Contemporary Economic Issues
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Course Introduction
Contemporary Economic Issues explores current challenges and opportunities facing national and global economies. The course examines topics such as globalization, income inequality, unemployment, inflation, environmental sustainability, international trade, monetary and fiscal policy, and the impacts of technological change. Students will analyze recent case studies, interpret economic data, and evaluate policy responses to real-world problems, developing a deeper understanding of how economic theories apply to today's most pressing issues.
Recommended Textbook Essentials of Economics 6th Edition by
R. Glenn Hubbard
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2
Chapter 1: Economics: Foundations and Models
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Q1) Voluntary exchange ________ economic efficiency because neither the buyer nor the seller would agree to a trade unless ________.
A) increases; they both benefit
B) increases; only one party benefits
C) decreases; neither benefit
D) decreases; they both benefit
Answer: A
Q2) Which of the following is a microeconomic question?
A) When will the government better secure the borders?
B) Why hasn't the federal government raised the minimum wage?
C) How does Fiat decide on the price of the 500 Pop model?
D) What determines the level of U.S. imports and exports?
Answer: C
Q3) Every society faces trade-offs.Explain the concept of trade-offs.
Answer: Trade-offs refer to the idea that,because of scarcity,producing more of one good or service means producing less of another good or service.
Q4) What is an economic model?
Answer: An economic model is a simplified version of reality used to analyze real-world economic situations.
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Q1) The basis for trade is comparative advantage,not absolute advantage. A)True
B)False
Answer: True
Q2) The idea underlying Adam Smith's "invisible hand" is that people tend to behave in ways that go unnoticed in society.
A)True
B)False
Answer: False
Q3) Refer to Table 2-4.Assume Dina's Diner only produces sliders and hot wings.A combination of 40 sliders and 25 hot wings would appear
A) along Dina's production possibilities frontier.
B) inside Dina's production possibilities frontier.
C) outside Dina's production possibilities frontier.
D) at the vertical intercept of Dina's production possibilities frontier.
Answer: B
Q4) What is an entrepreneur?
Answer: An entrepreneur is someone who operates a business,bringing together the factors of production to produce goods and services.
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Q1) Refer to Figure 3-5.At a price of $15
A) there would be a surplus of 4 units.
B) there would be a shortage of 2 units.
C) there would be a surplus of 6 units.
D) there would be a shortage of 4 units.
Answer: A
Q2) Refer to Table 3-2.The table above shows the demand schedules for caviar of two individuals (Ari and Sonia)and the rest of the market.At a price of $55,the quantity demanded in the market would be
A) 42 oz.
B) 136 oz.
C) 178 oz.
D) 233 oz.
Answer: C
Q3) What is the law of supply? What does this law imply about the shape of the supply curve?
Answer: The law of supply states that,holding everything else constant,an increase in price causes an increase in quantity supplied.The positive relationship between price and quantity supplied gives rise to an upward-sloping supply curve.
Page 5
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Chapter 4: Market Efficiency and Market Failure
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Q1) Which of the following is an example of the U.S.government's use of a "command-and-control" approach to reducing pollution?
A) In 1990 Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010.
B) The U.S. government imposed a tax on electric utilities to reduce damages from acid rain.
C) The government issued electric utilities tradable emission allowances in order to reduce emissions of nitrogen oxide.
D) In the 1980s the U.S. government required the installation of catalytic converters to reduce emissions from all new automobiles.
Q2) Refer to Figure 4-6.What area represents producer surplus at the equilibrium price of P ?
A) A + B + D
B) D + E
C) D + E + G + H
D) A + B + C + D + E
Q3) Explain how mandatory seat belt laws may reduce the negative externalities of risky behavior.
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Chapter 5: The Economics of Health Care
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Q1) If consumers paid the full price of medical services instead of using health insurance and third-party payers to cover part of the cost,the quantity of medical services provided would increase.
A)True
B)False
Q2) Those who favor changes in the market for health care that would make it more like the markets for other goods and services are generally in favor of universal health care coverage.
A)True
B)False
Q3) What is asymmetric information?
Q4) Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.
A)True
B)False
Q5) In what ways do economists and policymakers who believe that the federal government should have a larger role in the health care system criticize the Patient Protection and Affordable Care Act (ACA)?
Q6) What is moral hazard?
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Chapter 6: Firms, The Stock Market, and Corporate Governance
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Sample Questions
Q1) A cost that involves spending money is
A) an implicit cost.
B) an explicit cost.
C) an opportunity cost.
D) an indirect cost.
Q2) Explain the relationship between the interest rate on a bond and the default risk on a bond.
Q3) How are corporate profits taxed in the United States?
A) Earnings are taxed first by state sales taxes and then as corporate profits at the Federal level.
B) Earnings are taxed first as personal income then as corporate profits at the Federal level.
C) Earnings are taxed first as corporate profits then as personal income after dividends are paid.
D) Corporate profits are not taxed at all.
Q4) Briefly describe the three most widely followed stock indexes in the United States.
Q5) Define a corporation.
Q6) What is a corporate bond and what does it specify?
Q7) Define a partnership.
Page 8
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Firms pay famous individuals to endorse their products because A) apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product.
B) the firms are irrational and are wasting advertising expenditures.
C) famous people obviously know what are the best goods and services.
D) famous people only consume high-quality products.
Q2) A newspaper story on the effect of higher milk prices on the market for ice cream contained the following:
"As a result [of the increase in milk prices],retail prices for ice cream are up 4 percent from last year....And ice cream consumption is down 3 percent."
Source: John Curran,"Ice Cream,They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press,July 23,2001.
Based on the information given,what is the price elasticity of demand for ice cream?
A) 0.75 (in absolute value)
B) 1.33 (in absolute value)
C) 12%
D) We do not have enough information to calculate the elasticity.
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Chapter 8: Technology,Production,and Costs
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Sample Questions
Q1) Refer to Figure 8-11.Constant returns to scale
A) occur for output rates greater than 5,000 picture frames.
B) occur between 5,000 and 20,000 picture frames per month.
C) occur between 10,000 and 20,000 pictures frames per month.
D) will shift the long-run average cost curve downward.
Q2) Which of the following statements is false?
A) An implicit cost is a nonmonetary opportunity cost.
B) Economic costs include both accounting costs and implicit costs.
C) An explicit cost is a cost that involves spending money.
D) Economists consider all costs to be implicit costs.
Q3) If average total cost is falling,marginal cost must also be falling.
A)True
B)False
Q4) In the short run,changes in output can only be brought about by a change in the quantity of variable inputs.
A)True
B)False
Q5) State the law of diminishing returns.How do diminishing returns differ from diseconomies of scale? Be sure to define diseconomies of scale in your answer.
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Chapter 9: Firms in Perfectly Competitive Markets
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Q1) Refer to Figure 9-17.Which of the following statements is true?
A) The current market price is $3 but the firm will be able to increase the price in the future.
B) The current market price is $3 but the price will fall in the long run as a result of a decrease in demand.
C) The current market price is $3 but the price will fall in the long run as new firms enter the market.
D) The current market price is $3 but the price will increase in the future as the market demand increases.
Q2) Max Shreck,an accountant,quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner,Sylvia Sidney.The lease has five years remaining and requires a monthly payment of $4,000.The lease
A) is a fixed cost of operating the tattoo parlor.
B) is a variable cost of operating the tattoo parlor.
C) is an implicit cost of operating the tattoo parlor.
D) is part of the marginal cost of operating the tattoo parlor.
Q3) Maximizing average profit is equivalent to maximizing total profit.
A)True
B)False
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Page 11
Chapter 10: Monopoly and Antitrust Policy
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Q1) Refer to Figure 10-12.What is the amount of consumer surplus if,instead of monopoly,the industry was organized as a perfectly competitive industry?
A) $21
B) $124
C) $186
D) $332
Q2) Refer to Figure 10-17.The faculty member who designed the course argues: "I think the course should be priced so that the maximum number of students enroll." How much profit (or loss)will the college make on the course if it charges this price?
A) -$2,592,000
B) -$1,080,000
C) $0
D) $450,000
Q3) The U.S.government would never approve a proposed merger between two firms that could significantly increase the newly merged firm's market power even if the efficiency gains from the newly merged firm could make consumers better off.
A)True
B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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Q1) If the demand curve for a firm is downward-sloping,its marginal revenue curve
A) will lie above the demand curve.
B) will lie below the demand curve.
C) is the same as the demand curve.
D) is horizontal.
Q2) Firms in an oligopoly are said to be interdependent.What does this mean?
Q3) Which of the following statements is true?
A) The marginal revenue of a monopolistically competitive firm will be positive at high prices and negative at low prices.
B) Because the demand curve for a monopolistically competitive firm is downward-sloping its marginal revenue will be negative.
C) The marginal revenue of a monopolistically competitive firm will be always be positive.
D) The marginal revenue of a monopolistically competitive firm will be positive at low prices and negative at high prices.
Q4) In a Nash equilibrium,all players select non-dominant strategies.
A)True
B)False
Q5) What are the formulas for total revenue,average revenue,and marginal revenue.
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Chapter 12: GDP: Measuring Total Production and Income
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Q1) Since real GDP is adjusted for inflation and nominal GDP is not,nominal GDP must always be higher than real GDP.Do you agree or disagree? Why?
Q2) Refer to Table 12-30.The table above represents hypothetical data from the National Income Accounts for 2017.Use the data to calculate personal income and disposable personal income.
Q3) Refer to Table 12-5.The value of each automobile in gross domestic product equals A) $7,000.
B) $15,000.
C) $18,000.
D) $25,000.
Q4) The total value of production from Ford's manufacturing plant in Cologne,Germany would be included in Germany's gross national product. A)True
B)False
Q5) If the value added of a firm is positive,will the firm necessarily have positive profits?
Q6) If the GDP deflator is less than 100,which will be higher: nominal GDP or real GDP? Why?
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Page 14
Chapter 13: Unemployment and Inflation
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Q1) Refer to Table 13-19.Looking at the table above,what is the rate of growth of the average price level from 2016 to 2017?
A) 1%
B) 2%
C) 3%
D) 4%
E) 5%
Q2) Why would a firm pay efficiency wages?
Q3) The economy has gone into a recession.You have majored in computer science and,because of the recession,have difficulty in finding a job.According to the information in the chapter,should you go back to school and get a second major?
A) Yes, the recession will ensure that you will never find a job as a programmer.
B) Yes, the recession will lower income in my field permanently.
C) No, the recession will most likely be short-lived and I can get a job after it is over.
D) No, the recession will have no impact on my ability to get a job or my future income.
Q4) Describe how inflation can be costly even if it is anticipated.
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Page 15
Chapter 14: Economic Growth, The Financial System, and Business Cycles
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Q1) Refer to Figure 14-6.The loanable funds market is in equilibrium,as shown in the figure above.An increase in the supply of loanable funds could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?
A) The real interest rate is 5 percent, and the quantity of loanable funds is $150 million.
B) The real interest rate is 5 percent, and the quantity of loanable funds is $90 million.
C) The real interest rate is 3 percent, and the quantity of loanable funds is $150 million.
D) The real interest rate is 3 percent, and the quantity of loanable funds is $90 million.
Q2) Explain why increasing the government budget deficit can decrease investment spending.
Q3) Labor productivity is
A) the quantity of output produced in one hour by several workers.
B) the quantity of capital one worker can produce in one day.
C) the quantity of output produced by one worker or by one hour of work.
D) the quantity of output produced in one hour by one machine.
Q4) How are unemployment,inflation,and the business cycle related?
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Page 16
Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) Refer to Figure 15-4.In the figure above,AD ,LRAS and SRAS denote AD,LRAS and SRAS in year 1,while AD ,LRAS and SRAS denote AD,LRAS and SRAS in year 2.Given the economy is at point A in year 1,what is the actual growth rate in GDP in year 2?
A) 2.5%
B) 7.3%
C) 8.0%
D) 10.0%
Q2) A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run.
A)True
B)False
Q3) What does the phrase "Keynesian revolution" refer to?
Q4) Inflation is generally the result of total spending growing faster than total production.
A)True
B)False
Q5) Why does the short-run aggregate supply curve slope upward?
Page 17
Q6) Explain the three reasons the aggregate demand curve slopes downward.
Q7) What is a supply shock,and why might a supply shock lead to stagflation?
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Chapter 16: Money,Banks,and the Federal Reserve System
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Q1) The seven members of the Board of Governors of the Federal Reserve are appointed by
A) Congress.
B) the President.
C) the Governors of the States.
D) leaders in the banking industry.
E) the Treasury Department.
Q2) If the Fed wishes to decrease the supply of money and credit,it may sell government securities,raise the discount rate,or lower required reserve ratios.
A)True
B)False
Q3) If gold is used as money in an economy,the money supply is easy to control.
A)True
B)False
Q4) How will the purchase of $100 million of government securities by the Federal Reserve change bank reserves and total checking account deposits in the banking system as a whole? Assume that banks do not hold any excess reserves,that households and firms do not change the amount of currency they hold,and that the required reserve ratio is 20 percent.
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Chapter 17: Monetary Policy
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Q1) Refer to Figure 17-5.In the figure above,the movement from point A to point B in the money market would be caused by
A) an increase in the price level.
B) a decrease in real GDP.
C) an open market sale of Treasury securities by the Federal Reserve.
D) an increase in the required reserve ratio by the Federal Reserve.
Q2) Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 2 percent,the current inflation rate is 4 percent,and real GDP is 2 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2,then according to the Taylor rule the federal funds target rate equals
A) 4 percent.
B) 6 percent.
C) 8 percent.
D) 10 percent.
Q3) If the Fed pursues expansionary monetary policy then
A) the money supply will decrease, interest rates will rise and GDP will fall.
B) the money supply will decrease, interest rates will fall and GDP will fall.
C) the money supply will increase, interest rates will rise and GDP will rise.
D) the money supply will increase, interest rates will fall and GDP will rise.
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Chapter 18: Fiscal Policy
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Q1) Raising taxes on interest and dividend income will increase the level of investment and economic growth.
A)True
B)False
Q2) Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally
A) less difficult than with monetary policy.
B) far less difficult than with monetary policy.
C) more difficult than with monetary policy.
D) about the same difficulty as with monetary policy.
Q3) The budget deficit increases during wars and recessions.
A)True
B)False
Q4) Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?
A) an increase in government purchases
B) an increase in the supply of money
C) an increase in individual income taxes
D) a decrease in transfer payments
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Chapter 19: Comparative Advantage, International Trade, and Exchange Rates
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Q1) A numerical limit imposed by a government on the quantity of a good that can be imported into the country is called a
A) tariff.
B) quota.
C) quantity floor.
D) barricade.
Q2) Refer to Table 19-2.Select the statement that accurately interprets the data in the table.
A) Sarita has a comparative advantage in baking pies.
B) Gabriel has a comparative advantage in baking cakes.
C) Sarita has a comparative advantage in baking pies and baking cakes.
D) Sarita has a comparative advantage in baking cakes.
Q3) As a percentage of GDP,imports are greater than exports for which of the following countries?
A) Germany
B) Italy
C) the Netherlands
D) the United States
Q4) What does it mean for a country to have a comparative advantage in producing a product?
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