Contemporary Economic Issues
Midterm Exam
Course Introduction
Contemporary Economic Issues explores the pressing economic challenges and developments affecting todays global and local economies. The course examines topics such as globalization, income inequality, climate change, government policy responses, emerging markets, technological disruption, and the impacts of demographic shifts. Through case studies, debates, and data analysis, students learn to critically analyze how these issues influence economic decision-making, growth, and societal well-being, while developing an informed perspective on current events shaping economic policy and practice.
Recommended Textbook
Principles of Economics 5th Edition by N.
Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) High-school athletes who skip college to become professional athletes
A) obviously do not understand the value of a college education.
B) usually do so because they cannot get into college.
C) understand that the opportunity cost of attending college is very high.
D) are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes.
Answer: C
Q2) Which of the following firms is likely to have the greatest market power?
A) An electric company
B) A farmer
C) A grocery store
D) A local electronics retailer
Answer: A
Q3) Trade with any nation can be mutually beneficial.
A)True
B)False
Answer: True
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Chapter 2: Thinking Like an Economist
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Q1) Points inside the production possibilities frontier represent inefficient levels of production.
A)True
B)False
Answer: True
Q2) The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the
A) amount of the other good that must be given up.
B) market price of the additional amount produced.
C) amount of resources that must be devoted to its production.
D) number of dollars that must be spent to produce it.
Answer: A
Q3) Almost all economists agree that rent control
A) has no effect on the rental income of landlords.
B) allows the market for housing to work more efficiently.
C) adversely affects the availability and quality of housing.
D) is a very inexpensive way to help the most needy members of society.
Answer: C
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4
Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Table 3-10.Which of the following points would be on Shantala's production possibilities frontier,based on a 40-hour week?
A) (120 cellular phones programmed,250 cellular phones tested)
B) (180 cellular phones programmed,150 cellular phones tested)
C) (240 cellular phones programmed,600 cellular phones tested)
D) More than one of the above would be on Shantala's production possibilities frontier.
Answer: B
Q2) Refer to Table 3-7.Japan's opportunity cost of one airplane is
A) 1/5 car and Korea's opportunity cost of one airplane is 1/3 car.
B) 1/5 car and Korea's opportunity cost of one airplane is 3 cars.
C) 5 cars and Korea's opportunity cost of one airplane is 1/3 car.
D) 5 cars and Korea's opportunity cost of one airplane is 3 cars.
Answer: D
Q3) Refer to Table 3-4.The rancher has a comparative advantage in the production of A) meat.
B) potatoes.
C) both goods.
D) neither good.
Answer: A
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Refer to Figure 4-12.All else equal,a large number of people becoming vegetarians would cause a move
A) from D<sub>A</sub> to D<sub>B</sub>.
B) from D<sub>B</sub> to D<sub>A</sub>.
C) from x to y.
D) from y to x.
Q2) Which of the following events would cause a movement upward and to the left along the demand curve for olives?
A) The number of buyers of olives decreases.
B) Consumer income decreases,and olives are a normal good.
C) The price of pickles decreases,and pickles are a substitute for olives.
D) The price of olives rises.
Q3) If the price of a good is low,
A) firms would increase profit by increasing output.
B) the quantity supplied of the good could be zero.
C) the supply curve for the good will shift to the left.
D) firms can and should raise the price of the product.
Q4) It is not possible for demand and supply to shift at the same time.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Q1) Supply tends to be more elastic in the short run and more inelastic in the long run.
A)True
B)False
Q2) As price elasticity of supply increases,the supply curve
A) becomes flatter.
B) becomes steeper.
C) becomes downward sloping.
D) shifts to the right.
Q3) Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?
A) 0
B) 0.2
C) 1
D) 2.1
Q4) The flatter the demand curve that passes through a given point,the more inelastic the demand.
A)True
B)False
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Chapter 6: Supply, Demand, and Government Policies
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Q1) If the government removes a tax on a good,then the quantity of the good sold will A) increase.
B) decrease.
C) not change.
D) All of the above are possible.
Q2) A tax on sellers increases the quantity of the good sold in the market.
A)True B)False
Q3) In response to a shortage caused by the imposition of a binding price ceiling on a market,
A) price will no longer be the mechanism that rations scarce resources.
B) long lines of buyers may develop.
C) sellers could ration the good or service according to their own personal biases.
D) All of the above are correct.
Q4) Refer to Figure 6-17.A price floor set at $60 would result in a surplus of 20 units. A)True B)False
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8
Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Figure 7-15.At the equilibrium price,producer surplus is A) $480.
B) $640.
C) $1,120.
D) $1,280.
Q2) Chad is willing to pay $5.00 to get his first cup of morning latté;he is willing to pay $4.50 for a second cup.He buys his first cup from a vendor selling latté for $3.75 per cup.He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup.Chad buys a second cup.Which of the following statements is correct?
A) Chad's willingness to pay for his second cup of latté was smaller than his willingness to pay for his first cup of latté.
B) Chad's consumer surplus on his second cup of latté was larger than his consumer surplus on his first cup of latté.
C) Chad is irrational in that he is willing to pay a different price for his second cup of latté than what he is willing to pay for his first cup of latté.
D) Chad places a higher value on his second cup of latté than on his first cup of latté.
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Page 9
Chapter 8: Application: The Costs of Taxation
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Q1) In order for Henry George's land-tax argument to be valid,the land that is taxed must be
A) improved land.
B) productive land.
C) raw land.
D) urban land.
Q2) The most important tax in the U.S.economy is the tax on corporations' profits.
A)True
B)False
Q3) If a tax shifts the supply curve upward (or to the left),we can infer that the tax was levied on
A) buyers of the good.
B) sellers of the good.
C) both buyers and sellers of the good.
D) We cannot infer anything because the shift described is not consistent with a tax.
Q4) The more inelastic are demand and supply,the greater is the deadweight loss of a tax.
A)True
B)False
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Chapter 9: Application: International Trade
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Q1) Which of the following is not a commonly-advanced argument for trade restrictions?
A) the jobs argument
B) the national-security argument
C) the infant-industry argument
D) the efficiency argument
Q2) A tariff on a product
A) is a direct quantitative restriction on the amount of a good that can be imported.
B) increases the domestic quantity supplied.
C) increases domestic consumer surplus.
D) All of the above are correct.
Q3) According to the principle of comparative advantage,all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.
A)True
B)False
Q4) Trade decisions are based on the principle of absolute advantage.
A)True
B)False
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Chapter 10: Externalities
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Q1) The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?
Q2) A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards.This decision provides an example of
A) a direct regulation of an externality.
B) corrective taxes.
C) a Coase theorem solution to an externality.
D) the misuse of a subsidy.
Q3) Technology spillover is one type of A) negative externality.
B) positive externality.
C) subsidy.
D) producer surplus.
Q4) Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.
A)True
B)False
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) An AM radio transmission of a baseball game is
A) excludable and rival in consumption.
B) excludable and not rival in consumption.
C) not excludable and rival in consumption.
D) not excludable and not rival in consumption.
Q2) It is common knowledge that many U.S.national parks have become overused.One possible solution to this problem is to
A) increase entrance fees.
B) decrease camping permit fees.
C) require all visitors to register upon entering the park.
D) sell the land that the parks currently occupy.
Q3) The Tragedy of the Commons occurs because
A) government property is most heavily used by the wealthy.
B) everyone deserves an equal share of government property.
C) social and private incentives differ.
D) established property rights create competition.
Q4) When one person enjoys the benefit of a tornado siren,she reduces the benefit to others.
A)True
B)False
Page 13
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Stacy places a $20 value on a bottle of wine,and Andrea places a $17 value on it.The equilibrium price for a bottle of wine is $15.Suppose the government levies a tax of $1 on each bottle of wine,and the equilibrium price of a bottle of wine increases to $16.What is total consumer surplus after the tax is levied?
A) $2
B) $3
C) $4
D) $5
Q2) If all taxpayers pay the same percentage of income in taxes,the tax system is progressive.
A)True
B)False
Q3) Taxes create deadweight loss when they
A) distort behavior.
B) cause the price of the product to increase.
C) don't raise sufficient government revenue.
D) cannot be computed easily.
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Page 14
Chapter 13: The Costs of Production
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Sample Questions
Q1) Those things that must be forgone to acquire a good are called
A) implicit costs.
B) opportunity costs.
C) explicit costs.
D) accounting costs.
Q2) Marginal cost equals
A) total cost divided by quantity of output produced.
B) total output divided by the change in total cost.
C) the slope of the total cost curve.
D) the slope of the line drawn from the origin to the total cost curve.
Q3) Refer to Scenario 13-7.What is the shape of Farmer Jack's marginal cost curve?
A) upward sloping
B) downward sloping
C) first upward sloping,then downward sloping
D) constant
Q4) Average total cost (ATC)is calculated as follows:
A) ATC = (change in total cost)/(change in quantity of output).
B) ATC = (change in total cost)/(change in quantity of input).
C) ATC = (total cost)/(quantity of output).
D) ATC = (total cost)/(quantity of input).
Page 15
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Chapter 14: Firms in Competitive Markets
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Q1) Refer to Figure 14-1.If the market price is P3,in the short run,the perfectly competitive firm will earn
A) positive economic profits.
B) negative economic profits but will try to remain open.
C) negative economic profits and will shut down.
D) zero economic profits.
Q2) Refer to Figure 14-5.When market price is P3,a profit-maximizing firm's total revenue
A) can be represented by the area P3Q3.
B) can be represented by the area P3Q2.
C) can be represented by the area (P3-P2)Q3.
D) is zero.
Q3) If there is an increase in market demand in a perfectly competitive market,then in the short run
A) there will be no change in the demand curves faced by individual firms in the market.
B) the demand curves for firms will shift downward.
C) the demand curves for firms will become more elastic.
D) profits will rise.
Q4) List and describe the characteristics of a perfectly competitive market.
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Page 16
Chapter 15: Monopoly
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Sample Questions
Q1) A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level.
A)True
B)False
Q2) By offering lower prices to customers who buy a large quantity,a monopoly is price discriminating.
A)True
B)False
Q3) If government regulation sets the maximum price for a natural monopoly equal to its marginal cost,then the natural monopolist will
A) earn economic losses.
B) earn economic profits.
C) earn zero economic profits.
D) produce a lower quantity of output than is socially optimal.
Q4) For a typical natural monopoly,average total cost is
A) falling,and marginal cost is above average total cost.
B) falling,and marginal cost is below average total cost.
C) rising,and marginal cost is below average total cost.
D) rising,and marginal cost is above average total cost.
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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit?
A) demand and average variable cost
B) demand and average total cost
C) marginal revenue and average variable cost
D) marginal revenue and average total cost
Q2) Refer to Figure 16-6.If a firm in a monopolistically competitive market was producing the level of output depicted as Q<sub>d</sub> in panel (d),it would
A) not be maximizing its profit.
B) be minimizing its losses.
C) be losing market share to other firms in the market.
D) be operating at excess capacity.
Q3) The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because
A) there are too few firms to reach an efficient level of production.
B) firms do not operate at the output that minimizes average costs.
C) more advertising is needed to inform customers about product differences.
D) consumers do not have enough choice among the product varieties available.
Q4) List five goods that are likely sold in a monopolistically competitive market.
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Chapter 17: Oligopoly
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Q1) If a person can prove that she was damaged by an illegal arrangement to restrain trade,that person can sue and recover
A) the damages she sustained,as provided for in the Sherman Act.
B) the damages she sustained,as provided for in the Clayton Act.
C) three times the damages she sustained,as provided for in the Sherman Act.
D) three times the damages she sustained,as provided for in the Clayton Act.
Q2) Refer to Scenario 17-2.If Lexxon were to drill a second well,what would its profit be if PB did not drill a second well?
A) $22 million
B) $24 million
C) $26 million
D) $28 million
Q3) Refer to Table 17-18.If Amy chooses to not clean,then Heather will
A) clean,and Heather's payoff will be 20.
B) not clean,and Heather's payoff will be 100.
C) clean,and Heather's payoff will be 75.
D) not clean,and Heather's payoff will be 20.
Q4) Tying can be thought of as a form of price discrimination.
A)True
B)False
Page 19
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Chapter 18: The Markets for the Factors of Production
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Q1) For a competitive,profit-maximizing firm,the demand curve for labor will shift in response to a change in the
A) wage rate.
B) quantity of labor demanded.
C) price of the product that the firm sells.
D) an increase in the supply of labor.
Q2) Refer to Figure 18-2.The value-of-marginal-product curve that is drawn could be relabeled as the firm's
A) production function.
B) total revenue curve.
C) labor supply curve.
D) labor demand curve.
Q3) Refer to Scenario 18-3.If Jerry takes fewer hours of leisure in the summer than in the winter,we can assume that his labor supply curve
A) is horizontal.
B) is vertical.
C) slopes upward.
D) slopes downward.
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Chapter 19: Earnings and Discrimination
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Q1) Which of the following factors does not affect the value of a worker's marginal product?
A) Discrimination against a particular group of workers by a firm's customers.
B) A worker's level of disposable income.
C) A worker's level of human capital.
D) Compensating wage differentials.
Q2) Which of these instances would constitute labor-market discrimination? Pat receives a higher wage than James.Pat and James are identical in all of their labor-market characteristics except that
A) Pat is a college graduate,and James has only a high school diploma.
B) Pat is a black ,and James is white.
C) Pat has 15 years of experience at her job,whereas James has only five years of experience.
D) Pat is more willing to accept dangerous working conditions than James.
Q3) Other things equal,when the supply of workers is low,one would predict that market wages would be
A) relatively high.
B) relatively low.
C) determined solely by factors that affect demand.
D) determined outside the domain of economic theory.
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Chapter 20: Income Inequality and Poverty
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Q1) John Rawls,who developed the way of thinking called liberalism,argued that government policies should be aimed at maximizing the sum of utility of everyone in society.
A)True
B)False
Q2) A society consists of three individuals: Arthur,Billie,and Chris.In terms of income and utility,Arthur is currently best-off,Billie ranks in the middle,and Chris is worst-off.Which of the following statements is correct?
A) Utilitarianism suggests that government policies should strive to maximize Billie's utility.
B) Liberalism suggests that government policies should strive to maximize Chris's utility. C) Libertarianism suggests that government policies should strive to maximize Arthur's utility.
D) Mobilism suggests that government policies should strive to make Chris better off than Billie.
Q3) The top 5 percent of U.S.annual family income in 2005 was $184,500 or more.
A)True
B)False
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Chapter 21: The Theory of Consumer Choice
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Q1) Susie wins $1 million in her state's lottery.If Susie keeps working after she wins the money,we can infer that the income effect is larger than the substitution effect for her.
A)True
B)False
Q2) Just as the theory of the competitive firm provides a more complete understanding of supply,the theory of consumer choice provides a more complete understanding of A) demand.
B) profits.
C) production possibility frontiers.
D) wages.
Q3) In the work-leisure model,suppose consumption and leisure are both normal goods.The income effect of a wage increase results in the worker choosing to A) work less than before.
B) work more than before.
C) possibly work more or less than before.
D) work more than before with a higher level of consumption.
Q4) List and briefly explain each of the four properties of indifference curves.
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Chapter 22: Frontiers of Microeconomics
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Q1) In economics,a difference in access to relevant knowledge is called a behavioral asymmetry.
A)True
B)False
Q2) Informational asymmetry may apply to a hidden action or hidden characteristic where the informed party may be reluctant to reveal relevant information.
A)True
B)False
Q3) In corporations,which of the following are principals but not agents?
A) shareholders
B) the board of directors
C) managers
D) workers
Q4) An implication of the median voter theorem is that Republicans and Democrats will try to align their views with those of the median voter.
A)True
B)False
Q5) Explain the Condorcet paradox.To which type of voting system does it apply?
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Chapter 23: Measuring a Nations Income
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Q1) Which of the following domestically produced items is not included in GDP?
A) a bottle of shampoo
B) a hairdryer
C) a haircut
D) All of the above are included in GDP.
Q2) When economists talk about growth in the economy,they measure that growth as the
A) absolute change in nominal GDP from one period to another.
B) percentage change in nominal GDP from one period to another.
C) absolute change in real GDP from one period to another.
D) percentage change in real GDP from one period to another.
Q3) Economists use the term inflation to describe a situation in which the economy's overall production level is rising.
A)True
B)False
Q4) If nominal GDP is $12,000 and the GDP deflator is 80,then real GDP is $15,000.
A)True
B)False
Q5) U.S.real GDP is substantially higher today than it was 60 years ago.What does this tell us,and what does it not tell us,about the well-being of U.S.residents?
Page 25
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Chapter 24: Measuring the Cost of Living
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Q1) Which of the following agencies calculates the CPI?
A) the National Price Board
B) the Department Of Weight and Measurements
C) the Bureau of Labor Statistics
D) the Congressional Budget Office
Q2) Two alternative measures of the overall level of prices are
A) the inflation rate and the consumer price index.
B) the inflation rate and the GDP deflator.
C) the GDP deflator and the consumer price index.
D) the cost of living index and nominal GDP.
Q3) Suppose lawn mowers are part of the market basket used to compute the CPI.Suppose also that the quality of lawn mowers improves while the price of lawn mowers stays the same.If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality,then,other things equal,
A) the CPI will rise.
B) the CPI will fall.
C) the CPI will stay the same.
D) lawn mowers will no longer be included in the market basket.
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) Waldo works eight hours and produces 7 units of goods per hour.Emerson works six hours and produces 10 units of goods per hour.
A) Waldo's productivity and output are greater than Emerson's.
B) Waldo's productivity is greater than Emerson's but his output is less.
C) Emerson's productivity and output are greater than Waldo's.
D) Emerson's productivity is greater than Waldo's but his output is less.
Q2) Constant returns to scale is the point on a production function where increasing inputs will no longer increase output.
A)True
B)False
Q3) In 2006,the typical Bangladeshi had about
A) 1/5 the real income of a typical American a century ago.
B) 2/3 the real income of a typical American a century ago.
C) 2 times as much real income as that of a typical American a century ago.
D) 4 times as much real income as that of a typical American a century ago.
Q4) A forest is an example of a nonrenewable resource.
A)True
B)False
Q5) How do outward-oriented policies affect a nation's productivity?
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Chapter 26: Saving, investment, and the Financial System
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Q1) Alyssa is opening a bicycle shop,and her monthly expenditures to get the shop up and running exceed her monthly income.Alyssa is best described as a
A) saver or as a supplier of funds.
B) saver or as a demander of funds.
C) borrower or as a supplier of funds.
D) borrower or as a demander of funds.
Q2) Suppose government expenditures on goods and services and net taxes both decrease,and expenditures fall by more than net taxes.The effects of these changes on the budget deficit cause
A) both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall.
B) both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise.
C) the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall.
D) the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.
Q3) Draw and label a graph showing equilibrium in the market for loanable funds.
Q4) 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) 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.
Q2) According to the rule of 70,if the interest rate is 5 percent,how long will it take for the value of a savings account to double?
A) about 3.5 years
B) about 6.3 years
C) about 12 years
D) about 14 years
Q3) The last $2,000 of Rolanda's wealth adds less to her utility than the previous $2,000.Based on this information,Rolanda has
A) increasing marginal utility of wealth and is risk averse.
B) increasing marginal utility of wealth and is not risk averse.
C) decreasing marginal utility of wealth and is risk averse.
D) decreasing marginal utility of wealth and is not risk averse.
Q4) Discuss the statistical evidence concerning the efficient markets hypothesis.
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Chapter 28: Unemployment
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Q1) The efficiency-wage theory of worker health is
A) more relevant for explaining unemployment in less developed countries than in rich countries.
B) more relevant for explaining unemployment in rich countries than in less developed countries.
C) equally relevant for explaining unemployment in less developed countries and in rich countries.
D) not relevant for explaining unemployment.
Q2) The designation "natural" implies that the natural rate of unemployment
A) is desirable.
B) is constant over time.
C) is impervious to economic policy.
D) does not go away on its own even in the long run.
Q3) Ellen decides to hire some additional workers for her vinyl siding factory.The equilibrium wage is $14 per hour.Efficiency wage theory suggests that it is reasonable for Ellen to offer
A) $14 per hour.
B) less than $14 per hour,since some people would be willing to work for less.
C) less than $14 an hour to prevent shirking.
D) more than $14 per hour,so as to attract a better pool of applicants.
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Chapter 29: The Monetary System
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Q1) Economists argue that the move from barter to money increased trade and production.How is this possible?
Q2) The president of each regional Federal Reserve Bank is appointed by
A) the U.S.president with the approval of the Senate.
B) the Board of Governors.
C) the voting members of the Federal Open Market Committee.
D) the board of directors of that regional Federal Reserve Bank.
Q3) The reserve requirement ratio is 10 percent.Which of the following pairs of changes would both allow a bank to lend out an additional $10,000?
A) the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank
B) the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000
C) the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank
D) the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000
Q4) The Federal Reserve was created in 1913 after a series of bank failures in 1907.
A)True B)False
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) In 1898,prospectors on the Klondike River discovered gold.This discovery caused an unexpected price level
A) decrease that benefited creditors at the expense of debtors.
B) decrease that benefited debtors at the expense of creditors.
C) increase that benefited creditors at the expense of debtors.
D) increase that benefited debtors at the expense of creditors.
Q2) When the money market is drawn with the value of money on the vertical axis,an increase in the money supply
A) increases the price level and increases the value of money.
B) increases the price level and decreases the value of money.
C) decreases the price level and increases the value of money.
D) decreases the price level and decreases the value of money.
Q3) Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to
A) both the classical dichotomy and the quantity theory of money.
B) the classical dichotomy,but not the quantity theory of money.
C) the quantity theory of money,but not the classical dichotomy.
D) neither the classical dichotomy nor the quantity theory of money.
Q4) List and define any two of the costs of high inflation.
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) Most of the change from 1991 to 2000 in U.S.net capital outflow as a percent of GDP was due to a(n)
A) decrease in U.S.investment.
B) decrease in U.S.national saving.
C) increase in U.S.investment.
D) increase in U.S.national saving.
Q2) A nation with a trade surplus will necessarily have domestic investment that is greater than domestic saving.
A)True
B)False
Q3) Domestic saving must equal domestic investment in
A) both closed and open economies.
B) closed,but not open economies.
C) open,but not closed economies.
D) neither closed nor open economies.
Q4) Other things the same,if a country saves less,then
A) net capital outflow rises,so net exports rise.
B) net capital outflow rises,so net exports fall.
C) net capital outflow falls,so net exports rise.
D) net capital outflow falls,so net exports fall.
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) If the real exchange rate for the dollar is below the equilibrium level,the quantity of dollars supplied in the market for foreign-currency exchange is
A) less than the quantity demanded and the dollar will appreciate.
B) less than the quantity demanded and the dollar will depreciate.
C) greater than the quantity demanded and the dollar will appreciate.
D) greater than the quantity demanded and the dollar will depreciate.
Q2) Refer to Figure 32-1.In the Figure shown,if the real interest rate is 6 percent,the quantity of loanable funds demanded is
A) $20 billion,and the quantity supplied is $40 billion.
B) $20 billion,and the quantity supplied is $60 billion.
C) $60 billion,and the quantity supplied is $20 billion.
D) $60 billion,and the quantity supplied is $40 billion.
Q3) When the U.S.real interest rate falls,owning U.S.assets becomes
A) less attractive and so U.S.net capital outflow rises.
B) less attractive and so U.S.net capital outflow falls.
C) more attractive and so U.S.net capital outflow rises.
D) more attractive and so U.S.net capital outflow falls.
Q4) Why do higher real interest rates lead to lower net capital outflow?
Q5) What effect do protectionist policies have on the trade deficit?
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) During World War II,
A) government purchases of goods and services increased fivefold.
B) the economy's production increased about 25 percent.
C) unemployment fell to about 5%.
D) All of the above are correct.
Q2) When production costs rise,
A) the short-run aggregate supply curve shifts to the right.
B) the short-run aggregate supply curve shifts to the left.
C) the aggregate demand curve shifts to the right.
D) the aggregate demand curve shifts to the left.
Q3) Other things the same,an unexpected fall in the price level results in some firms having
A) lower than desired prices which increases their sales.
B) lower than desired prices which depresses their sales.
C) higher than desired prices which increases their sales.
D) higher than desired prices which depresses their sales.
Q4) Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left.
A)True
B)False
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) If the marginal propensity to consume is 5/6,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by
A) $60 billion,but the effect would be larger if there were an investment accelerator.
B) $60 billion,but the effect would be smaller if there were an investment accelerator.
C) $120 billion,but the effect would be larger if there were an investment accelerator.
D) $120 billion,but the effect would be smaller if there were an investment accelerator.
Q2) How does a reduction in the money supply by the Fed make owning stocks less attractive?
Q3) Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.
A)True
B)False
Q4) Explain how unemployment insurance acts as an automatic stabilizer.
Q5) What is the difference between monetary policy and fiscal policy?
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Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.
A)True
B)False
Q2) Which of the following is an example of an adverse supply shock?
A) a decrease in the money supply
B) a tax cut
C) a worldwide drought
D) decreased government spending
Q3) If a central bank wants to counter the change in the price level caused by an adverse supply shock,it could change the money supply to shift
A) aggregate demand right.
B) aggregate demand left.
C) aggregate supply right.
D) aggregate supply left.
Q4) Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.
Q5) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Which of the following is not correct?
A) A potential cost of deficits is that they reduce national saving,thereby reducing growth of the capital stock and output growth.
B) Deficits give people the opportunity to consume at the expense of their children,but they do not require them to do so.
C) The U.S.debt per-person is large compared with average lifetime income.
D) In 2005,the U.S.government ran a deficit.
Q2) A nation's saving rate is not a primary determinant of its long-run economic prosperity.
A)True
B)False
Q3) The effects of a decline in the value of financial assets,such as stocks,on consumption and the economy might be offset by
A) increasing government spending.
B) decreasing the money supply.
C) increasing taxes.
D) undertaking no policy action.
Q4) Explain why policy lags could make stabilization policies counterproductive.
Q5) Why do many economists advocate a consumption tax rather than an income tax?
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