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A random walk model can more accurately predict exchange rates as compared to a sophisticated forecast
A) always.
B) for forecasts up to a year away.
C) for forecasts longer than a year away.
D) never.
E) because of the predictability of exchange rates.
 
Which of the following statements is TRUE?
A) Bank failure is limited to banks that have mismanaged their assets.
B) Bank failure is limited to banks that have invested in real estate.
C) Bank failure is limited to banks that have invested in government bonds.
D) Bank failure is limited to a few banks.
E) Bank failure is NOT limited to banks that have mismanaged their assets.
 
Which of the following statements is TRUE?
A) Bank failures inflict serious financial harm on individual depositors.
B) Bank failures do not inflict serious financial harm on individual depositors.
C) Bank failures inflict not only serious financial harm on individual depositors, but also harm the macroeconomic stability of the economy.
D) Bank failures inflict serious financial harm on individual depositors, but fortunately do not harm the macroeconomic stability of the economy.
E) Bank failures only inflict serious financial harm on the macroeconomic stability of the economy.
 
Which of the following statements is TRUE for the U.S.?
A) The Federal Deposit Insurance Corporation (FDIC) insures bank deposits against losses up to $250,000.
B) The Federal Deposit Insurance Corporation (FDIC) insures bank deposits against losses up to $100,000.
C) The Federal Deposit Insurance Corporation (FDIC) insures bank deposits against losses up to $10,000.
D) The Federal Deposit Insurance Corporation (FDIC) insures bank deposits against natural disaster up to $100,000.
E) The Federal Deposit Insurance Corporation (FDIC) insures bank deposits against floods up to $100,000.
 
When looking at a supply and demand graph, you would find consumer surplus __________.
a. above the demand curve and below the supply curve
b. below the demand curve and above market price
c. to the right of equilibrium quantity and above market price
d. above the demand curve and above the supply curve
B
If a price ceiling is imposed at $15 per unit when the equilibrium market price is $12, there will be __________.
a. no surplus or shortage
b. a surplus
c. a shortage
d. a downward pressure on prices
A
Macroeconomics is the study of _________.
a. individual markets
b. the behavior of the firm
c. the behavior of the consumer
d. the broader economy
 
Structural, frictional, and cyclical are all types of __________.
a. jobs
b. price levels
c. firm structures
d. unemployment
 
An unemployment rate that is above the natural rate indicates __________ unemployment, and we say that the
economy is producing __________ the full employment output level.
a. cyclical; at more than
b. cyclical; at
c. cyclical; at less than
d. frictional; at more than
 
Typically a college degree is "worth it," but it requires __________.
a. high time preferences
b. low time preferences
c. smoothed consumption
d. variable correlated consumption
 
Based on the relationship between consumption and income, someone in his or her so-called prime earning years is most __________.
a. likely a saver
b. likely a borrower
c. concerned about nominal rather than real interest rates
d. likely just out of college
 
18. In macroeconomics __________.
a. output and income are very different concepts
b. output and income are essentially identical
c. output is less than income
d. output is greater than income
 
A firm characterized as a price-taker __________.
a. has control over the price it pays, or receives, in the market
b. sets the price for the market
c. has no control over the price it pays, or receives, in the market
d. is not a characteristic of a competitive market
 
Competitive markets exist when __________.
a. there are so many buyers and sellers that each has only a small impact on the market price and the market output
b. there are more buyers than sellers, giving the buyers' market power
c. there are more sellers than buyers, giving the sellers' market power
d. accounting profits become zero because of price wars
 
Which of the following statements is TRUE for the U.S.?
A) Federally chartered banks are required to make contributions to the FDIC to cover the cost of bank deposits insurance.
B) Federally chartered banks are not required to make contributions to the FDIC to cover the cost of bank deposits insurance.
C) The States are not required to make contributions to the FDIC to cover the cost of bank deposits insurance for banks with their main branch in that State.
D) The States are required to make contributions to the FDIC to cover the cost of bank deposits insurance for banks with their main branch in that State.
E) The specific municipality where the main branch of the bank is located is required to make contributions to the FDIC to cover the cost of bank deposits insurance.
 
Which of the following statements is TRUE for the U.S.?
A) The FDIC does not provide insurance for deposits for Savings and Loans (S&L) associations.
B) The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations, but only up to $50,000.
C) The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $250,000.
D) The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $150,000.
E) The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $100,000.
 
Banks in the U.S.
A) face rules against lending too large a fraction of their assets to a single private customer only.
B) face rules against lending too large a fraction of their assets to a single private customer or to a single foreign government borrower.
C) face rules against lending too large a fraction of their assets to a single foreign government borrower only.
D) face rules against lending to too many foreign organizations and corporations.
E) face rules against lending to other banks.
 
Banks in the U.S.
A) cannot hold common stocks.
B) can hold common stocks.
C) cannot hold common stocks of companies they do business with.
D) cannot hold common stocks of companies that have their headquarters in the same state.
E) can hold risky assets
 
Banks in the U.S.
A) are prevented from holding assets that are "too risky."
B) are not prevented from holding assets that are "too risky."
C) are encouraged not to hold assets that are "too risky."
D) are not encouraged not to hold assets that are "too risky."
E) are encouraged to lend to a single private customer.
 
Equity Instruments include
A) stocks.
B) bonds.
C) banks deposits.
D) receipts.
E) bank statements.
 
Applying probabilities to a payoff table results in:
A) expected opportunity loss.
B) expected monetary value.
C) expected value of perfect information.
D) decision tree.
 
Which best describes U.S. energy use?
A) Transportation is the largest end use of energy in the United States
B) Transportation is fueled mainly by coal
C) Electricity generation is the largest end use of energy in the United States
D) Electricity generationis powered mainly by nuclear energy
E) Industry is the largest end use of energy in the United States
 
Which is an example of the command-and-control approach to encourage sustainability?
A) A cap-and-trade system for carbon emissions
B) A rebate for energy-efficient products
C) Funding for solar energy projects
D) Regulations that limit sulfur emissions and include a provision for fines
E) Voluntary standards such as fair trade
 
What did the Federal Reserve do in response to the Great Recession?
a. It conducted open market purchases to drive up interest rates.
b. It conducted open market selling to drive up interest rates.
c. It conducted open market purchases to drive down interest rates.
d. It conducted open market selling to drive down interest rates.
 
When the Fed buys bonds from financial institutions, new money moves directly __________.
a. out of the loanable funds market
b. into the hands of consumers
c. into the loanable funds market
d. out of the hands of consumers
 
Holding all else constant, when the price of a good decreases, __________.
a. producer surplus increases.
b. consumer surplus increases.
c. both consumer surplus and producer surplus increase.
d. consumer surplus decreases.
 
Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes.
The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?
a. $15
b. $20
c. $35
d. $25
 
At the profit-maximizing output in a monopoly controlled market, the price a monopolist charges is __________ cost.
a. below marginal
b. above marginal
c. above average total
d. below average total
 
What would best describe the international capital markets?
A) the market of exchange of bonds
B) the market of exchange of stocks
C) the market of exchange of real-estate
D) the market in which residents of different countries trade assets
E) the currency market
 
If firms in a competitive market are making positive economic profits, you would expect firms to enter the market, causing the __________.
a. demand curve to shift to the right
b. the demand curve to shift to the left
c. market supply curve to shift to the right
d. market supply curve to shift to the left
 
Describe three types of gains from trades?
A) trades of exchange rates for goods or services, trades of goods or services for property, and trades of gold for textiles
B) trades of goods or services for goods or services, trades of goods or services for assets, and trades of assets for assets
C) trades of imports for exports, trades of exports for imports, and trades of natural resources for financial assets
D) trades of services for goods, trades of currency for services, and trades of one type of currency for another
E) trades of current goods for future services, trades of currency for gold, and trades of one type of currency for another
 
Control of resources is an example of __________.
a. a market force
b. consumer surplus
c. a government-created barrier
d. a natural barrier
 
Economies of scale exist __________.
a. only for monopolists
b. when long-run average total costs increase
c. when long-run average total costs decrease
d. when long-run average total costs are constant
 
Asset trades that deal with debt instruments are best described as
A) share of stock.
B) exchange rate.
C) receipts.
D) factors.
E) bonds or bank deposits.
 
A person is trying to decide if they should buy a lottery ticket. The ticket costs $2.00. If the ticket is a winner,
the prize would be $1,000. Knowing that winning $1,000 is not a certain outcome (state of nature), the person
finds that the probability of winning is 0.001. Based on this information, the following payoff table can be constructed:
Loss                       Win
Buy                                                        ($2.00)                 $1,000
Do not buy                                          0                             0
What is the probability of losing?
A) 0.001
B) 0.999
C) 1.00
D) Cannot be computed
B) 0.999
 
Besides a payoff table, the information for decision analysis can be organized using a
A) decision tree.
B) scatter diagram.
C) fishbone diagram.
D) Pareto chart.
 
What is NOT included in the calculation of gross domestic product?
A) Costs of health care
B) Government spending
C) Spending on durable goods
D) Earnings from investments
E) The costs of externalities
 
Human capital includes . . .
A) The goods that humans produce
B) Services that humans provide
C) Human knowledge and skills
D) Assets directly related to human survival
E) Services and processes that use manual labor
 
Which is NOT a goal of a sustainable economic system?
A) Give priority to ecosystem health
B) Use nonrenewable resources
C) Place value on ecosystems
D) Rely on ecosystem services rather than resource extraction
E) Make manufacturers responsible for the disposal of products
 
From 1982 to 2008, the economy experienced only two recessions, and they were neither lengthy nor severe.
This time period is known as the __________.
a. Great Depression
b. Great Recession
c. Great Expansion
d. Great Moderation
 
Which worldview considers ecosystems to have intrinsic value?
I. Anthropocentric
II. Biocentric
III. Ecocentric
A) I only
B) I and III only
C) II only
D) II and III only
E) III only
 
Enacting legislation that restricts a chemical suspected of being harmful while there is still scientific uncertainty
about that chemical is an example of :
A) An anthropocentric worldview
B) A biocentric worldview
C) The precautionary principle
D) Technology leapfrogging
E) An incentive-based approach
 
In a growing number of cities, stores are required either not to make available plastic or paper bags or to do so only
for an additional fee. What kind of incentive is this fee?
a. Direct
b. Indirect
c. Neutral
d. Complementary
 
In what way does the Occupational Safety and Health Administration (OSHA) contribute to environmental protection?
A) It develops regulations to limit emissions
B) It limits human exposure to chemicals and pollutants
C) It improves the quality of water
D) It provides funds to clean contaminated sites
E) It protects rare habitats from industrial development
 
Valuation, according to environmental and ecological economics, would include all of the following except
A) The revenue generated from tourists visiting a national park
B) The cost of wastewater treatment provided by a natural wetland
C) The benefits derived from medicinal plants found in tropical rainforests
D) The profits realized from hiring more employees to increase production
E) The cost of converting animal wastes into reusable organic matter by detritivores
 
Which of the following is the primary concept that economists use to explain how humans make decisions?
a. Fairness
b. Money
c. Emotions
d. Incentives
 
Full cost pricing by the internalization of externalities could result in which of the following?
A) Higher prices and a reduction in the consumption of items with high negative impacts
B) Lower prices and an increase in the consumption of items with high negative impacts
C) Greater consumer demand for products with high negative impacts
D) Lower production costs due to diminishing natural resources
E) Reduced production of environmentally friendly goods and services
 
Applying probabilities to a payoff table results in:
A) expected opportunity loss.
B) expected monetary value.
C) expected value of perfect information.
D) decision tree.
 
A person is trying to decide if they should buy a lottery ticket. The ticket costs $2.00. If the ticket is a
winner, the prize would be $1,000. Knowing that winning $1,000 is not a certain outcome (state of nature),
the person finds that the probability of winning is 0.001.
Based on this information, the following payoff table can be constructed:

Loss                       Win

Buy                                                        ($2.00)                 $1,000
Do not buy                                          0                             0
What is the probability of losing?

A) 0.001
B) 0.999
C) 1.00
D) Cannot be computed
B) 0.999
 
Economics is the study of __________.
a. how to make money
b. how to allocate resources to satisfy wants and needs
c. capitalism
d. how to make workers more productive and firms more profitable
 
Microeconomics is the study of __________.
a. how government activities affect the economy
b. individual decision-making units
c. collective decision-making
d. the operation of the economy as a whole
 
A good is __________ even if it takes a small amount of time, energy, or money to acquire.
a. abundant
b. in shortage
c. cheap
d. scarce
 
5. Many stores are open 24 hours a day. When store managers make the decision to stay open 24 hours, it must be the case that the __________.
a. marginal benefit of staying open all day and the marginal cost to remaining open all day are at least equal
b. marginal benefit of staying open all day must always be greater than the marginal cost to remaining open all day
c. marginal cost of staying open all day must always be greater than the marginal benefit to remaining open all day
d. calculation of marginal benefits or marginal costs of remaining open all day play no role
 
Which of the following is NOT a component of the decision-making process?
A) Alternatives
B) Payoff
C) State of nature
D) Seasonal indexes
 
Which type of international trade transaction involves the transfer of property rights to either real or financial
assets between the citizens of one country and the citizens of another country?
International asset transaction
 
Each successive unit of a good or service that a consumer purchases adds less to his or her ___________ __________
Total; utility
 
Activities such as buying foreign stocks (securities) or selling your house to a citizen of a
foreign country are considered international ______ transactions.
Asset
 
Opportunity cost is the __________ alternative forfeited when a choice is made.
a. least-valued
b. highest-valued
c. most recently considered
d. most convenient
 
What is by far the most commonly exchanged asset?
Money
 
The sum of all the financial transactions that take place between a country's residents and the residents
of foreign nations is called the Blank______.
balance of payments
 
Which section of the balance-of-payments statement summarizes U.S. trade in currently produced goods and services?
The current account
 
The balance on the current account and the balance on the capital and financial account must always
sum to ______ because any deficit or surplus in the current account automatically creates an offsetting
entry in the capital and financial account.
zero
 
An Egyptian firm exporting cotton to the United States and an American company hiring an Indian call
center to answer its phones are examples of which of the following?
International trade
 
In a given year, if U.S. exports total $2.5 billion and U.S. imports total $3.5 billion, what is the balance of
trade on goods for that year?
A $1 billion deficit
 
Which of the following are the two broad categories of international financial transactions?
International asset transactions
International trade
 
What is the name for the difference between a country's exports and imports of goods?
Balance of trade on goods
 
A variable with an uncertain future value.
random variable
 
In reference to a random variable, the weighted average of all possible values, where the weights on
each possible value correspond to the probability of that value occurring. (572)
states of the world
 
The capital and financial account concerns international ______ exchanges.
Asset
 
Which of the following describes a scenario where U.S. imports of goods and services exceeds U.S. exports of
goods and services?
A trade deficit
 
What is the exchange-rate system in which the government sets the exchange rates?
Fixed
 
True or false: A country has a current account deficit when its current account transactions generate more money
flows out of than into a country.
True
 
When the dollar price of pounds rises, for example, from $1 = 1 pound to $2 = 1 pound, the dollar has ______ relative to the pound.
Depreciated
 
A possible future event.
states of the world
 
Most people prefer, other things equal, to reduce ________—uncertainty about future outcomes. (572)
risk
 
Uncertainty about monetary outcomes.
financial risk
 
When people feel risk is a bad thing?
risk aversion
 
The source of risk aversion lies in a concept we first encountered in our analysis of consumer demand, back
in Chapter 10: _____________ (573)
diminishing marginal utility
 
What is the result when a country's exports exceed its imports?
A trade surplus
 
Debt forgiveness involves the lender's giving the borrower an IOU and is therefore considered a(n) Blank______ transaction.
asset
 
Which type of international trade transaction involves the transfer of property rights to either real
or financial assets between the citizens of one country and the citizens of another country?
International asset transaction
 
The capital account and financial account sections of the balance-of-payments statement summarizes which of the following?
International asset transactions
 
In general, what factors are responsible for a nation's currency either appreciating or depreciating in foreign exchange markets?
The supply of its currency increasing
The demand for its currency increasing
 
Which section of the balance-of-payments statement measures debt forgiveness?
The capital account
 
The curve would shift to the right, causing the British pound to appreciate.
What would happen to the U.S. demand-for-pounds curve if British textiles became fashionable in the United States?
 
The balance on the current account and the balance on the capital and financial account assume trade
occurs in which of the following categories?
Currently produced goods
Currently produced services
Preexisting assets
 
A nation's currency is likely to _______ if its national income grows more rapidly than that of other countries.
depreciate
 
An exchange-rate system in which rates are determined by supply and demand without government intervention
is called a(n) ________-exchange-rate system.
flexible or floating
 
If the same group of products costs 100,000 U.S. dollars and 50,000 British pounds, what would be the theoretical
effect on the exchange rate between the two currencies?
The exchange rate should shift until it reaches the rate of two U.S. dollars equaling one British pound.
 
What does a higher dollar price for pounds caused by a shift in either demand or supply mean?
The dollar has depreciated and the pound has appreciated
 
If a nation's currency appreciates, some foreign currency relative to it _______.
depreciates, weakens, or falls
 
Because importers are Blank______ of goods, their transactions result in Blank______ of money from their country to another.
buyers; outflows
 
The ability of one person or nation to produce more of a good while using the same quantity of resources as another is called a(n):
absolute advantage
 
Amy can produce either 5,000 lbs of cheese, or 5 houses. Jim can produce either 2,000 lbs of cheese, or 20 houses.
If both Amy and Jim produce the good for which each has a comparative advantage, total output of this economy will be:
 
5,000 pounds of cheese and 20 houses
Bill can produce either 1,500 lbs of cheese, or 10 houses. Lucy can produce either 8,000 lbs of cheese, or 15 houses.


By the principle of comparative advantage, Bill should specialize in producing:
houses
 
Trade surplus is:
when a nation exports more than it imports
 
Which two countries buy the most U.S. exports?
Canada and Mexico
 
When trade is voluntary, who benefits?
both the buyer and the seller
 
Opportunity cost is the ________ alternative forfeited when a choice is made.
highest-valued
 
An expected monetary value can only be greater than or equal to zero.
False


A way to decide which common stock to purchase is to determine the profit that might be lost because the exact
state of nature (the market behavior) was not known at the time the investor bought the stock.
This potential loss is called opportunity loss or regret
True
 
Maximizers advocate a maximin strategy.
False
 
If the expected value of stock purchases under conditions of certainty is $1,900 and the expected value of stock purchases
under conditions of uncertainty is $1,840, then the $60 difference is called a payoff.
False
 
Sensitivity analysis examines the effects that changes in the probabilities for the states of nature have on the expected
values of the alternatives or acts, and the corresponding decisions.
True
 
In decision making, an act refers to the alternative choices open to a decision-maker
True
 
The maximin strategy is regarded as a conservative strategy for decision making.
True
 
A decision-maker has no control over a payoff.
True
 
Statistical decision theory, is defined as the collection of techniques a decision maker can apply to choose the
best alternative action
True
 
A decision maker usually has a choice among several possible alternative acts. For each alternative act, there are
many possible results called events.
False
 
To resolve the diamond-water paradox, it is important to note that under most circumstances,
The marginal utility of water is lower than the marginal utility of diamonds
 
Indirect incentives create ________ consequences.
unintended
 
Rational decision-making under conditions of scarcity requires individuals to:
understand that trade-offs are necessary.
 
The basic goal of economics is:
addressing the scarcity problem created because the population's desire for goods exceeds the ability to produce them.
 
Why is the barter method of exchange NOT more common in the U.S. economy?
The double coincidence of wants infrequently occurs.
 
At full employment, a society produces:
on its PPF.
 
The area inside (within) the production possibilities frontier (PPF) contains ________ points.
inefficient
 
Which of the following will cause the demand curve for burgers to shift to the right?
A study is published by the National Association for Burger Research that says eating burgers can reduce the risk for bad acne.
 
The government offers numerous educational subsidies through grants and low-cost equipment to schools. They also provide a
lot of incentives to go to school. Because of this, we expect that the equilibrium price of education will ________ and the equilibrium
quantity of students will ________.
be indeterminate; go up
 
Cellphone companies found that when they raised the price of connecting to wireless hot spots, demand decreased more than
proportionally among casual users but decreased less than proportionally among businesspeople. This is because wireless
connectivity is a(n) ________ good for casual users but a(n) ________ good for businesspeople.
luxury; necessity
 
Suppose Jason is a brilliant attorney who can draft especially persuasive legal briefs. He also happens to possess some excellent
administrative skills such as typing, filing, assembling binders and notes, and making reservations. Which best describes whether
Jason should hire an administrative assistant to help him?
Jason should hire an administrative assistant because the assistant would likely have a comparative advantage in performing
administrative functions.
 
The ________ illustrates the various combinations of output that a society can produce if all of its resources are being used efficiently.
production possibilities frontier (PPF)
 
When it exports more goods and services than it imports
A country experiences a trade surplus under which of the following conditions?
 
Remittance payments sent by immigrants to their home countries are included in which of the following?
The balance of payments
 
The utility function slopes _________, because more income leads to higher total utility. (573)
Upward
 
In recent years, the United States has:
exported more services abroad than it has imported
 
What does NAFTA stand for?
North American Free Trade Agreement
 
Since 2000, world goods trade has:
Doubled
 
Which of the following will cause a movement along a good's supply curve?
The price of the good increases.
 
When the price of ground beef increases and all else is held constant, we would expect the supply of hamburgers
to ________, causing the price to ________.
decrease; increase
 
Consumer surplus is the difference between:
the willingness to pay for a good and the amount that is paid to get it.
 
Let's say that you have a friend who was caught illegally selling a good on the black market. When the judge asks you to
describe your friend's motivation as a seller, which of the following would most likely be your reply?
My friend sold the good on the black market because a binding price floor resulted in a surplus of the product in the legal
market and he needed to get rid of the surplus.
 
Why are binding price floor laws passed?
They help producers receive higher prices for products sold in the legal market.
 
What is the long-run consequence of a price ceiling law?
A shortage will continue to exist and will grow larger over time.
 
All else held constant, a decrease in the price of a good would necessarily:
decrease producer surplus.
 
Trade deficit is:
when a nation imports more than it exports
 
Trade balance is:
the difference between a nation's total exports and total imports
 
For country A, an export is a good produced in:
country A and purchased by residents of country B.
 
Marginal utility is defined as the
change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.
 
A consumers is in equilibrium if he or she derives the same
Total utility from each good consumed
 
The diamond water paradox is the observation that
those things that have the greatest value in use often have little value in exchange and those things that have little
value in use often have the greatest value in exchange.
 
Each successive unit of a good or service that a consumer purchases adds less to his or her ___________ __________. (573)
total utility
 
Each successive dollar of income adds less to ___________ than the previous dollar. (573)
total utility
 
Which country has the world's biggest economy in terms of output per capita?
United States
 
"A" has a comparative advantage over "B" in producing a good if:
"A" has a lower opportunity cost of producing a good than "B" does
 
For nearly four decades, the U.S. has had a:
trade deficit
 
A society could achieve a higher level or productivity if:
it takes advantage of each individual's comparative advantage
 
International trade and the associated increase in international competition has forced American businesses to:
improve productivity
 
A rich nation will trade with a poor nation (and vice versa) because the:
poor nation has a comparative advantage in a product
 
There is a 5% average tax on imported goods in the United States. This tax is known as a(n):
tariff
 
Suppose you are eating slices of pizza and after consuming the first slice you receive 14 utils of total utility, after the second
you receive 22 utils of total utility, and after the third 25 utils of total utility. Then
your total utility is 25 utils, and the marginal utility of the third slice is 3 utils
 
In the Texas A&M study of "buying" behavior of two white rats, as the "relative price" of one beverage was raised,
both white rats began to consume less of the higher priced beverage.
 
law of diminishing marginal utility says that:
the marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases
 
__________ of income falls as income rises. (573)
marginal utility
 
An economy that does not trade with the rest of the world:
closed economy
 
An economy that trades with the rest of the world is:
an open economy
 
How is the balance on current account calculated?
By adding all transactions in the current account
 
Don receives 100 utils from consuming two oranges. The utility he derives from consuming the second orange equals 30 utils.
Which of the following conclusions is derived from the law of diminishing marginal utility?
The marginal utility Don receives from consuming the third orange will be less than 30 units