Contemporary Economic Issues
Exam Solutions
Course Introduction
This course explores major economic challenges and debates shaping todays world, including globalization, income inequality, technological change, financial crises, labor markets, and environmental sustainability. Students will analyze current economic policies, examine their social impacts, and evaluate potential solutions using economic theories and empirical evidence. Through case studies and discussion, the course aims to foster critical thinking about the evolving nature of economies and the complex factors influencing contemporary economic decisions at both national and global levels.
Recommended Textbook
Macroeconomics 13th Edition by Roger
A. Arnold
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Chapter 1: What Economics Is About
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Q1) Which of the following statements is true?
A) Oil is classified as part of the resource category land.
B) A person working for a company is classified as part of the resource category capital.
C) A machine in a factory is classified as part of the resource category land.
D) A person with the particular talent for organizing the resources of land,labor,and capital to produce goods,seek new business opportunities,and develop new ways of doing things is classified as part of the resource category labor.
E) a and d
Answer: A
Q2) Produced goods used as inputs for the production of other goods comprise the resource known as
A) natural resources.
B) services.
C) capital.
D) entrepreneurship.
Answer: C
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Chapter 2: Production Possibilities Frontier Framework
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Q1) Which scenario below most accurately describes the process by which a technological change can affect employment patterns across industries?
A) A technological advance makes it possible to produce more of good X with less labor.As a result,labor is released from producing good X.Some of this labor ends up producing goods Y and Z.
B) A technological advance makes it possible to produce less of good X with less labor.As a result,labor is released from producing good X.Some of this labor ends up producing good Y.
C) A technological advance makes it possible to produce more of good X with more labor.As a result,more labor is needed to produce good X.There is less labor available to produce goods Y and Z.
D) A technological advance makes it possible to produce more of good X with less labor.As a result,labor becomes more important to the production of good X.More labor ends up producing good X.
E) none of the above
Answer: A
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) Jerry has $50,000 in his savings account and the average new car price is $23,000.Does Jerry have a demand for a new car?
A) Yes,since Jerry can afford a new car.
B) Not necessarily.Jerry has the ability to buy a new car,but we don't know if he also has the willingness to buy a new car.
C) Yes,since Jerry's savings is more than double the average new car price.
D) none of the above
Answer: B
Q2) Explain what it means to say that "the market" feeds Cleveland.Give an example using a specific food item to help support your answer.
Answer: People in Cleveland have a demand for food,and there are also people (the owners of the stores and restaurants)who are willing to supply food to Cleveland.The owners of the stores and restaurants are willing to do so because they want to earn money so that they can purchase the goods and services for which they have a demand.As the demand for a given food item changes,in order to earn more money the sellers/producers will alter their supply following the lead given to them by the buyers.This is a description of how a market works,and thus it is "the market" that is feeding Cleveland.Examples will vary.
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Chapter 4: Prices: Free,controlled,and Relative
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Q1) Refer to Exhibit 4-3.If price P<sub>1</sub> is a price ceiling,then
A) there is a surplus in the market for good X.
B) the highest price that can legally be charged in this market is P<sub>3</sub>.
C) the price at which exchange legally takes place is P<sub>2</sub>.
D) the price at which exchange legally takes place is P<sub>1</sub>.
E) both a and b
Q2) If the price of good X is $100 and the price of good Y is $40,it follows that the relative price of one unit of good Y is ___________ unit(s)of good X.
A) 0.40
B) 0.20
C) 2.50
D) 4.00
E) There is not enough information to answer the question.
Q3) A price floor is a government-mandated
A) minimum price below which legal trades cannot be made.
B) maximum price above which legal trades cannot be made.
C) minimum price at which all units of the good must be legally sold.
D) minimum price below which legal trades can be made.
Q4) List and describe the two major jobs performed by price.
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Chapter 5: Supply,demand,and Price: Applications
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Q1) Profit can be earned by buying _____________ and selling ____________________.
A) at one price; at the same price
B) low; high
C) high: low
D) none of the above
Q2) If more people join carpools and travel to work together
A) the demand curve for freeway space shifts leftward.
B) the supply curve for freeway space shifts rightward.
C) the supply curve for freeway space shifts leftward.
D) a and b
E) none of the above
Q3) The higher the price of medical care in general,the lower the __________________ medical care and the ________________ specific items that make up medical care (such as,x-rays).
A) quantity demanded of; higher the demand for
B) demand for; higher the demand for
C) quantity demanded of; lower the demand for
D) demand for; higher the quantity demanded of
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Chapter 6: Elasticity
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Sample Questions
Q1) If Jorge is temporarily absent from his regular job because of an industrial dispute,the Bureau of Labor Statistics will classify him as unemployed.
A)True
B)False
Q2) Suppose that 1983 is the base year for the Consumer Price Index (CPI)and in 2019 the CPI is 254.What does this "254" mean?
A) What cost $100 in 1983 on average cost 254 times as much in 2019.
B) What cost $100 in 1983 on average cost $254 more in 2019.
C) What cost $100 in 1983 on average cost 100/254 (or 0.39)times as much in 2019.
D) What cost $100 in 1983 on average cost $154 more in 2019.
Q3) Suppose the market basket consists of 100X,200Y,and 300Z.Current-year prices are $5 for each unit of X,$2 for each unit of Y,and $3 for each unit of Z.Base-year prices are $2 for each unit of X,Y,and Z.What is the approximate CPI in the current year?
A) 15
B) 70.20
C) 1,200
D) 150
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Chapter 7: Consumer Choice: Maximizing Utility and Behavioral Economics
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Sample Questions
Q1) Which of the following statements is false?
A) For purposes of computing GDP,the purchases of new residential housing are considered investment although it is undertaken by the household sector.
B) Consumption includes spending on durable goods but not spending on services.
C) Investment includes fixed investment but not inventory investment.
D) b and c
Q2) Refer to Exhibit 7-1.What is the value of disposable income?
A) $3,618
B) $4,795
C) $3,727
D) $4,207
E) $4,017
Q3) Disposable income equals national income minus personal taxes.
A)True
B)False
Q4) Net exports must always be a positive amount.
A)True
B)False
Page 9
Q5) List and explain the two different approaches used to measure GDP.
Q6) Explain why GDP figures do not necessarily measure happiness or well-being.
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Chapter 8: Production and Costs
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Sample Questions
Q1) Suppose Americans buy inputs from foreigners.When the price of foreign inputs falls,the U.S.SRAS curve __________,which tends to __________the U.S.price level.
A) shifts rightward; reduce B) shifts leftward; increase C) shifts leftward; reduce D) remains constant; increase
Q2) Suppose the real exchange rate of 105 Japanese yen to the dollar changes to 115 yen to the dollar.In this situation,the dollar has _________________,making Japanese goods __________ expensive for Americans.
A) appreciated; less
B) appreciated; more
C) depreciated; less
D) depreciated; more
Q3) The real balance effect helps to explain "a change in A) aggregate demand."
B) the quantity demanded of Real GDP."
C) aggregate supply."
D) the quantity supplied of Real GDP."
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Chapter 9: Perfect Competition
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Sample Questions
Q1) Suppose the economy is self-regulating,the price level is 150,the quantity demanded of Real GDP and the quantity supplied of Real GDP in the short run both equal $4.3 trillion,and the quantity supplied of Real GDP in the long run is $4.1 trillion.Given all of this information,we can conclude that the economy ____________ in short run equilibrium,and that the price level in long run equilibrium will be _____________ than 150.
A) is not; less B) is; more C) is; less
D) is not; more
Q2) Refer to Exhibit 9-4.When AD and SRAS cross at the point at which the price level is equal to P<sub>1</sub> and Real GDP is equal to Q<sub>3</sub>,the economy is in
A) a recessionary gap.
B) an inflationary gap.
C) long-run equilibrium.
D) a and c
E) b and c
Q3) Explain the policy implications of the classical economists' beliefs.
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Chapter 10: Monopoly
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Sample Questions
Q1) Refer to Exhibit 10-1.At Q<sub>3</sub>,there is a tendency for Real GDP to A) rise.
B) fall.
C) remain unchanged.
D) There is not enough information to answer this question.
Q2) What is the general format of the consumption function? Explain what each term means and use the consumption function to explain the three different ways that consumption can increase.
Q3) Given that the economy is operating in the horizontal section of the aggregate supply curve in the simple Keynesian model,an increase in autonomous spending will ____________________,assuming that the economy remains in the horizontal section of the aggregate supply curve.
A) increase Real GDP and raise the price level
B) decrease Real GDP and raise the price level
C) increase Real GDP and leave the price level unchanged
D) increase Real GDP and lower the price level
Q4) Explain the process by which an initial change in autonomous spending can lead to an even greater change in total spending.
Q5) Describe Keynes' criticism of Say's law in a money economy.
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Chapter 11: Monopolistic Competition, oligopoly, and Game Theory
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Sample Questions
Q1) Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT).The value added by the farmer is ______________.If the government imposes a VAT rate of 10 percent,the farmer must pay ___________ in VAT tax and will need to raise the price he charges the miller to _______________.
A) $0.60; $0.06; $0.66
B) $0.80; $0.08; $0.88
C) $1.40; $0.14; $1.54
D) $0.60; $0.60; $1.20
Q2) The marginal tax rate is found by dividing a person's tax payment by the person's taxable income.
A)True
B)False
Q3) Crowding out results when an increase in government spending leads to declines in consumption,investment,and/or net exports.
A)True
B)False
Q4) A "flat tax" is another term for a regressive tax.
A)True
B)False
Page 14
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Chapter 12: Government and Product Markets: Antitrust and Regulation
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Q1) Moral hazard occurs when the parties on once side of the market,who have information not known to others,self select in a way that adversely affects the parties on the other side of the market.
A)True
B)False
Q2) The amount of required reserves a bank holds depends on the A) required reserve ratio.
B) demand-deposit ratio.
C) excess-reserve ratio.
D) currency ratio.
Q3) In the Yap civilization of the South Pacific prior to 1920,large,heavy stones in the shape of a wheel were used as money.Which function of money was probably least served by this form of money?
A) medium of exchange
B) store of value
C) unit of account
D) store of wealth
Q4) Demand deposits are checking accounts that pay no interest.
A)True
B)False
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Chapter 13: Factor Markets: With Emphasis on the Labor Market
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Q1) The Federal Open Market Committee (FOMC)is composed of the seven members of the Board of Governors,
A) the president of the New York Federal Reserve District Bank,and four of the remaining 11 Federal Reserve District Bank presidents who rotate on an annual basis.
B) and five state governors who rotate on an annual basis.
C) four Federal Reserve District Bank presidents who rotate on an annual basis,and the head of the Senate Banking Committee.
D) and the Secretary of the Treasury.
Q2) In the federal funds market,
A) banks make loans to the Fed.
B) banks make loans to other banks.
C) the Fed makes short-term loans to banks.
D) the Fed makes long-term loans to banks.
Q3) Which of the following is not a function of the Fed?
A) to provide check-clearing services
B) to hold depository institutions' reserves
C) to serve as the government's banker
D) to serve as the borrower of last resort
E) none of the above
Page 16
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Chapter 14: Wages,union,and Labor
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Q1) If the money supply is $6,000,velocity is 5,and Real GDP is 10,000 units of output,then the price level is _____________.If the money supply doubled over a short time period to $12,000,the simple quantity theory of money would predict that _____________________.
A) $3; the price level would double
B) $3; Real GDP would double
C) $3; the price level would be cut in half
D) $2; the price level would double
Q2) Velocity equals GDP __________ the money supply.
A) plus B) multiplied by C) divided by D) minus
Q3) In the monetarist version of the AD-AS framework,a decrease in velocity produces a __________ shift of the __________ curve.
A) rightward; AD
B) rightward; SRAS
C) leftward; AD
D) leftward; SRAS
Q4) Describe the expectations (or Fisher)effect.
Page 17
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Chapter 15: The Distribution of Income and Poverty
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Q1) Refer to Exhibit 15-5.Assume that the economy starts out in short-run equilibrium.An economist who believes that the economy is not self-regulating would assert that the government should use _________________ fiscal policy to close the existing ___________________ gap.
A) expansionary; inflationary
B) expansionary; recessionary
C) contractionary; recessionary
D) contractionary; inflationary
Q2) Refer to Exhibit 15-3.The economy is currently at point 5.If contractionary monetary policy is implemented,and prices are flexible,the economy will likely move to point ______ in the short run.
A) 1
B) 3
C) 2
D) 4
E) none of the above
Q3) Changes in the money market have an impact upon the bond market.
A)True
B)False
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Chapter 16: Interest,rent,and Profit
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Q1) Real business cycle theory would emphasize the ability of a beneficial supply shock to shift the __________ curve rightward and __________ Real GDP.
A) AD; lower
B) AD; raise
C) LRAS; lower
D) LRAS; raise
Q2) Refer to Exhibit 16-1.According to new classical macroeconomists,if decreases in aggregate demand are unanticipated,then the economy will move from point C to A) point B.
B) point A.
C) some point on SRPC<sub>2</sub>,below C.
D) some point on SRPC<sub>1</sub>,below A.
Q3) As the price level falls,real wage ____________and people choose to work
A) rises; more
B) rises; less
C) falls; more
D) falls; less
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Chapter 17: Market Failure: Externalities, public Goods, and
Asymmetric Information
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Q1) Neoclassical growth theory treats technology as an
variable,and new growth theory treats technology as an ______________.
A) exogenous; endogenous variable
B) endogenous; exogenous variable
C) endogenous; endogenous variable,as well
D) exogenous; exogenous variable,as well
Q2) When a production function is graphed with Real GDP on the vertical axis and labor on the horizontal axis,a rise in capital________________________,and a rise in the technology coefficient __________________.
A) shifts the production function upward; also shifts the production function upward
B) shifts the production function downward; shifts the production function upward
C) moves us up along a given production function; shifts the production function upward
D) shifts the production function upward; moves us up along a given production function
Q3) List and describe four factors that can contribute to economic growth.
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Chapter 18: Public Choice and Special-Interest-Group
Politics
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Q1) Economists who are in favor of an increase in the size and scope of government tend to prefer ________________ when expansionary _______________ policy is needed to raise aggregate demand.
A) tax cuts; fiscal
B) tax cuts; monetary
C) more government spending; fiscal
D) more government spending; monetary
Q2) Economists who are in favor of smaller government tend to prefer ________________ when expansionary _______________ policy is needed to raise aggregate demand.
A) tax cuts; fiscal
B) tax cuts; monetary
C) more government spending; fiscal
D) more government spending; monetary
Q3) It is a fact that the government spending multiplier is always greater than the tax multiplier.
A)True
B)False
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Chapter 19: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Q1) A subset of the general population that holds an intense preference with respect to a particular government activity is called a
A) public-service group.
B) special interest group.
C) union.
D) federation.
Q2) Refer to Exhibit 32-4.If producers of this good engage in rent seeking which results in the government imposing a price floor of P<sub>2</sub>,then consumers' surplus ends up being area
A) D + E
B) A + B + C + D + E
C) A + B + C
D) C + E
E) A
Q3) Ceteris paribus,economics predicts that voter turnout will be higher
A) the smaller the number of eligible voters.
B) the larger the number of eligible voters.
C) the easier it is to get to the polls on election day.
D) a and c
E) b and c
Page 22
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Chapter 20: International Trade
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Q1) Which of the following statements is false?
A) A theory should be judged based upon whether or not it tells us the things we want to hear.
B) Scientists are interested in finding out when their theories are wrong or right.
C) Scientists are interested in building theories that can be refuted.
D) If evidence is consistent with a theory's predictions,we state that the evidence fails to reject the theory.
Q2) There is no difference between building a theory and evaluating a theory.
A)True
B)False
Q3) A theory is a perfect description of reality.
A)True
B)False
Q4) To an economist,it is preferable to
A) assume that all criminals are rational.
B) assume that all criminals are irrational.
C) build a theory based on a rational criminal and then check the evidence.
D) a or b
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Chapter 21: International Finance
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Q1) Refer to Exhibit 34-1.The opportunity cost of one unit of Y in country B is
A) 0.5 units of X.
B) 1 unit of X.
C) 2 units of X.
D) 20 units of X.
Q2) Refer to Exhibit 34-3.The world price is P<sub>W</sub>.If a tariff is imposed the price rises to P<sub>W</sub> + T.Because of the tariff,consumers' surplus is reduced by an amount equal to the area of
A) 1 + 2 + 3.
B) 1 + 2.
C) 1 + 2 + 3 + 4.
D) 3 + 4.
E) 2 + 3 + 4.
Q3) Refer to Exhibit 34-6.Which of the following terms of trade would both countries agree on?
A) 1 unit of wine = 2.5 units of cheese
B) 1 unit of wine = 1.5 units of cheese
C) 2.5 units of wine = 1 unit of cheese
D) 1.5 units of wine = 1 unit of cheese
E) none of the above
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Chapter 22: The Economic Case for and Against
Government: Five Topics Considered
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Q1) Suppose that prices in France increase by 8 percent while prices in the United States remain relatively stable.We would expect that (on the foreign exchange market)the demand for U.S.dollars will __________ and the supply of U.S.dollars will
A) increase; decrease B) increase; increase C) decrease; decrease D) decrease; increase
Q2) Describe the type of international monetary system that is currently in use.What advantages do proponents of this type of system cite in support of its use? What disadvantages do its opponents cite?
Q3) Suppose that prices in the United States rise relative to prices in France.We expect that (on the foreign exchange market)the demand for U.S.dollars will __________ and the supply of dollars will __________.
A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease
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Chapter 23: Stocks,bonds,futures,and Options
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Q1) Special interest group K receives a 1/100<sup>th</sup> slice of the economic pie.Its net benefit from either an economic growth policy or a transfer policy is $200,000.In order for group K to be indifferent between the two policies,the economic growth policy would have to make the size of the economic pie (Real GDP)grow by _________________.This type of analysis is used to show that special interest groups tend to press government for ______________ instead of
A) $20,000,000; economic growth; transfers
B) $2,000,000; transfers; economic growth
C) $20,000,000; transfers; economic growth
D) $15,000,000; economic growth; transfers
E) none of the above
Q2) Government can overcome the free rider problem by collecting taxes and using the funds to provide individuals with nonexcludable public goods that they want to buy but the market cannot provide.
A)True
B)False
Q3) List and describe the three different types of transfers discussed in this chapter.Give a hypothetical example of each to help support your answer.
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Chapter 24: Stocks,bonds,futures,and Options
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Q1) Refer to Exhibit 38-1.The yield on bond C is approximately
A) 11.0 percent.
B) 4.8 percent.
C) 3.6 percent.
D) 100 percent.
Q2) A bond is
A) a claim on the assets of a corporation such that the purchaser has an ownership right in the corporation.
B) anything of value to which the firm has a legal claim.
C) a means of assuring that the business firm will pay its debts or fulfill other legal obligations.
D) a promise to pay for the use of someone else's money.
Q3) The issuer of a bond is a lender.
A)True
B)False
Q4) If you are buying a bond that is newly issued by the corporation,you are buying it in the primary market.
A)True
B)False
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