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QN=1 The two major reasons for the tremendous growth in output in the U.S. economy over the last
125 years are
a. population growth and increased productivity
b. low inflation and low trade deficits
c. population growth and low inflation
d. low unemployment and low inflation
ANS: a
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MIX CHOICES: Yes
QN=2 The main reason that the United States has such a high standard of living is
a. low unemployment
b. high government budget deficits
c. low inflation
d. high average labor productivity
ANS: d
PTS: 1
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MIX CHOICES: Yes
QN=3 Average labor productivity is the
a. amount of machines per worker
b. amount of workers per machine
c. amount of output per worker
d. ratio of employed to unemployed workers
ANS: c
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MIX CHOICES: Yes
QN=4 In analyzing macroeconomic data during the past year, you have discovered that average labor
productivity fell, but total output increased. What was most likely to have caused this?
a. The capital/output ratio probably rose
b. There is nothing unusual in this outcome because this is what normally occurs.
c. There was an increase in labor input
d. Unemployment probably increased
ANS: c
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MIX CHOICES: Yes
QN=5 The most direct effect of an increase in the growth rate of average labor productivity would be
an increase in
a. the inflation rate
b. the long-run economic growth rate
c. the unemployment rate
d. imported goods
ANS: b
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MIX CHOICES: Yes
QN=6 Short-run contractions and expansions in economic activity are called
a. the business cycle
b. recessions
c. expansions
d. deficits
ANS: a
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MIX CHOICES: Yes
QN=7 When national output rises, the economy is said to be in
a. a deflation
b. an inflation
c. a recession
d. an expansion
ANS: d
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MIX CHOICES: Yes
QN=8 Which of the following best describes a typical business cycle?
a. Economic expansions are followed by economic contractions.
b. Stagflation is followed by inflationary economic growth.
c. Inflation is followed by unemployment.
d. Inflation is followed by unemployment.
ANS: a
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MIX CHOICES: Yes
QN=9 During recessions, the unemployment rate ________ and output ________.
a. rises; falls
b. falls; rises
c. rises; rises
d. falls; falls
ANS: a
PTS: 1
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MIX CHOICES: Yes
QN=10 The number of unemployed divided by the labor force equals
a. the inflation rate.
b. the labor force participation rate.
c. the misery index.
d. the unemployment rate.
ANS: d
PTS: 1
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MIX CHOICES: Yes
QN=11 The unemployment rate is the
a. number of unemployed divided by the labor force.
b. labor force divided by the number of unemployed.
c. number of unemployed divided by the number of employed.
d. number of employed divided by the number of unemployed.
ANS: a
PTS: 1
CHAPTER: 1
MIX CHOICES: Yes
QN=12 A country is said to be experiencing inflation when
a. prices of most goods and services are falling over time.
b. prices of most goods and services are rising over time.
c. total output is rising over time.
d. total output is falling over time.
ANS: b
PTS: 1
CHAPTER: 1
MIX CHOICES: Yes
QN=13 A country is said to be experiencing deflation when
a. prices of most goods and services are falling over time.
b. prices of most goods and services are rising over time.
c. total output is rising over time.
d. total output is falling over time.
ANS: b
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MIX CHOICES: Yes
QN=14 The inflation rate is the
a. percent increase in the unemployment rate over a year.
b. percent increase in output over a year.
c. percent increase in the average level of prices over a year.
d. price level divided by the level of output.
ANS: c
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MIX CHOICES: Yes
QN=15 If the price level was 100 in 2009 and 102 in 2010, the inflation rate was
a. 0.2%.
b. 2%.
c. 20%.
d. 102%.
ANS: b
PTS: 1
CHAPTER: 1
MIX CHOICES: Yes
QN=16 A closed economy is a national economy that
a. has extensive trading and financial relationships with other national economies.
b. doesn't interact economically with the rest of the world.
c. has a stock market that is not open to traders from outside the country.
d. has not established diplomatic relations with other national economies.
ANS: b
PTS: 1
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MIX CHOICES: Yes
QN=17 An open economy is a national economy that
a. has extensive trading and financial relationships with other national economies.
b. has established diplomatic relations with most other national economies.
c. doesn't interact economically with the rest of the world.
d. has a stock market that is open to traders from anywhere in the world.
ANS: a
PTS: 1
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MIX CHOICES: Yes
QN=18 An economy that doesn't interact economically with the rest of the world is called ________
economy.
a. an authoritarian
b. an open
c. a surplus
d. a closed
ANS: d
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MIX CHOICES: Yes
QN=19 U.S. imports are goods and services
a. produced in the United States and sold to Americans.
b. produced abroad and sold to foreigners.
c. produced abroad and sold to Americans.
d. produced in the United States and sold to foreigners.
ANS: c
PTS: 1
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MIX CHOICES: Yes
QN=20 A country has a trade surplus when
a. exports exceed imports.
b. imports exceed exports.
c. imports equal zero.
d. imports equal exports.
ANS: a
PTS: 1
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MIX CHOICES: Yes
QN=21 A country has a trade deficit when
a. imports equal exports.
b. exports are zero.
c. exports exceed imports.
d. imports exceed exports.
ANS: d
PTS: 1
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MIX CHOICES: Yes
QN=22 A central bank is an institution that
a. controls a nation's monetary policy.
b. runs a country's stock market.
c. pays for government expenditures.
d. determines a nation's fiscal policy.
ANS: a
PTS: 1
CHAPTER: 1
MIX CHOICES: Yes
QN=23 In the United States, monetary policy is determined by
a. the Treasury Department.
b. the Federal Reserve.
c. the president.
d. private citizens.
ANS: b
PTS: 1
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MIX CHOICES: Yes
QN=24 The difference between microeconomics and macroeconomics is that
a. microeconomics looks at individual consumers, macroeconomics looks at national totals.
b. microeconomics looks at national issues, macroeconomics looks at global issues.
c. microeconomics looks at prices, macroeconomics looks at inflation.
d. microeconomics looks at supply and demand for goods, macroeconomics looks at supply and
demand for services.
ANS: a
PTS: 1
CHAPTER: 1
MIX CHOICES: Yes
QN=25 Aggregation is the process of
a. predicting when recessions will occur.
b. summing individual economic variables to obtain economy-wide totals.
c. forecasting the components of GDP.
d. calculating real GDP based on nominal GDP and the price index.
ANS: b
PTS: 1
CHAPTER: 1
MIX CHOICES: Yes
QN=26 A country that has many well-trained macroeconomic analysts will not necessarily have more
beneficial macroeconomic policies because
a. economists' understanding of the economy remains poor.
b. there are few ways in which economists' complex models can be applied to the real world.
c. economic policy is usually made by politicians, not economists.
d. economists agree on so few government policies.
ANS: c
PTS: 1
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MIX CHOICES: Yes
QN=27 A set of ideas about the economy that have been organized in a logical framework is called
a. data development.
b. a methodology.
c. empirical analysis.
d. economic theory.
ANS: d
PTS: 1
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MIX CHOICES: Yes
QN=28 Assumptions for economic theories and models should be
a. maintained until overwhelming evidence to the contrary occurs.
b. rejected if they are not totally realistic.
c. simple and reasonable rather than complex.
d. logical rather than empirically testable.
ANS: c
PTS: 1
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MIX CHOICES: Yes
QN=29 If the theory behind an economic model fits the data poorly, you would probably want to
a. start from scratch with a new model.
b. use the theory to predict what would happen if the economic setting or economic policies
change.
c. enrich the model with additional assumptions.
d. restate the research question.
ANS: a
PTS: 1
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MIX CHOICES: Yes
QN=30 Positive analysis of economic policy
a. examines the economic consequences of policies but does not address the question of whether
those consequences are desirable.
b. generates less agreement among economists than normative analysis.
c. is rare in questions of economic policy.
d. examines the economic consequences of policies and addresses the question of whether those
consequences are desirable.
ANS: a
PTS: 1
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MIX CHOICES: Yes
QN=31 Equilibrium in the economy means
a. quantities demanded and supplied are equal in all markets.
b. prices are not changing over time.
c. tax revenues equal government spending, so the government has no budget deficit.
d. unemployment is zero.
ANS: a
PTS: 1
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MIX CHOICES: Yes
QN=32 Adam Smith's idea of the "invisible hand" says that given a country's resources and its initial
distribution of wealth, the use of markets will
a. eliminate inequalities between the rich and the poor.
b. make people as economically well off as possible.
c. eliminate problems of hunger and dissatisfaction.
d. insulate a nation from the effects of political instability.
ANS: b
PTS: 1
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MIX CHOICES: Yes
QN=33 The two most comprehensive, widely accepted macroeconomic models are
a. the classical model and the supply-side model.
b. the Austrian model and the Keynesian model.
c. the supply-side model and the real business cycle model.
d. the classical model and the Keynesian model.
ANS: d
PTS: 1
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MIX CHOICES: Yes
QN=34 Classical economists argue that
a. government policies will be ineffective and counterproductive.
b. the government should have an active role in the economy.
c. wages and prices don't adjust quickly, so the economy is slow to return to equilibrium.
d. the government should actively intervene in the economy to eliminate business cycles.
ANS: a
PTS: 1
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MIX CHOICES: Yes
QN=35 Keynes assumed that wages and prices were slow to adjust in order to explain
a. why inflation fell in recessions.
b. high inflation.
c. persistently high unemployment.
d. the high level of interest rates.
ANS: c
PTS: 1
CHAPTER: 1
MIX CHOICES: Yes
QN=36 How did Keynes propose to solve the problem of high unemployment?
a. Put on wage and price controls, so wages won't rise and firms won't have to lay people off to cut
costs.
b. Allow wages to decline, so that firms will want to hire more workers.
c. Increase the growth rate of the money supply.
d. Have the government increase its demand for goods and services.
ANS: d
PTS: 1
CHAPTER: 1
MIX CHOICES: Yes
QN=37 The primary factor that caused most economists to lose their faith in the classical approach to
macroeconomic policy was
a. the presence of both high unemployment and high inflation during the 1970s.
b. the evidence that classical ideas were useful during economic booms, but not during economic
recessions.
c. the theoretical proof that classical ideas were invalid.
d. the high levels of unemployment that occurred during the Great Depression.
ANS: d
PTS: 1
CHAPTER: 1
MIX CHOICES: Yes
QN=38 The primary factor that caused some economists to lose their faith in the Keynesian approach to
macroeconomic policy was 38) ______
a. the high levels of unemployment that occurred during the Great Depression.
b. the presence of both high unemployment and high inflation during the 1970s.
c. evidence that Keynes's ideas were useful during economic recessions, but not during economic
booms.
d. theoretical proof that Keynes's ideas were invalid.
ANS: b
PTS: 1
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MIX CHOICES: Yes
QN=1 The accounting framework used in measuring current economic activity is called
a. the national income accounts.
b. the U.S. expenditure accounts.
c. the flow of funds accounts.
d. the balance of payments accounts.
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=2 The three approaches to measuring economic activity are the
a. consumer, business, and government approaches.
b. product, income, and expenditure approaches.
c. cost, income, and expenditure approaches.
d. private, public, and international approaches.
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=3 The value of a producer's output minus the value of the inputs it purchases from other
producers is called the producer's
a. value added.
b. profit.
c. surplus.
d. gross product.
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=4 The Bigdrill company drills for oil, which it sells for $200 million to the Bigoil company to be
made into gas. The Bigoil company's gas is sold for a total of $600 million. What is the total contribution
to the country's GDP from companies Bigdrill and Bigoil?
a. $800 million
b. $600 million
c. $400 million
d. $200 million
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=5 Sam's Semiconductors produces computer chips, which it sells for $10 million to Carl's Computer
Company (CCC). CCC's computers are sold for a total of $16 million. What is the value added of CCC?
a. $16 million
b. $6 million
c. $10 million
d. $26 million
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=6 The Compagnie Naturelle sells mounted butterflies, using butterfly bait it buys from another
firm for $20,000. It pays its workers $35,000, pays $2,000 in taxes, and has profits of $3,000. What is its
value added?
a. $40,000
b. $59,000
c. $3000
d. $39,000
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=7 The equation total production = total income = total expenditure is called
a. Say's Law.
b. the total identity.
c. the fundamental identity of national income accounting.
d. the goods-market equilibrium condition.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=8 To ensure that the fundamental identity of national income accounting holds, changes in
inventories are
a. treated as part of saving.
b. ignored.
c. treated as part of expenditure.
d. counted as consumption.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=9 To what extent are homemaking and child-rearing accounted for in the government's GDP
accounts?
a. Only to the extent that taxes are paid on them
b. Not at all
c. All homemaking and child-rearing are accounted for
d. Only to the extent that they are provided for pay
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=10 The measurement of GDP includes
a. the benefits of clean air and water.
b. purchases and sales of goods produced in previous periods.
c. estimated values of activity in the underground economy.
d. nonmarket goods such as homemaking and child-rearing.
ANS: c
PTS: 1
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MIX CHOICES: Yes
QN=11 Which of the following is included in U.S. GDP?
a. The purchase of a watch from a Swiss company
b. The sale of a used car
c. The sale of a new car from a manufacturer's inventory
d. A newly constructed house
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=12 Government statisticians adjust GDP figures to include estimates of
a. the costs of pollution to society.
b. the value of homemaking (work done within the home).
c. the underground economy.
d. child-rearing services provided by stay-at-home parents.
ANS: c
PTS: 1
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MIX CHOICES: Yes
QN=13 Because government services are not sold in markets,
a. they are valued at their cost of production.
b. taxes are used to value their contribution.
c. the government tries to estimate their market value and uses this to measure the government's
contribution to GDP.
d. they are excluded from measurements of GDP.
ANS: a
PTS: 1
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MIX CHOICES: Yes
QN=14 Intermediate goods are
a. either capital goods or inventories.
b. final goods that remain in inventories.
c. goods that are used up in the production of other goods in the same period that they were
produced.
d. capital goods, which are used up in the production of other goods but were produced in earlier
periods.
ANS: c
PTS: 1
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MIX CHOICES: Yes
QN=15 Capital goods are
a. a type of intermediate good.
b. final goods, because they are not used up during a given year.
c. produced in one year, whereas final goods are produced over a period of more than one year.
d. produced in the same year as the related final good, whereas intermediate goods are produced
in different years.
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=16 Marvin's Metal Company produces screws that it sells to Ford, which uses the screws as a
component of its cars. In the national income accounts, the screws are classified as
a. intermediate goods.
b. final goods.
c. inventory.
d. capital goods.
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=17 Father and Son Limited produces lathes, which are purchased by furniture manufacturers all
over the world. The standard lathe depreciates over a twenty-five year period. In the national income
accounts, the lathes are classified as
a. intermediate goods.
b. inventory.
c. capital goods.
d. raw materials.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=18 Fred the farmer purchased five new tractors at $25,000 each. Fred sold his old tractors to other
farmers for $50,000. The net increase in GDP of these transactions was
a. $100,000.
b. $50,000.
c. $125,000.
d. $150,000.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=19 Inventories include each of the following except
a. unsold finished goods.
b. raw materials held by firms.
c. office equipment.
d. goods in process.
ANS: c
PTS: 1
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MIX CHOICES: Yes
QN=20 GDP differs from GNP because
a. GNP = GDP - net factor payments from abroad.
b. GDP = GNP - capital consumption allowances.
c. GNP = GDP - capital consumption allowances.
d. GDP = GNP - net factor payments from abroad.
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=21 If an American construction company built a road in Kuwait, this activity would be
a. included in U.S. GNP only for that portion that was attributable to American capital and labor.
b. included in U.S. GDP but not in U.S. GNP.
c. fully included in U.S. GDP.
d. excluded from U.S. GNP.
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=22 If C = $500, I = $150, G = $100, NX = $40, and GNP = $800, how much is NFP?
a. -$10
b. $10
c. -$5
d. $5
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=23 The income-expenditure identity says that
a. Y = C + I + G.
b. Y = C + S + T.
c. Y = C + I + G + NX + CA.
d. Y = C + I + G + NX.
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=24 Which of the following is not a category of consumption spending in the national income
accounts?
a. Housing purchases
b. Nondurable goods
c. Consumer durables
d. Services
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=25 Consumer spending is spending by ________ households on final goods and services produced
________.
a. domestic and foreign; domestically and abroad
b. domestic; domestically
c. domestic; domestically and abroad
d. domestic and foreign; domestically
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=26 In the expenditure approach to GDP, which of the following would be excluded from
measurements of GDP?
a. Government payments for goods produced by firms owned by state or local governments
b. All government payments are included in GDP
c. Government payments for welfare
d. Government payments for goods produced by foreign firms
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=27 Net national product equals
a. gross national product minus statistical discrepancy.
b. gross national product minus depreciation.
c. national income plus depreciation.
d. national income minus taxes on production and imports.
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=28 Monica grows coconuts and catches fish. Last year she harvested 1500 coconuts and 600 fish.
She values one fish as having a worth of three coconuts. She gave Rachel 300 coconuts and 100 fish for
helping her to harvest coconuts and catch fish, all of which were consumed by Rachel. In terms of fish,
Monica's income would equal
a. 700 fish.
b. 2700 fish.
c. 900 fish.
d. 1100 fish.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=29 Monica grows coconuts and catches fish. Last year she harvested 1500 coconuts and 600 fish.
She values one fish as having a worth of three coconuts. She gave Rachel 300 coconuts and 100 fish for
helping her to harvest coconuts and catch fish, all of which were consumed by Rachel. Monica
consumed the remaining fish and coconuts. In terms of fish, total consumption by both Monica and
Rachel would equal
a. 700 fish.
b. 2700 fish.
c. 900 fish.
d. 1100 fish.
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=30 Private disposable income equals
a. GNP - taxes + transfers + interest.
b. national income - taxes - transfers + interest.
c. national income - taxes + transfers + interest.
d. NNP - taxes + transfers + interest.
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=31 The value of a household's assets minus the value of its liabilities is called
a. debt.
b. wealth.
c. income.
d. stock.
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=32 In a given year, a country's GDP = $9842, net factor payments from abroad = $890, taxes = $868,
transfers received from the government = $296, interest payments on the government's debt = $103,
consumption = $8148, and government purchases = $185. The country had private saving equal to
a. $2397.
b. $2115.
c. $2112.
d. $3850.
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=33 In a given year, a country's GDP = $9841, net factor payments from abroad = $889, taxes = $870,
transfers received from the government = $300, interest payments on the government's debt = $104,
consumption = $8148, and government purchases = $185. The country had government saving equal to
a. $470.
b. $366.
c. $281.
d. $685.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=34 If a local government collects taxes of $500,000, has $350,000 of government consumption
expenditures, makes transfer payments of $100,000, and has no interest payments or investment, its
budget would
a. show a deficit of $50,000.
b. be in balance with neither a surplus nor a deficit.
c. show a surplus of $150,000.
d. show a surplus of $50,000.
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=35 The government budget surplus equals
a. government purchases minus transfers.
b. government purchases minus net receipts.
c. government purchases plus transfers.
d. government receipts minus government outlays.
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=36 National saving equals private saving plus government saving, which in turn equals
a. GDP + C + G.
b. GDP + NFP.
c. C + S + T.
d. GDP + NFP - C - G.
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=37 The uses-of-saving identity says that an economy's private saving is used for
a. investment, interest expenses, the government budget deficit, and the current account.
b. investment, interest expenses, and the government budget deficit.
c. investment, interest expenses, the government budget deficit, transfer payments, and the
current account.
d. investment, the government budget deficit, and the current account.
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=38 The uses-of-saving identity shows that if the government budget deficit rises, then one of the
following must happen.
a. Private saving must rise, investment must fall, and/or the current account must rise.
b. Private saving must rise, investment must rise, and/or the current account must fall.
c. Private saving must rise, investment must fall, and/or the current account must fall.
d. Private saving must fall, investment must rise, and/or the current account must rise.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=39 Suppose that private saving is $1591 billion, investment is $1945 billion, and the current account
balance is -$490 billion. From the uses-of-saving identity, how much is government saving?
a. $134 billion
b. $136 billion
c. -$134 billion
d. -$136 billion
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=40 Suppose that national saving is $1460 billion, investment is $1945 billion, and private saving is
$1590 billion. How much is the current account balance?
a. -$489 billion
b. -$485 billion
c. $485 billion
d. $489 billion
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=41 In the mid-to-late 1980s, the United States had "twin deficits" because both ________ and
________ were negative.
a. saving; investment
b. the current account; investment
c. government saving; the current account
d. government saving; private saving
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=42 The country of Old Jersey produces milk and butter, and it has published the following
macroeconomic data, where quantities are in gallons and prices are dollars per gallon.
[file: figure_02_x01.jpg]
Between Year 1 and Year 2, nominal GDP grew by
a. 60.0%.
b. 190.0%.
c. 83.3%.
d. 65.5%.
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=43 The value of real GDP in the current year equals
a. the value of current-year output in prices of the current year.
b. the value of base-year output in prices of the base year.
c. the value of current-year output in prices of the base year.
d. the value of base-year output in prices of the current year.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=44 The country of Old Jersey produces milk and butter, and it has published the following
macroeconomic data, where quantities are in gallons and prices are dollars per gallon.
[file: figure_02_x01.jpg]
Between Year 1 and Year 2, the percent change in real GDP (based on Year 1 as a base year) was
a. 130%.
b. 190%.
c. 60%.
d. 58%.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=45 The country of Old Jersey produces milk and butter, and it has published the following
macroeconomic data, where quantities are in gallons and prices are dollars per gallon.
[file: figure_02_x01.jpg]
Between Year 1 and Year 2, the GDP deflator (based on Year 1 as a base year) rose
a. 81.25%.
b. 83.33%.
c. 123.00%.
d. 60.00%.
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=46 If real GDP for 2009 is $6400 billion and real GDP for 2010 is $6720 billion (in 2005 dollars), then
the growth rate of real GDP in 2010 is
a. 0%.
b. 50%.
c. 5%.
d. 0.5%.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=47 If the price index was 100 in 2000 and 120 in 2010, and nominal GDP was $360 billion in 2000
and $480 billion in 2010, then the value of 2010 GDP in terms of 2000 dollars would be
a. $300 billion.
b. $384 billion.
c. $424 billion.
d. $400 billion.
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=48 Nominal GDP in 1970 was $1,035.6 billion, and in 1980 it was $2,784.2 billion. The GDP price
index was 30.6 for 1970 and 60.4 for 1980, where 1992 was the base year. Calculate the percent change
in real GDP in the decade from 1970 to 1980. Round off to the nearest percentage point.
a. 169%
b. 97%
c. 136%
d. 36%
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=49 Nominal personal consumption expenditures in the United States were $1760.4 billion in 1980
and rose to $3839.3 billion in 1990. The price index for personal consumption expenditures was 58.5 for
1980 and 92.9 for 1990, where 1992 was the base year. Calculate the percent change in real personal
consumption expenditures (rounded to the nearest percentage point) in the decade.
a. 118%
b. 59%
c. 37%
d. 137%
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=50 Two years ago, the GDP deflator for Old York was 300, and today it is 330.75. Based on this
information the annual average inflation rate for the two years was
a. 10.25%.
b. 10%.
c. 5%.
d. 5.125%.
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=51 If the price index last year was 1.0 and today it is 1.4, what is the inflation rate over this period?
a. 4%
b. -4%
c. 40%
d. 1.4%
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=52 You are given information on the consumer price index (CPI), where the values given are those
for December 31 of each year.
[file: figure_02_x02.jpg]
In which year was the inflation rate the highest?
a. 2007
b. 2008
c. 2006
d. 2009
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=53 The consumer price index (CPI) was 180 for 2009 when using 1995 as the base year (1995 =
100). Now suppose we switch and use 2009 as the base year (2009 = 100). What is the CPI for 1995 with
the new base year?
a. 18.0
b. 111.2
c. 80.0
d. 55.6
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=54 The CPI may overstate inflation for all the following reasons except
a. problems measuring changes in the quality of goods.
b. changes in Social Security benefits.
c. problems measuring the quality of services.
d. substitution by consumers towards cheaper goods.
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=55 The nominal interest rate minus the inflation rate is the
a. real interest rate.
b. forward rate.
c. depreciation rate.
d. discount rate.
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=56 By Marks buys a one-year German government bond (called a bund) for $400. He receives
principal and interest totaling $436 one year later. During the year the CPI rose from 150 to 162. The
nominal interest rate on the bond was ________, and the real interest rate was ________.
a. 36%; 24%
b. 9%; -1%
c. 36%; 12%
d. 9%; 1%
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=57 The expected real interest rate (r) is equal to
a. expected nominal interest rate minus inflation rate.
b. nominal interest rate minus expected inflation rate.
c. nominal interest rate minus inflation rate.
d. nominal interest rate plus expected inflation rate.
ANS: b
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=58 In 2008, inflation exceeded expected inflation. In 2009, expected inflation exceeded inflation.
Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real
interest rate was ________ than the expected real interest rate in 2009.
a. greater; greater
b. less; less
c. greater; less
d. less; greater
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=59 In 2008, expected inflation exceeded inflation. In 2009, inflation exceeded expected inflation.
Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real
interest rate was ________ than the expected real interest rate in 2009.
a. less; less
b. less; greater
c. greater; greater
d. greater; less
ANS: d
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=60 If the expected inflation rate was 2.5%, the expected real interest rate was 4.0%, and the actual
inflation rate turned out to be 3.2%, then the real interest rate equals
a. 3.3%.
b. 3.2%
c. 4.7%
d. 1.7%
ANS: a
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=61 By Marks buys a one-year German government bond (called a bund) for $400. He receives
principal and interest totaling $436 one year later. During the year the CPI rose from 150 to 162, but he
had thought the CPI would be at 159 by the end of the year. By Marks had expected the real interest
rate to be ________, but it actually turned out to be ________.
a. 6%; 3%
b. 8%; 1%
c. 3%; 1%
d. 1%; 3%
ANS: c
PTS: 1
CHAPTER: 2
MIX CHOICES: Yes
QN=1 Desired national saving equals
a. I(d) + G.
b. C(d) + I(d) + G.
c. Y - C(d) - G.
d. Y - I(d) - G.
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=2 With no inflation and a nominal interest rate (i) of .03, a person can trade off one unit of current
consumption for ________ units of future consumption.
a. -.03
b. 0.97
c. .03
d. 1.03
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=3 The desire to have a relatively even pattern of consumption over time is known as
a. excess sensitivity.
b. the substitution effect.
c. forced saving.
d. the consumption-smoothing motive.
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=4 When a person gets an increase in current income, what is likely to happen to consumption and
saving?
a. Consumption decreases and saving increases.
b. Consumption increases and saving decreases.
c. Consumption decreases and saving decreases.
d. Consumption increases and saving increases.
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=5 Last year, Linus earned a salary of $25,000 and he spent $24,000, thus saving $1,000. At the end
of the year, he received a bonus of $1,000 and he spent $500 of it, saving the other $500. What was his
marginal propensity to consume?
a. .50
b. .96
c. .04
d. .02
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=6 The fraction of additional current income that a person consumes in the current period is known
as the
a. consumption deficit.
b. consumption-smoothing motive.
c. marginal propensity to consume.
d. saving rate.
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=7 An increase in expected future output while holding today's output constant would
a. decrease today's desired consumption and decrease desired national saving.
b. decrease today's desired consumption and increase desired national saving.
c. increase today's desired consumption and increase desired national saving.
d. increase today's desired consumption and decrease desired national saving.
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=8 When a person receives an increase in wealth, what is likely to happen to consumption and
saving?
a. Consumption increases and saving decreases.
b. Consumption decreases and saving decreases.
c. Consumption increases and saving increases.
d. Consumption decreases and saving increases.
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=9 Aunt Agatha has just left her nephew $5000. The most likely response is for her nephew to
a. increase current consumption, but not future consumption.
b. increase future consumption, but not current consumption.
c. decrease current consumption, but increase future consumption.
d. increase both current consumption and future consumption.
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=10 The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would
effect on aggregate consumption to be the largest if which of the following facts was true?
a. Many individuals had invested in the stock market immediately prior to the crash.
b. Most stocks were owned by insurance companies.
c. The crash had been preceded by a large run-up in the price of stocks.
d. Most stocks were owned by pension funds that invested in the market.
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=11 If the substitution effect of the real interest rate on saving is larger than the income effect of the
real interest rate on saving, then a rise in the real interest rate leads to a ________ in consumption and
a ________ in saving, for someone who's a lender.
a. fall; rise
b. rise; fall
c. rise; rise
d. fall; fall
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=12 If the substitution effect of the real interest rate on saving is smaller than the income effect of
the real interest rate on saving, then a rise in the real interest rate leads to a ________ in consumption
and a ________ in saving, for someone who's a lender.
a. fall; fall
b. rise; fall
c. rise; rise
d. fall; rise
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=13 With a nominal interest rate of 4%, an expected inflation rate of 1%, and interest income taxed
at a rate of 25%, what is the expected after-tax real interest rate?
a. 0%
b. 3%
c. 2%
d. 1%
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=14 The nominal interest rate is 10%, the expected inflation rate is 5%, and the combined state-
federal tax rate is 35%. The expected after-tax real interest rate is
a. 1.50%
b. 6.50%
c. 3.25%
d. 5.00%
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=15 Three factors that cause interest rates among different financial instruments to vary are
a. default risk, maturity, and taxability.
b. default risk, expected inflation, and maturity.
c. default risk, current inflation, and taxability.
d. default risk, expected inflation, and taxability.
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=16 The yield curve generally slopes upward because
a. longer maturity bonds are not taxable.
b. longer maturity bonds typically pay higher interest rates than shorter maturity bonds.
c. shorter maturity bonds have more default risk.
d. longer maturity bonds typically pay lower interest rates than shorter maturity bonds.
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=17 The yield curve shows
a. the yields on stocks of different maturities.
b. the yields on stocks with differing default risk.
c. the interest rates on bonds of different maturities.
d. the yields on bonds with differing default risk.
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=18 Desired national saving would increase unambiguously if there were
a. an increase in both expected future output and government purchases.
b. a fall in both government purchases and expected future output.
c. an increase in both expected future output and the expected real interest rate.
d. an increase in both current output and expected future output.
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=19 Desired national saving would decrease unambiguously if there were
a. an increase in both expected future output and the expected real interest rate.
b. a fall in both government purchases and expected future output.
c. a decrease in current output and a decrease in taxes.
d. an increase in expected future output and a decrease in government purchases.
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=20 The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut
a. causes a current account deficit.
b. causes inflation.
c. doesn't affect consumption.
d. raises interest rates.
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=21 If the government cuts taxes today, issuing debt today and repaying the debt plus interest next
year, a rational taxpayer will
a. increase consumption today, before taxes go up next year.
b. spend the full amount of the tax cut today and reduce consumption next year.
c. increase saving today, leaving consumption unchanged.
d. leave a smaller gross bequest to her or his heirs.
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=22 Which of the factors listed below might cause the Ricardian equivalence proposition to be
violated?
a. There may be constraints on the level of government taxation.
b. There may be international capital inflows and outflows.
c. There may be constraints on the level of government spending.
d. Consumers may not understand that an increase in government borrowing today is likely to lead
to higher future taxes.
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=23 The user cost of capital is given by the following formula, where PK is the real price of capital
goods, d is the depreciation rate, and r is the expected real interest rate.
a. uc = d PK/r
b. uc = PK /(r + d)
c. uc = (r + d) PK
d. uc = (r + d)/ PK
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=24 Which of the following machines has the lowest user cost? Machine A costs $15,000 and
depreciates at a 25% rate, machine B costs $10,000 and depreciates at a rate of 20%, machine C costs
$20,000 and depreciates at a rate of 10%, and machine D costs $17,000 and depreciates at a rate of
11%. The expected real interest rate is 5%.
a. Machine C
b. Machine D
c. Machine B
d. Machine A
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=25 Which of the following machines has the lowest user cost? Machine A costs $15,000 and
depreciates at a rate of 25%, machine B costs $10,000 and depreciates at a rate of 20%, machine C costs
$20,000 and depreciates at a rate of 10%, and machine D costs $17,000 and depreciates at a rate of
11%. The expected real interest rate is 0%.
a. Machine C
b. Machine D
c. Machine A
d. Machine B
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=26 Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of
25%, when the expected real interest rate is 5%.
a. $5000
b. $1500
c. $150
d. $500
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=27 Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of
25%, when the nominal interest rate is 10% and the expected inflation rate is 5%.
a. $150
b. $1500
c. $500
d. $5000
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=28 Calculate the user cost of capital of a machine that costs $100,000 and depreciates at a rate of
25%, when the nominal interest rate is 4% and the expected inflation rate is 1%.
a. $29,000
b. $3,000
c. $28,000
d. $25,000
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=29 You are trying to figure out how much capacity to add to your factory. You will increase capacity
as long as
a. the expected marginal product of capital is greater than or equal to the expected marginal
product of labor.
b. the expected marginal product of capital is positive.
c. the expected marginal product of capital is greater than or equal to the user cost of capital.
d. the expected marginal product of capital is greater than or equal to the marginal product of
capital.
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=30 When a company must consider taxes in determining investment, its desired capital stock is
chosen such that
a. MPK(f) = uc/(1-t)
b. t × MPK(f) = uc
c. MPK(f) = t × uc
d. MPK(f) = uc(1-t)
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=31 If the rate of depreciation increases, then user cost ________ and the desired capital stock
________.
a. falls; falls
b. falls; rises
c. rises; falls
d. rises; rises
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=32 The relationship between stock prices and firms' investments in physical capital is captured by
what theory?
a. q theory
b. Keynesian theory
c. User-cost-of-capital theory
d. Yield-curve theory
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=33 Tobin's q is equal to
a. the ratio of capital's market value to its replacement cost.
b. the stock market value of a firm
c. the expected after-tax real interest rate.
d. the ratio of capital's replacement cost to its market value.
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=34 If the stock market value of a firm is $10 million and the firm owns $15 million of capital, then
Tobin's q equals
a. 2/3
b. 4
c. 3/2
d. 1
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=35 A firm should invest more if Tobin's q
a. equals one.
b. equals zero.
c. is less than one.
d. is more than one.
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=36 A technological improvement will
a. decrease the desired capital stock.
b. increase the desired capital stock.
c. have no effect on the desired capital stock.
d. have the same effect on the desired capital stock as an increase in corporate taxes.
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=37 Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent
decline in the expected real interest rate now has what effect on your desired capital stock?
a. Raises it, because the user cost of capital is now lower
b. Lowers it, because the future marginal productivity of capital is lower
c. Lowers it, because the user cost of capital is now higher
d. Raises it, because the future marginal productivity of capital is higher
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=38 Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent
increase in the depreciation rate now has what effect on your desired capital stock?
a. Raises it, because the user cost of capital is now lower
b. Lowers it, because the future marginal productivity of capital is lower
c. Raises it, because the future marginal productivity of capital is higher
d. Lowers it, because the user cost of capital is now higher
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=39 Calculate the tax-adjusted user cost of capital of a machine that costs $10,000 and depreciates
at a rate of 10%, when the real interest rate is 3% and the tax rate on revenue is 5%.
a. $1368
b. $1300
c. $1800
d. $1238
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=40 What is the difference between gross investment and net investment?
a. Net investment = gross investment minus inventory accumulation
b. Net investment = gross investment minus taxes
c. Net investment = gross investment minus net factor payments
d. Net investment = gross investment minus depreciation
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=41 At the start of the year, your firm's capital stock equaled $100 million, and at the end of the year
it equaled $105 million. The average depreciation rate on your capital stock is 20%. Gross investment
during the year equaled
a. $25 million.
b. $5 million.
c. $7 million.
d. $1 million.
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=42 At the start of the year, your firm's capital stock equaled $10 million, and at the end of the year
it equaled $15 million. The average depreciation rate on your capital stock is 20%. Net investment
during the year equaled
a. $3 million.
b. $7 million.
c. $5 million.
d. $4 million.
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=43 Your firm has capital stock of $10 million and a depreciation rate of 15%. Gross investment is $3
million. How much is net investment?
a. $3.5 million
b. $2.5 million
c. $2.0 million
d. $1.5 million
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=44 You have just purchased a home that cost $250,000. The nominal mortgage interest rate is 8%
per annum, mortgage interest payments are tax deductible, and you are in a 30% tax bracket. The
expected inflation rate is 4%. Maintenance and other expenses are 8% of the initial value of the house.
What is the real user cost of your house?
a. $30,000
b. $20,000
c. $27,000
d. $24,000
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=45 When desired national saving equals desired national investment (in a closed economy), what
market is in equilibrium?
a. The foreign exchange market
b. The goods market
c. The money market
d. The stock market
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=46 An economy has full-employment output of 5000. Government purchases are 1000. Desired
consumption and desired investment are given by
C(d) = 3000 - 2000r + 0.10Y
I(d) = 1000 - 4000r
where Y is output and r is the real interest rate. The real interest rate that clears the goods market is
equal to
a. 8.33%.
b. 25.00%.
c. 1.25%.
d. 2.50%.
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=47 An economy has government purchases of 1000. Desired national saving and desired
investment are given by
S(d) = 200 + 5000r + 0.10Y - 0.20G
I(d) = 1000 - 4000r
When the full-employment level of output equals 5000, then the real interest rate that clears the goods
market will be
a. 1.11%.
b. 16.67%.
c. 21.11%.
d. 5.56%.
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=48 Any change in the economy that raises desired national saving for a given value of the real
interest rate will shift the desired national saving curve to
a. the left and decrease the real interest rate.
b. the left and increase the real interest rate.
c. the right and decrease the real interest rate.
d. the right and increase the real interest rate.
ANS: C
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=49 An increase in the expected real interest rate tends to
a. raise desired investment only.
b. raise both desired saving and desired investment.
c. raise desired saving only.
d. raise desired saving, but lower desired investment.
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=50 The saving-investment diagram shows that a higher real interest rate due to a leftward shift of
the saving curve
a. causes the amount of firms' investment to increase.
b. causes the total amounts of saving and investment to fall.
c. increases the total amount of saving because of the increase in the real interest rate.
d. raises the profitability of investment for firms.
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=51 A temporary decrease in government purchases would cause
a. a rightward shift in the saving curve, but no shift in the investment curve.
b. a rightward shift in the saving curve and a leftward shift in the investment curve.
c. no shift in the saving curve, but a leftward shift in the investment curve.
d. a rightward shift in the saving curve and a rightward shift in the investment curve.
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=52 If consumers foresee future taxes completely, a reduction in taxes this year that is accompanied
by an offsetting increase in future taxes would cause
a. a rightward shift in the saving curve and a rightward shift in the investment curve.
b. no shift in the saving curve, but a rightward shift in the investment curve.
c. a leftward shift in the saving curve, but no shift in the investment curve.
d. a shift in neither the saving nor the investment curve.
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=53 An invention that raises the future marginal product of capital (in a closed economy) would
cause an increase in desired investment, which would cause the investment curve to shift to the
________ and would cause the real interest rate to ________.
a. left; increase
b. right; decrease
c. left; decrease
d. right; increase
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=54 If the government reduces the effective tax rate on capital (in a closed economy), then the real
interest rate ________ and saving ________.
a. rises; declines
b. falls; increases
c. falls; declines
d. rises; increases
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=55 If the stock market booms and people feel wealthier (in a closed economy), then the real
interest rate ________ and investment ________.
a. rises; increases
b. falls; increases
c. falls; declines
d. rises; declines
ANS: D
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=56 Onerous regulations on businesses that take effect next year (in a closed economy) reduce
businesses' expected future marginal product of capital. As a result, the real interest rate ________ and
saving ________.
a. falls; declines
b. falls; increases
c. rises; declines
d. rises; increases
ANS: A
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
QN=57 If consumers believe that next year a recession will occur (in a closed economy), then the real
interest rate ________ and investment ________.
a. rises; increases
b. falls; increases
c. falls; declines
d. rises; declines
ANS: B
PTS: 1
CHAPTER: 04
MIX CHOICES: Yes
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