QN=10 (17755) Refer to Table 3-11. Assume that Falda and QN=13 (17749) Refer to Table 3-4.

ble 3-4. The opportunity cost of 1

Varick each has 1 hour available. If each person divides their pound of potatoes for the farmer is
time equally between the production of wheat and cloth, then
total production is a. 1/5 pound of meat.

a. 4 bushels of wheat and 7.5 yards of cloth. b. 2 hours of labor.

b. 7 bushels of wheat and 13.5 yards of cloth. c. 5 pounds of meat.

c. 8 bushels of wheat and 15 yards of cloth. d. 5 hours of labor.

d. 14 bushels of wheat and 27 yards of cloth.

QN=14 (17736) Refer to Table 3-2. At which of the following
prices would both Aruba and Iceland gain from trade with each
QN=11 (17752) Refer to Table 3-5. Spain should export other?
a. cheese and import bread. a. 2 radios for 4 coolers
b. bread and import cheese. b. 2 radio for 6 coolers
c. both goods and import neither good. c. 2 radio for 10 coolers
d. neither good and import both goods. d. Aruba and Iceland could not both gain from trade with each
other at any price.

QN=12 (17739) Refer to Table 3-6. The opportunity cost of 1

dress for Carlos is QN=15 (17740) Refer to Figure 3-4. If Perry and Jordan each
spends all their time producing the good in which they have a
a. 1/2 quilt. comparative advantage and trade takes place at a price of 1
b. 2 hours of labor. novel for 7 poems, then

c. 2 quilts.
d. 45 hours of labor. 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. b. wallets and Chirag has an absolute advantage in the
production of purses.
c. both goods and Chirag has an absolute advantage in the
QN=16 (17760) Refer to Figure 3-6. Daisy has an absolute production of neither good.
advantage in the production of
d. neither good and Chirag has an absolute advantage in the
a. both goods and a comparative advantage in the production of production of both goods.
pies.
b. both goods and a comparative advantage in the
production of tarts. QN=19 (17725) Adam Smith
c. neither good and a comparative advantage in the production a. and David Ricardo both opposed free trade.
of pies.
b. opposed free trade, but David Ricardo supported it.
d. neither good and a comparative advantage in the production
of tarts. c. supported free trade, but David Ricardo opposed it.
d. and David Ricardo both supported free trade.

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

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

b. comparative worth. a. wheat.

c. opportunity cost. b. cloth.

d. absolute value. c. both goods.

d. neither good.

QN=18 (17759) Refer to Figure 3-5. Puneet has an absolute

advantage in the production of QN=21 (17731) Suppose that a worker in Radioland can
a. purses and Chirag has an absolute advantage in the produce either 4 radios or 1 television per year, and a worker in
production of wallets. 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 c. 2 units of bread.
it has a comparative advantage. If Radioland trades 100 radios
to Teeveeland in exchange for 100 televisions each year, then d. 4 hours of labor.
each country's maximum consumption of new radios and
televisions per year will be
QN=24 (17742) Refer to Figure 3-9. If Uzbekistan and
a. 100 radios, 300 televisions in Radioland and 300 radios, 100 Azerbaijan switch from each country dividing its time equally
televisions in Teeveeland. between the production of bolts and nails to each country
b. 300 radios, 100 televisions in Radioland and 100 radios, spending all of its time producing the good in which it has a
300 televisions in Teeveeland. comparative advantage, then total production will increase by

c. 200 radios, 100 televisions in Radioland and 100 radios, 200 a. 5 bolts and 10 nails.
televisions in Teeveeland. b. 15 bolts and 40 nails.
d. 300 radios, 100 televisions in Radioland and 100 radios, 400 c. 20 bolts and 50 nails.
televisions in Teeveeland.
d. 30 bolts and 80 nails.

QN=22 (17735) Refer to Table 3-1. What is Sardi's opportunity

cost of producing one bushel of corn? QN=25 (17754) Refer to Table 3-9. Barb has an absolute
advantage in
a. 3/5 pound of pork
a. both setting up and testing computers and a comparative
b. 6/5 pounds of pork advantage in setting up computers.
c. 4/3 pounds of pork b. both setting up and testing computers and a comparative
d. 5/3 pounds of pork advantage in testing computers.
c. neither setting up nor testing computers and a comparative
advantage in setting up computers.
QN=23 (17750) Refer to Table 3-5. The opportunity cost of 1
unit of cheese for Spain is d. neither setting up nor testing computers and a
comparative advantage in testing computers.
a. 1/2 unit of bread.
b. 2 hours of labor.
QN=26 (17722) Which of the following is not correct?
a. The producer who requires a smaller quantity of inputs to c. John Maynard Keynes
produce a good is said to have an absolute advantage in
producing that good. d. Milton Friedman

b. The producer who gives up less of other goods to produce

Good X has the smaller opportunity cost of producing Good X. QN=29 (17747) A country that currently does not trade with
c. The producer who has the smaller opportunity cost of other countries could benefit by
producing a good is said to have a comparative advantage in a. restricting imports and promoting exports.
producing that good.
b. promoting imports and restricting exports.
d. The gains from specialization and trade are based not on
comparative advantage but on absolute advantage. c. restricting both imports and exports.
d. not restricting trade.

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

a. Economists are generally united in their support of free QN=30 (17757) Refer to Figure 3-3. If Enid must work 0.25
trade. hour to produce each taco, then her production possibilities
frontier is based on how many hours of work?
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 a. 40 hours
of grain. b. 100 hours
d. Economists' opposition to trade restrictions is still based c. 400 hours
largely on the principle of absolute advantage.
d. 1600 hours

QN=28 (17726) Which famous economist developed the

principle of comparative advantage as we know it today? QN=31 (17744)If the production possibilities frontier is bowed
outward, then "?" could be
a. Adam Smith
a. 50.
b. David Ricardo
b. 75.
c. 100. b. 0.4 radio and Iceland's opportunity cost of one cooler is 4
radios.
d. 125.
c. 2.5 radios and Iceland's opportunity cost of one cooler is
0.25 radio.
QN=32 (17729) By definition, exports are d. 2.5 radios and Iceland's opportunity cost of one cooler is 4
a. limits placed on the quantity of goods brought into a country. radios.

b. goods in which a country has an absolute advantage.

c. people who work in foreign countries. QN=35 (17745) Absolute advantage is found by comparing
different producers'
d. goods produced domestically and sold abroad.
a. opportunity costs.
b. payments to land, labor, and capital.
QN=33 (17738) Refer to Table 3-6. Assume that Hilda and
Carlos each has 90 hours available. Originally, each person c. input requirements per unit of output.
divided their time equally between the production of quilts and d. locational and logistical circumstances.
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
QN=36 (17741) Refer to Figure 3-4. The opportunity cost of 1
a. 3.5. novel for Jordan is
b. 4.5. a. 1/3 poem.
c. 5.5. b. 3 poems.
d. 9.0. c. 4 poems.
d. 12 poems.
QN=34 (17737) Refer to Table 3-2. Aruba's opportunity cost of
one cooler is
QN=37 (17751) Refer to Table 3-5. England has a comparative
a. 0.4 radio and Iceland's opportunity cost of one cooler is advantage in the production of
0.25 radio.
a. cheese and Spain has a comparative advantage in the QN=40 (17753) Refer to Table 3-7. Korea should specialize in
production of bread. the production of
b. bread and Spain has a comparative advantage in the a. cars and import airplanes.
production of cheese.
b. airplanes and import cars.
c. both goods and Spain has a comparative advantage in the
production of neither good. c. both goods and import neither good.

d. neither good and Spain has a comparative advantage in the d. neither good and import both goods.
production of both goods.

QN=41 (17734) Refer to Table 3-1. At which of the following

QN=38 (17724) Two people can benefit from specialization prices would both Sardi and Tinaka gain from trade with each
and trade by obtaining a good at a price that is other?

a. lower than his or her opportunity cost of that good. a. 6 bushels of corn for 10.5 pounds of pork

b. the same as his or her opportunity cost of that good. b. 12 bushels of corn for 19 pounds of pork

c. higher than his or her opportunity cost of that good. c. 24 bushels of corn for 34 pounds of pork

d. different than his or her opportunity cost of that good. d. Sardi and Tinaka could not both gain from trade with each
other at any price.

QN=39 (17746) For two individuals who engage in the same

two productive activities, it is impossible for one of the two QN=42 (17721) The opportunity cost of an item is
individuals to a. the number of hours that one must work in order to buy one
a. have a comparative advantage in both activities. unit of the item.

b. have an absolute advantage in both activities. b. what you give up to get that item.

c. be more productive per unit of time in both activities. c. always less than the dollar value of the item.

d. gain from trade with each other. d. always greater than the cost of producing the item.
QN=43 (17743) When can two countries gain from trading two a. income falls and saving rises.
goods?
b. income and saving both fall.
a. (i) when the first country can only produce the first good and
the second country can only produce the second good c. income falls and expenditure rises.

b. (ii) when the first country can produce both goods, but can d. income and expenditure both fall.
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 QN=46 (17778) Which of the following topics are more likely
to be studied by a macroeconomist than by a microeconomist?
c. (iii) when the first country is better at producing both goods
and the second country is worse at producing both goods a. the effect of taxes on the prices of airline tickets, the
profitability of automobile-manufacturing firms, and
d. Two countries could gain from trading two goods under employment trends in the food-service industry
all of the conditions in (i), (ii), and (iii).
b. the price of beef, wage differences between genders, and
antitrust laws
QN=44 (17748) Refer to Table 3-3. Assume that Zimbabwe c. how consumers maximize utility, and how prices are
and Portugal each has 180 machine minutes available. If each established in markets for agricultural products
country divides its time equally between the production of
toothbrushes and hairbrushes, then total production is d. the percentage of the labor force that is out of work, and
differences in average income from country to country

a. 24 toothbrushes and 12 hairbrushes.

QN=47 (17787) The value of the housing services provided by
b. 48 toothbrushes and 24 hairbrushes. the economy's owner-occupied houses is
c. 96 toothbrushes and 48 hairbrushes. a. included in GDP, and the estimated rental values of the
d. 720 toothbrushes and 1440 hairbrushes. 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
QN=45 (17763) If an economy's GDP falls, then it must be the services.
case that the economy's
c. excluded from GDP since these services are not sold in any $212, imports were $67 and 67% of the value of exports,
market. investment was one-half of the value of consumption. What
was Wrexington's GDP in 2008?
d. excluded from GDP since the value of these housing services
cannot be estimated with any degree of precision. a. $1450
b. $1790
QN=48 (17783) Which of the following items is counted as c. $2450
part of government purchases?
d. $2790
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. QN=58 (17790) Net exports equal

c. (iii) The city of Las Vegas, Nevada pays a private firm to a. exports plus imports.
collect garbage in that city. b. exports minus imports.
d. All (i), (ii), and (iii) are correct. c. imports minus exports.
d. GDP minus imports.
QN=49 (17764) Gross domestic product is defined as
a. (i) the quantity of all final goods and services demanded QN=59 (17791) A German citizen buys an automobile
within a country in a given period of time. produced in the United States by a Japanese company. As a
b. (ii) the quantity of all final goods and services supplied result,
within a country in a given period of time. a. U.S. net exports increase, U.S. GDP is unaffected, Japanese
c. (iii) the market value of all final goods and services GNP increases, German net exports decrease, and German
produced within a country in a given period of time. GNP and GDP are unaffected.

d. Both (i) and (ii) are correct. b. U.S. net exports and GDP increase, Japanese GNP increases,
German net exports decrease, and German GNP is unaffected,
and German GDP decreases.
QN=57 (17784) In the economy of Wrexington in 2008,
consumption was 60% of GDP, government purchases were
c. U.S. net exports and GDP increase, Japanese GNP
increases, German net exports decrease, and German GNP
and GDP are unaffected. QN=62 (17781) The information below was reported by the
World Bank. On the basis of this information, which list below
d. U.S. net exports and GDP are unaffected, Japanese GNP contains the correct ordering of GDP per person from highest
increases, and German net exports, GNP, and GDP decrease. to lowest?
a. Kenya, Tanzania, Zimbabwe
QN=60 (17769) Refer to Table 23-5. In 2008, Batterland's real b. Tanzania, Kenya, Zimbabwe
GDP was
c. Zimbabwe, Kenya, Tanzania
a. $100.
d. Zimbabwe, Tanzania, Kenya
b. $390.
c. $400.
QN=63 (17777) Def01 stands for GDP deflator in year 1.
d. $540. Def02 stands for GDP deflator in year 2. The inflation rate in
year 2 equals
a. 100*(Def02-Def01)/Def01.
QN=61 (17780) In 2007, Corny Company grows and sells $2
million worth of corn to Tasty Cereal Company, which makes b. 100*(Def02-Def01)/Def02.
corn flakes. Tasty Cereal Company produces $6 million worth
of corn flakes in 2007, with sales to households during the year c. 100*(Def01-Def02)/Def01.
of $4.5 million. The unsold $1.5 million worth of corn flakes d. 100*(Def01-Def02)/Def02.
remains in Tasty Cereal Company's inventory at the end of
2007. The transactions just described contribute how much to
GDP for 2007? QN=64 (17762) Macroeconomists study
a. $4.5 million a. the decisions of households and firms.
b. $6 million b. the interaction between households and firms.
c. $6.5 million c. economy-wide phenomena.
d. $8 million d. regulations on firms and unions.
 a. the unemployment rate
QN=65 (17767) Suppose there are only two firms in an b. the inflation rate
economy: Cowhide, Inc. produces leather and sells it to
Couches, Inc., which produces and sells leather furniture. With c. gross domestic product
each $1,000 of leather that it buys from Cowhide, Inc., d. the trade deficit
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. QN=68 (17773) Quality Motors is a Japanese-owned company
Couches, Inc. bought 80% of that leather for $16,000 and that produces automobiles; all of its automobiles are produced
promised to buy the remaining 20% for $4,000 in 2010. What in American plants. In 2007, Quality Motors produced $20
was the economy's GDP for the 2009? million worth of automobiles, with $12 million in sales to
a. $48,000 Americans, $6 million in sales to Canadians, and $2 million
worth of automobiles added to Quality Motors' inventory. The
b. $52,000 transactions just described contribute how much to U.S. GDP
c. $64,000 for 2007?

d. $68,000 a. $12 million

b. $14 million

QN=66 (17774) Household spending on education is counted c. $20 million

in which component or subcomponent of GDP? d. $34 million
a. consumption of durable goods
b. consumption of nondurable goods QN=69 (17789) What word do economists use to refer to the
c. consumption of services purchase of goods that will be used in the future to produce
more goods and services?
d. investment
a. capital
b. consumption
QN=67 (17776) Which of the following statistic is usually
regarded as the best single measure of a society's economic c. investment
well-being? d. costs
 c. then GDP will be unchanged, but consumption spending will
be higher.
QN=70 (17785) In the economy of Wrexington in 2008,
nominal GDP was $20 billion and the GDP deflator ratio was d. then both GDP and consumption spending will be higher.
500. What was Wrexington's real GDP in 2008?
a. $2.5 million
QN=73 (17771) A transfer payment is
b. $10 million
a. a payment for moving expenses a worker receives when he
c. $40 million or she is transferred by an employer to a new location.
d. $100 million 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
QN=71 (17766) Refer to Table 23-6. Which of the following is exchange for a currently produced good or service.
not correct?
d. the benefit that a person receives from an expenditure by
a. This economy experienced growth from 1974 to 1975. government minus the taxes that were collected by government
b. This economy experienced growth from 1975 to 1976. to fund that expenditure.

c. This economy experienced growth from 1976 to 1977.

d. This economy experienced inflation from 1974 to 1975, QN=74 (17772) When economists talk about growth in the
from 1975 to 1976, and from 1976 to 1977. economy, they measure that growth as the
a. absolute change in nominal GDP from one period to another.

QN=72 (17786) If you buy a burger and fries at your favorite b. percentage change in nominal GDP from one period to
fast food restaurant, another.

a. then neither GDP nor consumption will be affected because c. absolute change in real GDP from one period to another.
you would have eaten at home had you not bought the meal at d. percentage change in real GDP from one period to
the restaurant. another.
b. then GDP will be higher, but consumption spending will be
unchanged.
QN=75 (17802) Suppose a basket of goods and services has about $1.7 million. A price index for nonresidential
been selected to calculate the CPI and 2002 has been selected construction was 24 in 1949, 108 in 1987, and 126.5 in 2000.
as the base year. In 2002, the basket's cost was $50; in 2004, According to these numbers, the hospital cost about
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. $2.1 million in 2000 dollars, which is less than the cost of
the courthouse restoration in 2000 dollars.
a. 96.2.
b. $2.1 million in 2000 dollars, which is more than the cost of
b. 102.0. the courthouse restoration in 2000 dollars.
c. 104.0. c. $2.6 million in 2000 dollars, which is less than the cost of
the courthouse restoration in 2000 dollars.
d. 152.0.
d. $2.6 million in 2000 dollars, which is more than the cost
of the courthouse restoration in 2000 dollars.
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? QN=78 (17806) The CPI is more commonly used as a gauge of
inflation than the GDP deflator is because
a. The base year is always the first year among the years for
which computations are being made. a. the CPI is easier to measure.
b. It is necessary to designate a base year only in the simplest b. the CPI is calculated more often than the GDP deflator is.
case of two goods; in more realistic cases, it is not necessary to
designate a base year. c. the CPI better reflects the goods and services bought by
consumers.
c. The value of the consumer price index is always 100 in
the base year. d. the GDP deflator cannot be used to gauge inflation.

d. The base year is always the year in which the cost of the QN=79 (17817) Table 24-3
basket was highest among the years for which computations The table below pertains to Studious, an economy in which the
are being made. typical consumer's basket consists of 5 books and 10
[Link] to Table 24-3. The cost of the basket

QN=77 (17800) In 1949, Sycamore, Illinois built a hospital for a. increased from 2006 to 2007 and increased from 2007 to
about $500,000. In 1987, the county restored the courthouse for 2008.
b. increased from 2006 to 2007 and decreased from 2007 to QN=82 (17796) Table 24-1
2008.
The table below pertains to Pieway, an economy in which the
c. decreased from 2006 to 2007 and increased from 2007 to typical consumer's basket consists of 10 bushels of peaches and
2008. 15 bushels of [Link] to Table 24-1. If 2005 is the base
year, then the CPI for 2005 was
d. decreased from 2006 to 2007 and decreased from 2007 to
2008. a. 83.3.
b. 100.0.
QN=80 (17799) The economy's inflation rate is the c. 120.0.
a. price level in the current period. d. 200.0.
b. absolute change in the price level from the previous period.
c. change in the gross domestic product from the previous QN=83 (17801) The consumer price index was 225 in 2006
period. and 236 in 2007. The nominal interest rate during this period
was 6.5 percent. What was the real interest rate during this
d. percentage change in the price level from the previous period?
period.
a. 1.6 percent
b. 4.9 percent
QN=81 (17792) When the consumer price index rises, the
typical family c. 6.82 percent
a. has to spend more dollars to maintain the same standard d. 11.4 percent
of living.
b. can spend fewer dollars to maintain the same standard of
living. QN=84 (17820) Scenario 24-4

c. finds that its standard of living is not affected. Quinn has job offers in Wrexington and across the country in
Charlieville. The Wrexington job would pay a salary of
d. can offset the effects of rising prices by saving more. $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 [Link] to Scenario 24-4. If Quinn only cares d. increase, but the consumer price index will not increase.
about maximizing her purchasing power, then she should
a. take the Charlieville job.
QN=87 (17814) The price of domestically produced DVD
b. take the Wrexington job. players increases dramatically, causing a 1 percent increase in
the CPI. The price increase will most likely cause the GDP
c. take either job because they both have the same purchasing deflator to increase by
power.
a. (i) more than 1 percent.
d. The answer cannot be determined from the information
given because a salary is not the same as purchasing power. b. (ii) less than 1 percent.
c. (iii) 1 percent.
QN=85 (17805) Economists use the term inflation to describe a d. None of (i), (ii), and (iii) is correct; this particular price
situation in which increase will not affect the GDP deflator.
a. some prices are rising faster than others.
b. the economy's overall price level is rising. QN=88 (17813) The price index was 120 in 2006 and 127.2 in
2007. What was the inflation rate?
c. the economy's overall price level is high, but not necessarily
rising. a. 5.7 percent
d. the economy's overall output of goods and services is rising b. 6.0 percent
faster than the economy's overall price level.
c. 7.2 percent
d. 27.2 percent
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 QN=89 (17809) The GDP deflator reflects the
a. increase less than will the consumer price index. a. level of prices in the base year relative to the current level of
b. increase more than will the consumer price index. prices.

c. not increase, but the consumer price index will increase. 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 b. how fast the purchasing power of your bank account
level of real output. rises over time.
d. current level of real output relative to the level of real output c. the number of dollars in your bank account today.
in the base year.
d. the purchasing power of your bank account today.

QN=90 (17793) In the CPI, goods and services are weighted

according to QN=93 (17815) The CPI was 120 in 2000 and 132 in 2001.
Dorgan borrowed money in 2000 and repaid the loan in 2001.
a. how long a market has existed for each good or service. If the nominal interest rate on the loan was 12 percent, then the
real interest rate was
b. the extent to which each good or service is regarded by the
government as a necessity. a. 2 percent.
c. how much consumers buy of each good or service. b. 10 percent.
d. the number of firms that produce and sell each good or c. 12 percent.
service.
d. 22 percent.

QN=91 (17798) The consumer price index tries to gauge how

much incomes must rise to maintain QN=94 (17804) The consumer price index is used to

a. an increasing standard of living. a. convert nominal GDP into real GDP.

b. a constant standard of living. b. turn dollar figures into meaningful measures of

purchasing power.
c. a decreasing standard of living.
c. characterize the types of goods and services that consumers
d. the highest standard of living possible. purchase.
d. measure the quantity of goods and services that the economy
produces.
QN=92 (17795) The real interest rate tells you
a. how fast the number of dollars in your bank account rises
over time. QN=95 (17816) Table 24-2
The table below pertains to Iowan, an economy in which the b. $2.08
typical consumer's basket consists of 3 pounds of pork and 4
bushels of corn .Refer to Table 24-2. The cost of the c. $2.32
basket in 2008 was d. $3.00
a. $108.
b. $147. QN=98 (17811) The consumer price index is used to
c. $160. a. monitor changes in the level of wholesale prices in the
d. $224. economy.
b. monitor changes in the cost of living over time.

QN=96 (17810) Indexation refers to c. monitor changes in the level of real GDP over time.

a. a process of adjusting the nominal interest rate so that it is d. monitor changes in the stock market.
equal to the real interest rate.
b. using a law or contract to automatically correct a dollar QN=99 (17819) Scenario 24-3
amount for the effects of inflation.
Grant Gant was a doctor in 1944 and earned $12,000 that year.
c. using a price index to deflate dollar values. His daughter, Gretta Gant, is a doctor today and she earned
d. an adjustment made by the Bureau of Labor Statistics to the $210,000 in 2005. The price index was 17.6 in 1944 and 184 in
CPI so that the index is in line with the GDP deflator. [Link] to Scenario 24-3. Grant Gant's 1944 income in
2005 dollars is
a. $1,147.83.
QN=97 (17808) In an imaginary economy, consumers buy only
sandwiches and magazines. The fixed basket consists of 20 b. $113,454.55.
sandwiches and 30 magazines. In 2006, a sandwich cost $4 and c. $125,454.55.
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 d. $1,996,800.00.
much did a magazine cost in 2007?
a. $1.87 QN=100 (17794) Scenario 24-1
The price tag on a tennis ball in 1975 read $0.10, and the price d. $100,000
tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was
52.3, and the CPI in 2005 was [Link] to Scenario 24-1.
The price of a 1975 tennis ball in 2005 dollars is QN=103 (17818) Scenario 24-2 The price tag on a golf ball in
a. $0.03. 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
b. $0.27. [Link] to Scenario 24-2. The price of a 1975 golf ball in
2005 dollars is
c. $0.37.
a. $0.05.
d. $1.00.
b. $0.53.
c. $0.73.
QN=101 (17812) When the overall level of prices in the
economy is increasing, economists say that the economy is d. $2.00.
experiencing
a. economic growth.
QN=104 (17840) Which of the following is correct?
b. stagflation.
a. Although levels of real GDP per person vary substantially
c. inflation. from country to country, the growth rate of real GDP per
person is similar across countries.
d. deflation.
b. Productivity is not closely linked to government policies.
c. The level of real GDP per person is a good gauge of
QN=102 (17797) Arlo is offered a job in Des Moines, where economic prosperity, and the growth rate of real GDP per
the CPI is 60, and a job in New York, where the CPI is 125. person is a good gauge of economic progress.
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 d. Productivity may be measured by the growth rate of real
represent the same purchasing power? GDP per person.
a. $23,040
b. $52,000 QN=105 (17831) On a production function, as capital per
worker increases, output per worker
c. $79,200
a. increases. This increase is larger at larger values of capital
per worker.
QN=108 (17833) An economy's production function has the
b. increases. This increase is smaller at larger values of constant-returns-to-scale property. If the economy's labor force
capital per worker. doubled and all other inputs stayed the same, then real GDP
would
c. decreases. This decrease is larger at larger value of capital
per worker. a. stay the same.
d. decreases. This decrease is smaller at larger value of capital b. increase by exactly 50 percent.
per worker.
c. increase by exactly 100 percent.
d. increase, but not necessarily by either 50 percent or 100
QN=106 (17836) 3. Refer to Figure 25-1. The curve becomes percent.
flatter as the amount of capital per worker increases because of
a. increasing returns to capital.
QN=115 (17829) Which of the following is a determinant of
b. increasing returns to labor. productivity?
c. diminishing returns to capital. a. (i) human capital per worker
d. diminishing returns to labor. b. (ii) physical capital per worker
c. (iii) natural resources per worker
QN=107 (17839) The level of real GDP person d. All of (i), (ii), and (iii) are correct.
a. differs widely across countries, but the growth rate of real
GDP per person is similar across countries.
QN=116 (17823) One of the Ten Principles of Economics in
b. is very similar across countries, but the growth rate of real Chapter 1 is that people face tradeoffs. The growth that arises
GDP per person differs widely across countries. from capital accumulation is not a free lunch. It requires that
society
c. and the growth rate of real GDP per person are similar across
countries. a. (i) conserve resources for future generations.
d. and the growth rate of real GDP per person vary widely b. (ii) sacrifice consumption goods and services now in
across countries. order to enjoy more consumption in the future.
c. (iii) recycle resources so that future generations can produce a. both the demand for the good and the supply of the good
goods and services with the accumulated capital. have increased.
d. None of (i), (ii), and (iii) is correct. 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
QN=117 (17841) A barber shop produces 96 haircuts a day. has decreased.
Each barber in the shop works 8 hours per day and produces
the same number of haircuts per hour. If the shop's productivity d. the demand for the good has decreased and the supply has
is 3 haircuts per hour of labor, then how many barbers does the remained constant.
shop employ?
a. 2
QN=120 (17847) Scenario 25-1.
b. 3
An economy's production form takes the form Y = AF(L, K, H,
c. 4 N)Refer to Scenario 25-1. If the production function has the
constant-returns-to-scale property, and output is zero whenever
d. 6 some input is zero, then it is possible that the specific form of
the production function is

QN=118 (17827) If there are diminishing returns to capital, a. Y = 4L + 2K + 3H + N

then b. Y = (L + K + H + N)/4
a. capital produces fewer goods as it ages. c. Y =2(LKHN)^0.25
b. old ideas are not as useful as new ones. d. Y = 4(L^3 × K^4 × H × N)^0.5
c. increases in the capital stock eventually decrease output.
d. increases in the capital stock increase output by ever QN=121 (17846) The Peapod Restaurant uses all of the
smaller amounts. following to produce vegetarian meals. Which of them is an
example of physical capital?

QN=119 (17826) In a market economy, we know that a a. the owner's knowledge of how to prepare vegetarian entrees
resource has become scarcer when
b. the money in the owner's account at the bank from which she QN=124 (17834) Human capital is the
borrowed money
a. knowledge and skills that workers acquire through
c. the tables and chairs in the restaurant education, training, and experience.
d. the land the restaurant was built on b. stock of equipment and structures that is used to produce
goods and services.
c. total number of hours worked in an economy.
QN=122 (17837) All else equal, if there are diminishing
returns, then which of the following is true if a country d. same thing as technological knowledge.
increases its capital by one unit?
a. Output will rise by more than it did when the previous unit
was added. QN=125 (17845) Dilbert's Incorporated produced 6,000,000
units of software in 2005. At the start of 2006 the pointy-haired
b. Output will rise but by less than it did when the previous boss raised employment from 10,000 total annual hours to
unit was added. 14,000 annual hours and production was 7,000,000 units.
Based on these numbers what happened to productivity?
c. Output will fall by more than it did when the previous unit
was added. a. It fell by about 16.7%.
d. Output will fall but by less than it did when the previous unit b. It stayed the same.
was added.
c. It rose by about 16.7%.
d. It rose by about 40%.
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 QN=126 (17848) Given that a country's real output has
a. standard of learning. increased, in which of the following cases can we be sure that
its productivity also has increased?
b. technological knowledge.
a. (i) The total number of hours worked rose.
c. physical capital.
b. (ii) The total number of hours worked stayed the same.
d. human capital.
c. (iii) The total number of hours worked fell.
d. Both (ii) and (iii) are correct. c. Both (i) and (ii) are correct.
d. None of (i) and (ii) is correct.
QN=127 (17843) Rapid population growth
a. was hailed by Thomas Robert Malthus as the key to future QN=130 (17842) Last year a country had 800 workers who
economic growth. worked an average of 8 hours and produced 12,800 units. This
year the country had 1000 workers who worked an average of
b. tends to lead to higher levels of educational attainment. 8 hours and produced 14,000 units. This country's productivity
c. is the main reason that less developed nations are poor. was

d. may depress economic prosperity by reducing the a. higher this year than last year. A possible source of this
amount of capital which each worker has to work with. 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
QN=128 (17844) What term do economists use to describe the capital stock does not affect productivity.
relationship between the quantity of inputs used and the
quantity of output produced? c. lower this year than last year. A possible source of this
change in productivity is a change in the size of the capital
a. production function stock.
b. input function d. lower this year than last year. A change in the size of the
c. capital function capital stock does not affect productivity.

d. returns to scale
QN=131 (17825) If a production function has constant returns
to scale, output can be doubled if
QN=129 (17835) Suppose that real GDP grew more in Country
A than in Country B last year. a. (i) labor alone doubles.

a. (i) Country A must have a higher standard of living than b. (ii) all inputs but labor double.
country B. c. (iii) all of the inputs double.
b. (ii) Country A's productivity must have grown faster than d. None of (i), (ii), and (iii) is correct.
country B's.
 c. equity finance and so become part owners of Crate and
Barrel.
QN=132 (17861) World Wide Delivery Service Corporation
develops a way to speed up its deliveries and reduce its costs. d. equity finance and so become creditors of Crate and Barrel.
We would expect that this would
a. raise the demand for existing shares of the stock, causing the
price to rise. QN=135 (17863) Which of the following is correct?

b. decrease the demand for existing shares of the stock, causing a. In the national income accounts, investment and private
the price to fall. saving refer to the same thing.

c. raise the supply of the existing shares of stock, causing b. In a closed economy if national saving is greater than zero,
the price to rise. then everyone must be saving.

d. raise the supply of the existing shares of stock, causing the c. The financial system channels funds from savers to
price to fall. borrowers.
d. People whose consumption exceeds their income are savers.

QN=133 (17866) What would happen in the market for

loanable funds if the government were to increase the tax on QN=136 (17864) Suppose the economy is closed and
interest income? consumption is 6,500, taxes are 1,500, and government
a. Interest rates would rise. purchases are 2,000. If national saving amounts to 1,000, then
what is GDP?
b. Interest rates would be unaffected.
a. (i) 9,500
c. Interest rates would fall.
b. (ii) 10,000
d. The effect on the interest rate is uncertain.
c. (iii) 10,500
d. None of (i), (ii), and (iii) is correct.
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. QN=137 (17854) Two of the economy's most important
financial intermediaries are
b. debt finance and so become creditors of Crate and Barrel.
a. suppliers of funds and demanders of funds. d. the interest rate, and the source of the demand for loanable
funds is saving.
b. banks and the bond market.
c. the stock market and the bond market.
QN=140 (17871) Which of the following lists correctly
d. banks and mutual funds. identifies the four expenditure categories of GDP?
a. consumption, government purchases, investment, net-
QN=138 (17856) In examining the national income accounts of exports
the closed economy of Nepotocracy you see that this year it b. consumption, investment, depreciation, net-exports
had taxes of $100 billion, government transfers of $40 billion,
and government purchases of goods and services of $80 billion. c. consumption, saving, investment, depreciation,
You also notice that last year it had private saving of $50
billion and investment of $70 billion. In which year did d. consumption, government purchases, investment, savings
Nepotocracy have a budget deficit of $20 billion?
a. this year and last year QN=141 (17858) If the nominal interest rate is 6 percent and
b. this year but not last year the real interest rate is 2 percent, then what is the inflation rate?

c. last year but not this year a. (i) 8 percent

d. neither this year nor last year b. (ii) 4 percent

c. (iii) 3 percent

QN=139 (17853) The source of the supply of loanable funds is d. None of (i), (ii), and (iii) is correct.

a. saving, and the source of the demand for loanable funds

is investment. QN=142 (17868) When a country saves a larger portion of its
b. consumption, and the source of the demand for loanable GDP than it did before, it will have
funds is investment. a. more capital and higher productivity.
c. investment, and the source of the demand for loanable funds b. more capital and lower productivity.
is saving.
c. less capital and higher productivity.
d. less capital and lower productivity. d. neither saving nor the interest rate

QN=143 (17850) In a closed economy, what does (T - G) QN=146 (17852) The supply of loanable funds would shift to
represent? the right if either
a. national saving a. tax reforms encouraged greater saving or the budget
deficit became smaller.
b. investment
b. tax reforms encouraged greater saving or investment tax
c. private saving credits were increased.
d. public saving c. the budget deficit became larger or investment tax credits
were increased.

QN=144 (17865) For a closed economy, GDP is $11 trillion, d. the budget deficit became larger or tax reforms discouraged
consumption is $7 trillion, taxes are $2 trillion and the saving.
government runs a deficit of $1 trillion. What are private
saving and national saving?
QN=147 (17849) Which of the following is not always correct
a. $4 trillion and $1 trillion, respectively for a closed economy?
b. $4 trillion and $-1 trillion, respectively a. National saving equals private saving plus public saving.
c. $2 trillion and $1 trillion, respectively b. Net exports equal zero.
d. $2 trillion and $-1 trillion, respectively c. Real GDP measures both income and expenditures.
d. Private saving equals investment.
QN=145 (17860) If the government instituted an investment
tax credit, then which of the following would be higher in
equilibrium? QN=148 (17870) If the government's expenditures exceeded its
receipts, it would likely
a. saving and the interest rate
a. lend money to a bank or other financial intermediary.
b. saving but not the interest rate
b. borrow money from a bank or other financial intermediary.
c. the interest rate but not saving
c. buy bonds directly from the public. Refer to Figure 26-3. A shift of the demand curve from D1 to
D2 is called
d. sell bonds directly to the public.
a. an increase in the demand for loanable funds, and that
increase would originate from people who had some extra
QN=149 (17862) Suppose that in a closed economy GDP is income they wanted to lend.
equal to 11,000, taxes are equal to 2,500 consumption equals b. an increase in the demand for loanable funds, and that
7,500 and government purchases equal 2,000. What are private increase would originate from households and firms who
saving, public saving, and national saving? wish to borrow to make investments.
a. (i) 1,500, 1,000, and 500, respectively c. a decrease in the demand for loanable funds, and that
b. (ii) 1,000, 500, and 1,500, respectively decrease would originate from people who had some extra
income they wanted to lend.
c. (iii) 500, 1,500, and 1,000, respectively
d. a decrease in the demand for loanable funds, and that
d. None of (i), (ii), and (iii) is correct. decrease would originate from households and firms who wish
to borrow to make investments.

QN=150 (17855) If the government's expenditures exceeded its

receipts, it would likely QN=152 (17851) For a closed economy, GDP is $11 trillion,
a. lend money to a bank or other financial intermediary. consumption is $7 trillion, taxes are $2 trillion and the
government runs a deficit of $1 trillion. What are private
b. borrow money from a bank or other financial intermediary. saving and national saving?
c. buy bonds directly from the public. a. $4 trillion and $1 trillion, respectively
d. sell bonds directly to the public. b. $4 trillion and $-1 trillion, respectively
c. $2 trillion and $1 trillion, respectively
QN=151 (17867) Figure 26-3. The figure shows two demand- d. $2 trillion and $-1 trillion, respectively
for-loanable-funds curves and two supply-of-loanable-funds
curves.
QN=153 (17857) Refer to Table 26-1. What was Hershey's
earnings per share?
 d. All of (i), (ii), and (iii) are correct.
a. $38
b. $1.64 QN=156 (17880) The labor-force participation rate measures
the percentage of the
c. $1.31
a. total adult population that is in the labor force.
d. $0.61
b. total adult population that is employed.
c. labor force that is employed.
QN=154 (17872) A change in the tax laws that increases the
supply of loanable funds will have a bigger effect on d. labor force that is either employed or unemployed.
investment when
a. the demand for loanable funds is more elastic and the
supply of loanable funds is more inelastic. QN=157 (17885) Suppose some country had an adult
population of about 50 million, a labor-force participation rate
b. the demand for loanable funds is more inelastic and the of 60 percent, and an unemployment rate of 5 percent. How
supply of loanable funds is more elastic. many people were unemployed?
c. both the demand for and supply of loanable funds are more a. 1.425 million
elastic.
b. 1.5 million
d. both the demand for and supply of loanable funds are more
inelastic. c. 2.5 million
d. 5 million

QN=155 (17869) If national saving in a closed economy is

greater than zero, which of the following must be true? QN=158 (17883) Unemployment that exists because it takes
a. (i) Either public saving or private saving must be greater time for workers to search for the jobs that suit them best is
than zero. a. frictional unemployment, which contributes to the
b. (ii) Investment is positive. natural rate of unemployment.

c. (iii) Y - C - G > 0 b. frictional unemployment, which does not contribute to the

natural rate of unemployment.
c. structural unemployment, which contributes to the natural QN=161 (17882) Suppose that efficiency wages become more
rate of unemployment. common in the economy. Economists would predict that this
would
d. structural unemployment, which does not contribute to the
natural rate of unemployment. a. increase the quantity demanded and decrease the quantity
supplied of labor, thereby decreasing the natural rate of
unemployment.
QN=159 (17874) Collective bargaining refers to b. decrease the quantity demanded and increase the
a. the process by which the government sets exemptions from quantity supplied of labor, thereby increasing the natural
the minimum wage law. rate of unemployment.

b. setting the same wage for all employees to prevent conflict c. increase the quantity demanded and decrease the quantity
among workers. supplied of labor, thereby increasing the natural rate of
unemployment.
c. firms colluding to set the wages of employees in order to
keep them below equilibrium. d. decrease the quantity demanded and increase the quantity
supplied of labor, thereby decreasing the natural rate of
d. the process by which unions and firms agree on the unemployment.
terms of employment.

QN=162 (17898) Public policy

QN=160 (17892) A person who is counted as unemployed by
the Bureau of Labor Statistics a. can reduce both frictional unemployment and the
natural rate of unemployment.
a. (i) is also in the labor force.
b. can reduce frictional unemployment, but it cannot reduce the
b. (ii) must have recently looked for work or be on temporary natural rate of unemployment.
layoff.
c. cannot reduce frictional unemployment, but it can reduce the
c. (iii) be at least 16 years old. natural rate of unemployment.
d. All of (i), (ii), and (iii) are correct. d. cannot reduce either frictional unemployment or the natural
rate of unemployment.
QN=163 (17873) Consumers decide to buy more computers QN=166 (17896) 1. If all workers and all jobs were the same
and fewer typewriters. As a result, computer companies expand such that all workers were equally well suited for all jobs, then
production while typewriter companies lay-off workers. This is there would be no
an example of
a. cyclical unemployment.
a. frictional unemployment created by efficiency wages.
b. frictional unemployment.
b. frictional unemployment created by sectoral shifts.
c. natural rate of unemployment.
c. structural unemployment created by efficiency wages.
d. structural unemployment.
d. structural unemployment created by sectoral shifts.

QN=167 (17894) Unions contribute to

QN=164 (17878) Which of the following is not an explanation
for the existence of structural unemployment? a. structural unemployment but not the natural rate of
unemployment.
a. efficiency wages
b. the natural rate of unemployment but not structural
b. job search unemployment.
c. minimum-wage laws c. both structural unemployment and the natural rate of
unemployment.
d. unions
d. neither structural unemployment nor the natural rate of
unemployment.
QN=165 (17886) The natural rate of unemployment
a. (i) arises from a single problem that has a single solution. QN=168 (17881) The labor force equals the
b. (ii) is easy for policymakers to reduce. a. number of people employed.
c. (iii) Both (i) and (ii) are correct. b. number of people unemployed.
d. None of (i), (ii), and (iii) is correct. 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 QN=176 (17895) A firm may pay efficiency wages in an
minimum-wage workers tend to be attempt to
a. young and less educated. a. (i) reduce incentives to shirk.
b. young and more educated. b. (ii) reduce turnover.
c. old and less educated. c. (iii) attract a well-qualified pool of applicants.
d. old and more educated. d. All of (i), (ii), and (iii) are correct.

QN=174 (17877) Which of the following causes of QN=177 (17876) When a union raises the wage above the
unemployment is associated with a wage rate above the market equilibrium level, it
equilibrium level?
a. reduces both the quantity of labor supplied and the quantity
a. (i) minimum-wage laws of labor demanded, resulting in unemployment.
b. (ii) unions b. reduces the quantity of labor supplied and raises the quantity
of labor demanded, resulting in unemployment.
c. (iii) efficiency wages
c. raises the quantity of labor supplied and reduces the
d. All of (i), (ii), and (iii) are correct. quantity of labor demanded, resulting in unemployment.
d. raises both the quantity of labor supplied and the quantity of
QN=175 (17897) Suppose that because of the popularity of the labor demanded, resulting in unemployment.
low-carb diet, bakeries need fewer workers and steak houses
need more workers. This is an example of
QN=178 (17875) In one year, you meet 52 people who are
a. frictional unemployment created by efficiency wages. each unemployed for one week and eight people who are each
b. frictional unemployment created by sectoral shifts. unemployed for the whole year. Normally there are 52 weeks
in a year. What percentage of the unemployment spells you
c. structural unemployment created by efficiency wages. encountered was short-term, and what percentage of the
d. structural unemployment created by sectoral shifts. unemployment you encountered in a given week was long-
term?
a. 52 percent and 13.3 percent QN=181 (17884) Workers searching for jobs that best suit them
is most closely associated with
b. 52 percent and 88.9 percent
a. cyclical unemployment.
c. 86.7 percent and 13.3 percent
b. frictional unemployment.
d. 86.7 percent and 88.9 percent
c. seasonal unemployment.
d. structural unemployment.
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
QN=182 (17893) Refer to Figure 28-1. If the government
a. the natural rate of unemployment. imposes a minimum wage of $4, then how many workers will
be employed?
b. cyclical unemployment.
a. 3000
c. structural unemployment.
b. 4000
d. frictional unemployment.
c. 5000
d. 7000
QN=180 (17888) The efficiency-wage theory of worker health
is
a. more relevant for explaining unemployment in less QN=183 (17879) Suppose some country had an adult
developed countries than in rich countries. population of about 50 million, a labor-force participation rate
of 60 percent, and an unemployment rate of 5 percent. How
b. more relevant for explaining unemployment in rich countries many people were employed?
than in less developed countries.
a. 1.5 million
c. equally relevant for explaining unemployment in less
developed countries and in rich countries. b. 28.5 million
d. not relevant for explaining unemployment. c. 30 million
d. 47.5 million
QN=184 (17926) To decrease the money supply, the Fed could a. defer payments.
a. (i) sell government bonds. b. are a store of value.
b. (ii) increase the discount rate. c. have led to wider use of currency.
c. (iii) increase the reserve requirement. d. are part of the money supply.
d. All of (i), (ii) and (iii) are correct.
QN=188 (17905) The ease with which an asset can be
QN=185 (17923) During wars the public tends to hold a. traded for another asset determines whether or not that asset
relatively more currency and relatively fewer deposits. This is a unit of account.
decision makes reserves
b. transported from one place to another determines whether or
a. and the money supply increase. not that asset could serve as fiat money.
b. and the money supply decrease. c. converted into a store of value determines the liquidity of
that asset.
c. increase, but leaves the money supply unchanged.
d. converted into the economy's medium of exchange
d. decrease, but leaves the money supply unchanged. determines the liquidity of that asset.

QN=186 (17919) Which list ranks assets from most to least QN=189 (17916) Which of the following is not included in
liquid? M1?
a. currency, fine art, stocks a. Currency
b. currency, stocks, fine art b. demand deposits
c. fine art, currency, stocks c. savings deposits
d. fine art, stocks, currency d. travelers' checks

QN=187 (17910) Credit cards 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 b. decrease but the money supply does not change.
Treasury bonds.
c. increase and the money supply eventually increases.
b. falls. The Fed could lessen the impact of this by selling
Treasury bonds. d. increase but the money supply does not change.

c. rises. The Fed could lessen the impact of this by buying

Treasury bonds. QN=193 (17918) If people decide to hold more currency
d. rises. The Fed could lessen the impact of this by selling relative to deposits, the money supply
Treasury bonds. a. falls. The larger the reserve ratio is, the more the money
supply falls.

QN=191 (17904) An economy starts with $10,000 in currency. b. falls. The larger the reserve ratio is, the less the money
All of this currency is deposited into a single bank, and the supply falls.
bank then makes loans totaling $9,250. The T-account of the c. rises. The larger the reserve ratio is, the more the money
bank is shown [Link] to Table 29-2. If all banks in the supply rises.
economy have the same reserve ratio as this bank, then a new
deposit of $150 into this bank has the potential to increase d. rises. The larger the reserve ratio is, the less the money
deposits for all banks by supply rises.

a. $866.67. QN=194 (17909) When an economy uses silver as money, then

that economy's money
b. $1,666.67.
a. serves as a store of value but not as a medium of exchange.
c. $2,000.00.
b. serves as a medium of exchange but not as a unit of account.
d. an infinite amount.
c. is fiat money.
d. has intrinsic value.
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. 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. a. (i) a unit of account
b. $50,000 of new money. b. (ii) a store of value
c. $45,600 of new money. c. (iii) medium of exchange
d. $37,500 of new money. d. None of (i), (ii), and (iii) is correct.

QN=196 (17902) Which of the following is not included in QN=199 (17911) Suppose a bank's reserve ratio is 6.5 percent
M1? and the bank has $1,950 in reserve. Its deposits amount to
a. (i) a $5 bill in your wallet a. $62.25.
b. (ii) $100 in your checking account b. $126.75.
c. (iii) $500 in your savings account c. $22,500.00
d. All of (i), (ii), and (iii) are included in M1. d. $30,000.00.

QN=197 (17917) Suppose that banks desire to hold no excess QN=200 (17921) In a 100-percent-reserve banking system, if
reserves. If the reserve requirement is 5 percent and a bank people decided to decrease the amount of currency they held by
receives a new deposit of $400, it increasing the amount they held in checkable deposits, then
a. (i) must increase required reserves by $20. a. M1 would increase.
b. (ii) will initially see reserves increase by $400. b. M1 would decrease.
c. (iii) will be able to use this deposit to make new loans c. M1 would not change.
amounting to $380.
d. M1 might rise or fall.
d. All of (i), (ii), and (iii) are correct.

QN=201 (17913) Suppose banks decide to hold more excess

QN=198 (17914) Which of the following functions of money is reserves relative to deposits. Other things the same, this action
also a common function of most other financial assets? will cause the
a. money supply to fall. To reduce the impact of this the Fed QN=204 (17906) When the Fed conducts open-market sales,
could lower the discount rate.
a. it sells Treasury securities, which increases the money
b. money supply to fall. To reduce the impact of this the Fed supply.
could raise the discount rate.
b. it sells Treasury securities, which decreases the money
c. money supply to rise. To reduce the impact of this the Fed supply.
could lower the discount rate.
c. it borrows from member banks, which increases the money
d. money supply to rise. To reduce the impact of this the Fed supply.
could raise the discount rate.
d. it lends money to member banks, which decreases the money
supply.
QN=202 (17912) If you deposit $100 of currency into a
demand deposit at a bank, this action by itself
QN=205 (17901) The measure of the money stock called M1
a. does not change the money supply. includes
b. increases the money supply. a. wealth held by people in their checking accounts.
c. decreases the money supply. b. wealth held by people in their savings accounts.
d. has an indeterminate effect on the money supply. c. wealth held by people in money market mutual funds.
d. everything that is included in M2 plus some additional items.
QN=203 (17920) If an economy used gold as money, its money
would be
QN=206 (17908) An increase in the money supply might
a. commodity money, but not fiat money. indicate that the Fed had
b. fiat money, but not commodity money. a. purchased bonds in an attempt to increase the federal funds
rate.
c. both fiat and commodity money.
b. purchased bonds in an attempt to reduce the federal
d. functioning as a store of value and as a unit of account, but funds rate.
not as a medium of exchange.
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=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
QN=207 (17907) The banking system currently has $200 $255 million dollars in loans. Given this information you find
billion of reserves, none of which are excess. People hold only that the reserve requirement must be
deposits and no currency, and the reserve requirement is 4 a. 50/255.
percent. If the Fed raises the reserve requirement to 10 percent
and at the same time buys $50 billion of bonds, then by how b. 40/255.
much does the money supply change?
c. 50/300.
a. (i) It rises by $600 billion.
d. 40/300.
b. (ii) It rises by $125 billion.
c. (iii) It falls by $2,500 billion.
QN=210 (17903) In a system of 100-percent-reserve banking,
d. None of (i), (ii), and (iii) is correct. the purpose of a bank is to
a. make loans to households.
QN=208 (17915) At one time, people in a certain country had b. influence the money supply.
no access to banks; they relied exclusively on currency. Then, a
fractional-reserve banking system was created. As a result, the c. give depositors a safe place to keep their money.
money supply d. buy and sell gold.
a. increased. The central bank could have reduced the size of
this increase by buying bonds.
QN=211 (17928) During a bank run, depositors decide to hold
b. increased. The central bank could have reduced the size more currency relative to deposits and banks decide to hold
of this increase by selling bonds. more excess reserves relative to deposits
c. decreased. The central bank could have reduced the size of a. Both the decision to hold relatively more currency and the
this decrease by buying bonds. decision to hold relatively more excess reserves would make
d. decreased. The central bank could have reduced the size of the money supply increase.
this decrease by selling bonds.
b. Both the decision to hold relatively more currency and
the decision to hold relatively more excess reserves would
make the money supply decrease. QN=214 (17930) When the money market is drawn with the
value of money on the vertical axis, a decrease in the price
c. The decision to hold relatively more currency would make level causes a
the money supply increase. The decision to hold relatively
more excess reserves would make the money supply decrease. a. movement to the right along the money demand curve.

d. The decision to hold relatively more currency would make b. movement to the left along the money demand curve.
the money supply decrease. The decision to hold relatively c. shift to the right of the money supply curve.
more excess reserves would make the money supply increase.
d. shift to the left of the money supply curve.

QN=212 (17955) Refer to Figure 30-1. If the money supply is

MS2 and the value of money is 2, then QN=215 (17956) Suppose each good costs $5 per unit and
Megan holds $40. What is the real value of the money she
a. the value of money is lower than its equilibrium level. holds?
b. the price level is higher than its equilibrium level. a. $40. If the price of goods rises, to maintain the real value of
c. the quantity of money demanded is greater than the quantity her money holdings she needs to hold more dollars.
of money supplied. b. 8 units of goods. If the price of goods rises, to maintain
d. the quantity of money supplied is greater than the the real value of her money holdings she needs to hold more
quantity of money demanded. dollars.
c. $40. If the price of goods rises, to maintain the real value of
her money holdings she needs to hold fewer dollars.
QN=213 (17957) The classical dichotomy argues that changes
in the money supply 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
a. affect both nominal and real variables. dollars.
b. affect neither nominal nor real variables.
c. affect nominal variables, but not real variables. QN=216 (17958) Figure 30-2. On the graph, MS represents the
money supply and MD represents money demand. The usual
d. do not affect nominal variables, but do affect real variables. quantities are measured along the axes.
 c. 57 percent
Refer to Figure 30-2. Suppose the relevant money-demand d. 75 percent
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 QN=219 (17936) According to the quantity theory of money, a
bill used to pay for a newly produced good or service? 2 percent increase in the money supply
a. 4 a. causes the price level to fall by 2 percent.
b. 6 b. leaves the price level unchanged.
c. 8 c. causes the price level to rise by less than 2 percent.
d. 12 d. causes the price level to rise by 2 percent.

QN=217 (17932) Refer to Figure 30-3. What quantity is QN=220 (17952) You bought some shares of stock and, over
measured along the vertical axis? the next year, the price per share increased by 5 percent and the
a. the price level price level increased by 8 percent. Before taxes, you
experienced
b. the velocity of money
a. both a nominal gain and a real gain, and you paid taxes on
c. the value of money the nominal gain.
d. the quantity of money 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
QN=218 (17947) Refer to Figure 30-2. At the end of 2007 the nominal gain.
relevant money-demand curve was the one labeled MD2. At
the end of 2008 the relevant money-demand curve was the one d. a nominal gain and a real loss, and you paid no taxes on the
labeled MD1. Assuming the economy is always in equilibrium, transaction.
what was the economy's approximate inflation rate for 2008?
a. -43 percent
QN=221 (17934) In order to maintain stable prices, a central
b. -57 percent bank must
a. maintain low interest rates. a. increase, so people want to hold more of it.
b. keep unemployment low. b. increase, so people want to hold less of it.
c. tightly control the money supply. c. decrease, so people want to hold more of it.
d. sell indexed bonds. d. decrease, so people want to hold less of it.

QN=222 (17948) The claim that increases in the growth rate of QN=225 (17943) Suppose that velocity rises while the money
the money supply increase nominal interest rates but not real supply stays the same. It follows that
interest rates is known as the
a. P*Y must rise.
a. (i) Friedman Effect.
b. P*Y must fall.
b. (ii) Hume Effect.
c. P*Y must be unchanged.
c. (iii) Fisher Effect.
d. the effects on P*Y are uncertain.
d. None of (i), (ii), and (iii) is correct.

QN=226 (17949) Given a nominal interest rate of 6 percent, in

QN=223 (17929) Which of the following is correct? which of the following cases would you earn the highest after-
tax real rate of interest?
a. (i) A period of hyperinflation is a period of extraordinarily
high or extraordinarily low inflation. a. (i) Inflation is 2.5 percent; the tax rate is 25 percent.
b. (ii) A period of deflation is any period during which the b. (ii) Inflation is 3 percent; the tax rate is 20 percent.
inflation rate is decreasing.
c. (iii) Inflation is 2 percent; the tax rate is 30 percent.
c. (iii) A period of deflation is any period during which the
overall price level is decreasing. d. The after-tax real interest rate is the same for all of (i), (ii)
and (iii).
d. All of (i), (ii), and (iii) are correct.

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

QN=224 (17954) An increase in the price level makes the value
of money a. the redistributional effects of unexpected inflation.
b. the time spent searching for low prices when inflation rises. 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
c. the waste of resources used to maintain lower money rate on the account is 8 percent and the inflation rate is 2
holdings. percent, then what is the tax rate?
d. the increased cost to the government of printing more a. 28.00 percent
money.
b. 36.25 percent
c. 43.75 percent
QN=228 (17953) High and unexpected inflation has a greater
cost d. 67.50 percent
a. for those who save than for those who borrow.
b. for those who hold a little money than for those who hold a QN=231 (17946) Refer to Figure 30-2. Which of the following
lot of money. events could explain a shift of the money-demand curve from
MD1 to MD2?
c. for those whose wages increase by as much as inflation, than
those who are paid a fixed nominal wage. a. (i) an increase in the value of money
d. for savers in low income tax brackets than for savers in high b. (ii) a decrease in the price level
income tax brackets.
c. (iii) an open-market purchase of bonds by the Federal
Reserve
QN=229 (17937) If P denotes the price of goods and services d. None of (i), (ii), and (iii) is correct.
measured in terms of money, then
a. (i) 1/P represents the value of money measured in terms
of goods and services. QN=232 (17931) Refer to Figure 30-3. Suppose the relevant
money-supply curve is the one labeled MS2; also suppose the
b. (ii) P can be interpreted as the inflation rate. economy's real GDP is 45,000 for the year. If the money
market is in equilibrium, then the velocity of money is
c. (iii) the supply of money influences the value of P, but the approximately
demand for money does not.
a. 4.5
d. All of (i), (ii), and (iii) are correct.
b. 6.0
c. 9.0 c. inflation and real interest rates, but does not change nominal
interest rates.
d. 12.0
d. neither inflation, nominal interest rates, nor real interest
rates.
QN=233 (17951) According to the classical dichotomy, which
of the following is affected by monetary factors?
QN=236 (17945) The term hyperinflation refers to
a. (i) nominal wages
a. the spread of inflation from one country to others.
b. (ii) the price level
b. a decrease in the inflation rate.
c. (iii) nominal GDP
c. a period of very high inflation.
d. All of (i), (ii), and (iii) are correct.
d. inflation accompanied by a recession.

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

velocity? QN=237 (17950) Tara deposits money into an account with a
nominal interest rate of 6 percent. She expects inflation to be 2
a. 1/2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of
b. 2 interest

c. 4 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.
d. 8
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
QN=235 (17941) According to monetary neutrality and the percent.
Fisher effect, an increase in the money supply growth rate c. will be 3.2 percent if inflation turns out to be 2 percent; it
eventually increases will be higher if inflation turns out to be higher than 2 percent.
a. inflation, nominal interest rates, and real interest rates. d. will be 3.2 percent if inflation turns out to be 2 percent; it
b. inflation and nominal interest rates, but does not change will be lower if inflation turns out to be higher than 2 percent.
real interest rates.
QN=238 (17940) According to the classical dichotomy, which later the price index is 126. Mark redeems his bonds for
of the following is affected by monetary factors? $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. (i) nominal wages
a. 4.3 percent
b. (ii) the price level
b. 3.1 percent
c. (iii) nominal GDP
c. 1.8 percent
d. All of (i), (ii), and (iii) are correct.
d. 1.2 percent

QN=239 (17933) Wealth is redistributed from creditors to

debtors when inflation was expected to be QN=242 (17962) Purchasing-power parity describes the forces
that determine
a. high and it turns out to be high.
a. prices in the short run.
b. low and it turns out to be low.
b. prices in the long run.
c. low and it turns out to be high.
c. exchange rates in the short run.
d. high and it turns out to be low.
d. exchange rates in the long run.

QN=240 (17944) When deciding how much to save, people

care most about QN=243 (17965) Stacey, a U.S. citizen, buys a bond issued by
an Italian pasta manufacturer.
a. after-tax nominal interest rates.
a. This purchase is foreign direct investment. By itself it
b. after-tax real interest rates. increases U.S. net capital outflow.
c. before-tax real interest rates. b. This purchase is foreign direct investment. By itself it
d. before-tax nominal interest rates. decreases U.S. net capital outflow.
c. This purchase is foreign portfolio investment. By itself it
increases U.S. net capital outflow.
QN=241 (17939) Suppose one year ago the price index was
120 and Mark purchased $20,000 worth of bonds. One year
d. This purchase is foreign portfolio investment. By itself it a. positive and its saving is larger than its domestic investment.
decreases U.S. net capital outflow.
b. positive and its saving is smaller than its domestic
investment.
QN=244 (17966) When Microsoft establishes a distribution c. negative and its saving is larger than its domestic investment.
center in France, U.S. net capital outflow
d. negative and its saving is smaller than its domestic
a. increases because Microsoft makes a portfolio investment in investment.
France.
b. decreases because Microsoft makes a portfolio investment in
France. QN=247 (17980) A Japanese firm buys lumber from the United
States and pays for it with yen. Other things the same, Japanese
c. increases because Microsoft makes a direct investment in
capital in France. a. net exports increase, and U.S. net capital outflow increases.

d. decreases because Microsoft makes a direct investment in b. net exports increase, and U.S. net capital outflow decreases.
capital in France. c. net exports decrease, and U.S. net capital outflow
increases.

QN=245 (17981) The nominal exchange rate is 2 Thai baht for d. net exports decrease, and U.S. net capital outflow decreases.
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 QN=248 (17976) Suppose that the real exchange rate between
the United States and Vietnam is defined in terms of baskets of
a. 3/8 goods. Other things the same, which of the following will
b. 2/3 increase the real exchange rate (that is increase the number of
baskets of Vietnamese goods a basket of U.S. goods buys)?
c. 3/2
a. (i) an increase in the quantity of Vietnamese currency that
d. 8/3 can be purchased with a dollar
b. (ii) an increase in the price of U.S. baskets of goods
QN=246 (17974) If a country has negative net capital outflows, c. (iii) a decrease in the price in Vietnamese currency of
then its net exports are Vietnamese goods
d. All of (i), (ii), and (iii) are correct. 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
QN=249 (17986) Suppose that more British decide to vacation same, these actions
in the U.S. and that the British purchase more U.S. Treasury a. raise both U.S. net exports and U.S. net capital outflows.
bonds. Ignoring how payments are made for these purchases,
b. raise U.S. net exports and lower U.S. net capital outflows.
a. the first action by itself raises U.S. net exports, the second
action by itself raises U.S. net capital outflow. c. lower both U.S. net exports and U.S. net capital outflows.
b. the first action by itself raises U.S. net exports, the d. lower U.S. net exports and raise U.S. net capital outflows.
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. 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,
d. the first action by itself lowers U.S. net exports, the second which of the following is true for the US dollar?
action by itself lowers U.S. net capital outflow.
a. the real exchange rate is 120/140.
b. the real exchange rate is 140/120.
QN=250 (17975) In an open economy, gross domestic product
equals $2,450 billion, consumption expenditure equals $1,390 c. the nominal exchange rate is 120/140
billion, government expenditure equals $325 billion, d. the nominal exchange rate is 140/120
investment equals $510 billion and net capital outflow equals
$225 billion. What is national saving?
a. $225 billion QN=253 (17968) Suppose that the nominal exchange rate is
120 yen per dollar, that the price of a basket of goods in the
b. $510 billion U.S. is $500 and the price of a basket of goods in Japan is
c. $735 billion 50,000 yen. Suppose that these values change to 100 yen per
dollar, $600, and 70,000 yen. Then the real exchange rate
d. $1,390 billion 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. 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
d. depreciate which by itself would make U.S. net exports goods in India, the real exchange rate would be computed as
rise. how many Indian goods per U.S. goods?
a. (i) one
QN=254 (17984) Refer to Table 31-1. What are Argentina's net b. (ii) the number of dollars needed to buy U.S. goods divided
exports? by the number of rupees needed to buy Indian goods
c. (iii) the number of rupees needed to buy Indian goods
a. $30 billion divided by the number of dollars needed to buy U.S. goods

b. $5 billion d. None of (i), (ii), and (iii) is correct.

c. -$5 billion
d. -$25 billion 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
QN=255 (17983) If Saudi Arabia had positive net exports last a. appreciated and so buys more Japanese goods.
year, then it
b. appreciated and so buys fewer Japanese goods.
a. sold more abroad than it purchased abroad and had a
trade surplus. c. depreciated and so buys more Japanese goods.

b. sold more abroad than it purchased abroad and had a trade d. depreciated and so buys fewer Japanese goods.
deficit.
c. bought more abroad than it sold abroad and had a trade QN=258 (17970) If the nominal exchange rate e is foreign
surplus. currency per dollar, the domestic price is P, and the foreign
d. bought more abroad than it sold abroad and had a trade price is P*, then the real exchange rate is defined as
deficit. a. e(P*/P).
b. e(P/P*).
c. e + P/P.
d. e - P/P*. d. All of (i), (ii), and (iii) are correct.

QN=259 (17985) Clear Brook Farms, a U.S. manufacturer of QN=262 (17963) If the exchange rate is 50 Bangladesh taka
frozen vegetarian entrees, sells cases of its product to stores per dollar and a bushel of rice costs 180 taka in Bangladesh and
overseas. Its sales $3 in the United States, then the real exchange rate of the US
dollar is
a. decrease U.S. exports but increase U.S. net exports.
a. greater than one and arbitrageurs could profit by buying rice
b. decrease both U.S. exports and U.S. net exports. in the United States and selling it in Bangladesh.
c. increase both U.S. exports and U.S. net exports. b. greater than one and arbitrageurs could profit by buying rice
d. increase U.S. exports but decrease U.S. net exports. 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.
QN=260 (17959) One year a country has negative net exports.
The next year it still has negative net exports and imports have d. less than one and arbitrageurs could profit by buying rice in
risen more than exports. Bangladesh and selling it in the United States.

a. its trade surplus fell.

b. its trade surplus rose. QN=263 (17987) Which of the following is an example of U.S.
foreign portfolio investment?
c. its trade deficit fell.
a. Disney builds a new amusement park near Barcelona, Spain.
d. its trade deficit rose
b. A U.S. citizen buys bonds issued by the British
government.
QN=261 (17979) The increase in international trade in the c. A Dutch hotel chain opens a new hotel in the United States.
United States is partly due to
d. A citizen of Singapore buys a bond issued by a U.S.
a. (i) improvements in transportation. corporation.
b. (ii) advances in telecommunications.
c. (iii) increased trade of goods with a high value per pound.
QN=264 (17964) Sonya, a citizen of Denmark, produces boots b. real terms and implies the dollar will depreciate.
and shoes that she sells to department stores in the United
States. Other things the same, these sales c. nominal terms and implies the dollar will appreciate.

a. increase U.S. net exports and have no effect on Danish net d. nominal terms and implies the dollar will depreciate.
exports.
b. decrease U.S. net exports and have no effect on Danish net QN=267 (17978) When Claudia, a U.S. citizen, purchases a
exports. handbag made in France, the purchase is
c. increase U.S. net exports and decrease Danish net exports. a. both a U.S. and French import.
d. decrease U.S. net exports and increase Danish net b. a U.S. export and a French import.
exports.
c. a U.S. import and a French export.
d. neither an export nor an import for either country.
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 QN=268 (17973) A Swiss company sells chocolates to a
in the U.S. retailer in the United States. These sales by themselves

b. the exchange rate falls. It will cost more pounds to travel in a. decrease U.S. net export and Swiss net exports.
the U.S. b. decrease U.S. net exports and increase Swiss net exports.
c. the exchange rate rises. It will cost fewer pounds to travel in c. increase U.S. and Swiss net exports.
the U.S.
d. increase U.S. net exports and decrease Swiss net exports.
d. the exchange rate rises. It will cost more pounds to travel in
the U.S.
QN=269 (17960) Paine Pharmaceuticals produces medicines in
the U.S. Its overseas sales
QN=266 (17972) If a dollar currently purchases 10 pesos and
someone forecasts that in a year it will be 11 pesos, then the a. are an export of the U.S. and increase U.S. net exports.
forecast is given in
b. are an export of the U.S. and decrease U.S. net exports.
a. real terms and implies the dollar will appreciate.
c. are an import of the U.S. and increase U.S. net exports. a. increase national saving and shift Egypt's supply of loanable
funds left.
d. are an import of the U.S. and decrease U.S. net exports.
b. increase national saving and shift Egypt's demand for
loanable funds right.
QN=270 (17969) Which type(s) of economies interact with c. decrease national saving and shift Egypt's supply of
other economies? loanable funds left.
a. only closed economies d. decrease national saving and shift Egypt's demand for
b. only open economies loanable funds right.

c. closed economies and open economies

d. neither closed nor open economies QN=273 (17994) Refer to this diagram to answer the questions
[Link] to Figure 32-3. National saving is represented by
the
QN=271 (18016) If U.S. citizens decide to purchase more a. demand curve in panel a.
foreign assets at each interest rate, the U.S. real interest rate
b. demand curve in panel c.
a. increases, the real exchange rate of the dollar appreciates,
and U.S. net capital outflow decreases. c. supply curve in panel a.

b. increases, the real exchange rate of the dollar d. supply curve in panel c.
depreciates, and U.S. net capital outflow increases.
c. decreases, the real exchange rate of the dollar depreciates, QN=274 (18006) If a country institutes policies that lead
and U.S. net capital outflow decreases. domestic firms to desire more capital stock
d. decreases, the real exchange rate of the dollar appreciates, a. net capital outflows rise and the real exchange rate rises.
and U.S. net capital outflow increases.
b. net capital outflows rise and the real exchange rate falls.
c. net capital outflows fall and the real exchange rate rises.
QN=272 (17999) Suppose that Egypt has a government budget
surplus, and then goes into deficit. This change would d. net capital outflows and the real exchange rate falls.
QN=275 (18001) Refer to Figure 32-5. Starting from r2 and QN=283 (18008) Other things the same, a lower real interest
E3, an increase in the budget deficit can be illustrated as a rate decreases the quantity of
move to
a. loanable funds demanded.
a. r1 and E4.
b. loanable funds supplied.
b. r1 and E2.
c. domestic investment.
c. r3 and E4.
d. net capital outflow.
d. r3 and E2.

QN=284 (17998) If the demand for dollars in the market for

QN=281 (18007) The open-economy macroeconomic model foreign-currency exchange shifts left, then the exchange rate
examines the determination of
a. rises and the quantity of dollars exchanged rises.
a. the output growth rate and the real interest rate.
b. rises and the quantity of dollars exchanged does not change.
b. unemployment and the exchange rate.
c. falls and the quantity of dollars exchanged falls.
c. the output growth rate and the inflation rate.
d. falls and the quantity of dollars exchanged does not
d. the trade balance and the exchange rate. change.

QN=282 (18015) When Mexico suffered from capital flight in QN=285 (18013) Refer to Figure 32-6. Which of the following
1994, Mexico's net capital outflow shifts show the effects of an import quota?
a. and net exports decreased.
b. and net exports increased. a. (i) shifting the middle supply curve in panel c to the one to
its left.
c. increased while net exports decreased.
b. (ii) shifting the demand curve from the right to the left in
d. decreased while net exports increased. 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=289 (18014) If a government increases its budget deficit,
then the real exchange rate
QN=286 (18011) If a government started with a budget deficit
and moved to a surplus, domestic investment a. and domestic investment rise.
a. and the real exchange rate would rise. b. and domestic investment fall.
b. and the real exchange rate would fall. c. rises and domestic investment falls.
c. would rise and the real exchange rate would fall. d. falls and domestic investment rises.
d. would fall and the real exchange rate would rise.
QN=290 (18012) A tax on imported goods is called an
QN=287 (18005) When a country experiences capital flight its a. (i) excise tax.
a. net capital outflow increases and its real exchange rate rises. b. (ii) tariff.
b. net capital outflow increases and its real exchange rate c. (iii) import quota.
falls.
d. None of (i), (ii), and (iii) is correct.
c. net capital outflow decreases and its real exchange rate rises.
d. net capital outflow decreases and its real exchange rate falls.
QN=291 (18004) If foreigners want to buy more U.S. bonds,
then in the market for foreign-currency exchange the exchange
rate
QN=288 (18002) In the open-economy macroeconomic model,
the purchase of a capital asset adds to the demand for loanable a. and the quantity of dollars traded rises.
funds
b. rises and the quantity of dollars traded falls.
a. (i) only if the asset is located at home.
c. falls and the quantity of dollars traded rises.
b. (ii) only if the asset is located abroad.
d. and the quantity of dollars traded falls.
c. (iii) whether the asset is located at home or abroad.
d. None of (i), (ii), and (iii) is correct.
QN=292 (17992) When Mexico suffered from capital flight in QN=295 (17993) Which of the following is correct in an open
1994, U.S. demand for loanable funds economy?
a. and U.S. net capital outflow rose. a. S = I
b. and U.S. net capital outflow fell. b. S = NX + NCO
c. fell and U.S. net capital outflow rose. c. S = NCO
d. rose and U.S. net capital outflow fell. d. S = I + NCO

QN=293 (17991) A trade policy is a government policy QN=296 (17988) Other things the same, an increase in the U.S.
interest rate causes the quantity of loanable funds supplied to
a. directed toward the goal of improving the tradeoff between
equity and efficiency. a. rise because net capital outflow and domestic investment
rise.
b. that directly influences the quantity of goods and services
that a country imports or exports. b. rise because national saving rises.
c. intended to exploit the tradeoff between inflation and c. fall because net capital outflow and domestic investment
unemployment by altering the budget deficit. rise.
d. concerning employment laws. d. fall because national saving falls.

QN=294 (17995) In the open-economy macroeconomic model, QN=297 (18000) The real exchange rate measures the
if the supply of loanable funds increases, then the interest rate
a. (i) price of domestic currency relative to foreign currency.
a. income
b. (ii) price of domestic goods relative to the price of foreign
b. tastes goods.
c. Price c. (iii) rate of domestic and foreign interest.
d. Expectations d. None of (i), (ii), and (iii) is correct.
QN=298 (18009) If at a given real interest rate desired national QN=301 (18044) Other things the same, if the price level falls,
saving would be $50 billion, domestic investment would be people
$40 billion, and net capital outflow would be $20 billion, then
at that real interest rate in the loanable funds market there a. increase foreign bond purchases, so the supply of dollars
would be a in the market for foreign-currency exchange increases.

a. surplus. The real interest rate would rise. b. increase foreign bond purchases, so the supply of dollars in
the market for foreign-currency exchange decreases.
b. surplus. The real interest rate would fall.
c. decrease foreign bond purchases, so the supply of dollars in
c. shortage. The real interest rate would rise. market for foreign-currency exchange increases.
d. shortage. The real interest rate would fall. d. decrease foreign bond purchases, so the supply of dollars in
the market for foreign-currency exchange decreases.

QN=299 (17997) Refer to Figure 32-3. Which curve shows the

relation between the exchange rate and net exports? QN=302 (18029) Suppose the economy is in long-run
equilibrium. If there is a sharp decline in the stock market
a. the demand curve in panel a. combined with a significant increase in immigration of skilled
b. the demand curve in panel c. workers, then in the short run,

c. the supply curve in panel a. 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
d. the supply curve in panel c. might rise, fall, or stay the same.
b. the price level will fall, and real GDP might rise, fall, or stay
QN=300 (18027) At a given price level, an increase in which the same. In the long-run, real GDP and the price level will be
of the following shifts aggregate demand to the right? unaffected.

a. (i) consumption 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
b. (ii) investment will fall.
c. (iii) government expenditures 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
d. All of (i), (ii), and (iii) are correct.
price level will fall.
 b. changes in money and changes in government expenditures.
QN=303 (18024) Other things the same, when the price level c. decisions made by the public and decisions made by the
rises, interest rates government.
a. rise, which means consumers will want to spend more on d. real and nominal variables.
homebuilding.
b. rise, which means consumers will want to spend less on
homebuilding. QN=306 (18032) Suppose the economy is in long-run
equilibrium. If there is a tax cut at the same time that major
c. fall, which means consumers will want to spend more on new sources of oil are discovered in the country, then in the
homebuilding. short-run
d. fall, which means consumers will want to spend less on a. real GDP will rise and the price level might rise, fall, or
homebuilding. stay the same.
b. real GDP will fall and the price level might rise, fall, or stay
the same.
QN=304 (18035) Changes in the price of oil
c. the price level will rise, and real GDP might rise, fall, or stay
a. can only lead to recessions. the same.
b. have not contributed much to output fluctuations in the d. the price level will fall, and real GDP might rise, fall, or stay
United States. the same.
c. change the economy principally by changing aggregate
demand.
QN=307 (18041) From 2001 to 2005 there was a dramatic rise
d. created both inflation and recession in the United States in the price of houses. If this made people feel wealthier, then it
in the 1970s. would shift
a. aggregate demand right.
QN=305 (18036) The classical dichotomy refers to the b. aggregate demand left.
separation of
c. aggregate supply right.
a. variables that move with the business cycle and variables
that do not. d. aggregate supply left.
QN=308 (18023) The aggregate-demand curve QN=311 (18026) Other things the same, as the price level
decreases it induces greater spending on
a. (i) has a slope that is explained in the same way as the slope
of the demand curve for a particular product. a. both net exports and investment.
b. (ii) is vertical in the long run. b. net exports but not investment.
c. (iii) shows an inverse relation between the price level and c. investment but not net exports.
the quantity of all goods and services demanded.
d. neither net exports nor investment.
d. All of (i), (ii), and (iii) are correct.

QN=312 (18033) Which of the following shifts both the short-

QN=309 (18017) The model of short-run economic run and long-run aggregate supply right?
fluctuations focuses on the price level and
a. (i) an increase in the actual price level
a. (i) real GDP.
b. (ii) an increase in the expected price level
b. (ii) economic growth.
c. (iii) an increase in the capital stock
c. (iii) the neutrality of money.
d. None of (i), (ii), and (iii) is correct.
d. None of (i), (ii), and (iii) is correct.

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

QN=310 (18034) The long-run aggregate supply curve would
shift right if immigration from abroad a. the real exchange rate falls, so net exports fall.

a. increased or Congress made a substantial increase in the b. the real exchange rate falls, so net exports rise.
minimum wage. c. the real exchange rate rises, so net exports fall.
b. decreased or Congress abolished the minimum wage. d. the real exchange rate rises, so net exports rise.
c. increased or Congress abolished the minimum wage.
d. decreased or Congress made a substantial increase in the
minimum wage.
QN=314 (18025) In which case can we be sure aggregate c. B to A.
demand shifts left overall?
d. D to C.
a. people want to save more for retirement and the
government raises taxes
b. people want to save more for retirement and the government QN=317 (18042) The sticky-wage theory of the short-run
cuts taxes aggregate supply curve says that the quantity of output firms
supply will increase if
c. people want to save less for retirement and the government
raises taxes a. the price level is higher than expected making production
more profitable.
d. people want to save less for retirement and the government
cuts taxes b. the price level is higher than expected making production
less profitable.
c. the price level is lower than expected making production
QN=315 (18030) Refer to Figure 33-1. If the economy starts at more profitable.
C, an increase in the money supply moves the economy
d. the price level is lower than expected making production less
[figure_33_01.jpg] profitable.
a. to A in the long run.
b. to B in the long run. QN=318 (18028) Which of the following can explain the
upward slope of the short-run aggregate supply curve?
c. back to C in the long run.
a. nominal wages are slow to adjust to changing economic
d. to D in the long run. conditions
b. as the price level falls, the exchange rate falls
QN=316 (18040) Refer to Figure 33-1. If the economy is in c. an increase in the money supply lowers the interest rate
long-run equilibrium, then an adverse shift in aggregate supply
would move the economy from d. an increase in the interest rate increases investment spending
a. A to B.
b. C to D. QN=319 (18043) The effects of a higher than expected price
level are shown by
a. shifting the short-run aggregate supply curve right. QN=322 (18039) Which of the following can explain the
upward slope of the short-run aggregate supply curve?
b. shifting the short-run aggregate supply curve left.
a. nominal wages are slow to adjust to changing economic
c. moving to the right along a given aggregate supply curve. conditions
d. moving to the left along a given aggregate supply curve. b. as the price level falls, the exchange rate falls
c. an increase in the money supply lowers the interest rate
QN=320 (18020) Which of the following shifts both the short- d. an increase in the interest rate increases investment spending
run and long-run aggregate supply right?
a. (i) people flee to other countries as a civil war breaks out
QN=323 (18038) If speculators gained greater confidence in
b. (ii) an increase in the actual price level foreign economies so that they wanted to buy more assets of
c. (iii) an improvement in overall production technology foreign countries and fewer U.S. bonds,

d. None of (i), (ii), and (iii) is correct. a. the dollar would appreciate which would cause aggregate
demand to shift right.
b. the dollar would appreciate which would cause aggregate
QN=321 (18022) The aggregate demand and aggregate supply demand to shift left.
graph has
c. the dollar would depreciate which would cause aggregate
a. the price level on the horizontal axis. The price level can be demand to shift right.
measured by the GDP deflator.
d. the dollar would depreciate which would cause aggregate
b. the price level on the horizontal axis. The price level can be demand to shift left.
measured by real GDP.
c. the price level on the vertical axis. The price level can be
measured by the GDP deflator. QN=324 (18018) The aggregate quantity of goods and service
demanded changes as the price level falls because
d. the price level on the vertical axis. The price level can be
measured by GDP. a. real wealth rises, interest rates rise, and the dollar
appreciates.
b. real wealth rises, interest rates fall, and the dollar
depreciates.
QN=333 (18060) Other things the same, automatic stabilizers
c. real wealth falls, interest rates rise, and the dollar tend to
appreciates.
a. raise expenditures during expansions and recessions.
d. real wealth falls, interest rates fall, and the dollar
depreciates. b. lower expenditures during expansions and recessions.
c. raise expenditures during recessions and lower
expenditures during expansions.
QN=331 (18054) Which of the following properly describes
the interest-rate effect that helps explain the slope of the d. raise expenditures during expansions and lower expenditures
aggregate-demand curve? during recessions.

a. As the money supply increases, the interest rate falls, so

spending rises. QN=334 (18064) Assume the MPC is 0.75. Assuming only the
b. As the money supply increases, the interest rate rises, so multiplier effect matters, a decrease in government purchases
spending falls. of $100 billion will shift the aggregate demand curve to the

c. As the price level increases, the interest rate falls, so a. (i) left by $200 billion.
spending rises. b. (ii) left by $400 billion.
d. As the price level increases, the interest rate rises, so c. (iii) right by $800 billion.
spending falls.
d. None of (i), (ii), and (iii) is correct.

QN=332 (18056) The theory of liquidity preference assumes

that the nominal supply of money is determined by the QN=335 (18059) A reduction in U.S net exports would shift
U.S. aggregate demand
a. level of real output only.
a. rightward. In an attempt to stabilize the economy, the
b. interest rate only. government could raise taxes.
c. level of real output and by the interest rate. b. rightward. In an attempt to stabilize the economy, the
d. Federal Reserve. government could cut taxes.
c. leftward. In an attempt to stabilize the economy, the a. aggregate demand. In the short run, it affects primarily
government could raise taxes. aggregate supply.
d. leftward. In an attempt to stabilize the economy, the b. aggregate supply. In the short run, it affects primarily saving,
government could cut taxes. investment, and growth.
c. saving, investment, and growth. In the short run, it
affects primarily aggregate demand.
QN=336 (18070) People are likely to want to hold more money
if the interest rate d. saving, investment, and growth. In the short run, it affects
primarily aggregate supply.
a. increases, making the opportunity cost of holding money
rise.
b. increases, making the opportunity cost of holding money QN=339 (18053) In the long run, changes in the money supply
fall. affect
c. decreases, making the opportunity cost of holding money a. (i) prices.
rise.
b. (ii) output.
d. decreases, making the opportunity cost of holding money
fall. c. (iii) unemployment rates.
d. All of (i), (ii), and (iii).

QN=337 (18067) Using the liquidity-preference model, when

the Federal Reserve increases the money supply, QN=340 (18048) Suppose there were a large increase in net
a. the equilibrium interest rate decreases. exports. If the Fed wanted to stabilize output, it could

b. the aggregate-demand curve shifts to the left. a. buy bonds to increase the money supply.

c. the quantity of goods and services demanded is unchanged b. buy bonds to decrease the money supply.
for a given price level. c. sell bonds to increase the money supply.
d. the long-run aggregate-supply curve shifts to the right. d. sell bonds to decrease the money supply.

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

QN=341 (18055) The economy is in long-run equilibrium. b. (ii) output.
Suppose that automatic teller machines become cheaper and
more convenient to use, and as a result the demand for money c. (iii) unemployment rates.
falls. Other things equal, we would expect that, in the short run, d. All of (i), (ii), and (iii).
a. the price level and real GDP would rise, but in the long run
they would both be unaffected.
QN=344 (18062) According to the liquidity preference theory,
b. the price level and real GDP would rise, but in the long which of the following events would shift money demand to
run the price level would rise and real GDP would be the left?
unaffected.
a. an increase in the price level
c. the price level and real GDP would fall, but in the long run
they would both be unaffected. b. a decrease in the price level

d. the price level and real GDP would fall, but in the long run c. an increase in the interest rate
the price level would fall and real GDP would be unaffected. d. a decrease in the interest rate

QN=342 (18051) According to liquidity preference theory, the QN=345 (18066) According to the theory of liquidity
opportunity cost of holding money is preference,
a. the interest rate on bonds. a. (i) if the interest rate is below the equilibrium level, then the
b. the inflation rate. quantity of money people want to hold is less than the quantity
of money the Fed has created.
c. the cost of converting bonds to a medium of exchange.
b. (ii) if the interest rate is above the equilibrium level, then the
d. the difference between the inflation rate and the interest rate quantity of money people want to hold is greater than the
on bonds. quantity of money the Fed has created.
c. (iii) the demand for money is represented by a
QN=343 (18046) In the long run, changes in the money supply downward-sloping line on a supply-and-demand graph.
affect d. All of (i), (ii), and (iii) are correct.
a. (i) prices.
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.