c. in Peru. Most variation in the standard of living across countries is due to differences in productivity.
d. in Peru. Differences in productivity explain very little of the variation in the standard of living across
countries.
ANSWER: a
97. In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that
same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the
productivity of the average worker
a. decreased by 1.7 percent between 1998 and 2008.
b. remained unchanged between 1998 and 2008.
c. increased by 4.75 percent between 1998 and 2008.
d. increased by 6.25 percent between 1998 and 2008.
ANSWER: d
98. A worker in Thailand can earn $12 per day making cotton cloth on a hand loom. A worker in the United States can
earn $82 per day making cotton cloth with a mechanical loom. What is the likely explanation for the difference in wages?
a. United States textile workers belong to a union, whereas Thailand textile workers do not belong to a union.
b. There is little demand for cotton cloth in Thailand and great demand in the United States.
c. Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.
d. Thailand has a low-wage policy to make its textile industry more competitive in world markets.
ANSWER: c
99. To improve living standards, policymakers should
a. impose restrictions on foreign competition.
b. formulate policies designed to increase productivity.
c. impose tougher immigration policies.
d. provide tax breaks for the middle class.
ANSWER: b
100. An increase in the overall level of prices in an economy is referred to as
a. the income effect.
b. inflation.
c. deflation.
d. the substitution effect.
ANSWER: b
101. Large or persistent inflation is almost always caused by
a. excessive government spending.
b. excessive growth in the quantity of money.
c. foreign competition.
d. higher-than-normal levels of productivity.
ANSWER: b
102. In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of
unemployment in the economy?
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Ch 01: MC Algo
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a. 4 percent per year
b. 5 percent per year
c. 7 percent per year
d. 8 percent per year
ANSWER: d
103. In the short run, an increase in the money supply is likely to lead to
a. lower unemployment and lower inflation.
b. lower unemployment and higher inflation.
c. higher unemployment and lower inflation.
d. higher unemployment and higher inflation.
ANSWER: b
104. Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money
supply. This is likely because
a. the Federal Reserve is worried about inflation.
b. the Federal Reserve is worried about unemployment.
c. the Federal Reserve is hoping to reduce the demand for goods and services.
d. the Federal Reserve is worried that the economy is growing too quickly.
ANSWER: b
105. Which of the following is the most correct statement about the relationship between inflation and unemployment?
a. In the short run, falling inflation is associated with falling unemployment.
b. In the short run, falling inflation is associated with rising unemployment.
c. In the long run, falling inflation is associated with falling unemployment.
d. In the long run, falling inflation is associated with rising unemployment.
ANSWER: b
106. Which of the following is an important cause of inflation in an economy?
a. Increases in productivity in the economy
b. The influence of positive externalities on the economy
c. Lack of property rights in the economy
d. Growth in the quantity of money in the economy
ANSWER: d
107. Which of the following claims is consistent with the views of mainstream economists?
a. If we increase the rate of inflation from 4 percent to 6 percent, then the rate of unemployment will temporarily
fall.
b. If we increase the rate of inflation from 4 percent to 6 percent, then the rate of unemployment will temporarily
rise.
c. If we increase the rate of inflation from 4 percent to 6 percent, then the rate of unemployment will
permanently fall.
d. If we increase the rate of inflation from 4 percent to 6 percent, then the rate of unemployment will