If the demand for a good falls when income falls, then the good is called

a.
an ordinary good.

b.
an inferior good.

c.
a regular good.

d.
a normal good.
Correct
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The correct answer is: a normal good.

Question 2
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In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer
price index of 15.2 for 1931 and 237 for 2015. President Hoover's 1931 salary was equivalent to a 2015
salary of about

a.
$1,057,894.

b.
$1,169,408.
Correct

c.
$16,080,001.

d.
$4,965.
Feedback
The correct answer is: $1,169,408.

Question 3
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The Income Approach of Calculating GDP includes...

a.
All Income made from selling all final goods.

b.
all of the above

c.
All spending on final products in the year.

d.
none of the above

e.
All costs on all products.

f.
All purchased goods
Feedback
Your answer is correct.
The correct answer is:
All Income made from selling all final goods.

Question 4
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If the MPC is 3/5 then the multiplier is

a.
1.5, so a $100 increase in government spending increases output by $150.

b.
1.67, so a $100 increase in government spending increases output by $166.67.

c.
4, so a $100 increase in government spending increases aggregate demand by $400.

d.
2.5, so a $100 increase in government spending increases aggregate demand by $250.
Correct
Feedback
The correct answer is: 2.5, so a $100 increase in government spending increases aggregate demand by
$250.

Question 5
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In the CPI, goods and services are weighted according to

a.
the extent to which each good or service is regarded by the government as a necessity.

b.
the number of firms that produce and sell each good or service.
c.
how much consumers buy of each good or service.
Correct

d.
how long a market has existed for each good or service.
Feedback
The correct answer is: how much consumers buy of each good or service.

Question 6
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President Barack Obama and Congress cut taxes and raised government expenditures during the 2008
financial crisis. According to the aggregate supply and aggregate demand model, which of these policies
would tend to reduce unemployment?

a.
Neither the increase in government expenditures nor the tax cut

b.
The increase in government expenditures but not the tax cut

c.
The tax cut but not the increase in government expenditures

d.
Both the tax cut and the increase in government expenditures
Correct
Feedback
The correct answer is: Both the tax cut and the increase in government expenditures

Question 7
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If we know that Canada exports maple syrup, we can conclude that maple syrup consumers in Canada are
worse off than they would be in the absence of trade.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 8
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Suppose your finance professor has been offered a corporate job with a 25 percent pay increase. He has
decided to take the job. For him, the marginal

a.
benefit of teaching was greater than the marginal cost.

b.
benefit of teaching was negative.

c.
cost of leaving was greater than the marginal benefit.

d.
benefit of leaving was greater than the marginal cost.
Correct
Feedback
The correct answer is: benefit of leaving was greater than the marginal cost.
Question 9
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Table 23-5

A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these
goods for the last several years are shown in the following table. The base year is 2017.

Movies Popcorn
Year Price Quantity Price Quantity
(Dollars per movie) (Movies) (Dollars per bag) (Bags)
2016 10.00 500 5 1,000
2017 11.00 600 4 900
2018 12.00 650 5 950
2019 12.00 625 6 925

Refer to Table 23-5. What was this country's nominal GDP in 2016?

a.
$10,500

b.
$9,500

c.
$10,000
Correct

d.
$10,200
Feedback
The correct answer is: $10,000
Question 10
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GDP does not make adjustments for leisure time, environmental quality, or volunteer work.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 11
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Frictional unemployment is thought to explain relatively

a.
short spells of unemployment, as is structural unemployment.

b.
long spells of unemployment, as is structural unemployment.

c.
short spells of unemployment, while structural unemployment is thought to explain relatively long spells
of unemployment.
Correct

d.
long spells of unemployment, while structural unemployment is thought to explain relatively short spells
of unemployment.
Feedback
The correct answer is: short spells of unemployment, while structural unemployment is thought to
explain relatively long spells of unemployment.

Question 12
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If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to
the quantity equation there would be no change in the price level.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 13
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Explain how a recession differs from a depression.

Recessions are relatively mild periods of declining real incomes and rising
unemployment. Depressions are severe recessions.

Question 14
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An increase in government expenditures may lead people to expect that in the future taxes will rise and
create greater distortions. By themselves these changes in expectations lead people to

a.
raise consumption but reduce investment.

b.
reduce both consumption and investment.
Correct

c.
raise investment but reduce consumption.

d.
raise both consumption and investment.
Feedback
The correct answer is: reduce both consumption and investment.

Question 15
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The main difference between GDP and GNP is that

a.
none of the above

b.
GDP counts production of final goods and services, while GNP counts production
of all goods and services, including intermediate goods.

c.
 GDP counts production of final goods and services produced in the Phils, while
GNP counts production of final goods and services by Filipino citizens

d.
GDP counts only production of goods and services produced and sold in the
Phils, while GNP counts production of goods and services in the Phils, regardless
of where they are sold.

e.
GDP counts only production of goods while GNP counts production of services
Feedback
Your answer is correct.
The correct answer is:

GDP counts production of final goods and services produced in the Phils, while
GNP counts production of final goods and services by Filipino citizens

Question 16
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When output rises, unemployment falls.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 17
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 Flag question
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An increase in a country's real interest rate reduces that country's net capital outflow.

Select one:
True
False
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The correct answer is 'True'.

Question 18
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Last year a country had $700 billion of saving and $900 of investment. This year it had $1000 billion of
saving and $800 billion of investment. By how much did net capital outflow change? By how much did
net exports change? How is it possible for a country to have saving that is greater than investment?

Both net capital outflows and net exports rose from -$200 billion to +$200 billion, an
increase of $400 billion. When a country's saving exceeds its investment it means that
on net it is purchasing foreign assets from abroad. This addition to residents' net
holdings of foreign is a part of domestic saving.

Question 19
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A marginal change is a small incremental adjustment to an existing plan of action.

Select one:
 True
False
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The correct answer is 'True'.

Question 20
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Assuming banks hold no excess reserves, an increase in the reserve requirement increases reserves and
decreases the money supply.

Select one:
True
False
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The correct answer is 'True'.

Question 21
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The recessions associated with the business cycle come at regular intervals.

Select one:
True
False
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The correct answer is 'False'.

Question 22
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Table 23-1

The following table contains data for Mindalion for the year 2019.

GDP $200
Income earned by citizens abroad $9
Income foreigners earn here $7
Losses from depreciation $4
Indirect business taxes $10
Statistical discrepancy $0
Retained earnings $8
Corporate income taxes $12
Social insurance contributions $30
Interest paid to households by government $8
Transfer payments to households from government $55
Personal taxes $60
Nontax payments to government $11

Refer to Table 23-1. Net national product for Mindalion in 2019 is

a.
$198.
Correct

b.
$200.

c.
$202.

d.
$201.
Feedback
The correct answer is: $198.

Question 23
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People are willing to pay more for a diamond than for a bottle of water because

a.
water prices are held artificially low by governments, since water is necessary for life.

b.
the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra
bottle of water.

c.
producers of diamonds have a much greater ability to manipulate diamond prices than producers of water
have to manipulate water prices.

d.
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
Correct
Feedback
The correct answer is: the marginal benefit of an extra diamond far exceeds the marginal benefit of an
extra bottle of water.

Question 24
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Figure 9-1
Uganda
Refer to Figure 9-1. When trade in coffee is allowed, consumer surplus in Uganda

a.
increases by the area A + D.

b.
increases by the area B + F.

c.
decreases by the area B + F.
Correct

d.
decreases by the area F + H.
Feedback
The correct answer is: decreases by the area B + F.

Question 25
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The labor-force participation rate equals the percentage of the total adult population that is in the labor
force.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 26
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 Flag question
Question text
Policymakers who control monetary and fiscal policy and want to offset the effects on output of an
economic contraction caused by a shift in aggregate supply could use policy to shift

a.
aggregate demand to the right.
Correct

b.
aggregate supply to the left.

c.
aggregate demand to the left.

d.
aggregate supply to the right.
Feedback
The correct answer is: aggregate demand to the right.

Question 27
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In order to maintain stable prices, a central bank must

a.
maintain low interest rates.

b.
keep unemployment low.
c.
tightly control the money supply.
Correct

d.
sell indexed bonds.
Feedback
The correct answer is: tightly control the money supply.

Question 28
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Which of the following demonstrates the law of demand?

a.
Tiana buys fewer Snickers at $0.60 per candy bar after the price of M&Ms falls to $0.50 per bag.

b.
Benjamin buys fewer muffins at $0.75 per muffin than at $1 per muffin, other things equal.

c.
Ashlyn buys more donut holes at $0.25 per donut hole than at $0.50 per donut hole, other things equal.
Correct

d.
After Roberto got a raise at work, he bought more pretzels at $1.50 per pretzel than he did before his
raise.
Feedback
The correct answer is: Ashlyn buys more donut holes at $0.25 per donut hole than at $0.50
per donut hole, other things equal.

Question 29
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Question text
An increase in the minimum wage above the equilibrium wage

a.
increases structural unemployment.
Correct

b.
reduces frictional unemployment,

c.
reduces structural unemployment.

d.
increases frictional unemployment.
Feedback
The correct answer is: increases structural unemployment.

Question 30
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Table 29-3
The First Bank of Roswell
Assets Liabilities
Reserves $30,000 Deposits $200,000
Loans 170,000
Refer to Table 29-3. If the bank faces a reserve requirement of 6 percent, then the bank

a.
has excess reserves of $12,000.

b.
is in a position to make new loans equal to a maximum of $18,000.
Correct

c.
has excess reserves of $30,000.

d.
is in a position to make new loans equal to a maximum of $12,000.
Feedback
The correct answer is: is in a position to make new loans equal to a maximum of $18,000.

Question 31
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In most societies, resources are allocated by

a.
those firms that use resources to provide goods and services.

b.
a single central planner.

c.
a small number of central planners.

d.
the combined actions of millions of households and firms.
Correct
Feedback
The correct answer is: the combined actions of millions of households and firms.

Question 32
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Given that Sarah's income exceeds her expenditures, Sarah is best described as a

a.
borrower or as a supplier of funds.

b.
saver or as a demander of funds.

c.
borrower or as a demander of funds.

d.
saver or as a supplier of funds.
Correct
Feedback
The correct answer is: saver or as a supplier of funds.

Question 33
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Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that
her money will buy 4 percent more goods. The nominal interest rate was

a.
6 percent and the inflation rate was 2 percent.
Correct

b.
10 percent and the inflation rate was 6 percent.

c.
4 percent and the inflation rate was 2 percent.

d.
10 percent and the inflation rate was 4 percent.
Feedback
The correct answer is: 6 percent and the inflation rate was 2 percent.

Question 34
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Economists use the term inflation to describe a situation in which the economy's overall price level is
rising.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 35
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Which of the following is included in M2 but not in M1?
a.
Small time deposits
Correct

b.
Traveler's checks

c.
Currency

d.
Demand deposits
Feedback
The correct answer is: Small time deposits

Question 36
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Trade between countries

a.
limits a country's ability to produce goods and services on its own.

b.
can best be understood by examining the countries' absolute advantages.

c.
must benefit both countries equally; otherwise, trade is not mutually beneficial.

d.
allows each country to consume at a point outside its production possibilities frontier.
Correct
Feedback
The correct answer is: allows each country to consume at a point outside its production possibilities
frontier.

Question 37
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Policymakers who control monetary and fiscal policy and want to offset the effects on output of an
economic contraction caused by a shift in aggregate supply could use policy to shift

a.
aggregate demand to the left.

b.
aggregate demand to the right.
Correct

c.
aggregate supply to the left.

d.
aggregate supply to the right.
Feedback
The correct answer is: aggregate demand to the right.

Question 38
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Figure 32-3
Refer to the following diagram of the open-economy macroeconomic model to answer the questions that
follow.
 Graph (a) Graph (b)

Graph (c)

Refer to Figure 32-3. Suppose that the government goes from a budget surplus to a budget deficit. The
effects of the change could be illustrated by shifting the

a.
demand curve in panel a to the right and the demand curve in graph (c) to the left.

b.
demand curve in panel a to the left and the supply curve in graph (c) to the left.

c.
supply curve in panel a to the right and the demand curve in graph (c) to the right.

d.
supply curve in panel a to the left and the supply curve in graph (c) to the left.
Correct
Feedback
The correct answer is: supply curve in panel a to the left and the supply curve in graph (c) to the left.

Question 39
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The property of society getting the most it can from its scarce resources is called

a.
externality.
b.
efficiency.
Correct

c.
productivity.

d.
equality.
Feedback
The correct answer is: efficiency.

Question 40
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Figure 30-1

Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

a.
the demand for goods and services will decrease.

b.
the supply of money has decreased.

c.
the equilibrium value of money decreases.
Correct

d.
the equilibrium price level decreases.
Feedback
The correct answer is: the equilibrium value of money decreases.

Question 41
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If M = 5,000, P = 5.5, and Y = 9,000, what is velocity?

a.
0.55

b.
2.75

c.
2

d.
10
Correct
Feedback
The correct answer is: 10

Question 42
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Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to
increase forever.

Select one:
True
 False
Feedback
The correct answer is 'False'.

Question 43
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The natural rate of unemployment

a.
varies little over time but substantially across countries.

b.
varies substantially over time but little across countries.

c.
varies as much as the cyclical rate of unemployment.

d.
varies less than the measured unemployment rate.
Correct
Feedback
The correct answer is: varies less than the measured unemployment rate.

Question 44
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Which of the following would likely increase private saving?
a.
Expansion of IRA type accounts and a consumption tax
Correct

b.
Expansion of IRA type accounts, but not a consumption tax

c.
Neither expansion of IRA type accounts nor a consumption tax

d.
A consumption tax, but not expansion of IRA type accounts
Feedback
The correct answer is: Expansion of IRA type accounts and a consumption tax

Question 45
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Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $14
billion. An increase in government purchases of $90 billion will shift aggregate demand to the

a.
left by $380 billion.

b.
left by $436 billion.

c.
right by $436 billion.
Correct

d.
right by $380 billion.
Feedback
The correct answer is: right by $436 billion.
Question 46
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If the consumer price index was 100 in the base year and 103 in the following year, then the inflation rate
was

a.
1.03 percent.

b.
0.3 percent.

c.
–3 percent.

d.
3 percent.
Correct
Feedback
The correct answer is: 3 percent.

Question 47
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A likely example of substitute goods for most people would be

a.
coffee and sugar.
b.
televisions and subscriptions to cable television services.

c.
tennis balls and tennis rackets.

d.
iced tea and lemonade.
Correct
Feedback
The correct answer is: iced tea and lemonade.

Question 48
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Which of the following is a certificate of indebtedness?

a.
Neither stocks nor bonds

b.
Bonds but not stocks
Correct

c.
Stocks but not bonds

d.
Both stocks and bonds
Feedback
The correct answer is: Bonds but not stocks

Question 49
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 Flag question
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In principle, the government could increase the money supply or increase government expenditures to try
to offset the effects of a wave of pessimism about the future of the economy.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 50
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If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 51
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The willingness of citizens to pay for vaccinations does not include the benefit society receives from
having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from
vaccinating its citizens is known as

a.
an externality.
Correct

b.
productivity.

c.
market power.

d.
property rights.
Feedback
The correct answer is: an externality.

Question 52
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The demand for workers often rises in one region of the U.S. and falls in another. This illustrates

a.
frictional unemployment created by sectoral shifts.
Correct

b.
frictional unemployment created by efficiency wages.

c.
structural unemployment created by sectoral shifts.

d.
structural unemployment created by efficiency wages.
Feedback
The correct answer is: frictional unemployment created by sectoral shifts.

Question 53
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Scenario 34-1. Take the following information as given for a small economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.

Refer to Scenario 34-1. The marginal propensity to consume for this economy is

a.
0.800.

b.
0.750.
Correct

c.
0.650.

d.
0.650 or 0.664, depending on whether income is $10,000 or $11,000.
Feedback
The correct answer is: 0.750.

Question 54
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Question text
Consider a closed economy. If national saving is greater than zero, which of the following must be true?

a.
Y-C-G>0
Correct

b.
Y-C-G<0

c.
Investment is negative.

d.
Either public saving or private saving must be negative.
Feedback
The correct answer is: Y - C - G > 0

Question 55
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Question text
What does aggregate mean?

a.
all of the above

b.
The minimum

c.
A portion

d.
Total

e.
none of the above

f.
The smallest number
Feedback
Your answer is correct.
The correct answer is:
Total

Question 56
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Question text
When you list prices for necklaces sold on your website, www.sparklingjewels.com, in dollars, this best
illustrates money's function as

a.
a method of barter.

b.
a medium of exchange.

c.
a store of value.

d.
a unit of account.
Correct
Feedback
The correct answer is: a unit of account.

Question 57
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Question text
The velocity of money is

a.
the rate at which the Fed puts money into the economy.

b.
the money supply divided by nominal GDP.

c.
the average number of times per year a dollar is spent.
Correct

d.
the same thing as the long-term growth rate of the money supply.
Feedback
The correct answer is: the average number of times per year a dollar is spent.

Question 58
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Question text
Suppose India exports televisions to Italy and imports sugar from Argentina. This situation suggests

a.
India has an absolute advantage relative to Argentina in producing sugar, and Italy has an absolute
advantage relative to India in producing televisions.

b.
India has a comparative advantage relative to Argentina in producing sugar, and Italy has a comparative
advantage to India producing televisions.

c.
India has a comparative advantage relative to Italy in producing televisions, and Argentina has a
comparative advantage relative to India in producing sugar.
Correct

d.
India has an absolute advantage relative to Italy in producing televisions, and Argentina has an absolute
advantage relative to India in producing sugar.
Feedback
The correct answer is: India has a comparative advantage relative to Italy in producing televisions,
and Argentina has a comparative advantage relative to India in producing sugar.

Question 59
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At the equilibrium real interest rate in the open-economy macroeconomic model,

a.
saving = net capital outflow.

b.
net capital outflow + domestic investment = saving.
Correct

c.
saving = domestic investment.

d.
net capital outflow = domestic investment.
Feedback
The correct answer is: net capital outflow + domestic investment = saving.

Question 60
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Tax cuts affect only aggregate demand not aggregate supply.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 61
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Figure 33-3

Refer to Figure 33-3. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2

a.
could be caused by an outbreak of war in the Middle East.

b.
causes the economy to experience an increase in the unemployment rate.

c.
could be caused by a decrease in the expected price level.
Correct
d.
causes the economy to experience stagflation.
Feedback
The correct answer is: could be caused by a decrease in the expected price level.

Question 62
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Two countries with the same saving rates must have the same growth rate of real GDP per person.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 63
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In a system of 100-percent-reserve banking, changes in the money supply depend on the decisions of the
Fed as well as the behavior of depositors and bankers.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 64
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 Flag question
Question text
When Mexico suffered from capital flight in 1994, Mexico's net capital outflow

a.
and net exports increased.
Correct

b.
decreased while net exports increased.

c.
and net exports decreased.

d.
increased while net exports decreased.
Feedback
The correct answer is: and net exports increased.

Question 65
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Question text
A law that requires the money supply to grow by a fixed percentage each year would eliminate

a.
both the time inconsistency problem and political business cycles.
Correct

b.
the political business cycle, but not the time inconsistency problem.
c.
neither the time inconsistency problem nor political business cycles.

d.
the time inconsistency problem, but not political business cycles.
Feedback
The correct answer is: both the time inconsistency problem and political business cycles.

Question 66
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Scenario 34-2. The following facts apply to a small economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.

Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase
by $1,500?

a.
A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out
effect.

b.
An economic boom overseas increases the demand for U.S. net exports by $550, and there is no
crowding-out effect.

c.
An economic boom overseas increases the demand for U.S. net exports by $300, and there is no
crowding-out effect.

d.
A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out
effect.
Correct
Feedback
The correct answer is: A stock-market boom stimulates consumer spending by $550, and there is a
small operative crowding-out effect.

Question 67
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If a decrease in income increases the demand for a good, then the good is

a.
an inferior good.
Correct

b.
a normal good.

c.
a substitute good.

d.
a complementary good.
Feedback
The correct answer is: an inferior good.

Question 68
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Equilibrium price must decrease when

a.
demand increases and supply does not change.
b.
demand does not change and supply increases.
Correct

c.
both demand and supply increase.

d.
both demand and supply decrease.
Feedback
The correct answer is: demand does not change and supply increases.

Question 69
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A production possibilities frontier is bowed outward when

a.
the rate of trade-off between the two goods being produced is constant.

b.
the more resources the economy uses to produce one good, the fewer resources it has available to produce
the other good.

c.
the rate of trade-off between the two goods being produced depends on how much of each good is being
produced.
Correct

d.
an economy is self-sufficient instead of interdependent and engaged in trade.
Feedback
The correct answer is: the rate of trade-off between the two goods being produced depends on how
much of each good is being produced.
Question 70
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Money is

a.
not the most liquid asset but a perfect store of value.

b.
neither the most liquid asset and nor a perfect store of value.

c.
the most liquid asset but an imperfect store of value.
Correct

d.
the most liquid asset and a perfect store of value.
Feedback
The correct answer is: the most liquid asset but an imperfect store of value.

Question 71
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Schools closed during pandemic

a.
GDP is the same
b.
No change happened

c.
none of the above

d.
GDP decreases

e.
all of the above

f.
GDP increases
Feedback
Your answer is correct.
The correct answer is:
GDP decreases

Question 72
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If the quantity of loanable funds supplied is greater than the quantity demanded, then there is a

a.
surplus of loanable funds and the interest rate will fall.
Correct

b.
shortage of loanable funds and the interest rate will rise.

c.
surplus of loanable funds and the interest rate will rise.

d.
shortage of loanable funds and the interest rate will fall.
Feedback
The correct answer is: surplus of loanable funds and the interest rate will fall.

Question 73
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Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually
the increase in aggregate demand causes price expectations to

a.
rise. This rise in price expectations shifts the short-run aggregate supply curve to the right.

b.
rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.
Correct

c.
fall. This fall in price expectations shifts the short-run aggregate supply curve to the right.

d.
fall. This fall in price expectations shifts the short-run aggregate supply curve to the left.
Feedback
The correct answer is: rise. This rise in price expectations shifts the short-run aggregate supply curve
to the left.

Question 74
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Economists view free trade as a way to raise living standards both at home and abroad.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 75
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Table 24-3

The following table lists the per gallon prices of gas and milk for the months of September, October, and
November. Assume that the typical consumer buys 100 gallons of gas and 7 gallons of milk each month,
and that September is the base period.

Price of Gas Price of Milk

Month
(Dollars per gallon) (Dollars per gallon)
September 4.00 3.50
October 4.40 3.52
November 4.60 3.58

Refer to Table 24-3. What is the inflation rate for November?

a.
4.39%
Correct
b.
4.21%

c.
4.81%

d.
–4.39%
Feedback
The correct answer is: 4.39%

Question 76
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A country recently had a GDP of $1000 billion. Its consumption expenditures were $650 billion, its
government spent $250 billion, and it had domestic investment of $150 billion. What was the value of this
country's net capital outflow? Explain how you found your answer.

saving = GDP - consumption - government expenditures saving = $1,000 billion - $650

billion - $250 billion = $100 billion saving = investment + net capital outflow $100
billion = $150 billion + net capital outflow -$50 billion = net capital outflow

Question 77
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The nominal interest rate tells you

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

c.
how fast the number of dollars in your bank account rises over time.
Correct

d.
the purchasing power of your bank account today.
Feedback
The correct answer is: how fast the number of dollars in your bank account rises over time.

Question 78
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Hyperinflations are associated with governments printing money to finance expenditures.

Select one:
True
False
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The correct answer is 'True'.

Question 79
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Real GDP evaluates current production using prices that are fixed at past levels and therefore shows how
the economy's overall production of goods and services changes over time.

Select one:
True
 False
Feedback
The correct answer is 'True'.

Question 80
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Minimum-wage laws are least likely to affect the wages paid to

a.
inexperienced workers.

b.
highly-educated workers.
Correct

c.
low-skilled workers.

d.
teenagers.
Feedback
The correct answer is: highly-educated workers.

Question 81
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A tax on an imported good is called a
a.
tariff.
Correct

b.
supply tax.

c.
trade tax.

d.
quota.
Feedback
The correct answer is: tariff.

Question 82
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If U.S. net exports are negative, then net capital outflow is

a.
negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.

b.
positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.

c.
negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.
Correct

d.
positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
Feedback
The correct answer is: negative, so American assets bought by foreigners are greater than foreign
assets bought by Americans.
Question 83
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A goal of monetary policy and fiscal policy is to

a.
offset the shifts in aggregate demand and thereby eliminate unemployment.

b.
enhance the shifts in aggregate demand and thereby increase economic growth.

c.
enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.

d.
offset shifts in aggregate demand and thereby stabilize the economy.
Correct
Feedback
The correct answer is: offset shifts in aggregate demand and thereby stabilize the economy.

Question 84
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If inflation falls, people choose to put in

a.
more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from
borrowers to lenders.
b.
less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from
borrowers to lenders.
Correct

c.
more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from
lenders to borrowers.

d.
less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from
lenders to borrowers.
Feedback
The correct answer is: less effort to keep money balances low. When inflation is unexpectedly low it
redistributes wealth from borrowers to lenders.

Question 85
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Figure 3-3

Refer to Figure 3-3. If Tanek must work 0.2 hour to produce each taco, then his production possibilities
frontier is based on how many hours of work?

a.
80 hours
Correct

b.
2000 hours

c.
40 hours
d.
400 hours
Feedback
The correct answer is: 80 hours

Question 86
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Suppose the government passes a law eliminating holidays and, as a result, the production of goods and
services increases because people work more days per year (and thus enjoy less leisure per year). Based
on this scenario, which of the following statements is correct?

a.
GDP would definitely increase because GDP excludes leisure.
Correct

b.
GDP would definitely increase, despite the fact that GDP includes leisure.

c.
GDP could either increase or decrease because GDP excludes leisure.

d.
GDP could either increase or decrease because GDP includes leisure.
Feedback
The correct answer is: GDP would definitely increase because GDP excludes leisure.

Question 87
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Cyclical unemployment refers to

a.
the relationship between the probability of unemployment and a worker's experience level.

b.
changes in unemployment due to changes in the natural rate of unemployment.

c.
the difference between the structural and frictional unemployment rates.

d.
year-to-year fluctuations in unemployment around its natural rate.
Correct
Feedback
The correct answer is: year-to-year fluctuations in unemployment around its natural rate.

Question 88
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If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate

a.
$10,000 of money.
Correct

b.
$2,500 of money.

c.
$9,500 of money.

d.
$10,500 of money.
Feedback
The correct answer is: $10,000 of money.

Question 89
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Two common measures of the overall level of prices are

a.
the inflation rate and the consumer price index.

b.
the inflation rate and the GDP deflator.

c.
the GDP deflator and the consumer price index.
Correct

d.
the cost of living index and nominal GDP.
Feedback
The correct answer is: the GDP deflator and the consumer price index.

Question 90
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Consider two people who are currently out of work. Tim is not looking for work because there have been
many job cuts where he lives, and he doesn't think it likely that he will find work. Bev is not currently
looking for work, but she would like a job, and she has looked for work in the past. The Bureau of Labor
Statistics considers
a.
only Bev to be a marginally attached worker.

b.
both Tim and Bev to be marginally attached workers.
Correct

c.
only Tim to be a marginally attached worker.

d.
neither Tim nor Bev to be marginally attached workers.
Feedback
The correct answer is: both Tim and Bev to be marginally attached workers.

Question 91
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Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by
selling bonds, the city's high credit rating

a.
and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
Correct

b.
contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds
contributes to a higher interest rate than would otherwise apply.

c.
and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.

d.
contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds
contributes to a lower interest rate than would otherwise apply.
Feedback
The correct answer is: and the tax status of municipal bonds both contribute to a lower interest rate
than would otherwise apply.

Question 92
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The goal of President Obama's stimulus package and increased government spending following the deep
economic downturn in 2008 and 2009 was to reduce inflation.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 93
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Price index was 128 in Year 2, and the inflation rate was 19.6 percent between Year 1 and Year 2. The
price index in Year 1 was

a.
12.8.

b.
107.0.
Correct
c.
108.4.

d.
64.0.
Feedback
The correct answer is: 107.0.

Question 94
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The multiplier is computed as MPC / (1 - MPC).

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 95
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The measure of the money stock called M1 includes

a.
wealth held by people in currency.
Correct

b.
wealth held by people in money market mutual funds.

c.
everything that is included in M2 plus some additional items.

d.
wealth held by people in their savings accounts.
Feedback
The correct answer is: wealth held by people in currency.

Question 96
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An example of a government transfer is a

a.
bequest from a deceased relative

b.
Social Security payment.

c.
all of the choices given

d.
none of the choices given

e.
expenditure on an interstate highway

f.
salary for a member of the armed forces
Feedback
Your answer is correct.
The correct answer is:
Social Security payment.

Question 97
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If the multiplier is 3, then the MPC is

a.
3/4.

b.
1/3.

c.
2/3.
Correct

d.
4/3.
Feedback
The correct answer is: 2/3.

Question 98
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Colonial America had little industry and so had mostly raw materials to export. At the same time, there
were many opportunities to purchase capital goods and earn a high rate of return because there was little
existing capital so that the marginal product of capital was relatively high. What does this suggest about
net exports and net capital outflow in colonial America?

Net exports were negative because the value of exports was low, and the colonies
imported capital goods. If net exports were negative, net capital outflow must also have
been negative. Net capital outflow would have been negative because the colonies sold
stocks, bonds, and other domestic assets to buy capital goods from abroad.

Question 99
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Other things equal, the higher the price level, the higher is the real wealth of households.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 100
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If the multiplier is 3, then the MPC is

a.
4/3.

b.
3/4.

c.
2/3.
Correct

d.
1/3.
Feedback
The correct answer is: 2/3.

Question 101
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The rules established under the General Agreement on Tariffs and Trade (GATT) are enforced by an
international body called the World Trade Organization (WTO).

Select one:
True
False
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The correct answer is 'True'.

Question 102
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Scenario 32-2

Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures
and raise taxes.

Refer to Scenario 32-2. This policy change causes net capital outflow to change. How is this change in
net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange
rate?
Net capital outflow rises and the exchange rate falls

Question 103
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If a country has the comparative advantage in producing a product, then that country must also have the
absolute advantage in producing that product.

Select one:
True
False
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The correct answer is 'False'.

Question 104
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Which of the following statements about comparative advantage is not true?

a.
Comparative advantage is determined by which person or group of persons can produce a given quantity
of a good using the fewest resources.
Correct

b.
Economists use the principle of comparative advantage to emphasize the potential benefits of free trade.

c.
The principle of comparative advantage applies to countries as well as to individuals.
d.
A country may have a comparative advantage in producing a good, even though it lacks an absolute
advantage in producing that good.
Feedback
The correct answer is: Comparative advantage is determined by which person or group of persons can
produce a given quantity of a good using the fewest resources.

Question 105
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Monetary policy is determined by a committee whose voting members include all the presidents of the
regional Federal Reserve Banks.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 106
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When output rises, unemployment falls.

Select one:
True
False
Feedback
The correct answer is 'True'.

Question 107
Complete
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What happens to each of the following if investment becomes more desirable at each interest rate?
A. the interest rate
B. net capital outflow
C. the exchange rate

A. rises
B. falls
C. falls

Question 108
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Disposable personal income is the income that

a.
households and businesses have left after paying taxes and non-tax payments to the government.

b.
households have left after paying taxes and non-tax payments to the government.

c.
businesses have left after paying taxes and non-tax payments to the government.

d.
households and noncorporate businesses have left after paying taxes and non-tax payments to the
government.
Correct
Feedback
The correct answer is: households and noncorporate businesses have left after paying taxes and non-
tax payments to the government.

Question 109
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According to the assumptions of the quantity theory of money, if the money supply decreases by 5
percent, then

a.
nominal GDP would fall by 5 percent; real GDP would be unchanged.
Correct

b.
neither nominal GDP nor real GDP would change.

c.
nominal and real GDP would fall by 5 percent.

d.
nominal GDP would be unchanged; real GDP would fall by 0.05 percent.
Feedback
The correct answer is: nominal GDP would fall by 5 percent; real GDP would be unchanged.

Question 110
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Aggregate demand includes

a.
the quantity of goods and services households and firms want to buy, but not the quantity of goods and
services the government wants to buy.

b.
neither the quantity of goods and services the government, households, nor firms want to buy nor the
quantity of goods and services customers abroad want to buy.

c.
the quantity of goods and service the government wants to buy, but not the quantity of goods and services
households, firms, or customers abroad want to buy.

d.
the quantity of goods and services the government, households, firms, and customers abroad want to buy.
Correct
Feedback
The correct answer is: the quantity of goods and services the government, households, firms, and
customers abroad want to buy.

Question 111
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You are considering staying in college another semester so that you can complete a major in finance. In
deciding whether or not to stay you should

a.
compare the total benefits of your education to the cost of staying one more semester.

b.
compare the total cost of your education to the benefits of staying one more semester.

c.
compare the cost of staying one more semester to the benefits of staying one more semester.
Correct

d.
compare the total cost of your education to the total benefits of your education.
Feedback
The correct answer is: compare the cost of staying one more semester to the benefits of staying one
more semester.

Question 112
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If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and
services as

a.
$33.33 purchased in 1975.

b.
$40.00 purchased in 1975.
Correct

c.
$25.00 purchased in 1975.

d.
$135.55 purchased in 1975.
Feedback
The correct answer is: $40.00 purchased in 1975.

Question 113
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A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of
$150. If customers deposit $50 into the bank, what is the value of the money supply?
a.
$100

b.
$200

c.
$150
Correct

d.
$50
Feedback
The correct answer is: $150

Question 114
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Equality means distributing society's resources in the most efficient manner.

Select one:
True
False
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The correct answer is 'False'.

Question 115
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Trade allows a person to obtain goods at prices that are less than that person's opportunity cost because
each person specializes in the activity for which he or she has the lower opportunity cost.

Select one:
True
False
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The correct answer is 'True'.

Question 116
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In 2009, Congress passed legislation providing states with funds to build roads and bridges. It also
instituted tax cuts. Which of these shifts aggregate demand right?

a.
Both the increased funding for states and the tax cuts
Correct

b.
Only the tax cuts

c.
Neither the increased funding for states nor the tax cuts

d.
Only the increased funding for states
Feedback
The correct answer is: Both the increased funding for states and the tax cuts

Question 117
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A likely example of complementary goods for most people would be

a.
butter and margarine.

b.
tennis balls and basketballs.

c.
apple juice and orange juice.

d.
coffee and sugar.
Correct
Feedback
The correct answer is: coffee and sugar.

Question 118
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Soup is an inferior good if the demand

a.
for soup falls when the price of a substitute for soup rises.

b.
for soup falls when income rises.
Correct
c.
curve for soup slopes upward.

d.
for soup rises when the price of soup falls.
Feedback
The correct answer is: for soup falls when income rises.

Question 119
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Government purchases include spending on goods and services by

a.
federal, state, and local governments.
Correct

b.
federal, state, and local governments, as well as household spending by employees of those governments.

c.
the federal government, but not by state or local governments.

d.
federal and state governments, but not by local governments.
Feedback
The correct answer is: federal, state, and local governments.

Question 120
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Question text
A demand schedule is a table that shows the relationship between

a.
income and quantity demanded.

b.
price and quantity demanded.
Correct

c.
quantity demanded and quantity supplied.

d.
price and income.
Feedback
The correct answer is: price and quantity demanded.

Question 121
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An increase in the saving rate permanently increases the growth rate of real GDP per person.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 122
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 Flag question
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According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an
increase in government expenditures of the same size.

Select one:
True
False
Feedback
The correct answer is 'False'.

Question 123
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John Maynard Keynes advocated policies that would increase aggregate demand as a way to decrease
unemployment caused by recessions.

Select one:
True
False
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The correct answer is 'True'.

Question 124
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A bank's reserve ratio is 7 percent and the bank has $1,000 in deposits. Its reserves amount to
a.
$93.

b.
$930.

c.
$70.
Correct

d.
$7.
Feedback
The correct answer is: $70.

Question 125
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Aggregate demand shifts to the left if the money supply increases.

Select one:
True
False
Feedback
The correct answer is 'False'.