Basic Economics for Non-Majors Exam Bank
Course Introduction
This course provides an accessible introduction to the fundamental principles of economics, tailored for students from non-economics backgrounds. It explores key concepts such as supply and demand, market structures, the role of government in the economy, and the basics of macroeconomic indicators like GDP, inflation, and unemployment. Through real-world examples and interactive discussions, students will develop an understanding of how economic decisions are made by individuals, businesses, and governments, and how these decisions impact everyday life. The course emphasizes practical applications of economic reasoning, equipping students with the tools to interpret current events and make informed personal and professional choices.
Recommended Textbook Principles of Economics 5th Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) The invisible hand ensures that economic prosperity is distributed equally.
A)True
B)False
Answer: False
Q2) A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies
A) enhance equality.
B) reduce efficiency.
C) reduce the reward for working hard.
D) All of the above are correct.
Answer: D
Q3) Market power and externalities are two possible causes of market failure.
A)True
B)False
Answer: True
Q4) Inflation is the primary determinant of a country's living standards.
A)True
B)False
Answer: False
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Chapter 2: Thinking Like an Economist
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Q1) The design of tax policy is one of the responsibilities of economists who work at the A) Council of Economic Advisers.
B) Federal Reserve.
C) Department of the Treasury.
D) Congressional Budget Office.
Answer: C
Q2) Which of these statements about economic models is correct?
A) For economists,economic models provide insights about the world.
B) Economic models are built with assumptions.
C) Economic models are often composed of equations and diagrams.
D) All of the above are correct.
Answer: D
Q3) Which of the following is not an example of a graph of a single variable?
A) a pie chart
B) a bar graph
C) a time-series graph
D) a scatterplot
Answer: D
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Belarus has a comparative advantage in the production of linen,but Russia has an absolute advantage in the production of linen.If these two countries decide to trade,
A) Belarus should export linen to Russia.
B) Russia should export linen to Belarus.
C) trading linen would provide no net advantage to either country.
D) Without additional information about opportunity costs,this question cannot be answered.
Answer: A
Q2) Refer to Figure 3-3.If Enid must work 0.25 hour to produce each taco,then her production possibilities frontier is based on how many hours of work?
A) 40 hours
B) 100 hours
C) 400 hours
D) 1600 hours
Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Q1) In a competitive market,the price of a product
A) is determined by buyers and the quantity of the product produced is determined by sellers.
B) is determined by sellers and the quantity of the product produced is determined by buyers.
C) and the quantity of the product produced are both determined by sellers.
D) None of the above is correct.
Q2) In a competitive market,each seller has limited control over the price of his product because
A) other sellers are offering similar products.
B) buyers exert more control over the price than do sellers.
C) these markets are highly regulated by the government.
D) sellers usually agree to set a common price that will allow each seller to earn a comfortable profit.
Q3) Surpluses drive price up while shortages drive price down.
A)True B)False
Q4) An increase in demand shifts the demand curve to the left.
A)True
B)False
Page 6
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Chapter 5: Elasticity and Its Application
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Q1) If the price of milk rises,when is the price elasticity of demand likely to be the lowest?
A) immediately after the price increase
B) one month after the price increase
C) three months after the price increase
D) one year after the price increase
Q2) Generally,a firm is more willing and able to increase quantity supplied in response to a price change when
A) the relevant time period is short rather than long.
B) the relevant time period is long rather than short.
C) supply is inelastic.
D) the firm is experiencing capacity problems.
Q3) The income elasticity of demand for caviar tends to be
A) high because caviar is relatively expensive.
B) low because caviar is packaged in small containers.
C) high because buyers generally feel that they can do without it.
D) low because it is almost always in short supply.
Q4) When demand is inelastic,a decrease in price increases total revenue.
A)True
B)False
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Chapter 6: Supply, Demand, and Government Policies
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Q1) The rationing mechanisms that develop under binding price ceilings are usually inefficient.
A)True B)False
Q2) When a free market for a good reaches equilibrium,anyone who is willing and able to sell at the market price can sell the good.
A)True B)False
Q3) Who bears the majority of a tax burden depends on the relative elasticity of supply and demand.
A)True
B)False
Q4) When a binding price floor is imposed on a market,
A) price no longer serves as a rationing device.
B) the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor.
C) only some sellers benefit.
D) All of the above are correct.
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) Welfare economics is the study of
A) the well-being of less fortunate people.
B) welfare programs in the United States.
C) how the allocation of resources affects economic well-being.
D) the effect of income redistribution on work effort.
Q2) Donald produces nails at a cost of $200 per ton.If he sells the nails for $350 per ton,his producer surplus per ton is
A) $150.
B) $200.
C) $350.
D) $550.
Q3) Refer to Figure 7-7.When the price rises from P1 to P2,which area represents the increase in producer surplus to existing producers?
A) BCG
B) ACH
C) DGH
D) ABGD
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Chapter 8: Application: The Costs of Taxation
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Q1) When a tax is levied on the buyers of a good,the
A) supply curve shifts upward by the amount of the tax.
B) quantity supplied increases for all conceivable prices of the good.
C) buyers of the good will send tax payments to the government.
D) demand curve shifts to the right by the horizontal distance of the tax.
Q2) Refer to Figure 8-3.The loss in producer surplus caused by the tax is measured by the area
A) ABC.
B) P1P3ABC.
C) P1P2BC.
D) P1C0.
Q3) When a tax is imposed on sellers,producer surplus decreases but consumer surplus increases.
A)True
B)False
Q4) Total surplus with a tax is equal to
A) consumer surplus plus producer surplus.
B) consumer surplus minus producer surplus.
C) consumer surplus plus producer surplus minus tax revenue.
D) consumer surplus plus producer surplus plus tax revenue.
Page 10
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Chapter 9: Application: International Trade
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Q1) Several arguments for restricting trade have been advanced.Those arguments do not include
A) the jobs argument.
B) the protection-as-a-bargaining-chip argument.
C) the no-deadweight-loss argument.
D) the infant-industry argument.
Q2) Policymakers often consider trade restrictions in order to protect domestic producers from foreign competitors.
A)True
B)False
Q3) A tariff on a product makes
A) domestic sellers better off and domestic buyers worse off.
B) domestic sellers worse off and domestic buyers worse off.
C) domestic sellers better off and domestic buyers better off.
D) domestic sellers worse off and domestic buyers better off.
Q4) The results of a 2007 Los Angeles Times poll suggest that a significant majority of Americans believe that free international trade helps the American economy.
A)True
B)False
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Chapter 10: Externalities
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Q1) Refer to Figure 10-5.Which of the following statements is correct?
A) The marginal benefit of the positive externality is measured by P<sub>3</sub>P<sub>1</sub>.
B) The marginal cost of the negative externality is measured by P<sub>3</sub>P<sub>2</sub>.
C) The marginal cost of the negative externality is measured by P<sub>3</sub>P<sub>1</sub>.
D) The marginal cost of the negative externality is measured by P<sub>3</sub>P<sub>0</sub>.
Q2) Private contracts between parties with mutual interests
A) will reduce the well-being of society.
B) will lead to market outcomes in which the public interest is sacrificed for personal gain.
C) can solve some inefficiencies associated with positive externalities.
D) will create negative externalities.
Q3) Many charities like the Sierra Club are established to deal with externalities.
A)True B)False
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Chapter 11: Public Goods and Common Resources
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Q1) When an infinite value is placed on human life,policymakers who rely on cost-benefit analysis
A) are forced to pursue any project in which a single human life is saved.
B) are likely to make decisions that optimally allocate society's scarce resources.
C) would not pursue any public project that would not save human life.
D) would be forced to rely on private markets to provide public goods.
Q2) National Public Radio would be considered a natural monopoly.
A)True
B)False
Q3) Refer to Table 11-3.What is the value of the 33<sup>rd</sup> unit of national defense in Happyville?
A) $0
B) $2
C) $4
D) $6
Q4) London charges drivers driving in "congestion zones" a tax in order to reduce traffic congestion.
A)True
B)False
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Chapter 12: The Design of the Tax System
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Q1) Which of the following is true about the percent of total income all levels of government in the U.S.take as taxes?
A) In 1902 the government collected about 7 percent of total income.In recent years,it collected about 30 percent of total income.
B) In 1902 the government collected about 30 percent of total income.In recent years,it collected about 7 percent of total income.
C) In 1902 the government collected about 7 percent of total income.In recent years,it collected about 7 percent of total income.
D) In 1902 the government collected about 30 percent of total income.In recent years,it collected about 30 percent of total income.
Q2) If transfer payments are included when evaluating tax burdens,then the average tax rate of the poorest quintile of taxpayers would be approximately A) negative 30 percent.
B) negative 10 percent.
C) positive 1 percent.
D) positive 8 percent.
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Chapter 13: The Costs of Production
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Q1) In the short run,if a firm produces nothing,total costs are zero.
A)True
B)False
Q2) When marginal cost is less than average total cost,
A) marginal cost must be falling.
B) average variable cost must be falling.
C) average total cost is falling.
D) average total cost is rising.
Q3) Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of output.Assume two points on the firm's production function are (L = 12,Q = 122)and (L = 13,Q = 132).Then the marginal product of the 13th worker is
A) 8 units of output.
B) 10 units of output.
C) 122 units of output.
D) 132 units of output.
Q4) If a firm produces nothing,it still incurs its fixed costs.
A)True
B)False
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Chapter 14: Firms in Competitive Markets
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Q1) Refer to Figure 14-9.When the market is in long-run equilibrium at point A in panel (b),the firm represented in panel (a)will
A) have a zero economic profit.
B) have a negative accounting profit.
C) exit the market.
D) choose to increase production to increase profit.
Q2) Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In this market,an increase in demand will
A) increase price in the short run but not in the long run.
B) increase price in the long run but not in the short run.
C) increase price both in the short and the long run.
D) not affect price in either the short or the long run.
Q3) The long-run supply curve for a competitive industry may be upward sloping if A) there are barriers to entry.
B) firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry.
C) some resources are available only in limited quantities.
D) accounting profits are positive.
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Chapter 15: Monopoly
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Q1) Refer to Scenario 15-6.How much profit will the airline earn if it engages in price discrimination?
A) -$5,000
B) $40,000
C) $55,000
D) $75,000
Q2) Refer to Figure 15-11.If there are no fixed costs of production,monopoly profit with perfect price discrimination equals
A) $500.
B) $1,000.
C) $2,000.
D) $4,000.
Q3) When a local grocery store offers discount coupons in the Sunday paper it is most likely trying to
A) reduce prices for all customers.
B) encourage literacy.
C) encourage arbitrage.
D) price discriminate.
Q4) Give some examples of the benefits and costs of antitrust laws.
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Chapter 16: Monopolistic Competition
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Q1) Defenders of advertising argue that it is not rational for profit-maximizing firms to spend money on advertising for products that have
A) superior quality.
B) inferior or mediocre quality.
C) low prices.
D) limited availability.
Q2) Refer to Table 16-5.If the government forced Traci's to produce at the efficient scale of output,what is the maximum profit Traci's could earn?
A) $77
B) $80
C) $84
D) $96
Q3) Professional organizations and producer groups have an incentive to
A) restrict advertising in order to enhance competition on the basis of price.
B) restrict advertising in order to reduce competition on the basis of price.
C) encourage advertising in order to reduce competition on the basis of price.
D) encourage advertising in order to enhance competition on the basis of price.
Q4) What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?
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Chapter 17: Oligopoly
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Q1) In game theory,a Nash equilibrium is
A) an outcome in which each player is doing his best given the strategies chosen by the other players.
B) an outcome in which no player wishes to change their chosen strategy given the strategies chosen by the other players.
C) the outcome that occurs when all players have a dominant strategy.
D) All of the above are correct.
Q2) Refer to Table 17-9.When this game reaches a Nash equilibrium,profits for Firm A and Firm B will be
A) $-5 and $-50,respectively.
B) $-10 and $-10,respectively.
C) $-20 and $-15,respectively.
D) $-50 and $-5,respectively.
Q3) Even when allowed to collude,firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel.Why?
Q4) Whether an oligopoly consists of 3 firms or 10 firms,the level of output likely will be the same.
A)True
B)False
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Chapter 18: The Markets for the Factors of Production
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Q1) Refer to Figure 18-1.Suppose the firm sells its output for $12 per unit,and it pays each of its workers $700 per week.How many workers will the firm hire to maximize its profit?
A) 2
B) 3
C) 4
D) 5
Q2) Refer to Scenario 18-2.When Gertrude participates in the labor market to hire crew members for her boats,she is most likely considered a
A) demander of labor services.
B) supplier of labor services.
C) demander of capital.
D) supplier of capital.
Q3) Suppose that the market for labor is initially in equilibrium.Suppose that workers' tastes change so that they choose to retire at age 55 rather than age 67.Then
A) the equilibrium wage and the quantity of labor will both rise.
B) the equilibrium wage and the quantity of labor will both fall.
C) the equilibrium wage will rise and the quantity of labor will fall.
D) the equilibrium wage will fall and the quantity of labor will rise.
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Chapter 19: Earnings and Discrimination
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Q1) Workers whose skills become obsolete as a result of technological change are often paid a lower wage as a result of
A) natural ability.
B) geographic location of employment.
C) chance.
D) work effort.
Q2) In general,the higher a person's education level,
A) the higher the person's earnings.
B) the more physically attractive the person is likely to be.
C) the more socially outgoing the person is likely to be.
D) All of the above are correct.
Q3) Explain the role of job experience in explaining the differences between the average wages of men and women.
Q4) The number of American workers employed in the manufacturing sector has
A) declined from 30 percent in the 1940s to 10 percent today.
B) increased from 10 percent in the 1940s to 30 percent today.
C) declined,which has contributed to the decline in global industrial output.
D) increased more rapidly than the increase in farming jobs.
Q5) Explain the role that consumers play in perpetuating discrimination in labor markets.
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Chapter 20: Income Inequality and Poverty
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Q1) In the United States approximately 80 percent of millionaires did not inherit their wealth.This statement is an example of
A) transitory income.
B) the effectiveness of government anti-poverty programs.
C) economic mobility.
D) permanent income.
Q2) Which of the following is not discussed by economist Tyler Cowen as an alternative to measuring inequality by income?
A) Leisure.
B) Happiness.
C) Consumption.
D) Age.
Q3) When designing public policies,which income group would philosopher John Rawls argue needs the most attention?
A) Individuals located in the bottom fifth of the income distribution.
B) Individuals located at the average income level..
C) Individuals located in the top fifth of the income distribution.
D) Individuals located in the top five percent of the income distribution.
Q4) Explain the relationship between labor earnings and the distribution of income.
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Chapter 21: The Theory of Consumer Choice
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Q1) Pepsi and pizza are normal goods.When the price of pizza rises,the substitution effect causes Pepsi to be relatively
A) more expensive,so the consumer buys more Pepsi.
B) more expensive,so the consumer buys less Pepsi.
C) less expensive,so the consumer buys more Pepsi.
D) less expensive,so the consumer buys less Pepsi.
Q2) When the price of an inferior good decreases,
A) both the income and substitution effects encourage the consumer to purchase more of the good.
B) both the income and substitution effects encourage the consumer to purchase less of the good.
C) the income effect encourages the consumer to purchase more of the good,and the substitution effect encourages the consumer to purchase less of the good.
D) the income effect encourages the consumer to purchase less of the good,and the substitution effect encourages the consumer to purchase more of the good.
Q3) Using indifference curves and budget constraints,graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.
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Chapter 22: Frontiers of Microeconomics
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Q1) An example of asymmetric information is when a seller of a house knows more than the buyer about the house's condition.
A)True
B)False
Q2) An efficiency wage
A) gives an employee an incentive to shirk his duties.
B) is lower than the equilibrium wage for that position and region.
C) is higher than the equilibrium wage for that position and region.
D) both a and b are correct.
Q3) When new professors are hired,their job performance is monitored closely.If they meet their institution's standards,they will eventually receive tenure.After receiving tenure,professors' job performance is less closely monitored,and they become difficult to fire.Tenure thus creates
A) adverse selection.
B) a Condorcet paradox.
C) a screening problem.
D) moral hazard.
Q4) Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information.
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Chapter 23: Measuring a Nations Income
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Q1) In the economy of Wrexington in 2008,real GDP was $5 trillion and the GDP deflator was 200.What was Wrexington's nominal GDP in 2008?
A) $2.5 trillion
B) $10 trillion
C) $40 trillion
D) $100 trillion
Q2) A country reported a nominal GDP of $85 billion in 2008 and $100 billion in 2007.It also reported a GDP deflator of 100 in 2008 and 105 in 2007.Between 2007 and 2008,
A) real output and the price level both rose.
B) real output rose and the price level fell.
C) real output fell and the price level rose.
D) real output and the price level both fell.
Q3) For an economy as a whole,income must exceed expenditure.
A)True
B)False
Q4) Periods during which real GDP rises are called recessions.
A)True
B)False
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Chapter 24: Measuring the Cost of Living
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Q1) For an imaginary economy,the consumer price index was 62.50 in 2004,100.00 in 2005,and 160.00 in 2006.Which of the following statements is correct?
A) If the basket of goods that is used to calculate the CPI cost $80 in 2004,then that basket of goods cost $128 in 2005.
B) If the basket of goods that is used to calculate the CPI cost $90 in 2005,then that basket of goods cost $150 in 2006.
C) The overall level of prices increased by 97.5 percent between 2004 and 2006.
D) All of the above are correct.
Q2) Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.
A)True
B)False
Q3) The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.
A)True
B)False
Q4) Why does the GDP deflator give a different rate of inflation than the CPI?
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Chapter 25: Production and Growth
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Q1) Some data that at first might seem puzzling: The share of GDP devoted to investment was similar for the United States and South Korea from 1960-1991.However,during these same years South Korea had a 6 percent growth rate of average annual income per person,while the United States had only a 2 percent growth rate.If the saving rates were the same,why were the growth rates so different?
Q2) Suppose that Slovenia undertakes a policy to increase its saving rate.This policy will likely
A) have no impact on GDP growth.
B) lead to higher GDP growth for a few years.
C) lead to higher GDP growth for a period of several decades.
D) lead to a permanently higher growth rate.
Q3) The key determinant of a the standard of living in a country is
A) the amount of goods and services produced from each hour of a worker's time.
B) the total amount of goods and services produced within the country.
C) the total amount of its physical capital.
D) its growth rate of real GDP.
Q4) At first patents might seem like a deterrent to growth because in effect they restrict the use of new technology.Yet many economists believe that patents generate growth.Explain why.
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Chapter 26: Saving, investment, and the Financial System
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Q1) Refer to Scenario 26-1.This economy's government is running a
A) budget surplus of $4,000.
B) budget surplus of $8,000.
C) budget deficit of $4,000.
D) budget deficit of $8,000.
Q2) XDF Corp.had a price-earnings ratio of 15,paid a dividend of $1,and retained earnings of $2 a share.What was the price of a share of XDF stock?
A) $15
B) $30
C) $45
D) None of the above is correct.
Q3) We interpret the term loanable funds to mean the flow of resources available to fund private investment.
A)True
B)False
Q4) The term loanable funds refers to all income that is not used for consumption.
A)True
B)False
Q5) What are the basic differences between bonds and stocks?
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Chapter 27: The Basic Tools of Finance
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Q1) Which of the following is not consistent with the efficient market hypothesis?
A) Stock prices should follow a random walk.
B) Index funds should typically outperform highly managed funds.
C) News has no effect on stock prices..
D) There is little point in spending many hours studying the business pages looking for undervalued stocks.
Q2) An increase in the number of corporations in a portfolio from 110 to 120 reduces
A) market risk by more than an increase from 1 to 10.
B) market risk by less than an increase from 1 to 10.
C) firm-specific risk by more than an increase from 1 to 10.
D) firm-specific risk by less than an increase from 1 to 10.
Q3) When a person engages in detailed analysis of a company to determine its value,he or she is engaging in
A) standard deviation analysis.
B) informational analysis.
C) fundamental analysis.
D) efficiency analysis.
Q4) Diversification can reduce firm-specific risk.
A)True
B)False
Page 29
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Chapter 28: Unemployment
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Q1) The Bureau of Labor Statistics defines the unemployment rate as the percentage of the labor force that is unemployed.
A)True
B)False
Q2) People who report being not in the labor force but who,in fact,want to work but have given up trying to find a job after an unsuccessful search are really unemployed and therefore cause the reported unemployment rate to be lower than it would otherwise be.
A)True
B)False
Q3) The deviation of unemployment from its natural rate is called cyclical unemployment.
A)True
B)False
Q4) Most U.S.workers have wages well above the legal minimum,so minimum-wage laws do not prevent the wage from adjusting to balance supply and demand.
A)True
B)False
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Chapter 29: The Monetary System
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Q1) A bank's assets equal its liabilities under
A) both 100-percent-reserve banking and fractional-reserve banking.
B) neither 100-percent-reserve banking nor fractional-reserve banking.
C) 100-percent-reserve banking but not under fractional-reserve banking.
D) fractional-reserve banking but not under 100-percent-reserve banking.
Q2) Imagine that the federal funds rate was above the level the Federal Reserve had targeted.To move the rate back towards it's target the Federal Reserve could
A) buy bonds.This buying would reduce reserves.
B) buy bonds.This buying would increase reserves.
C) sell bonds.This selling would reduce reserves.
D) sell bonds.This selling would increase reserves.
Q3) Credit cards are a medium of exchange.
A)True
B)False
Q4) If people decide to hold more currency relative to deposits,the money supply
A) falls.The larger the reserve ratio is,the more the money supply falls.
B) falls.The larger the reserve ratio is,the less the money supply falls.
C) rises.The larger the reserve ratio is,the more the money supply rises.
D) rises.The larger the reserve ratio is,the less the money supply rises.
Q5) What makes the New York Federal Reserve regional bank so important?
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Chapter 30: Money Growth and Inflation
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Q1) Which of the following is correct?
A) If the Fed purchases bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve.
B) If the Fed sells bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve.
C) If the Fed purchases bonds,then the money supply curve shifts right.An increase in the price level shifts the money supply curve right.
D) If the Fed sells bonds,then the money supply curve shifts right.A decrease in the price level shifts the money supply curve right.
Q2) Refer to Figure 30-1.When the money supply curve shifts from MS<sub>1</sub> to MS<sub>2</sub>,
A) the equilibrium value of money decreases.
B) the equilibrium price level decreases.
C) the supply of money has decreased.
D) the demand for goods and services will decrease.
Q3) According to the classical dichotomy,what changes nominal variables? What changes real variables?
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) If business opportunities in a country become relatively less attractive relative to those of other countries,then
A) both its net exports and net capital outflows fall.
B) both its net exports and net capital outflows rise.
C) its net exports fall and its net capital outflows fall.
D) its net exports rise and its net capital outflows fall
Q2) Suppose a Starbucks tall-latte cost $4.00 in the United States and 3.20 euros in the Euro area.Also,suppose a McDonald's Big Mac costs $3.50 in the United States and 2.45 euros in Euro area.If the nominal exchange rate is .80 euros per dollar,which goods have prices that are consistent with purchasing power parity?
A) Both the tall-latte and the Big Mac.
B) Neither the tall-latte nor the Big Mac.
C) The tall-latte but not the Big Mac.
D) The Big Mac but not the tall-latte.
Q3) The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does domestically.
A)True
B)False
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) If the U.S.government imposes a quota on toy imports,then net exports of U.S.toys would
A) rise.
B) not change.
C) fall.
D) rise,not change,or fall depending on what happened to the exchange rate.
Q2) If interest rates rose more in the U.S.than in Canada,then other things the same
A) U.S.citizens would buy more Canadian bonds and Canadian citizens would buy more U.S.bonds.
B) U.S.citizens would buy more Canadian bonds and Canadian citizens would buy fewer U.S.bonds.
C) U.S.citizens would buy fewer Canadian bonds and Canadian citizens would buy more U.S.bonds.
D) U.S.citizens would buy fewer Canadian bonds and Canadian citizens would buy fewer U.S.bonds.
Q3) Which of the following could explain a decrease in the U.S.real exchange rate?
A) the U.S.government budget deficit rises
B) the U.S.impose import quotas
C) the default risk of U.S.assets rise
D) All of the above are correct.
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) Which of the following will both make people spend more?
A) wealth and interest rates rise.
B) wealth rises and interest rates fall.
C) wealth falls and interest rates rise.
D) wealth falls and interest rates fall.
Q2) When the dollar appreciates,U.S.
A) exports decrease,while imports increase.
B) exports and imports decrease.
C) exports and imports increase.
D) exports increase,while imports decrease.
Q3) Other things the same,as the price level falls,a country's exchange rate
A) and interest rates rise.
B) and interest rates fall.
C) falls and interest rates rise.
D) rises and interest rates fall.
Q4) Like real GDP,investment fluctuates,but it fluctuates much less than real GDP..
A)True
B)False
Q5) What do most economists believe concerning the relation between the price level and real output?
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Which of the following is not an automatic stabilizer?
A) the minimum wage
B) the unemployment compensation system
C) the federal income tax
D) the welfare system
Q2) The theory of liquidity preference assumes that the nominal supply of money is determined by the
A) level of real output only.
B) interest rate only.
C) level of real output and by the interest rate.
D) Federal Reserve.
Q3) Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?
Q4) When the government reduces taxes,which of the following decreases?
A) consumption
B) take-home pay
C) household saving
D) None of the above is correct.
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Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) Refer to Figure 35-4.If the economy starts at C and the money supply growth rate increases,in the long run the economy
A) stays at C.
B) moves to B.
C) moves to F.
D) None of the above is consistent wit an increase in the money supply growth rate.
Q2) The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point.
A)True
B)False
Q3) In the Friedman-Phelps analysis,when inflation is less than expected,the unemployment rate is less than the natural rate.
A)True
B)False
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Q5) Friedman and Phelps believed that the natural rate of unemployment was constant.
A)True
B)False
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Suppose that the country of Aquilonia has an inflation rate of about 5 percent per year and a real growth rate of about 5 percent per year.Suppose also that it has nominal GDP of about 200 billion units of currency and current nominal national debt of 150 billion units of domestic currency.Which of the following government spending and taxation figures will not raise the debt-to-income ratio?
A) government spending equal to 50 billion units and tax collections equal to 76 billion units
B) government spending equal to 50 billion units and tax collections equal to 14 billion units
C) government spending equal to 50 billion units and tax collections equal to 10 billion units
D) government spending equal to 50 billion units and tax collections equal to 8 billion units
Q2) Social Security transfers wealth from younger generations to older generations. A)True B)False
Q3) Explain why policy lags could make stabilization policies counterproductive.
Q4) Explain the time inconsistency of monetary policy.
Q5) Why do many economists advocate a consumption tax rather than an income tax?
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