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Homework 40 questions
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  1. The real value of money;
  1. Is another word for the face value
  2. Reflects the purchasing power of money
  3. Matters less to people than its nominal value
  4. Is the same as its nominal value


  1. In considering the relationship between price and quantity demanded, ceteris paribus directs the economist to assume that;
  1. Price increases affect quantity
  2. Quantity increases affect prices
  3. Either price nor quantity affect demand
  4. All other variables remain unchanged


  1. Gross domestic products calculations count only final goods and services because;
  1. These are the only good and services that are purchased in an economy.
  2. Counting all goods and services would lead to double- counting of many activities.
  3. It is difficult to measure the price of intermediate goods produced.
  4. One cannot calculate the quantities of intermediate goods produced.


  1. Firms consider the____wage when considering whether to hire additional units of labor.
  1. Nominal       b. Real       c. Minimum       d. Normal


  1. The marginal benefit of a worker to a firm is the value of the extra out put that results when;
  1. Some workers are laid off and the remaining workers become more productive.
  2. An additional worker is hired
  3. Workers get paid for working overtime
  4. Work is outsourced to a foreign country


  1. An increase in the demand for labor wills ____ wages and ____ employment.
  1. Increase; increase     b. increase; decrease     c. decrease; increase       d. decrease; decrease


  1. A comparison of the average growth rates across time for developed nations indicates that;
  1. Nations with lower levels of income grow more slowly than those with higher levels of income.
  2. Nations with lower levels of income will never be as rich as nations with high levels of income.
  3. Nations with high levels of income experience a continuously increasing growth rate.
  4. Nations with lower levels of income grow more quickly than those with higher levels of income.


  1. In a simple economy ( without government or foreign trade ) where output can be purchased only by consumers or by firms, saving must equal;
  1. Investment                             b. depreciation                          c. consumption                  d. income



  1. An increase in the income tax rate ___ the value of the tax multiplier.
  1. Has no effect on                b. may increase or decrease        c. increases                     d. decreases



  1. What would be a way for the Federal Reserve to slow down the economy when it is growing too quickly or is inflationary?
  1. Print more money
  2. Buy back government bonds on the open market
  3. Sell more government bonds
  4. Encourage the stock market



  1. What impact would the Fed’s raising the interest rate have on any inflationary pressure in the economy?
  1. An increase in interest rates decreases the money demand, which could slow increases in the price level.
  2. An increase in interest rates increases the one supply, which could cause the price level to increase.
  3. An increase in interest rates decreases the exchange rate, which causes net exports to rise, generating inflation.
  4. An increase in interest to rates increases real GDP, which creates inflation in an economy.



  1. Which of the following does not shift the U.S. aggregate demand curve?
  1. An increase in the supply of money
  2. An increase in GDP in Japan
  3. A decrease in taxes
  4. A decrease in the price level


  1. How does an increase in the money wage rate aggregate supply?
  1. It decreases aggregate supply
  2. It increases aggregate supply
  3. It barely has any effect
  4. Since it applies to a firm’s costs, it does not affect aggregate supply.



  1. A decrease in the money supply causes_____.
  1. A long – run decease in the level of output
  2. Both a long-run and short-run decrease in the level of output
  3. A short-run decrease in the level of output
  4. No changes in the level of output



  1. Why is the as curve inadequate for describing the short-run trade-off between inflation and unemployment?
  1. The AS curve is less stable than Phillips curve because the money wages rate or potential GDP shifts every day.
  2. The AS curve focuses directly on two policy targets: the inflation rate change and unemployment rate.
  3. The AS curve shifts only when the natural unemployment rate changes.
  4. The AS curve shifts only when the expected future inflation rate changes.



  1. Deciding if a company will produce automobiles by robotics or manual labor answers the economic question of____.
  1. Who consumers the products produced
  2. What products will be produced
  3. Where will the products be consumed
  4. How will the products be produced



  1. Angelina, age , decides to dress up like Princess Fiona for Halloween. What is the opportunity cost of her decision?
  1. The cost of the costume
  2. The fact that she can’t dress up like Dora the Explorer, her second choice.
  3. Zero, because 7 year olds don’t have opportunity costs.
  4. The cost of the Lady Gaga costume which she did not want.



  1. The unemployment rate is the number of unemployed people____.
  1. Divided by the number of people who are working
  2. Divided by the total working-age population
  3. Divided by the sum of the number of people who are working and the number of people who are working and the number of people who are looking for work.
  4. And the number of people working fewer than their desired number of hours, divided by the number of people who are working or looking for work.


  1. The Consumer Price Index (CPI) differs from a chain-weighted price index in that the CPI ___.
  1. Requires calculation of GDP, while the chain-weighted index does not.
  2. Measures the costs of a typical fixed basket of goods over time, while the chain-weighted does not.
  3. Allows for the goods consumed in an economy to change over time, while the chain-weighted index does not.
  4. Compares the prices of all good in one year to the prices of all good in other years.



  1. Convergence refers to closing the gap in ___ between poorer countries and richer countries.
  1. Real GDP   b. Real GDP per capita    c. The growth rate in real GDP    d. The growth rate in real GDP per capita.


  1. The idea that investment in comprehensive education in developing countries leads to permanent increases in the rate of technological progress is an example of _____.
  1. Increase economic inequality
  2. Capital deepening
  3. New growth theory
  4. A trade-off between human capital and technology


  1. When money is used to express the value of goods and services, it is functioning as a _____.
  1. Medium of exchange      b. store of value      c. unit of account        d. store of purchasing power



  1. When the U.S. price level rises and other things remain the same, the prices in other countries_.
  1. Rise                 b. fall              c. do not change              d. will rise or fall depending on demand



  1. If home prices are falling, consumers purchasing a home will find their purchasing power of money has increased. This benefit to consumers is called the_________.
  1. Inflation effect                b. wealth affect             c. home equity effect        d. multiplier effect



  1. What policy action by the Fed describes an unexpected rise in interest rates and deceleration in money growth in order to slow inflation at the cost of recession?
  1. Rational reduction   b. surprise inflation reduction    c. credible announced inflation reduction   d. statistical model of reduction.



  1. In the short run, increases in the money supply increase the level of output because____.
  1. Prices and wages are sticky   b. prices and wages are flexible    c. interest rates are sticky              d. demand is fixed.
  1. Income taxes create a difference between the interest rate paid by companies and received by lenders. These taxes ____ saving, investment, and the growth rate of real GDP.
  1. Do not affect        b. lower       c. encourage, but may not change       d. increase


  1. A variable that the Fed can directly control or closely target, and which influences the economy in desirable ways, is known as a ______.
  1. Fiscal policy instrument  b. monetary policy instrument  c. operational instrument  d. economic instrument


  1.  The self-interest model of government ______.
  1. Suggested that the government officials are selfish
  2. Explains why there are limits on government taxation and spending
  3. Shows why some government projects take place even if the costs exceed the benfits.
  4. All of the above are correct.


  1. The self-interest theory of government was suggested by_____.
  1. James Buchanan b. Charles M. Tiebout c. Bureaucrats d. The European Union


  1. The economic approach to air pollution is to ____.
  1. Use command and control
  2. Internalize the external cost with a pollution tax
  3. Use marketable pollution permits
  4. Create a subsidy for cars


  1. When the EPA requires that specific abatement equipment be installed in cars, _____.
  1. Total vehicle emissions might increase
  2. Total vehicle emissions must decrease, and the most efficient technology must be used.
  3. Total emissions will remain the same, but the most efficient technology must be used.
  4. Total emission must decrease, but the technology may not be the most efficient.



  1. When a person’s expressed valuation of a product is affected by the numbers in her head, this is an important implication of_______.
  1. Mental accounting
  2. The decoy effect
  3. Bundling
  4. The anchoring effect


  1. Over decade’s choices, the dopamine system is used to learn the benefits for a wide variety of products, with benefit valuations that can be used ____ for new purchases and _____for repeat purchases.
  1. directly; directly      b. directly; indirectly      c. indirectly; directly      d. indirectly; indirectly


  1. When a firm increases output and the costs rises disproportionately slower, then the long-run average cost curve is ____and the firm is experiencing______.
  1. Horizontal; constant returns to scale
  2. Downward sloping; constant returns to scale
  3. Upward slopping; diseconomies of scale
  4. Downward sloping; economies of scale


  1. Suppose that the only input used in generation of solar energy is sunlight, which has a zero cost. That average total cost of producing electricity is ____.
  1. Zero        b. equal to marginal cost         c. equal to the average fixed cost     d. immeasurably high


  1. In a constant cost industry, an increase in price causes______.
  1. Some firms to exit the industry
  2. Quantity supplied to remain constant
  3. Some firms to enter the industry
  4. Price controls


  1. According to the principle of diminishing returns, if the number of workers is increased beyond the point of diminishing returns, then the additional worker______.
  1. Increases total output by the same amount as previous workers
  2. Increases total output by more than the amount of previous workers
  3. Increases total output by less than the amount of previous workers
  4. Decreases total output


  1. A firm produces its products using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50 percent. Which of the following is the most likely explanation of this finding?
  1. The principle of opportunity cost
  2. The principle of diminishing returns
  3. The marginal principle
  4. The spillover principle


  1. What is most likely reason that milk sold in convenience store is more expensive than milk sold in grocery stores?
  1. Convenience stores sell milk in smaller packages, so the pre-gallon packaging costs are higher.
  2. Grocery stores buy in bulk, while convenience stores buy milk in smaller quantities.
  3. People who buy milk at conveniences stores tend to have less elastic demand for milk.
  4. Convenience store owners are greedier than grocery store owners.


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