and (iii) is correct.

QN=166 (17896) 1. If all workers and all jobs were the same such that all workers were equally
well suited for all jobs, then there would be no
a. cyclical unemployment.
b. frictional unemployment.
c. natural rate of unemployment.
d. structural unemployment.

QN=167 (17894) Unions contribute to

a. structural unemployment but not the natural rate of unemployment.
b. the natural rate of unemployment but not structural unemployment.
c. both structural unemployment and the natural rate of unemployment.
d. neither structural unemployment nor the natural rate of unemployment.

QN=168 (17881) The labor force equals the

a. number of people employed.
b. number of people unemployed.
c. number of people employed plus the number of people unemployed.
d. adult population.

QN=169 (17890) U.S. Department of Labor data show that minimum-wage workers tend to be
a. young and less educated.
b. young and more educated.
c. old and less educated.
d. old and more educated.
QN=170 (17887) Suppose some country had an adult population of about 25 million, a labor-force
participation rate of 60 percent, and an unemployment rate of 6 percent. How many
people were unemployed?
a. 0.846 million
b. 0.9 million
c. 1.5 million
d. 6 million

QN=171 (17891) The amount of unemployment that an economy normally experiences is called the
a. average rate of unemployment.
b. natural rate of unemployment.
c. cyclical rate of unemployment.
d. typical rate of unemployment.

QN=172 (17900) Unemployment insurance

a. (i) reduces the hardship of unemployment, but it also increases the amount of
unemployment.
b. (ii) reduces the incentive for the unemployed to find and take new jobs.
c. (iii) causes workers to be less likely to seek guarantees of job security when they
negotiate with employers over the terms of employment.
d. All of (i), (ii), and (iii) are correct.

QN=173 (17899) Which of the following does not help reduce frictional unemployment?
a. (i) government-run employment agencies
b. (ii) public training programs
c. (iii) unemployment insurance
d. All of (i), (ii), and (iii) help reduce frictional unemployment.

QN=174 (17877) Which of the following causes of unemployment is associated with a wage rate above
the market equilibrium level?
a. (i) minimum-wage laws
b. (ii) unions
c. (iii) efficiency wages
d. All of (i), (ii), and (iii) are correct.

QN=175 (17897) Suppose that because of the popularity of the low-carb diet, bakeries need fewer
workers and steak houses need more workers. This is an example of
a. frictional unemployment created by efficiency wages.
b. frictional unemployment created by sectoral shifts.
c. structural unemployment created by efficiency wages.
d. structural unemployment created by sectoral shifts.
QN=176 (17895) A firm may pay efficiency wages in an attempt to
a. (i) reduce incentives to shirk.
b. (ii) reduce turnover.
c. (iii) attract a well-qualified pool of applicants.
d. All of (i), (ii), and (iii) are correct.

QN=177 (17876) When a union raises the wage above the equilibrium level, it
a. reduces both the quantity of labor supplied and the quantity of labor demanded,
resulting in unemployment.
b. reduces the quantity of labor supplied and raises the quantity of labor demanded,
resulting in unemployment.
c. raises the quantity of labor supplied and reduces the quantity of labor demanded,
resulting in unemployment.
d. raises both the quantity of labor supplied and the quantity of labor demanded,
resulting in unemployment.

QN=178 (17875) In one year, you meet 52 people who are each unemployed for one week and eight
people who are each unemployed for the whole year. Normally there are 52 weeks in
a year. What percentage of the unemployment spells you encountered was short-
term, and what percentage of the unemployment you encountered in a given week
was long-term?
a. 52 percent and 13.3 percent
b. 52 percent and 88.9 percent
c. 86.7 percent and 13.3 percent
d. 86.7 percent and 88.9 percent

QN=179 (17889) Unemployment that results because the number of jobs available in some labor
markets may be insufficient to give a job to everyone who wants one is called
a. the natural rate of unemployment.
b. cyclical unemployment.
c. structural unemployment.
d. frictional unemployment.

QN=180 (17888) The efficiency-wage theory of worker health is

a. more relevant for explaining unemployment in less developed countries than in rich
countries.
b. more relevant for explaining unemployment in rich countries than in less developed
countries.
c. equally relevant for explaining unemployment in less developed countries and in rich
countries.
d. not relevant for explaining unemployment.
QN=181 (17884) Workers searching for jobs that best suit them is most closely associated with
a. cyclical unemployment.
b. frictional unemployment.
c. seasonal unemployment.
d. structural unemployment.

QN=182 (17893) Refer to Figure 28-1. If the government imposes a minimum wage of $4, then how
many workers will be employed?

a. 3000
b. 4000
c. 5000
d. 7000

QN=183 (17879) Suppose some country had an adult population of about 50 million, a labor-force
participation rate of 60 percent, and an unemployment rate of 5 percent. How many
people were employed?
a. 1.5 million
b. 28.5 million
c. 30 million
d. 47.5 million

QN=184 (17926) To decrease the money supply, the Fed could

a. (i) sell government bonds.
b. (ii) increase the discount rate.
c. (iii) increase the reserve requirement.
d. All of (i), (ii) and (iii) are correct.
QN=185 (17923) During wars the public tends to hold relatively more currency and relatively fewer
deposits. This decision makes reserves
a. and the money supply increase.
b. and the money supply decrease.
c. increase, but leaves the money supply unchanged.
d. decrease, but leaves the money supply unchanged.

QN=186 (17919) Which list ranks assets from most to least liquid?
a. currency, fine art, stocks
b. currency, stocks, fine art
c. fine art, currency, stocks
d. fine art, stocks, currency

QN=187 (17910) Credit cards

a. defer payments.
b. are a store of value.
c. have led to wider use of currency.
d. are part of the money supply.

QN=188 (17905) The ease with which an asset can be

a. traded for another asset determines whether or not that asset is a unit of account.
b. transported from one place to another determines whether or not that asset could
serve as fiat money.
c. converted into a store of value determines the liquidity of that asset.
d. converted into the economy’s medium of exchange determines the liquidity of that
asset.

QN=189 (17916) Which of the following is not included in M1?

a. Currency
b. demand deposits
c. savings deposits
d. travelers' checks

QN=190 (17922) If people decide to hold less currency relative to deposits, the money supply
a. falls. The Fed could lessen the impact of this by buying Treasury bonds.
b. falls. The Fed could lessen the impact of this by selling Treasury bonds.
c. rises. The Fed could lessen the impact of this by buying Treasury bonds.
d. rises. The Fed could lessen the impact of this by selling Treasury bonds.

QN=191 (17904) An economy starts with $10,000 in currency. All of this currency is deposited into a
single bank, and the bank then makes loans totaling $9,250. The T-account of the bank
 is shown below.

Refer to Table 29-2. If all banks in the economy have the same reserve ratio as this
bank, then a new deposit of $150 into this bank has the potential to increase deposits
for all banks by

a. $866.67.
b. $1,666.67.
c. $2,000.00.
d. an infinite amount.

QN=192 (17927) If the public decides to hold more currency and fewer deposits in banks, bank reserves
a. decrease and the money supply eventually decreases.
b. decrease but the money supply does not change.
c. increase and the money supply eventually increases.
d. increase but the money supply does not change.

QN=193 (17918) If people decide to hold more currency relative to deposits, the money supply
a. falls. The larger the reserve ratio is, the more the money supply falls.
b. falls. The larger the reserve ratio is, the less the money supply falls.
c. rises. The larger the reserve ratio is, the more the money supply rises.
d. rises. The larger the reserve ratio is, the less the money supply rises.

QN=194 (17909) When an economy uses silver as money, then that economy’s money
a. serves as a store of value but not as a medium of exchange.
b. serves as a medium of exchange but not as a unit of account.
c. is fiat money.
d. has intrinsic value.

QN=195 (17925) If the reserve ratio for all banks is 5 percent, then $2,500 of additional reserves can
create up to
a. $62,500 of new money.
b. $50,000 of new money.
c. $45,600 of new money.
d. $37,500 of new money.
QN=196 (17902) Which of the following is not included in M1?
a. (i) a $5 bill in your wallet
b. (ii) $100 in your checking account
c. (iii) $500 in your savings account
d. All of (i), (ii), and (iii) are included in M1.

QN=197 (17917) Suppose that banks desire to hold no excess reserves. If the reserve requirement is 5
percent and a bank receives a new deposit of $400, it
a. (i) must increase required reserves by $20.
b. (ii) will initially see reserves increase by $400.
c. (iii) will be able to use this deposit to make new loans amounting to $380.
d. All of (i), (ii), and (iii) are correct.

QN=198 (17914) Which of the following functions of money is also a common function of most other
financial assets?
a. (i) a unit of account
b. (ii) a store of value
c. (iii) medium of exchange
d. None of (i), (ii), and (iii) is correct.

QN=199 (17911) Suppose a bank’s reserve ratio is 6.5 percent and the bank has $1,950 in reserve. Its
deposits amount to
a. $62.25.
b. $126.75.
c. $22,500.00
d. $30,000.00.

QN=200 (17921) In a 100-percent-reserve banking system, if people decided to decrease the amount of
currency they held by increasing the amount they held in checkable deposits, then
a. M1 would increase.
b. M1 would decrease.
c. M1 would not change.
d. M1 might rise or fall.

QN=201 (17913) 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.

QN=202 (17912) If you deposit $100 of currency into a demand deposit at a bank, this action by itself
a. does not change the money supply.
b. increases the money supply.
c. decreases the money supply.
d. has an indeterminate effect on the money supply.

QN=203 (17920) If an economy used gold as money, its money would be

a. commodity money, but not fiat money.
b. fiat money, but not commodity money.
c. both fiat and commodity money.
d. functioning as a store of value and as a unit of account, but not as a medium of
exchange.

QN=204 (17906) When the Fed conducts open-market sales,

a. it sells Treasury securities, which increases the money supply.
b. it sells Treasury securities, which decreases the money supply.
c. it borrows from member banks, which increases the money supply.
d. it lends money to member banks, which decreases the money supply.

QN=205 (17901) The measure of the money stock called M1 includes

a. wealth held by people in their checking accounts.
b. wealth held by people in their savings accounts.
c. wealth held by people in money market mutual funds.
d. everything that is included in M2 plus some additional items.

QN=206 (17908) An increase in the money supply might indicate that the Fed had
a. purchased bonds in an attempt to increase the federal funds rate.
b. purchased bonds in an attempt to reduce the federal funds rate.
c. sold bonds in an attempt to increase the federal funds rate.
d. sold bonds in an attempt to reduce the federal funds rate.

QN=207 (17907) The banking system currently has $200 billion of reserves, none of which are excess.
People hold only deposits and no currency, and the reserve requirement is 4 percent.
If the Fed raises the reserve requirement to 10 percent and at the same time buys $50
billion of bonds, then by how much does the money supply change?
a. (i) It rises by $600 billion.
b. (ii) It rises by $125 billion.
c. (iii) It falls by $2,500 billion.
d. None of (i), (ii), and (iii) is correct.
QN=208 (17915) 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
a. increased. The central bank could have reduced the size of this increase by buying
bonds.
b. increased. The central bank could have reduced the size of this increase by selling
bonds.
c. decreased. The central bank could have reduced the size of this decrease by buying
bonds.
d. decreased. The central bank could have reduced the size of this decrease by selling
bonds.

QN=209 (17924) The manager of the bank where you work tells you that your bank has $5 million in
excess reserves. She also tells you that the bank has $300 million in deposits and $255
million dollars in loans. Given this information you find that the reserve requirement
must be
a. 50/255.
b. 40/255.
c. 50/300.
d. 40/300.

QN=210 (17903) In a system of 100-percent-reserve banking, the purpose of a bank is to

a. make loans to households.
b. influence the money supply.
c. give depositors a safe place to keep their money.
d. buy and sell gold.

QN=211 (17928) During a bank run, depositors decide to hold more currency relative to deposits and
banks decide to hold more excess reserves relative to deposits
a. Both the decision to hold relatively more currency and the decision to hold relatively
more excess reserves would make the money supply increase.
b. Both the decision to hold relatively more currency and the decision to hold relatively
more excess reserves would make the money supply decrease.
c. The decision to hold relatively more currency would make the money supply increase.
The decision to hold relatively more excess reserves would make the money supply
decrease.
d. The decision to hold relatively more currency would make the money supply decrease.
The decision to hold relatively more excess reserves would make the money supply
increase.

QN=212 (17955) Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then
a. the value of money is lower than its equilibrium level.
b. the price level is higher than its equilibrium level.
c. the quantity of money demanded is greater than the quantity of money supplied.
d. the quantity of money supplied is greater than the quantity of money demanded.

QN=213 (17957) The classical dichotomy argues that changes in the money supply
a. affect both nominal and real variables.
b. affect neither nominal nor real variables.
c. affect nominal variables, but not real variables.
d. do not affect nominal variables, but do affect real variables.

QN=214 (17930) When the money market is drawn with the value of money on the vertical axis, a
decrease in the price level causes a
a. movement to the right along the money demand curve.
b. movement to the left along the money demand curve.
c. shift to the right of the money supply curve.
d. shift to the left of the money supply curve.

QN=215 (17956) Suppose each good costs $5 per unit and Megan holds $40. What is the real value of
the money she holds?
a. $40. If the price of goods rises, to maintain the real value of her money holdings she
needs to hold more dollars.
b. 8 units of goods. If the price of goods rises, to maintain the real value of her money
holdings she needs to hold more dollars.
c. $40. If the price of goods rises, to maintain the real value of her money holdings she
needs to hold fewer dollars.
d. 8 units of goods. If the price of goods rises, to maintain the real value of her money
holdings she needs to hold fewer dollars.
QN=21 Figure 30-2. On the graph, MS represents the money supply and MD represents money demand.
6 The usual quantities are measured along the axes.
(17958
) Refer to Figure 30-2. Suppose the relevant money-demand curve is the one labeled MD1; also
suppose the economy’s real GDP is 30,000 for the year. If the money market is in equilibrium, then
how many times per year is the typical dollar bill used to pay for a newly produced good or
service?

a. 4
b. 6
c. 8
d. 12

QN=21 Refer to Figure 30-3. What quantity is measured along the vertical axis?
7
(17932
)
a. the price level
b. the velocity of money
c. the value of money
d. the quantity of money

QN=21 Refer to Figure 30-2. At the end of 2007 the relevant money-demand curve was the one labeled
8 MD2. At the end of 2008 the relevant money-demand curve was the one labeled MD1. Assuming
(17947 the economy is always in equilibrium, what was the economy’s approximate inflation rate for
) 2008?
a. -43 percent
b. -57 percent
c. 57 percent
d. 75 percent

QN=219 (17936) According to the quantity theory of money, a 2 percent increase in the money supply
a. causes the price level to fall by 2 percent.
b. leaves the price level unchanged.
c. causes the price level to rise by less than 2 percent.
d. causes the price level to rise by 2 percent.

QN=220 (17952) You bought some shares of stock and, over the next year, the price per share increased
by 5 percent and the price level increased by 8 percent. Before taxes, you experienced
a. both a nominal gain and a real gain, and you paid taxes on the nominal gain.
b. both a nominal gain and a real gain, and you paid taxes only on the real gain.
c. a nominal gain and a real loss, and you paid taxes on the nominal gain.
d. a nominal gain and a real loss, and you paid no taxes on the transaction.

QN=221 (17934) In order to maintain stable prices, a central bank must

a. maintain low interest rates.
b. keep unemployment low.
c. tightly control the money supply.
d. sell indexed bonds.
QN=222 (17948) The claim that increases in the growth rate of the money supply increase nominal
interest rates but not real interest rates is known as the
a. (i) Friedman Effect.
b. (ii) Hume Effect.
c. (iii) Fisher Effect.
d. None of (i), (ii), and (iii) is correct.

QN=223 (17929) Which of the following is correct?

a. (i) A period of hyperinflation is a period of extraordinarily high or extraordinarily low
inflation.
b. (ii) A period of deflation is any period during which the inflation rate is decreasing.
c. (iii) A period of deflation is any period during which the overall price level is
decreasing.
d. All of (i), (ii), and (iii) are correct.

QN=224 (17954) An increase in the price level makes the value of money
a. increase, so people want to hold more of it.
b. increase, so people want to hold less of it.
c. decrease, so people want to hold more of it.
d. decrease, so people want to hold less of it.

QN=225 (17943) Suppose that velocity rises while the money supply stays the same. It follows that
a. P*Y must rise.
b. P*Y must fall.
c. P*Y must be unchanged.
d. the effects on P*Y are uncertain.

QN=226 (17949) Given a nominal interest rate of 6 percent, in which of the following cases would you
earn the highest after-tax real rate of interest?
a. (i) Inflation is 2.5 percent; the tax rate is 25 percent.
b. (ii) Inflation is 3 percent; the tax rate is 20 percent.
c. (iii) Inflation is 2 percent; the tax rate is 30 percent.
d. The after-tax real interest rate is the same for all of (i), (ii) and (iii).

QN=227 (17935) The shoeleather cost of inflation refers to

a. the redistributional effects of unexpected inflation.
b. the time spent searching for low prices when inflation rises.
c. the waste of resources used to maintain lower money holdings.
d. the increased cost to the government of printing more money.

QN=228 (17953) High and unexpected inflation has a greater cost

a. for those who save than for those who borrow.
b. for those who hold a little money than for those who hold a lot of money.
c. for those whose wages increase by as much as inflation, than those who are paid a
fixed nominal wage.
d. for savers in low income tax brackets than for savers in high income tax brackets.

QN=229 (17937) If P denotes the price of goods and services measured in terms of money, then
a. (i) 1/P represents the value of money measured in terms of goods and services.
b. (ii) P can be interpreted as the inflation rate.
c. (iii) the supply of money influences the value of P, but the demand for money does
not.
d. All of (i), (ii), and (iii) are correct.

QN=230 (17942) You put money into an account and earn an after-tax real interest rate of 2.5 percent.
If the nominal interest rate on the account is 8 percent and the inflation rate is 2
percent, then what is the tax rate?
a. 28.00 percent
b. 36.25 percent
c. 43.75 percent
d. 67.50 percent

QN=23 Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand
1 curve from MD1 to MD2?
(17946
)
a. (i) an increase in the value of money
b. (ii) a decrease in the price level
c. (iii) an open-market purchase of bonds by the Federal Reserve
d. None of (i), (ii), and (iii) is correct.

QN=23 Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS2; also
2 suppose the economy’s real GDP is 45,000 for the year. If the money market is in equilibrium, then
(17931 the velocity of money is approximately
)
a. 4.5
b. 6.0
c. 9.0
d. 12.0

QN=233 (17951) According to the classical dichotomy, which of the following is affected by monetary
factors?
a. (i) nominal wages
b. (ii) the price level
c. (iii) nominal GDP
d. All of (i), (ii), and (iii) are correct.

QN=234 (17938) If M = 3,000, P = 2, and Y = 12,000, what is velocity?

a. 1/2
b. 2
c. 4
d. 8

QN=235 (17941) According to monetary neutrality and the Fisher effect, an increase in the money
supply growth rate eventually increases
a. inflation, nominal interest rates, and real interest rates.
b. inflation and nominal interest rates, but does not change real interest rates.
c. inflation and real interest rates, but does not change nominal interest rates.
d. neither inflation, nominal interest rates, nor real interest rates.

QN=236 (17945) The term hyperinflation refers to

a. the spread of inflation from one country to others.
b. a decrease in the inflation rate.
c. a period of very high inflation.
d. inflation accompanied by a recession.

QN=237 (17950) Tara deposits money into an account with a nominal interest rate of 6 percent. She
expects inflation to be 2 percent. Her tax rate is 20 percent. Tara’s after-tax real rate
of interest
a. will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation
turns out to be higher than 2 percent.
b. will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation
turns out to be higher than 2 percent.
c. will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation
turns out to be higher than 2 percent.
d. will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation
turns out to be higher than 2 percent.

QN=238 (17940) According to the classical dichotomy, which of the following is affected by monetary
factors?
a. (i) nominal wages
b. (ii) the price level
c. (iii) nominal GDP
d. All of (i), (ii), and (iii) are correct.

QN=239 (17933) Wealth is redistributed from creditors to debtors when inflation was expected to be
a. high and it turns out to be high.
b. low and it turns out to be low.
c. low and it turns out to be high.
d. high and it turns out to be low.

QN=240 (17944) When deciding how much to save, people care most about
a. after-tax nominal interest rates.
b. after-tax real interest rates.
c. before-tax real interest rates.
d. before-tax nominal interest rates.

QN=241 (17939) Suppose one year ago the price index was 120 and Mark purchased $20,000 worth of
bonds. One year later the price index is 126. Mark redeems his bonds for $22,250 and
 is in a 40 percent tax bracket. What is Mark’s real after-tax rate of interest to the
nearest tenth of a percent?
a. 4.3 percent
b. 3.1 percent
c. 1.8 percent
d. 1.2 percent

QN=242 (17962) Purchasing-power parity describes the forces that determine

a. prices in the short run.
b. prices in the long run.
c. exchange rates in the short run.
d. exchange rates in the long run.

QN=243 (17965) Stacey, a U.S. citizen, buys a bond issued by an Italian pasta manufacturer.
a. This purchase is foreign direct investment. By itself it increases U.S. net capital
outflow.
b. This purchase is foreign direct investment. By itself it decreases U.S. net capital
outflow.
c. This purchase is foreign portfolio investment. By itself it increases U.S. net capital
outflow.
d. This purchase is foreign portfolio investment. By itself it decreases U.S. net capital
outflow.

QN=244 (17966) When Microsoft establishes a distribution center in France, U.S. net capital outflow
a. increases because Microsoft makes a portfolio investment in France.
b. decreases because Microsoft makes a portfolio investment in France.
c. increases because Microsoft makes a direct investment in capital in France.
d. decreases because Microsoft makes a direct investment in capital in France.

QN=245 (17981) The nominal exchange rate is 2 Thai baht for one U.S. dollar. A sub sandwich combo
deal in the U.S. costs $6 dollars in the U.S. and 8 baht in Thailand. The real exchange
rate for the US dollar is
a. 3/8
b. 2/3
c. 3/2
d. 8/3

QN=246 (17974) If a country has negative net capital outflows, then its net exports are
a. positive and its saving is larger than its domestic investment.
b. positive and its saving is smaller than its domestic investment.
c. negative and its saving is larger than its domestic investment.
d. negative and its saving is smaller than its domestic investment.
QN=247 (17980) A Japanese firm buys lumber from the United States and pays for it with yen. Other
things the same, Japanese
a. net exports increase, and U.S. net capital outflow increases.
b. net exports increase, and U.S. net capital outflow decreases.
c. net exports decrease, and U.S. net capital outflow increases.
d. net exports decrease, and U.S. net capital outflow decreases.

QN=248 (17976) Suppose that the real exchange rate between the United States and Vietnam is defined
in terms of baskets of goods. Other things the same, which of the following will
increase the real exchange rate (that is increase the number of baskets of Vietnamese
goods a basket of U.S. goods buys)?
a. (i) an increase in the quantity of Vietnamese currency that can be purchased with a
dollar
b. (ii) an increase in the price of U.S. baskets of goods
c. (iii) a decrease in the price in Vietnamese currency of Vietnamese goods
d. All of (i), (ii), and (iii) are correct.

QN=249 (17986) Suppose that more British decide to vacation in the U.S. and that the British purchase
more U.S. Treasury bonds. Ignoring how payments are made for these purchases,
a. the first action by itself raises U.S. net exports, the second action by itself raises U.S.
net capital outflow.
b. the first action by itself raises U.S. net exports, the second action by itself lowers U.S.
net capital outflow.
c. the first action by itself lowers U.S. net exports, the second action by itself raises U.S.
net capital outflow.
d. the first action by itself lowers U.S. net exports, the second action by itself lowers U.S.
net capital outflow.

QN=250 (17975) In an open economy, gross domestic product equals $2,450 billion, consumption
expenditure equals $1,390 billion, government expenditure equals $325 billion,
investment equals $510 billion and net capital outflow equals $225 billion. What is
national saving?
a. $225 billion
b. $510 billion
c. $735 billion
d. $1,390 billion

QN=251 (17971) Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S.
citizens decide to buy more stock in foreign corporations. Other things the same,
these actions
a. raise both U.S. net exports and U.S. net capital outflows.
b. raise U.S. net exports and lower U.S. net capital outflows.
c. lower both U.S. net exports and U.S. net capital outflows.
d. lower U.S. net exports and raise U.S. net capital outflows.
QN=252 (17977) If purchasing power parity holds, the price level in the U.S. is 120, and the price level in
Canada is 140, which of the following is true for the US dollar?
a. the real exchange rate is 120/140.
b. the real exchange rate is 140/120.
c. the nominal exchange rate is 120/140
d. the nominal exchange rate is 140/120

QN=253 (17968) Suppose that the nominal exchange rate is 120 yen per dollar, that the price of a
basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000
yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen.
Then the real exchange rate would
a. appreciate which by itself would make U.S. net exports fall.
b. appreciate which by itself would make U.S. net exports rise.
c. depreciate which by itself would make U.S. net exports fall.
d. depreciate which by itself would make U.S. net exports rise.

QN=254 (17984) Refer to Table 31-1. What are Argentina’s net exports?

a. $30 billion
b. $5 billion
c. -$5 billion
d. -$25 billion

QN=255 (17983) If Saudi Arabia had positive net exports last year, then it
a. sold more abroad than it purchased abroad and had a trade surplus.
b. sold more abroad than it purchased abroad and had a trade deficit.
c. bought more abroad than it sold abroad and had a trade surplus.
d. bought more abroad than it sold abroad and had a trade deficit.

QN=256 (17982) If it took as many dollars to buy goods in the United States as it did to buy enough
currency to buy the same goods in India, the real exchange rate would be computed as
how many Indian goods per U.S. goods?
a. (i) one
b. (ii) the number of dollars needed to buy U.S. goods divided by the number of rupees
needed to buy Indian goods
c. (iii) the number of rupees needed to buy Indian goods divided by the number of
dollars needed to buy U.S. goods
d. None of (i), (ii), and (iii) is correct.

QN=257 (17967) Other things the same, if the exchange rate changes from 125 yen per dollar to 115
yen per dollar, the dollar has
a. appreciated and so buys more Japanese goods.
b. appreciated and so buys fewer Japanese goods.
c. depreciated and so buys more Japanese goods.
d. depreciated and so buys fewer Japanese goods.

QN=258 (17970) If the nominal exchange rate e is foreign currency per dollar, the domestic price is P,
and the foreign price is P*, then the real exchange rate is defined as
a. e(P*/P).
b. e(P/P*).
c. e + P/P.
d. e - P/P*.

QN=259 (17985) Clear Brook Farms, a U.S. manufacturer of frozen vegetarian entrees, sells cases of its
product to stores overseas. Its sales
a. decrease U.S. exports but increase U.S. net exports.
b. decrease both U.S. exports and U.S. net exports.
c. increase both U.S. exports and U.S. net exports.
d. increase U.S. exports but decrease U.S. net exports.

QN=260 (17959) One year a country has negative net exports. The next year it still has negative net
exports and imports have risen more than exports.
a. its trade surplus fell.
b. its trade surplus rose.
c. its trade deficit fell.
d. its trade deficit rose

QN=261 (17979) The increase in international trade in the United States is partly due to
a. (i) improvements in transportation.
b. (ii) advances in telecommunications.
c. (iii) increased trade of goods with a high value per pound.
d. All of (i), (ii), and (iii) are correct.

QN=262 (17963) If the exchange rate is 50 Bangladesh taka per dollar and a bushel of rice costs 180
taka in Bangladesh and $3 in the United States, then the real exchange rate of the US
 dollar is
a. greater than one and arbitrageurs could profit by buying rice in the United States and
selling it in Bangladesh.
b. greater than one and arbitrageurs could profit by buying rice in Bangladesh and selling
it in the United States.
c. less than one and arbitrageurs could profit by buying rice in the United States and
selling it in Bangladesh.
d. less than one and arbitrageurs could profit by buying rice in Bangladesh and selling it in
the United States.

QN=263 (17987) Which of the following is an example of U.S. foreign portfolio investment?
a. Disney builds a new amusement park near Barcelona, Spain.
b. A U.S. citizen buys bonds issued by the British government.
c. A Dutch hotel chain opens a new hotel in the United States.
d. A citizen of Singapore buys a bond issued by a U.S. corporation.

QN=264 (17964) Sonya, a citizen of Denmark, produces boots and shoes that she sells to department
stores in the United States. Other things the same, these sales
a. increase U.S. net exports and have no effect on Danish net exports.
b. decrease U.S. net exports and have no effect on Danish net exports.
c. increase U.S. net exports and decrease Danish net exports.
d. decrease U.S. net exports and increase Danish net exports.

QN=265 (17961) Other things the same, if the dollar depreciates relative to the British pound, then
a. the exchange rate falls. It will cost fewer pounds to travel in the U.S.
b. the exchange rate falls. It will cost more pounds to travel in the U.S.
c. the exchange rate rises. It will cost fewer pounds to travel in the U.S.
d. the exchange rate rises. It will cost more pounds to travel in the U.S.

QN=266 (17972) If a dollar currently purchases 10 pesos and someone forecasts that in a year it will be
11 pesos, then the forecast is given in
a. real terms and implies the dollar will appreciate.
b. real terms and implies the dollar will depreciate.
c. nominal terms and implies the dollar will appreciate.
d. nominal terms and implies the dollar will depreciate.

QN=267 (17978) When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is
a. both a U.S. and French import.
b. a U.S. export and a French import.
c. a U.S. import and a French export.
d. neither an export nor an import for either country.
QN=268 (17973) A Swiss company sells chocolates to a retailer in the United States. These sales by
themselves
a. decrease U.S. net export and Swiss net exports.
b. decrease U.S. net exports and increase Swiss net exports.
c. increase U.S. and Swiss net exports.
d. increase U.S. net exports and decrease Swiss net exports.

QN=269 (17960) Paine Pharmaceuticals produces medicines in the U.S. Its overseas sales
a. are an export of the U.S. and increase U.S. net exports.
b. are an export of the U.S. and decrease U.S. net exports.
c. are an import of the U.S. and increase U.S. net exports.
d. are an import of the U.S. and decrease U.S. net exports.

QN=270 (17969) Which type(s) of economies interact with other economies?

a. only closed economies
b. only open economies
c. closed economies and open economies
d. neither closed nor open economies

QN=271 (18016) If U.S. citizens decide to purchase more foreign assets at each interest rate, the U.S.
real interest rate
a. increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow
decreases.
b. increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow
increases.
c. decreases, the real exchange rate of the dollar depreciates, and U.S. net capital
outflow decreases.
d. decreases, the real exchange rate of the dollar appreciates, and U.S. net capital
outflow increases.

QN=272 (17999) Suppose that Egypt has a government budget surplus, and then goes into deficit. This
change would
a. increase national saving and shift Egypt's supply of loanable funds left.
b. increase national saving and shift Egypt's demand for loanable funds right.
c. decrease national saving and shift Egypt's supply of loanable funds left.
d. decrease national saving and shift Egypt's demand for loanable funds right.

QN=273 (17994) Refer to this diagram to answer the questions below.

Refer to Figure 32-3. National saving is represented by the

a. demand curve in panel a.
b. demand curve in panel c.
c. supply curve in panel a.
d. supply curve in panel c.

QN=274 (18006) If a country institutes policies that lead domestic firms to desire more capital stock
a. net capital outflows rise and the real exchange rate rises.
b. net capital outflows rise and the real exchange rate falls.
c. net capital outflows fall and the real exchange rate rises.
d. net capital outflows and the real exchange rate falls.

QN=275 Refer to Figure 32-5. Starting from r2 and E3, an increase in the budget deficit can be
(18001) illustrated as a move to
a. r1 and E4.
b. r1 and E2.
c. r3 and E4.
d. r3 and E2.

QN=276 (18010) In the open-economy macroeconomic model, if investment demand increases, then
a. the supply of dollars in the market for foreign-currency exchange shifts left.
b. the supply of dollars in the market for foreign-currency exchange shifts right.
c. the demand for dollars in the market for foreign-currency exchange shifts left.
d. the demand for dollars in the market for foreign-currency exchange shifts right.

QN=277 (17989) In the open-economy macroeconomic model, the key determinant of net capital
outflow is the
a. nominal exchange rate.
b. nominal interest rate.
c. real exchange rate.
d. real interest rate.

QN=278 (18003) If the supply of dollars in the market for foreign-currency exchange shifts left, then the
exchange rate
a. rises and the quantity of dollars exchanged falls.
b. rises and the quantity of dollars exchanged does not change.
c. rises and the quantity of dollars exchanged rises.
d. falls and the quantity of dollars exchanged does not change.

QN=279 (17996) Which of the following will decrease U.S. net capital outflow?
a. (i) capital flight from the United States
b. (ii) the government budget deficit increases
c. (iii) the U.S. imposes import quotas
d. None of (i), (ii), and (iii) is correct.

QN=280 (17990) A rise in the budget deficit

a. shifts both the supply of loanable funds in the market for loanable funds and the
supply of dollars in the market for foreign-currency exchange right.
b. shifts both the supply of loanable funds in the market for loanable fund and the supply
of dollars in the market for foreign-currency exchange left.
c. shifts both the demand for loanable funds in the market for loanable funds and the
demand for dollars in the market for foreign-currency exchange right.
d. shifts both the demand for loanable funds in the market for loanable funds and the
demand for dollars in the market for foreign-currency exchange left.

QN=281 (18007) The open-economy macroeconomic model examines the determination of

a. the output growth rate and the real interest rate.
b. unemployment and the exchange rate.
c. the output growth rate and the inflation rate.
d. the trade balance and the exchange rate.

QN=282 (18015) When Mexico suffered from capital flight in 1994, Mexico's net capital outflow
a. and net exports decreased.
b. and net exports increased.
c. increased while net exports decreased.
d. decreased while net exports increased.

QN=283 (18008) Other things the same, a lower real interest rate decreases the quantity of
a. loanable funds demanded.
b. loanable funds supplied.
c. domestic investment.
d. net capital outflow.

QN=284 (17998) If the demand for dollars in the market for foreign-currency exchange shifts left, then
the exchange rate
a. rises and the quantity of dollars exchanged rises.
b. rises and the quantity of dollars exchanged does not change.
c. falls and the quantity of dollars exchanged falls.
d. falls and the quantity of dollars exchanged does not change.

QN=285 (18013) Refer to Figure 32-6. Which of the following shifts show the effects of an import
quota?

a. (i) shifting the middle supply curve in panel c to the one to its left.
b. (ii) shifting the demand curve from the right to the left in panel c.
c. (iii) shifting the demand curve from the left to the right in panel c.
d. None of (i), (ii), and (iii) is correct.

QN=286 (18011) If a government started with a budget deficit and moved to a surplus, domestic
investment
a. and the real exchange rate would rise.
b. and the real exchange rate would fall.
c. would rise and the real exchange rate would fall.
d. would fall and the real exchange rate would rise.

QN=287 (18005) When a country experiences capital flight its

a. net capital outflow increases and its real exchange rate rises.
b. net capital outflow increases and its real exchange rate falls.
c. net capital outflow decreases and its real exchange rate rises.
d. net capital outflow decreases and its real exchange rate falls.

QN=288 (18002) In the open-economy macroeconomic model, the purchase of a capital asset adds to
the demand for loanable funds
a. (i) only if the asset is located at home.
b. (ii) only if the asset is located abroad.
c. (iii) whether the asset is located at home or abroad.
d. None of (i), (ii), and (iii) is correct.

QN=289 (18014) If a government increases its budget deficit, then the real exchange rate
a. and domestic investment rise.
b. and domestic investment fall.
c. rises and domestic investment falls.
d. falls and domestic investment rises.

QN=290 (18012) A tax on imported goods is called an

a. (i) excise tax.
b. (ii) tariff.
c. (iii) import quota.
d. None of (i), (ii), and (iii) is correct.

QN=291 (18004) If foreigners want to buy more U.S. bonds, then in the market for foreign-currency
exchange the exchange rate
a. and the quantity of dollars traded rises.
b. rises and the quantity of dollars traded falls.
c. falls and the quantity of dollars traded rises.
d. and the quantity of dollars traded falls.

QN=292 (17992) When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds
a. and U.S. net capital outflow rose.
b. and U.S. net capital outflow fell.
c. fell and U.S. net capital outflow rose.
d. rose and U.S. net capital outflow fell.

QN=293 (17991) A trade policy is a government policy

a. directed toward the goal of improving the tradeoff between equity and efficiency.
b. that directly influences the quantity of goods and services that a country imports or
exports.
c. intended to exploit the tradeoff between inflation and unemployment by altering the
budget deficit.
d. concerning employment laws.

QN=294 (17995) In the open-economy macroeconomic model, if the supply of loanable funds increases,
then the interest rate
a. income
b. tastes
c. Price
d. Expectations

QN=295 (17993) Which of the following is correct in an open economy?

a. S=I
b. S = NX + NCO
c. S = NCO
d. S = I + NCO

QN=296 (17988) Other things the same, an increase in the U.S. interest rate causes the quantity of
loanable funds supplied to
a. rise because net capital outflow and domestic investment rise.
b. rise because national saving rises.
c. fall because net capital outflow and domestic investment rise.
d. fall because national saving falls.

QN=297 (18000) The real exchange rate measures the

a. (i) price of domestic currency relative to foreign currency.
b. (ii) price of domestic goods relative to the price of foreign goods.
c. (iii) rate of domestic and foreign interest.
d. None of (i), (ii), and (iii) is correct.

QN=298 (18009) If at a given real interest rate desired national saving would be $50 billion, domestic
investment would be $40 billion, and net capital outflow would be $20 billion, then at
that real interest rate in the loanable funds market there would be a
a. surplus. The real interest rate would rise.
b. surplus. The real interest rate would fall.
c. shortage. The real interest rate would rise.
d. shortage. The real interest rate would fall.

QN=299 (17997) Refer to Figure 32-3. Which curve shows the relation between the exchange rate and
net exports?
a. the demand curve in panel a.
b. the demand curve in panel c.
c. the supply curve in panel a.
d. the supply curve in panel c.

QN=300 (18027) At a given price level, an increase in which of the following shifts aggregate demand to
the right?
a. (i) consumption
b. (ii) investment
c. (iii) government expenditures
d. All of (i), (ii), and (iii) are correct.

QN=301 (18044) Other things the same, if the price level falls, people
a. increase foreign bond purchases, so the supply of dollars in the market for foreign-
currency exchange increases.
b. increase foreign bond purchases, so the supply of dollars in the market for foreign-
currency exchange decreases.
c. decrease foreign bond purchases, so the supply of dollars in market for foreign-
currency exchange increases.
d. decrease foreign bond purchases, so the supply of dollars in the market for foreign-
currency exchange decreases.

QN=302 (18029) Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock
market combined with a significant increase in immigration of skilled workers, then in
the short run,
a. real GDP will rise and the price level might rise, fall, or stay the same. In the long-run,
real GDP will rise and the price level might rise, fall, or stay the same.
b. the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run,
 real GDP and the price level will be unaffected.
c. the price level will rise, and real GDP might rise, fall, or stay the same. In the long run,
real GDP will rise and the price level will fall.
d. the price level will fall, and real GDP might rise, fall, or stay the same. In the long run,
real GDP will rise and the price level will fall.

QN=303 (18024) Other things the same, when the price level rises, interest rates
a. rise, which means consumers will want to spend more on homebuilding.
b. rise, which means consumers will want to spend less on homebuilding.
c. fall, which means consumers will want to spend more on homebuilding.
d. fall, which means consumers will want to spend less on homebuilding.

QN=304 (18035) Changes in the price of oil

a. can only lead to recessions.
b. have not contributed much to output fluctuations in the United States.
c. change the economy principally by changing aggregate demand.
d. created both inflation and recession in the United States in the 1970s.

QN=305 (18036) The classical dichotomy refers to the separation of

a. variables that move with the business cycle and variables that do not.
b. changes in money and changes in government expenditures.
c. decisions made by the public and decisions made by the government.
d. real and nominal variables.

QN=306 (18032) Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time
that major new sources of oil are discovered in the country, then in the short-run
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.

QN=307 (18041) From 2001 to 2005 there was a dramatic rise in the price of houses. If this made
people feel wealthier, then it would shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.

QN=308 (18023) The aggregate-demand curve

a. (i) has a slope that is explained in the same way as the slope of the demand curve for a
particular product.
b. (ii) is vertical in the long run.
c. (iii) shows an inverse relation between the price level and the quantity of all goods and
services demanded.
d. All of (i), (ii), and (iii) are correct.

QN=309 (18017) The model of short-run economic fluctuations focuses on the price level and
a. (i) real GDP.
b. (ii) economic growth.
c. (iii) the neutrality of money.
d. None of (i), (ii), and (iii) is correct.

QN=310 (18034) The long-run aggregate supply curve would shift right if immigration from abroad
a. increased or Congress made a substantial increase in the minimum wage.
b. decreased or Congress abolished the minimum wage.
c. increased or Congress abolished the minimum wage.
d. decreased or Congress made a substantial increase in the minimum wage.

QN=311 (18026) Other things the same, as the price level decreases it induces greater spending on
a. both net exports and investment.
b. net exports but not investment.
c. investment but not net exports.
d. neither net exports nor investment.

QN=312 (18033) Which of the following shifts both the short-run and long-run aggregate supply right?
a. (i) an increase in the actual price level
b. (ii) an increase in the expected price level
c. (iii) an increase in the capital stock
d. None of (i), (ii), and (iii) is correct.

QN=313 (18037) As the price level rises,

a. the real exchange rate falls, so net exports fall.
b. the real exchange rate falls, so net exports rise.
c. the real exchange rate rises, so net exports fall.
d. the real exchange rate rises, so net exports rise.

QN=314 (18025) In which case can we be sure aggregate demand shifts left overall?
a. people want to save more for retirement and the government raises taxes
b. people want to save more for retirement and the government cuts taxes
c. people want to save less for retirement and the government raises taxes
d. people want to save less for retirement and the government cuts taxes

QN=315 (18030) Refer to Figure 33-1. If the economy starts at C, an increase in the money supply
 moves the economy
[figure_33_01.jpg]
a. to A in the long run.
b. to B in the long run.
c. back to C in the long run.
d. to D in the long run.

QN=316 (18040) Refer to Figure 33-1. If the economy is in long-run equilibrium, then an adverse shift in
aggregate supply would move the economy from

a. A to B.
b. C to D.
c. B to A.
d. D to C.

QN=317 (18042) The sticky-wage theory of the short-run aggregate supply curve says that the quantity
of output firms supply will increase if
a. the price level is higher than expected making production more profitable.
b. the price level is higher than expected making production less profitable.
c. the price level is lower than expected making production more profitable.
d. the price level is lower than expected making production less profitable.

QN=318 (18028) Which of the following can explain the upward slope of the short-run aggregate supply
curve?
a. nominal wages are slow to adjust to changing economic conditions
b. as the price level falls, the exchange rate falls
c. an increase in the money supply lowers the interest rate
d. an increase in the interest rate increases investment spending

QN=319 (18043) The effects of a higher than expected price level are shown by
a. shifting the short-run aggregate supply curve right.
b. shifting the short-run aggregate supply curve left.
c. moving to the right along a given aggregate supply curve.
d. moving to the left along a given aggregate supply curve.

QN=320 (18020) Which of the following shifts both the short-run and long-run aggregate supply right?
a. (i) people flee to other countries as a civil war breaks out
b. (ii) an increase in the actual price level
c. (iii) an improvement in overall production technology
d. None of (i), (ii), and (iii) is correct.

QN=321 (18022) The aggregate demand and aggregate supply graph has
a. the price level on the horizontal axis. The price level can be measured by the GDP
deflator.
b. the price level on the horizontal axis. The price level can be measured by real GDP.
c. the price level on the vertical axis. The price level can be measured by the GDP
deflator.
d. the price level on the vertical axis. The price level can be measured by GDP.

QN=322 (18039) Which of the following can explain the upward slope of the short-run aggregate supply
curve?
a. nominal wages are slow to adjust to changing economic conditions
b. as the price level falls, the exchange rate falls
c. an increase in the money supply lowers the interest rate
d. an increase in the interest rate increases investment spending

QN=323 (18038) If speculators gained greater confidence in foreign economies so that they wanted to
buy more assets of foreign countries and fewer U.S. bonds,
a. the dollar would appreciate which would cause aggregate demand to shift right.
b. the dollar would appreciate which would cause aggregate demand to shift left.
c. the dollar would depreciate which would cause aggregate demand to shift right.
d. the dollar would depreciate which would cause aggregate demand to shift left.

QN=324 (18018) The aggregate quantity of goods and service demanded changes as the price level falls
because
a. real wealth rises, interest rates rise, and the dollar appreciates.
b. real wealth rises, interest rates fall, and the dollar depreciates.
c. real wealth falls, interest rates rise, and the dollar appreciates.
d. real wealth falls, interest rates fall, and the dollar depreciates.

QN=325 (18021) Recessions in China and India would cause

a. the U.S. price level and real GDP to rise.
b. the U.S. price level and real GDP to fall.
c. the U.S. price level to rise and real GDP to fall.
d. the U.S. price level to fall and real GDP to rise.

QN=326 (18031) Which of the following will both make people spend more?
a. wealth and interest rates rise.
b. wealth rises and interest rates fall.
c. wealth falls and interest rates rise.
d. wealth falls and interest rates fall.

QN=327 (18019) The classical dichotomy and monetary neutrality are represented graphically by
a. an upward-sloping long-run aggregate-supply curve.
b. a vertical long-run aggregate-supply curve.
c. an upward-sloping short-run aggregate-curve.
d. a downward-sloping aggregate-demand curve.

QN=328 (18068) According to liquidity preference theory, equilibrium in the money market is achieved
by adjustments in
a. the price level.
b. the interest rate.
c. the exchange rate.
d. real wealth.

QN=329 (18058) Permanent tax cuts shift the AD curve

a. farther to the right than do temporary tax cuts.
b. not as far to the right as do temporary tax cuts.
c. farther to the left than do temporary tax cuts.
d. not as far to the left as do temporary tax cuts.

QN=330 (18050) During periods of expansion, automatic stabilizers cause government expenditures
a. and taxes to fall.
b. and taxes to rise.
c. to rise and taxes to fall.
d. to fall and taxes to rise.

QN=331 (18054) Which of the following properly describes the interest-rate effect that helps explain
 the slope of the aggregate-demand curve?
a. As the money supply increases, the interest rate falls, so spending rises.
b. As the money supply increases, the interest rate rises, so spending falls.
c. As the price level increases, the interest rate falls, so spending rises.
d. As the price level increases, the interest rate rises, so spending falls.

QN=332 (18056) The theory of liquidity preference assumes that the nominal supply of money is
determined by the
a. level of real output only.
b. interest rate only.
c. level of real output and by the interest rate.
d. Federal Reserve.

QN=333 (18060) Other things the same, automatic stabilizers tend to

a. raise expenditures during expansions and recessions.
b. lower expenditures during expansions and recessions.
c. raise expenditures during recessions and lower expenditures during expansions.
d. raise expenditures during expansions and lower expenditures during recessions.

QN=334 (18064) Assume the MPC is 0.75. Assuming only the multiplier effect matters, a decrease in
government purchases of $100 billion will shift the aggregate demand curve to the
a. (i) left by $200 billion.
b. (ii) left by $400 billion.
c. (iii) right by $800 billion.
d. None of (i), (ii), and (iii) is correct.

QN=335 (18059) A reduction in U.S net exports would shift U.S. aggregate demand
a. rightward. In an attempt to stabilize the economy, the government could raise taxes.
b. rightward. In an attempt to stabilize the economy, the government could cut taxes.
c. leftward. In an attempt to stabilize the economy, the government could raise taxes.
d. leftward. In an attempt to stabilize the economy, the government could cut taxes.

QN=336 (18070) People are likely to want to hold more money if the interest rate
a. increases, making the opportunity cost of holding money rise.
b. increases, making the opportunity cost of holding money fall.
c. decreases, making the opportunity cost of holding money rise.
d. decreases, making the opportunity cost of holding money fall.

QN=337 (18067) Using the liquidity-preference model, when the Federal Reserve increases the money
supply,
a. the equilibrium interest rate decreases.
b. the aggregate-demand curve shifts to the left.
c. the quantity of goods and services demanded is unchanged for a given price level.
d. the long-run aggregate-supply curve shifts to the right.

QN=338 (18045) In the long run, fiscal policy primarily affects

a. aggregate demand. In the short run, it affects primarily aggregate supply.
b. aggregate supply. In the short run, it affects primarily saving, investment, and growth.
c. saving, investment, and growth. In the short run, it affects primarily aggregate
demand.
d. saving, investment, and growth. In the short run, it affects primarily aggregate supply.

QN=339 (18053) In the long run, changes in the money supply affect
a. (i) prices.
b. (ii) output.
c. (iii) unemployment rates.
d. All of (i), (ii), and (iii).

QN=340 (18048) Suppose there were a large increase in net exports. If the Fed wanted to stabilize
output, it could
a. buy bonds to increase the money supply.
b. buy bonds to decrease the money supply.
c. sell bonds to increase the money supply.
d. sell bonds to decrease the money supply.

QN=341 (18055) The economy is in long-run equilibrium. Suppose that automatic teller machines
become cheaper and more convenient to use, and as a result the demand for money
falls. Other things equal, we would expect that, in the short run,
a. the price level and real GDP would rise, but in the long run they would both be
unaffected.
b. the price level and real GDP would rise, but in the long run the price level would rise
and real GDP would be unaffected.
c. the price level and real GDP would fall, but in the long run they would both be
unaffected.
d. the price level and real GDP would fall, but in the long run the price level would fall
and real GDP would be unaffected.

QN=342 (18051) According to liquidity preference theory, the opportunity cost of holding money is
a. the interest rate on bonds.
b. the inflation rate.
c. the cost of converting bonds to a medium of exchange.
d. the difference between the inflation rate and the interest rate on bonds.

QN=343 (18046) In the long run, changes in the money supply affect
a. (i) prices.
b. (ii) output.
c. (iii) unemployment rates.
d. All of (i), (ii), and (iii).

QN=344 (18062) According to the liquidity preference theory, which of the following events would shift
money demand to the left?
a. an increase in the price level
b. a decrease in the price level
c. an increase in the interest rate
d. a decrease in the interest rate

QN=345 (18066) According to the theory of liquidity preference,

a. (i) 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.
b. (ii) 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. (iii) the demand for money is represented by a downward-sloping line on a supply-and-
demand graph.
d. All of (i), (ii), and (iii) are correct.

QN=346 (18061) According to liquidity preference theory, the money-supply curve is

a. upward sloping.
b. downward sloping.
c. vertical.
d. horizontal.

QN=347 (18047) Assume the MPC is 0.75. Assume there is a multiplier effect and that the total
crowding-out effect is $6 billion. An increase in government purchases of $10 billion
will shift aggregate demand to the
a. left by $24 billion.
b. left by $36 billion.
c. right by $34 billion.
d. right by $36 billion.

QN=348 (18069) According to liquidity preference theory, the money-supply curve would shift if the Fed
a. (i) engaged in open-market transactions.
b. (ii) changed the discount rate.
c. (iii) changed the reserve requirement.
d. did any of (i), (ii), or (iii).

QN=349 (18065) 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?
a. Raise both taxes and expenditures by $80 billion dollars.
b. Raise both taxes and expenditures by $10 billion dollars.
c. Reduce both taxes and expenditures by $80 billion dollars.
d. Reduce both taxes and expenditures by $10 billion dollars.

QN=350 (18063) The term crowding-out effect refers to

a. the reduction in aggregate supply that results when a monetary expansion causes the
interest rate to decrease.
b. the reduction in aggregate demand that results when a monetary expansion causes
the interest rate to decrease.
c. the reduction in aggregate demand that results when a fiscal expansion causes the
interest rate to increase.
d. the reduction in aggregate demand that results when a decrease in government
spending or an increase in taxes causes the interest rate to increase.

QN=351 (18057) To reduce the effects of crowding out caused by an increase in government
expenditures, the Federal Reserve could
a. increase the money supply by buying bonds.
b. increase the money supply by selling bonds.
c. decrease the money supply by buying bonds.
d. decrease the money supply by selling bonds.

QN=352 (18049) Suppose the MPC is 0.75. There are no crowding out or investment accelerator effects.
If the government increases its expenditures by $200 billion, then by how much does
aggregate demand shift to the right? If the government decreases taxes by $200
billion, then by how far does aggregate demand shift to the right?
a. $800 billion and $800 billion
b. $800 billion and $600 billion
c. $600 billion and $600 billion
d. $600 billion and $450 billion

QN=353 (18052) Fiscal policy affects the economy

a. only in the short run.
b. only in the long run.
c. in both the short and long run.
d. in neither the short nor the long run.
[id=17719, Mark=1]1. B

[id=17723, Mark=1]2. C

[id=17730, Mark=1]3. D

[id=17733, Mark=1]4. D

[id=17761, Mark=1]5. C

[id=17718, Mark=1]6. B

[id=17732, Mark=1]7. B

[id=17758, Mark=1]8. C

[id=17728, Mark=1]9. D

[id=17755, Mark=1]10. B

[id=17752, Mark=1]11. B

[id=17739, Mark=1]12. A

[id=17749, Mark=1]13. A

[id=17736, Mark=1]14. B

[id=17740, Mark=1]15. C

[id=17760, Mark=1]16. B

[id=17720, Mark=1]17. C

[id=17759, Mark=1]18. C

[id=17725, Mark=1]19. D

[id=17756, Mark=1]20. B

[id=17731, Mark=1]21. B

[id=17735, Mark=1]22. D

[id=17750, Mark=1]23. A

[id=17742, Mark=1]24. A

[id=17754, Mark=1]25. D

[id=17722, Mark=1]26. D

[id=17727, Mark=1]27. D

[id=17726, Mark=1]28. B

[id=17747, Mark=1]29. D
[id=17757, Mark=1]30. B

[id=17744, Mark=1]31. D

[id=17729, Mark=1]32. D

[id=17738, Mark=1]33. A

[id=17737, Mark=1]34. A

[id=17745, Mark=1]35. C

[id=17741, Mark=1]36. B

[id=17751, Mark=1]37. A

[id=17724, Mark=1]38. A

[id=17746, Mark=1]39. A

[id=17753, Mark=1]40. B

[id=17734, Mark=1]41. B

[id=17721, Mark=1]42. B

[id=17743, Mark=1]43. D

[id=17748, Mark=1]44. B

[id=17763, Mark=1]45. D

[id=17778, Mark=1]46. D

[id=17787, Mark=1]47. A

[id=17783, Mark=1]48. D

[id=17764, Mark=1]49. C

[id=17779, Mark=1]50. D

[id=17770, Mark=1]51. A

[id=17765, Mark=1]52. D

[id=17768, Mark=1]53. D

[id=17788, Mark=1]54. C

[id=17775, Mark=1]55. B

[id=17782, Mark=1]56. C

[id=17784, Mark=1]57. C

[id=17790, Mark=1]58. B
[id=17791, Mark=1]59. C

[id=17769, Mark=1]60. D

[id=17780, Mark=1]61. B

[id=17781, Mark=1]62. C

[id=17777, Mark=1]63. A

[id=17762, Mark=1]64. C

[id=17767, Mark=1]65. B

[id=17774, Mark=1]66. C

[id=17776, Mark=1]67. C

[id=17773, Mark=1]68. C

[id=17789, Mark=1]69. C

[id=17785, Mark=1]70. C

[id=17766, Mark=1]71. B

[id=17786, Mark=1]72. D

[id=17771, Mark=1]73. C

[id=17772, Mark=1]74. D

[id=17802, Mark=1]75. C

[id=17807, Mark=1]76. C

[id=17800, Mark=1]77. D

[id=17806, Mark=1]78. C

[id=17817, Mark=1]79. A

[id=17799, Mark=1]80. D

[id=17792, Mark=1]81. A

[id=17796, Mark=1]82. B

[id=17801, Mark=1]83. A

[id=17820, Mark=1]84. A

[id=17805, Mark=1]85. B

[id=17803, Mark=1]86. A

[id=17814, Mark=1]87. B
[id=17813, Mark=1]88. B

[id=17809, Mark=1]89. B

[id=17793, Mark=1]90. C

[id=17798, Mark=1]91. B

[id=17795, Mark=1]92. B

[id=17815, Mark=1]93. A

[id=17804, Mark=1]94. B

[id=17816, Mark=1]95. A

[id=17810, Mark=1]96. B

[id=17808, Mark=1]97. B

[id=17811, Mark=1]98. B

[id=17819, Mark=1]99. C

[id=17794, Mark=1]100. C

[id=17812, Mark=1]101. C

[id=17797, Mark=1]102. D

[id=17818, Mark=1]103. C

[id=17840, Mark=1]104. C

[id=17831, Mark=1]105. B

[id=17836, Mark=1]106. C

[id=17839, Mark=1]107. D

[id=17833, Mark=1]108. D

[id=17828, Mark=1]109. B

[id=17838, Mark=1]110. D

[id=17830, Mark=1]111. C

[id=17821, Mark=1]112. D

[id=17832, Mark=1]113. A

[id=17824, Mark=1]114. C

[id=17829, Mark=1]115. D

[id=17823, Mark=1]116. B
[id=17841, Mark=1]117. C

[id=17827, Mark=1]118. D

[id=17826, Mark=1]119. C

[id=17847, Mark=1]120. C

[id=17846, Mark=1]121. C

[id=17837, Mark=1]122. B

[id=17822, Mark=1]123. D

[id=17834, Mark=1]124. A

[id=17845, Mark=1]125. A

[id=17848, Mark=1]126. D

[id=17843, Mark=1]127. D

[id=17844, Mark=1]128. A

[id=17835, Mark=1]129. D

[id=17842, Mark=1]130. C

[id=17825, Mark=1]131. C

[id=17861, Mark=1]132. A

[id=17866, Mark=1]133. A

[id=17859, Mark=1]134. C

[id=17863, Mark=1]135. C

[id=17864, Mark=1]136. A

[id=17854, Mark=1]137. D

[id=17856, Mark=1]138. B

[id=17853, Mark=1]139. A

[id=17871, Mark=1]140. A

[id=17858, Mark=1]141. B

[id=17868, Mark=1]142. A

[id=17850, Mark=1]143. D

[id=17865, Mark=1]144. C

[id=17860, Mark=1]145. A
[id=17852, Mark=1]146. A

[id=17849, Mark=1]147. D

[id=17870, Mark=1]148. D

[id=17862, Mark=1]149. B

[id=17855, Mark=1]150. D

[id=17867, Mark=1]151. B

[id=17851, Mark=1]152. C

[id=17857, Mark=1]153. B

[id=17872, Mark=1]154. A

[id=17869, Mark=1]155. D

[id=17880, Mark=1]156. A

[id=17885, Mark=1]157. B

[id=17883, Mark=1]158. A

[id=17874, Mark=1]159. D

[id=17892, Mark=1]160. D

[id=17882, Mark=1]161. B

[id=17898, Mark=1]162. A

[id=17873, Mark=1]163. B

[id=17878, Mark=1]164. B

[id=17886, Mark=1]165. D

[id=17896, Mark=1]166. B

[id=17894, Mark=1]167. C

[id=17881, Mark=1]168. C

[id=17890, Mark=1]169. A

[id=17887, Mark=1]170. B

[id=17891, Mark=1]171. B

[id=17900, Mark=1]172. D

[id=17899, Mark=1]173. C

[id=17877, Mark=1]174. D
[id=17897, Mark=1]175. B

[id=17895, Mark=1]176. D

[id=17876, Mark=1]177. C

[id=17875, Mark=1]178. D

[id=17889, Mark=1]179. C

[id=17888, Mark=1]180. A

[id=17884, Mark=1]181. B

[id=17893, Mark=1]182. C

[id=17879, Mark=1]183. B

[id=17926, Mark=1]184. D

[id=17923, Mark=1]185. B

[id=17919, Mark=1]186. B

[id=17910, Mark=1]187. A

[id=17905, Mark=1]188. D

[id=17916, Mark=1]189. C

[id=17922, Mark=1]190. D

[id=17904, Mark=1]191. C

[id=17927, Mark=1]192. A

[id=17918, Mark=1]193. B

[id=17909, Mark=1]194. D

[id=17925, Mark=1]195. B

[id=17902, Mark=1]196. C

[id=17917, Mark=1]197. D

[id=17914, Mark=1]198. B

[id=17911, Mark=1]199. D

[id=17921, Mark=1]200. C

[id=17913, Mark=1]201. A

[id=17912, Mark=1]202. A

[id=17920, Mark=1]203. A
[id=17906, Mark=1]204. B

[id=17901, Mark=1]205. A

[id=17908, Mark=1]206. B

[id=17907, Mark=1]207. C

[id=17915, Mark=1]208. B

[id=17924, Mark=1]209. D

[id=17903, Mark=1]210. C

[id=17928, Mark=1]211. B

[id=17955, Mark=1]212. D

[id=17957, Mark=1]213. C

[id=17930, Mark=1]214. B

[id=17956, Mark=1]215. B

[id=17958, Mark=1]216. D

[id=17932, Mark=1]217. C

[id=17947, Mark=1]218. D

[id=17936, Mark=1]219. D

[id=17952, Mark=1]220. C

[id=17934, Mark=1]221. C

[id=17948, Mark=1]222. C

[id=17929, Mark=1]223. C

[id=17954, Mark=1]224. C

[id=17943, Mark=1]225. A

[id=17949, Mark=1]226. C

[id=17935, Mark=1]227. C

[id=17953, Mark=1]228. A

[id=17937, Mark=1]229. A

[id=17942, Mark=1]230. C

[id=17946, Mark=1]231. D

[id=17931, Mark=1]232. C
[id=17951, Mark=1]233. D

[id=17938, Mark=1]234. D

[id=17941, Mark=1]235. B

[id=17945, Mark=1]236. C

[id=17950, Mark=1]237. B

[id=17940, Mark=1]238. D

[id=17933, Mark=1]239. C

[id=17944, Mark=1]240. B

[id=17939, Mark=1]241. C

[id=17962, Mark=1]242. D

[id=17965, Mark=1]243. C

[id=17966, Mark=1]244. C

[id=17981, Mark=1]245. C

[id=17974, Mark=1]246. D

[id=17980, Mark=1]247. C

[id=17976, Mark=1]248. D

[id=17986, Mark=1]249. B

[id=17975, Mark=1]250. C

[id=17971, Mark=1]251. A

[id=17977, Mark=1]252. D

[id=17968, Mark=1]253. D

[id=17984, Mark=1]254. D

[id=17983, Mark=1]255. A

[id=17982, Mark=1]256. A

[id=17967, Mark=1]257. D

[id=17970, Mark=1]258. B

[id=17985, Mark=1]259. C

[id=17959, Mark=1]260. D

[id=17979, Mark=1]261. D
[id=17963, Mark=1]262. C

[id=17987, Mark=1]263. B

[id=17964, Mark=1]264. D

[id=17961, Mark=1]265. A

[id=17972, Mark=1]266. C

[id=17978, Mark=1]267. C

[id=17973, Mark=1]268. B

[id=17960, Mark=1]269. A

[id=17969, Mark=1]270. B

[id=18016, Mark=1]271. B

[id=17999, Mark=1]272. C

[id=17994, Mark=1]273. C

[id=18006, Mark=1]274. C

[id=18001, Mark=1]275. B

[id=18010, Mark=1]276. A

[id=17989, Mark=1]277. D

[id=18003, Mark=1]278. A

[id=17996, Mark=1]279. B

[id=17990, Mark=1]280. B

[id=18007, Mark=1]281. D

[id=18015, Mark=1]282. B

[id=18008, Mark=1]283. B

[id=17998, Mark=1]284. D

[id=18013, Mark=1]285. C

[id=18011, Mark=1]286. C

[id=18005, Mark=1]287. B

[id=18002, Mark=1]288. C

[id=18014, Mark=1]289. C

[id=18012, Mark=1]290. B
[id=18004, Mark=1]291. B

[id=17992, Mark=1]292. B

[id=17991, Mark=1]293. B

[id=17995, Mark=1]294. B

[id=17993, Mark=1]295. D

[id=17988, Mark=1]296. B

[id=18000, Mark=1]297. B

[id=18009, Mark=1]298. C

[id=17997, Mark=1]299. B

[id=18027, Mark=1]300. D

[id=18044, Mark=1]301. A

[id=18029, Mark=1]302. D

[id=18024, Mark=1]303. B

[id=18035, Mark=1]304. D

[id=18036, Mark=1]305. D

[id=18032, Mark=1]306. A

[id=18041, Mark=1]307. A

[id=18023, Mark=1]308. C

[id=18017, Mark=1]309. A

[id=18034, Mark=1]310. C

[id=18026, Mark=1]311. A

[id=18033, Mark=1]312. C

[id=18037, Mark=1]313. C

[id=18025, Mark=1]314. A

[id=18030, Mark=1]315. A

[id=18040, Mark=1]316. B

[id=18042, Mark=1]317. A

[id=18028, Mark=1]318. A

[id=18043, Mark=1]319. C
[id=18020, Mark=1]320. C

[id=18022, Mark=1]321. C

[id=18039, Mark=1]322. A

[id=18038, Mark=1]323. C

[id=18018, Mark=1]324. B

[id=18021, Mark=1]325. B

[id=18031, Mark=1]326. B

[id=18019, Mark=1]327. B

[id=18068, Mark=1]328. B

[id=18058, Mark=1]329. A

[id=18050, Mark=1]330. D

[id=18054, Mark=1]331. D

[id=18056, Mark=1]332. D

[id=18060, Mark=1]333. C

[id=18064, Mark=1]334. B

[id=18059, Mark=1]335. D

[id=18070, Mark=1]336. D

[id=18067, Mark=1]337. A

[id=18045, Mark=1]338. C

[id=18053, Mark=1]339. A

[id=18048, Mark=1]340. D

[id=18055, Mark=1]341. B

[id=18051, Mark=1]342. A

[id=18046, Mark=1]343. A

[id=18062, Mark=1]344. B

[id=18066, Mark=1]345. C

[id=18061, Mark=1]346. C

[id=18047, Mark=1]347. C

[id=18069, Mark=1]348. D
[id=18065, Mark=1]349. A

[id=18063, Mark=1]350. C

[id=18057, Mark=1]351. A

[id=18049, Mark=1]352. B

[id=18052, Mark=1]353. C