Applied Economics
Exam Solutions
Course Introduction
Applied Economics focuses on the practical application of economic theories and quantitative methods to real-world problems and decision-making in various sectors, including business, government, and policy analysis. The course explores how economic principles such as supply and demand, cost-benefit analysis, and market structures are utilized to address issues like resource allocation, pricing strategies, policy development, and impact assessment. Students will engage in case studies, empirical data analysis, and modeling exercises, gaining skills necessary to analyze and interpret economic data, forecast economic trends, and provide actionable recommendations for economic challenges in diverse industries.
Recommended Textbook
Economics Principles and Applications 6th Edition by Robert E. Hall
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35 Chapters
4566 Verified Questions
4566 Flashcards
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Page 2
Chapter 1: What Is Economics
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) The opportunity cost of an economic action is
A) the value of the next best alternative that must be sacrificed
B) an issue in normative economic theory
C) the expense for the resources used plus the firm's profit
D) the out-of-pocket cost
E) the option to pay a reduced fee for the action
Answer: A
Q2) Economics is
A) the narrow study of how to make money in financial markets
B) the broad study of how to allocate unlimited resources to satisfy limited uses
C) the broad study of how to allocate limited resources to satisfy unlimited wants
D) the narrow study of using stocks and bonds to their maximum potential
E) the narrow study of how to be conservative in financial affairs
Answer: C
Q3) Opportunity costs arise because of resource scarcity.
A)True
B)False
Answer: True
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3
Chapter 2: Scarcity,choice,and Economic Systems
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Sample Questions
Q1) An economic system includes
A) money,stocks and bonds
B) a mechanism for allocating resources and a mode of resource ownership
C) a mechanism for dividing up resources and a way to ensure that technology advances
D) a mechanism for allocating stocks,bonds and money and a mode of technology
E) government ownership,labor time,and machines
Answer: B
Q2) If Indiana has an absolute advantage over Maine in producing both corn and ball bearings,then
A) Indiana should produce both corn and ball bearings
B) there are no benefits possible from specialization
C) Maine should produce ball bearings and Indiana should produce corn
D) Indiana should produce ball bearings and Maine should produce corn
E) they still may benefit from specialization,but more information is needed to determine which state should specialize in each
Answer: E
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Chapter 2: Scarcity, choice, and Economic Systems: Part A
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184 Flashcards
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Sample Questions
Q1) In a perfectly competitive market,
A) there can be few or many buyers and sellers
B) the price is driven upward when suppliers hold back on goods and services
C) each participant is too small to affect the market price
D) government intervention is needed to ensure that prices are fair for consumers
E) resources are allocated by a central authority
Answer: C
Q2) If two goods are substitutes,then a(n)
A) increase in the demand for one of them will cause its price to fall
B) increase the supply of one of them will cause its price to rise
C) increase in the price of one of them will cause the demand for the other to increase
D) increase in the price of one of them will cause the supply of the other to increase
E) decrease in the price of one of them will cause the demand for the other to increase
Answer: C
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Chapter 4: Working With Supply and Demand
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58 Flashcards
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Sample Questions
Q1) Figure 4-1 shows the supply and demand for socks.If a price floor of $10 per pair is imposed by the government,the number of pairs actually purchased will be
A) 2 pairs
B) 8 pairs
C) 5 pairs
D) 1 pair
E) 6 pairs
Q2) If an excise tax is imposed on shoes,
A) government tax revenue will fall
B) the market price of shoes will decrease
C) the supply curve will shift downward
D) the equilibrium quantity demanded will decrease
E) the equilibrium quantity supplied will increase
Q3) Within the context of the housing market,what does MBS stand for?
A) Multi-Banking System
B) Mortgage Backed Security
C) Mortgage Bubble System
D) Mixed Bracket Securities
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6
Chapter 5: Elasticity
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Sample Questions
Q1) Figure 5-8 shows the demand schedule for hockey pucks.At which price is demand the least price elastic?
A) $1
B) $2
C) $3
D) $4
E) $5
Q2) The cross-price elasticity of demand is useful for determining which pairs of commodities serve as substitutes for each other.
A)True
B)False
Q3) Figure 5-6 shows the demand curve for chicken.Between points L and M,the price elasticity of demand is
A) 0.44,and demand is elastic
B) 0.44,and demand is inelastic
C) 2.25,and demand is elastic
D) 2.25,and demand is inelastic
E) 0.028,and demand is inelastic
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7
Chapter 6: Consumer Choice
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Sample Questions
Q1) An increase in the price of the good measured on the horizontal axis of a budget line diagram will
A) make the budget line flatter
B) make the budget line steeper
C) leave the budget line unchanged
D) cause a parallel inward shift of the budget line
E) cause a parallel outward shift of the budget line
Q2) If a consumer allocates her income between two goods,x and y,then she will be in equilibrium when
A) MU<sub>x</sub>/P<sub>x</sub> = MU<sub>y</sub>/P<sub>y</sub> and she is below her budget constraint
B) MU<sub>x</sub> = MU<sub>y</sub> and she has spent all of her income
C) MU<sub>x</sub>/MU<sub>y</sub> > P<sub>x</sub>/P<sub>y</sub> and all of her income is spent
D) MU<sub>x</sub>/P<sub>x</sub> = MU<sub>y</sub>/P<sub>y</sub> and all of her income is spent
E) MU<sub>x</sub> = MU<sub>y</sub> and she is below her budget constraint
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Chapter 7: Production and Cost
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Sample Questions
Q1) A firm's explicit costs are
A) the opportunity costs of the owners
B) its depreciation costs
C) the money paid for use of inputs
D) the foregone rents on owner occupied office space
E) irrelevant to the determination of economic profit
Q2) Which of the following always decreases as output increases?
A) ATC
B) MC
C) AFC
D) TC
E) TVC
Q3) Figure 7-1 shows the amounts of coal that a mining company could produce per week by changing the number of workers while capital and technology remain constant.The marginal product of employing the fourth worker is
A) 120 tons of coal
B) 480 tons of coal
C) 319 tons of coal
D) 180 tons of coal
E) 106.33 tons of coal
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Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) In the short run,profit maximization typically occurs where total revenue is at its maximum.
A)True
B)False
Q2) In Figure 8-8,the marginal revenue from adding the third unit of output is
A) $240
B) $80
C) $90
D) $40
E) $60
Q3) Hannah's Harmonicas sells 1,000 harmonicas each month at a price of $10.00 each.(She could sell as many as she wishes at that price. )If the marginal cost of producing an additional harmonica is $9.60,then
A) Hannah should produce additional harmonicas
B) Hannah could possibly reduce her profits by producing one additional harmonica
C) Hannah must currently be maximizing her profits
D) too many harmonicas are being produced,from society's point of view
E) Hannah's total economic profit is $400 per month
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Chapter 9: Perfect Competition
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Sample Questions
Q1) Perfectly competitive firms can earn an economic profit in the short run because
A) entry of new firms does not occur instantaneously
B) competitive firms always invest more to earn more
C) competitive firms never suffer an economic loss
D) price always equals average variable cost
E) price always equals average total cost
Q2) Which point in Figure 9-7 represents a break-even situation for a perfectly competitive firm?
A) A
B) B
C) C
D) D
E) E
Q3) Firms are assumed to
A) maximize profit per unit of output
B) maximize total revenue
C) maximize assets
D) produce at the lowest point on their average total cost curve
E) maximize profit
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Page 11
Chapter 9: Perfect Competition: Part A
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Sample Questions
Q1) In perfect competition,technological advances will allow economic profits for A) all firms.
B) only the firm developing the new technology.
C) early adopters.
D) none of the firms,as the advance will be immediately adopted by all of them.
Q2) One of the defining characteristics of a perfectly competitive market is A) both buyers and sellers are well informed about the market
B) a small number of buyers
C) high barriers to entry
D) a small number of buyers but a large number of sellers
E) buyers are better informed about the market than sellers
Q3) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Q4) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
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Chapter 10: Monopoly
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210 Flashcards
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Sample Questions
Q1) The change in total revenue obtained by selling an additional unit of output is
A) average revenue
B) business revenue
C) marginal revenue
D) overhead revenue
E) profit margin
Q2) A monopolist that is earning economic losses will,in the long run,
A) exit the industry.
B) shift it's demand curve rightward.
C) stay in the industry,since eventually the price will have to rise.
D) encourage competitors to enter the industry in order to enliven it.
Q3) In Figure 10-30,at its profit-maximizing output level the monopolist earns economic profit of
A) $10.
B) $500.
C) $750.
D) $1250.
Q4) Copyrights and patents are examples of barriers to entry.
A)True
B)False
Page 13
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) A cartel
A) has one firm that acts as the price leader
B) is a group of firms engaged in price discrimination
C) acts like a monopoly
D) involves competition between rival firms
E) prices its output equal to marginal cost
Q2) Which of the following is an example of a cartel?
A) AFL-CIO
B) OPEC
C) United Auto Workers Union
D) NATO
E) Organization of American States
Q3) Which of the following is a distinguishing characteristic of oligopolies?
A) a standardized product
B) the goal of profit maximization
C) the interdependence among firms
D) downward-sloping demand curves faced by firms
E) a downward-sloping market demand curve
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Chapter 12: Labor Markets
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95 Flashcards
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Sample Questions
Q1) In a perfectly competitive labor market,no individual firm's employment decision can affect the market wage because
A) union agreements prevent any firm from altering the wage rate
B) each firm is ignorant of the market wage rate
C) the demand for labor is a derived demand
D) each firm hires a very small portion of the labor services available
E) the wage rate is regulated by the government
Q2) Figure 12-6 shows the production function for a firm that sells its output in a perfectly competitive market where the market price is $20.Between the second and third workers,the marginal revenue product of labor equals
A) $200
B) $2,000
C) $600
D) $4,000
E) $1,200
Q3) Both marginal revenue and marginal revenue product refer to the gains to the firm from employing one additional worker.
A)True
B)False
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Page 15
Chapter 12: labor Markets: Part A
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86 Flashcards
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Sample Questions
Q1) Which of the following could help explain why professional football players have high salaries?
A) There is little social status attached to the occupation.
B) Their marginal revenue products are typically very low.
C) They face a high chance of having their careers cut short.
D) Many college football players want to become professional football players.
E) The labor market is perfectly competitive due to the players' union.
Q2) Patrick is considering two different jobs in the same city-one as a bicycle courier,and the other as a mail room clerk.Both require equivalent training.He finds neither job very appealing,but,if they pay the same wage rate,Patrick would prefer to work as a mail room clerk.In order for Patrick to find the two jobs equally attractive,the
A) mail room job must pay a compensating wage differential
B) mail room job must pay a preference premium
C) courier job must pay a compensating wage differential
D) courier job must involve longer working hours
E) mail room job must involve longer working hours
Q3) Less-risky professions tend to enjoy compensating wage differentials.
A)True
B)False
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Page 16
Chapter 13: Capital and Financial Markets
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Sample Questions
Q1) Consider three bonds,from Corporation X,Corporation Y,and Corporation Z.The X and Y bonds mature in 1 year,while the Z bond matures in 2 years.The Y and Z bonds have face values of $5,000,while the X bond has a face value of $4,000.If the interest rate is 10 percent (0.10)per year,rank the three bonds from highest present value to lowest present value.
A) X,Y,Z
B) Z,Y,X
C) Y,Z,X
D) Z,X,Y
E) Y,X,Z
Q2) The total value of dividends paid out to shareholders by a firm is equal to
A) its total after-tax profits
B) its total after-tax profits minus its retained earnings
C) its total after-tax profits minus its bond payments
D) its total after-tax profits plus its retained earnings
E) the present value of the firm
Q3) The supply curve for a particular bond is vertical.
A)True
B)False
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Page 17
Chapter 14: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Suppose that a perfectly competitive market is in equilibrium.Then,
A) the equilibrium quantity provides the maximum possible benefit to buyers
B) the equilibrium quantity provides the maximum possible benefit to buyers and sellers combined
C) total (producer + consumer)surplus is equal to price x quantity.
D) an additional unit,if produced,would produce a benefit that exceeds its cost of production
E) an additional unit could be produced at a cost to some producer that is less than the benefit to some consumer
Q2) If 20 smoothies are sold at a market price of $5.50 each,then
A) there must not be an excess supply of smoothies
B) selling the 21st smoothie would be a Pareto improvement
C) the market must be perfectly competitive
D) the value to some individual of the 20th smoothie is $5.50
E) there must be an excess demand for smoothies
Q3) Taking money from a wealthy individual in order to feed a destitute family would be a Pareto improvement.
A)True
B)False
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Page 18
Chapter 15: Governments Role in Economic Efficiency
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Sample Questions
Q1) Pollution is a form of market failure called a negative externality.
A)True
B)False
Q2) A subsidy equal to the marginal private benefit of a good can be used to make a market with a positive externality efficient.
A)True
B)False
Q3) A candy bar is an example of a good that is
A) both rival and excludable
B) non-rival but excludable
C) both non-rival and non-excludable
D) rival but non-excludable
E) rival but usually produced inefficiently
Q4) If firms make agreements that reduce the amount of competition in a market,
A) the market price usually falls
B) they would face penalties under antitrust legislation
C) mergers will result
D) there must be diseconomies of scale in the industry
E) they would face penalties under contract law
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Chapter 16: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) For each watch Denmark produces,it gives up the opportunity to produce 50 pounds of cheese.France can produce two watches at a cost of 150 pounds of cheese.Which of the following is true?
A) Denmark has a comparative advantage in producing both watches and cheese.
B) France has a comparative advantage in producing both watches and cheese.
C) France has the comparative advantage in producing watches.
D) Denmark has the comparative advantage in producing watches.
E) Denmark has the comparative advantage in producing cheese.
Q2) One reason why there may be a bias against free trade is that
A) those harmed by trade have a powerful incentive to lobby against it
B) people prefer domestically-produced goods to foreign-produced goods
C) people prefer foreign-produced goods to domestically-produced goods
D) the terms of trade are too low
E) the exchange rate is too high
Q3) A nation's comparative advantage
A) can almost always be traced to its natural resources
B) is often based on its natural resources
C) is often based on barriers to international trade
D) is reflected in the shape of its demand curve for imported goods
E) is a result of increasing marginal returns
Page 20
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Chapter 17: What Macroeconomics Tries to Explain
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Sample Questions
Q1) Which of the following is not an important macroeconomic goal?
A) Stable prices
B) Full employment
C) Rapid economic growth
D) Low interest rates
E) None of the above is an important macroeconomic goal
Q2) Classical economists believed that
A) the government should play an active role in controlling the economy
B) the government can best help the economy by leaving it alone
C) the economy is controlled by the government
D) laissez faire will hurt the economy
E) economists should offer guidance to governmental leaders
Q3) In macroeconomics,it is impossible to include many individual markets in a single data source.
A)True
B)False
Q4) The inflation rate in the United States has always been positive.
A)True
B)False
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Chapter 18: Production, income, and Employment
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Sample Questions
Q1) Even though households do not actually purchase certain items,the government estimates and adds to the consumption component what the household would pay for these items in the marketplace.An example of this type of item is
A) a car that an individual builds from parts of old cars
B) food that a farm family grows for themselves
C) a pond that a household member digs by hand
D) police and fire protection
E) a barn that a household builds on their own property
Q2) If output rises,then income
A) drops by an equal amount
B) remains stable
C) rises twice as fast as output
D) rises slowly
E) rises by an equal amount
Q3) Used car dealerships add nothing to GDP because the cars they sell were already recorded in GDP when they were new.
A)True
B)False
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Chapter 19: The Price Level and Inflation
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Sample Questions
Q1) In general,a higher-than-anticipated inflation rate
A) helps everyone
B) hurts everyone
C) helps creditors and harms debtors
D) helps debtors and harms creditors
E) helps sellers
Q2) The real interest rate is calculated as the
A) expected rate of inflation divided by the nominal interest rate
B) real GDP plus the expected rate of inflation
C) nominal interest rate minus real GDP
D) nominal interest rate minus the expected rate of inflation
E) real GDP multiplied by the expected rate of inflation
Q3) Which of the following would be included in the GDP Price Index,but not the Consumer Price Index?
A) The price of a pair of shoes
B) The price of coffee
C) The price of a used car
D) The price of a bar of soap
E) The price of an aircraft carrier
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Page 23
Chapter 20: The Classical Long-Run Model
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Sample Questions
Q1) The supply of loanable funds curve
A) is upward sloping
B) is downward sloping
C) is horizontal
D) begins sloping upward,then levels off
E) may slope either upward or downward,depending upon the interest rate
Q2) The investment demand curve
A) is upward sloping
B) is downward sloping
C) is horizontal
D) begins sloping upward then flattens out
E) begins sloping downward,then flattens out
Q3) Classical economists believed that the economy would always return to full employment.
A)True
B)False
Q4) According to Say's Law,supply creates its own demand.
A)True
B)False
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Chapter 20: Part A: The Classical Model in an Open Economy
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Sample Questions
Q1) Which of the following is an injection in an open economy?
A) Saving
B) Imports
C) Exports
D) Taxes
E) Money
Q2) In the classical model with an open economy,an increase in government purchases always causes complete crowding out.
A)True
B)False
Q3) In the classical model with an open economy,an increase in the trade deficit as a result of a tax cut,causes a decline in the interest rate,attracting more loanable funds from abroad.
A)True
B)False
Q4) In the classical model,when an open economy has balanced trade,Say's law does not hold.
A)True
B)False
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Chapter 21: Economic Growth and Rising Living Standards
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Sample Questions
Q1) Over the past thirty years in the U.S. ,increases in labor demand have been __________ than increases in labor supply so that wages on average have
A) smaller;increased
B) larger;increased
C) smaller;decreased
D) larger;decreased
E) larger;stayed constant
Q2) Which of the following could cause economic growth?
A) Growth in productivity
B) Growth in the employment-population ratio
C) Growth in the average number of hours worked
D) Growth in the population
E) All of these
Q3) Gross Domestic Product (GDP)per capita is
A) GDP in current dollars
B) GDP adjusted for inflation
C) GDP per person
D) GDP per dollar spent
E) GDP per day
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Chapter 22: Economic Fluctuations
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Sample Questions
Q1) Which of the following could explain a leftward shift of the labor demand curve?
A) Firms are unable to sell all the output they produce.
B) Workers have become less productive.
C) Workers have become more productive.
D) Both (a)and (b)are correct.
E) The demand curve for the product that firms sell shifts to the right.
Q2) If workers become more productive,which of the following would happen in the labor market?
A) Labor supply would increase.
B) Labor supply would decrease.
C) Labor demand would increase and labor supply would decrease.
D) Labor demand would decrease and so would labor supply.
E) Labor demand would increase.
Q3) The classical model predicts the real GDP will always be
A) rising.
B) falling.
C) equal to its full-employment level.
D) constant.
E) equal to its full-taxation level.
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Chapter 23: The Short-Run Macro Model
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Sample Questions
Q1) Which of the following is not another way of describing the marginal propensity to consume?
A) MPC
B) The slope of the consumption function
C) The change in real consumption spending divided by the change in real disposable income
D) The amount by which real consumption spending rises when real disposable income increases by one dollar
E) Autonomous consumption spending
Q2) The focus of the short-run macro model is on the role of
A) spending in explaining economic fluctuations
B) labor in explaining economic fluctuations
C) financial markets in explaining economic fluctuations
D) output in explaining economic fluctuations
E) resources in explaining economic fluctuations.
Q3) In the short-run macro model,if the economy is in equilibrium,it must also be operating at full employment.
A)True
B)False
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Page 28
Chapter 24: Fiscal Policy
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Sample Questions
Q1) Countercyclical fiscal policy has a serious problem with A) overshooting the desired impact by a factor of 10.
B) the irreversibility of actions.
C) the tendency of the Federal Reserve to immediately counter Congressional action.
D) the courts as it has been held to be unconstitutional.
E) overshooting the desired impact by a factor of 3.
Q2) If net taxes are cut,consumer
A) spending is not affected
B) spending increases by the amount of the tax cut
C) spending increases by an amount less than the full amount of the tax cut
D) saving increases by the full amount of the tax cut
E) spending increases by two-thirds of the amount of the tax cut and consumer saving increases by one-third of the amount of the tax cut
Q3) Which of the following is true?
A) The federal budget deficit is a flow and so is the national debt.
B) The national debt is both a stock and a flow.
C) The federal budget deficit is a stock and the national debt is a flow.
D) The federal budget deficit is a flow and the national debt is a stock.
E) The federal budget deficit is a stock and so is the national debt.
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Page 29
Chapter 25: Money,banks,and the Federal Reserve
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Sample Questions
Q1) Which of the following could not serve as commodity money?
A) diamond
B) gold
C) paper
D) fur
E) silver
Q2) Suppose the Federal Reserve wants to increase the money supply.Which combination of actions would lead to the appropriate effect?
A) Increase the discount rate,decrease the reserve ratio,sell bonds.
B) Increase the discount rate,decrease the reserve ratio,buy bonds.
C) Decrease the discount rate,decrease the reserve ratio,buy bonds.
D) Decrease the discount rate,increase the reserve ratio,buy bonds.
E) Decrease the discount rate,decrease the reserve ratio,sell bonds.
Q3) Commercial banks that are members of the Federal Reserve System actually choose some of the directors of the 12 Federal Reserve District banks.
A)True
B)False
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Chapter 26: The Money Market and Monetary Policy
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Q1) Equilibrium GDP and the interest rate are interdependent.
A)True
B)False
Q2) In the short-run macro model,a decrease in the money supply will
A) lower the interest rate,increase spending,and increase GDP
B) lower the interest rate,reduce spending,and lower GDP
C) raise the interest rate,increase spending,and increase GDP
D) raise the interest rate,reduce spending,and lower GDP
E) raise the interest rate,reduce spending,and increase GDP
Q3) The difference between an interest rate and some other,benchmark interest rate is known as the
A) spread.
B) rate difference
C) rate of return differential.
D) rent.
E) income differential.
Q4) If the price of a bond increases,the interest rate (or rate of return on the bond)decreases.
A)True
B)False
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Chapter 26: Feedback Effects From GDP to the Money
Market
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Q1) ]If consumers become more optimistic,which of the following is the most likely in the short run?
A) A decrease in output,a decrease in money demand,and a decrease in the interest rate.
B) An increase in output,an increase in money demand,and an increase in the interest rate.
C) An increase in output,an increase in money demand,and a decrease in the interest rate.
D) A decrease in output,an increase in money demand,and a decrease in the interest rate.
E) An increase in output,a decrease in money demand,and a decrease in the interest rate.
Q2) Which of the following dampens the effect on GDP of a change in government spending?
A) The money supply changes when real income changes.
B) Taxes change when government spending changes.
C) Money demand changes when real income changes.
D) People do not expect much from the government.
E) Aggregate spending does not respond to changes in the interest rate.
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Chapter 27: Aggregate Demand and Aggregate Supply
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Q1) The economy's long run aggregate supply curve
A) is horizontal,indicating that the economy always reaches full employment in the long run.
B) is vertical at the full-employment level of output,indicating that the price level is constant in the long run.
C) is horizontal,indicating that prices are constant in the long run.
D) is vertical at the full-employment level of output,indicating that the economy always reaches full employment in the long run.
E) is vertical at the zero budget deficit level of output.
Q2) A negative demand shock would lead to a decline in both the price level and output in the short run.
A)True
B)False
Q3) The increase in world oil prices in 1990 initially
A) caused the AS curve to shift upward as wage rates quickly adjusted
B) increased the level of GDP associated with high price levels
C) shifted the aggregate expenditure line upward
D) caused the AS curve to shift upward due to higher costs per unit of output
E) caused the AD curve to shift leftward due to an increasing interest rate
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Page 33
Chapter 28: Inflation and Monetary Policy
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Q1) Which of the following is a possible cure for ongoing inflation?
A) The Fed could pursue anti-cyclical monetary policy.
B) The Fed could increase money supply whenever the AD curve shifts to the right.
C) The Fed could maintain a constant interest rate target regardless of economic circumstances.
D) The Fed could always try to keep the unemployment rate below the natural rate.
E) The Fed could pursue anti-cyclical fiscal policy.
Q2) If the Federal Reserve unexpectedly raised its interest rate target,which of the following would most likely occur?
A) The interest rate would increase and bond prices would rise.
B) The interest rate would decrease and bond prices would rise.
C) The interest rate would increase and bond prices would fall.
D) The interest rate would decrease and bond prices would fall.
E) The interest rate would increase but bond prices would not change.
Q3) The Federal Reserve has been quite successful in keeping the inflation rate low for the past 20 years.
A)True
B)False
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Chapter 29: Exchange Rates and Macroeconomic Policy
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Q1) If the demand for British pounds increases,
A) the equilibrium price of the pound will increase
B) the equilibrium price of the pound will decrease
C) the equilibrium price of the pound will not change
D) the equilibrium price of the pound will change,but we need additional information to predict the direction of the change
E) no one can predict what will happen
Q2) The most dramatic and rapid increases and decreases in exchange rates occur in the
A) very short run
B) short run
C) long run
D) very long run
E) triangular arbitrage market
Q3) If a country fixes its exchange rate below the equilibrium value,
A) the central bank must buy its own
B) there will be downward pressure on the exchange rate
C) its currency will appreciate
D) the result is an excess demand for that country's currency
E) its currency will depreciate
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Chapter 30: Appendix-finding Equilibrium GDP
Algebraically
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Q1) If autonomous consumption is $5,000,the MPC is 0.7,net taxes are $2,000,investment spending is $4,000,and government purchases equal $2,500,and NX = $0,what is equilibrium GDP?
A) $14,428.6
B) $33,666.7
C) $40,800
D) $43,000
E) $45,000
Q2) If autonomous consumption is $1,000,the MPC is 0.75,net taxes are $500,investment spending is $800,and government purchases equals $500,and NX = $0,what is equilibrium GDP?
A) $1,800
B) $1,925
C) $2,566.7
D) $7,200
E) $7,700
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36
Chapter 31: Appendix: Capital and Leverage
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Q1) Just as greater leverage multiplies a bank's potential profits,it also multiplies a bank's potential losses.
A)True
B)False
Q2) It was the rapid and system-wide deleveraging that contributed to the downward spiral of the 2008 financial crisis.
A)True
B)False
Q3) One way to decrease leverage is increasing capital.
A)True
B)False
Q4) Deleveraging is the process of reducing leverage,and therefore increasing the risk to capital from any further declines in asset prices.
A)True
B)False
Q5) In the aftermath of the 2008 financial crisis,everyone agreed that lower leverage ratios would be a good thing.
A)True
B)False
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