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A. Rises, because the number of dollars needed to buy a representative basket of goods rises

The value of money falls as the price level

Nominal wages, the price level, nominal GDP

According to the classical dichotomy, which of the following is affected by monetary factors

D. Causes the price level to rise by 2%

According to the quantity theory of money, a 2% increase in the money supply

C. the Federal Reserve System

The supply of money is determined by

C. How much wealth people want to hold in liquid form

Money demand refers to

B. Says there is a one for one adjustment of the nominal interested rate to the inflation rate

The Fisher effect

C. Is a tax on everyone who holds money

The inflation tax

C. Resources used to maintain lower money holdings when inflation is high

Shoeleather cost refers to

B. More variable, making it less likely that resources will be allocated for their best use

Higher inflation makes relative prices

A. Nominal interest earnings, irrespective of their real interest earnings

In the US, people are required to pay taxes on

C. A US import and French export

When Claudia, a US citizen, purchases a handbag in France, the purchase is

B. Exports rise, imports fall

Which of the following both raise net exports

A. Sold more abroad than it purchased abroad and a trade surplus

If Saudi Arabia had positive net exports last year, then it

C. Rate at which a person can trade the currency of one country for another

The nominal exchange rate is the

B. More domestic goods and fewer foreign goods

A depreciation of the US real exchange rate induces US consumers to buy

B. A good mus sell at the same price at all locations

The law of one price states that

D. Exchange rates in the long run

Purchasing-power parity describes the forces that determine

A. real exchange rate is equal to one

If purchasing-power parity holds, then the value of the

B. Buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts

If a lobster in Maine costs $10 and the same type of lobster in Massachusetts costs $30, then people could make a profit by

Many goods are not easily transported, the same goods produced in different countries may be imperfect substitutes for each other

Purchasing-power parity theory does not hold at all times because

Workers are laid off, factories are idle, firms may find they are unable to sell all they produce

During recessions

D. Consumption, investment, and net exports

Changes in the price level affect which components of aggregate demand

A. Aggregate demand shifts right

Other things the same, when the government spends more, the initial effect is that

Immigration from abroad increases, the capital stock increases technology advances

The long-run aggregate supply curve shifts right if

B. The US price level and real GDP to fall

Recessions in China and India would cause

B. Outputs falls in the short run

If there are floods or droughts or a decrease in the availability of raw materials

B. Rise and output falls

Stagflation exists when prices

D. Always equal because every transaction has a buyer and a seller

In a simple circular-flow diagram, total income and total expenditure are

C. The market values of both owner-occupied housing services and rental housing services are included in GDP

Which of the following is correct

A. Only Ralph's payments are included in GPD

Ralph pays someone to mow his lawn, while Mike mows his own lawn. Regarding these two practices, which of the following statements is correct

D. An intermediate good

Spots, Inc. produces ink and sells it to Write on Target, which makes pens. The ink produced by Spots, Inc. is called

C. GPD increases by $5.00

One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP


Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to Camille for $17,000. By how much did these transactions contribute to US GDP for the year.

C. Excludes retained earnings, corporate income taxes and social insurance contributions, and includes interest and transfer payments received by households from government

Unlike national income, personal income

A. The value of the good is added to the investment category of 2007 GDP, added to the consumption category of 2008 GDP, and subtracted from the investment category of 2008 GDP

A good is produced by a firm in 2007, added to the firm's inventory in 2007, and sold to a household in 2008. It follows that

C. US next exports and GDP increase, Japanese GNP increase, German net exports decrease, and German GNP and GDP are unaffected

A German citizen buys an automobile produced in the US by a Japanese company. As a result,

C. GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that

C. "One who manages a household"

The word "economy" comes from the Greek word oikonomos, which means

C. Inefficiencies

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

D. Society is getting the maximum benefits from its scarce resources

Efficiency means that

C. The $45,000 salary that you will be able to earn after having completed your graduate program

Suppose after graduatining from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost

A. The marginal benefit of the action exceeds the marginal cost of the action

A rational decision maker takes an action if and only if

C. Mexico and the Us can both benefit

If the US decides to trade with Mexico, we know that

C. Government guiding economic activity. Today many countries that had this system have abandoned it

Central planning refers to

C. Both the values that society places on those products and the costs to society of producing those products

When the "invisible hand" guides economic activity, prices of products reflect

B. The standard of living will likely be higher in France than in Germany

Suppose a typical worker in France can produce 32 units of product in an eight-hour day, while a typical worker in Germany can produce 30 units of product in a 10-hour day. We can conclude that

C. Contribute to an understanding of how the world works

The goal of an economist who formulates new theories is to

D. Economists are usually not allowed to conduct experiments, so they must rely on natural experiments offered by history

Which of the following statements is true

B. Buildings and machines used in the production process

In economics, capital refers to

C. Households provide firms with labor, land, and capital

In the markets for goods and services in the circular-flow diagram

B. The nation is not using all available resources or is using inferior technology or both

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that

D. 310

If the production possibilities frontier is bowed outward, then

D. The technological advance reduced the amount of resources needed to produce 30 machines, so these resources could be used to produce more food

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 55 units of food and 30 machines. Which of the following statements is correct

70 toothbrushes and 0 toasters

Question about toasters

D. Two countries could gain from trading two goods under all of the above conditions

When can two countries gain trading two goods

C. (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars)

Assume for the US that the opportunity cost of each airplane is 100 cars. Then which of these pairs of points could be on the US's PPF

B. 2.8 bushels of corn

Suppose a gardener produces both green beans and corn in her garden. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is

C. Kelly has a comparative advantage in repairing cars and in cooking meals

Kelly and David are both capable of repairing cars and cooking meals. Which of the following scenarios is not possible?

B. 300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland


B. Allows people to specialize according to comparative advantage

Trade can make everybody better off because it

A. The US should produce more pork than what it require and export some of it to Mexico

Suppose the Us has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

D. 100 units of wheat and 100 units of fish

Question about wheat and fish

A. 1/4 unit of bread

The opportunity cost of 1 unit of cheese for England

D. 4/3 tacos and Enid's opportunity cost of one burrito is 2 tacos

Question ab tacos and burritos

C. Both buyers and sellers

In a competitive marker, the quantity of a product produced and the price of the product are determined by

C. When the price of a good decreases, buyers purchase more of the good

Which of these statements best represents the law of demand


Whose demand does not obey the law of demand

D. 14 units

Refer to table 4-1. If these are the only four buyers in the market, then the market quantity demanded at a price of $2 is

D. The price of olives rises

Which of the following events would cause a movement upward and to the left along the demand curve for olives

D. When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup

Law of supply

C. A rightward shift of a supply curve

An increase in supply is represented by

C. And improvement in production technology that makes production of the good more profitable

Which of the following might cause the supply curve for an inferior good to shift to the right

D. We could't be sure what it might do

When considered the market for new DVDS, what would the equilibrium price do


Babe Ruth Question

A. Has to spend more dollars to maintain the same standard of living

When the CPI rises, the typical family

D. Housing, transportation, food& beverages, and medical care

Categories of U.S. consumer spending, ranked from largest to smallest, are

D. Fails to account for the introduction of new goods

One of the widely acknowledged problems with using the CPI as a measure of the cost of living is that the CPI

A. Increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

A. The GDP deflator and the CPI will both increase

A Japanese automobile company produces cars in the US, with some of those cars being exported to other nations and some of them being sold within the US. If the prices of these cars increase, then


Ethel purchased a bag of groceries in 1970 for$8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

D. Growth rate of real GDP per person

If one wants to know how the material well-being of the average person has changed over time in a given country, one should look at the

D. The equipment in a factory

Which of the following is a physical capital

B. Understanding how to use a company's accounting software

Which of the following is a human captial

D. None of the above

Supposed that real GDP grew more in Country A than in Country B last year

D. Country C will grow the fastest

Real GDP per person is $30,000 in Country A, $20,000 in Country B, and $11,000 in Country C. Saving per person is $1,000 in all three countries. Other things that same we would expect

D. These are inward-oriented polices and most economists believe they would have an adverse effects

Trade restrictions

B. Has uncertain effects on the standard of living

Over extended periods of time, population growth

B. 2

Senator Smith

B. 2

The president of a poor country has announced that he will implement the following measures

A. Saver or as a supplier of funds

Given that Lekeisha's income exceeds her expenditures, Lekeisha is best described as a

D. Interest rates on long-term bonds are usually higher than interest rates on short-term bonds

Which of the following statements about the term of a bond is correct

D. Sell bonds directly to the public

If the government's expenditures exceeded its receipts, it would likely

D. All of the above

Which of the following statements about mutual funds is correct

B. $21 billion and $4 billion, respectively

Consumption and investment in Yokovia

C. $15 billion

Given the numbers below determine the quantity of loanable funds demanded

D. Make it less likely that The Eye will build the factory because the opportunity cost of the $10 million is now higher

The Eye of Horus incense company is going to build a new factory

D.. The interest rate would decrease and the quantity of loanable funds would increase

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, if the Congress and President increased the max contribution limits to 401k and 403 tax retirement accounts

D. None of the above

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income

D. The government reduced the tax rate on savings

Which of the following events could explain a decrease in interest rates together with an increase in investment

B. Short-run ups and downs of the economy

Cyclical unemployment is closely associated with

B. Halim, who is on temporary layoff

Who is considered unemployed

C. Employed and in the labor force

Ipo did not work last week because flooding forced an evacuation for her workplace. Ipo is

B. 8.3%

Supposed that the adult population is 4 million, the number of unemployed is 0.25 million, and the labor force participation rate is 75%. What is the u-rate

B. 14.1 million

Suppose some country had an adult population of about 25 million, a labor-force participation rate of 60%, and an unemployment rate of 6%. How many people were employed

C. Raises the quantity of labor supplied and reduces the quantity of labor demanded, resulting in unemployment

when a union raises the wage above the equilibrium level, it

B. Job search

Which of the following causes of unemployment is not associated with a wage rate above the market quilibrium level

D. Keep wages above the equilibrium level, causing a surplus of labor

Efficiency wages, minimum-wage laws, and unions all

A. The higher the wage, the less often his workers will choose to leave his firm

Charlie is the owner of a firm that produces bottled water in Washington state. There are many other such firms in the area. Charlie decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision

B. Kay pays her workers less than the equilibrium wage so they won't have the time or money to look for work somewhere else

Four employers have justified their actions as follows. Whose logic is not consistent with the logic of efficiency wage theory

A. Demand deposits

The set of items that serve as media of exchange clearly includes

A. The ease with which an asset is converted to the medium of exchange

Liquidity refers to

C. $351 billion

What is the M2 money supply

At any given time, the voting members of the Federal Open Market Committee include

five of the 12 presidents of the regional Federal Reserve banks.the president of the Federal Reserve Bank of New York. the seven members of the Board of Governors.

The New York Federal Reserve Bank

president always gets to vote at the FOMC meetings, conducts open market transactions, is one of the 12 regional Federal Reserve Banks

C. Will be able to make new loans up to a maximum of $8.50

Suppose banks desire to hold no excess reserves. If the reserve requirement is 15 percent and if a bank receives a new deposit of $10, then this bank

D. 13.33

Refer to Table 29-2. If all banks in the economy have the same reserve ratio as this bank, then the value of the economy's money multiplier is

more than $200

When the Fed purchases $200 worth of government bonds from the public, the U.S. money supply eventually increases by

A. The Fed buys bonds and lowers the discount rate

Which of the following lists two things that both increase the money supply

B. increases, the money multiplier decreases, and the money supply decreases

Other things the same, if reserve requirements are increased, the reserve ratio

A. 1/P represents the value of money measured in terms of goods and services

If P denotes the price of goods and services measured in terms of money, then

C.shifts leftward, causing the value of money measured in terms of goods and services to rise

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

D. 43,750.00

If velocity = 3.5, the quantity of money = 15,000, and the price level = 1.2, then the real value of output is

D. a good description of the long run, but not the short run

Most economists believe that monetary neutrality provides

B. more often, giving rise to shoeleather costs

When inflation rises, people tend to go to the bank

A. nominal gains. This is one way by which higher inflation discourages saving.

In the U.S., taxes on capital gains are computed using

C. tightly control the money supply

In order to maintain stable prices, a central bank must

B. Though monetary policy is neutral in the long run, it may have effects on real variables in the short run

Which of the following is accurate

B. The nominal interest rate was 6 percent and the inflation rate was 4 percent

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods

inflation and nominal interest rates, but does not change real interest rates

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

C. $60 and -$60

Oceania buys $40 of wine from Escudia and Escudia buys $100 of wool from Oceania. Supposing this is the only trade that these countries do. What are the net exports of Oceania and Escudia in that order

C. exports and net exports rise

If U.S. consumers increase their demand for apples from New Zealand, then other things the same New Zealand's

B. the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners

Net capital outflow measures

D. A U.S. furniture maker opens a plant in Mexico

Which of the following is an example of U.S. foreign direct investment

B. 600

The country of Sylvania has a GDP of $900, investment of $200, government purchases of $200, and net capital outflow of -$100. What is consumption

A. the exchange rate falls. It will cost fewer pounds to travel in the U.S

Other things the same, if the dollar depreciates relative to the British pound, then

C. nominal terms and implies the dollar will appreciate

If a dollar currently purchases 10 pesos and someone forecasts that in a year it will be 11 pesos, then the forecast is given in

C. Tokyo, Cancun

Exchange rates are 120 yen per dollar, 0.8 euro per dollar, and 10 pesos per dollar. A bottle of beer in New York costs 6 dollars, 1,200 yen in Tokyo, 7.2 euro in Munich, and 50 pesos in Cancun. Where is the most expensive and the cheapest beer in that order

D. 3/4 cans of Belgian coffee per can of U.S. coffee

In the United States, a three-pound can of coffee costs about $5. If the exchange rate is about 0.6 euros per dollar and a three-pound can of coffee in Belgium costs about 4 euros. What is the real exchange rate

D. 80 florin

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing power parity to hold

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