,Principles of Economics (Part 1 Macro), 13th Ed by Karl Case, Ray Fair, Sharon Oster TEST BANK
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
The Bretton Woods System
1) 1)
Exchange rate Quantity of pounds Quantity of pounds
($/£) (£) demanded (£) supplied
3.40 4.30 7.10
2.00 5.40 5.40
1.20 7.10 4.30
Refer to the data in the table, which represents millions of British pounds traded per day.
Under the Bretton Woods system of exchange rates, if the par exchange rate was $3.40 per
pound, then which of the following is true?
A) The Bank of England would have to buy 2.8 million pounds per day with dollars.
B) The Bank of England would have to sell 2.8 million pounds per day for dollars.
C) The Bank of England would have to sell 1.1 million pounds per day for dollars.
D) There is a shortage of pounds equal to 2.8 million.
Refer to the data in the table, which represents millions of British pounds traded per day.
Under the Bretton Woods system of exchange rates, if the par exchange rate was $1.00 per
pound, then which of the following is true?
A) The Bank of England would have to buy 1.4 million pounds per day with dollars.
B) There is a surplus of pounds equal to 2.2 million.
C) The Bank of England would have to sell 2.2 million pounds per day for dollars.
D) The Bank of England would have to buy 2.2 million pounds per day with dollars.
Measures of Income
3) 3)
National Income $1100
Retained earnings not paid as dividends 65
Transfer payments 50
Interest on government bonds 35
Personal taxes 55
Refer to the table. The table contains data representing the components of national income for
an economy. All values are in billions of dollars. What is the level of disposable personal
income for this economy?
A) $1050 billion B) $995 billion C) $1045 billion D) $895 billion
,The Marginal Propensity to Consume and the Marginal Propensity to Save
4) If disposable income increases by $120 million and consumption increases by $75 million, 4)
then the marginal propensity to consume (MPC) is . (Round to the nearest hundredth.)
A) 0.63 B) 0.38 C) 1.60 D) 0.02
The table contains data for a typical Laffer curve. At a tax rate of 70%, the tax revenue will
definitely be .
A) less than $1000 B) greater than $1300
C) between 1000 and 1300 D) $1150
The table presents data for the domestic market for electric razors. Under autarky, the domestic
price of an electric razor is $30. With free trade the price of an electric razor is $8 and after a
tariff is imposed the price is $18. After the tariff is imposed, this country will import
electric razors.
A) 50 B) 70 C) 120 D) 270
Reserves, Deposits and the Money Multiplier
7) Suppose you deposit $8000 of currency into your checking account at your bank and the 7)
required reserve ratio (RR) is 2%. As a result of your deposit, checking account deposits in the
banking system as a whole (including your original deposit) could eventually increase up to a
maximum of .
A) $8000 B) $200,000 C) $400,000 D) $7840
, Effect of Inflation on the Short-Run Phillips Curve
8) 8)
Inflation rate Unemployment rate
(percent per year) (percent)
9 5.5
4 7.5
Refer to the data in the table for the short-run Phillips curve. The short-run and long-run
Phillips curves intersect at an inflation rate of 9 percent per year and an unemployment rate of
5.5 percent. The Fed announces its intention to decrease inflation from 9 percent to 4 percent
per year, and it succeeds. If expectations of inflation are reduced to 7 percent by the Fed's
announcement, the rate of unemployment will be percent in the short run.
A) less than 5.5 B) 5.5
C) between 5.5 and 7.5 D) 7.5
Refer to the data in the table. If workers and firms have rational expectations, an expansionary
monetary policy will cause short-run equilibrium to occur at an inflation rate of
percent and an unemployment rate of percent.
A) 3; 6 B) 6.1; 6 C) 6.1; 3 D) 3; 3
The Bond Market
10) If a corporate bond with a face value of $20,000 pays yearly coupon payments of $1000, what 10)
is the coupon rate? (Round to the nearest tenth.)
A) 5.0% B) 2.0% C) 20.0% D) 0.2%
Using Price Indexes to Correct for Inflation
11) Suppose your grandmother earned a salary of $21,000 in 1975. If the CPI was 53 in 1975 and 11)
is 264 today, then the value of your grandmother's salary in today's dollars is approximately
. (Round to the nearest dollar.)
A) $11,130 B) $4216 C) $4,431,000 D) $104,604
Measures of Unemployment
12) If the working-age population is 235 million, the number of people employed is 180 million, 12)
and the number of people unemployed is 25 million, then the unemployment rate is .
(Round to the nearest tenth when appropriate.)
A) 5.7% B) 12.2% C) 13.9% D) 10.6%
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