Course Introduction
Economic Analysis Practice
Questions
Economic Analysis is a course designed to provide students with a comprehensive understanding of the core principles and methodologies used to evaluate and interpret economic phenomena. The course covers foundational topics such as supply and demand, market structures, consumer behavior, and production costs, as well as more advanced concepts like efficiency, equilibrium, and welfare analysis. Through the application of quantitative and qualitative techniques, students will learn how to analyze and solve real-world economic problems, assess policy impacts, and make informed decisions in both public and private sectors. By integrating theoretical frameworks with practical case studies, the course equips students with the analytical tools required to interpret economic data and trends critically.
Recommended Textbook
Principles of Economics Arab World Edition 2nd Edition by Gregory Mankiw
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2449 Verified Questions
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) The term "productivity"
A)means the same thing as "efficiency."
B)is seldom used by economists,as its meaning is not precise.
C)refers to the quantity of goods and services produced from each unit of labor input.
D)refers to the variety of goods and services from which households can choose when they shop.
Answer: C
Q2) When the government attempts to improve equality in an economy the result is often
A)an increase in overall output in the economy.
B)additional government revenue since overall income will increase.
C)a reduction in equality.
D)a reduction in efficiency.
Answer: D
Q3) Trade with any nation can be mutually beneficial.
A)True
B)False
Answer: True
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3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) A technological advance in the production of the first good increases the opportunity cost of the first good in terms of the second good.
A)True
B)False
Answer: True
Q2) The scientific method is applicable to studying
A)natural sciences,but not social sciences.
B)social sciences,but not natural sciences.
C)both natural sciences and social sciences.
D)None of the above is correct.
Answer: C
Q3) Economist Joseph Schumpeter coined the phrase "creative destruction" to describe the process by which
A)the government destroys the failing markets that caused an economic crisis.
B)innovation and enterpreneurial initiative have great power to drive economic growth.
C)economists destroy long-held beliefs about how markets function.
D)free markets need government intervention to create economic growth.
Answer: B
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4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Adam Smith asserted that a person should never attempt to make at home
A)what it will cost him more to make than to buy.
B)any good in which that person does not have an absolute advantage.
C)any luxury good.
D)any necessity.
Answer: A
Q2) Refer to Table 3-6.For farmer B,the opportunity cost of 1 pound of meat is
A)0.4 pound of potatoes.
B)2.5 pounds of potatoes.
C)4 pounds of potatoes.
D)10 pounds of potatoes.
Answer: A
Q3) A country that currently does not trade with other countries could benefit by
A)restricting imports and promoting exports.
B)promoting imports and restricting exports.
C)restricting both imports and exports.
D)not restricting trade.
Answer: D
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) An increase in quantity supplied
A)results in a movement downward and to the left along a fixed supply curve.
B)results in a movement upward and to the right along a fixed supply curve.
C)shifts the supply curve to the left.
D)shifts the supply curve to the right.
Q2) Refer to Table 4-2.Which supply schedules obey the law of supply?
A)Firm A's only
B)Firm B's,Firm C's,and Firm D's only
C)Firm A's and Firm C's only
D)Firm B's and Firm D's only
Q3) Which of the following would shift the demand curve for gasoline to the right?
A)a decrease in the price of gasoline
B)an increase in consumer income,assuming gasoline is a normal good
C)an increase in the price of cars,a complement for gasoline
D)a decrease in the expected future price of gasoline
Q4) 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.
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) Refer to Table 5-5.Along which of the supply curves does quantity supplied move proportionately more than the price?
A)along supply curve B only
B)along supply curves B and C
C)along all three supply curves
D)None.Quantity supplied moves proportionately less than the price along all of the three supply curves.
Q2) An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.
A)True
B)False
Q3) Refer to Figure 5-3.Mark says he would buy one Mt.Dew per day regardless of the price.If this is true,then Mark's demand for Mt.Dew is represented by demand curve
A)A.
B)B.
C)C.
D)D.
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Chapter 6: Supply,demand,and Government Policies
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Sample Questions
Q1) If a tax is levied on the sellers of a product,then the demand curve will
A)shift down.
B)shift up.
C)become flatter.
D)not shift.
Q2) Tax incidence
A)depends on the legislated burden.
B)is entirely random.
C)depends on the elasticities of supply and demand.
D)falls entirely on buyers or entirely on sellers.
Q3) When a binding price ceiling is imposed on a market to benefit buyers,
A)no buyers actually benefit.
B)some buyers benefit,but no buyers are harmed.
C)some buyers benefit,and some buyers are harmed.
D)all buyers benefit.
Q4) A price floor set below the equilibrium price causes a surplus in the market.
A)True
B)False
Q5) How does elasticity affect the burden of a tax?
Justify your answer using supply and demand diagrams.
Page 8
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) When a buyer's willingness to pay for a good is equal to the price of the good,the
A)buyer's consumer surplus for that good is maximized.
B)buyer will buy as much of the good as the buyer's budget allows.
C)price of the good exceeds the value that the buyer places on the good.
D)buyer is indifferent between buying the good and not buying it.
Q2) Answer each of the following questions about demand and consumer surplus.
a.What is consumer surplus,and how is it measured?
b.What is the relationship between the demand curve and the willingness to pay?
c.Other things equal,what happens to consumer surplus if the price of a good falls? Why? Illustrate using a demand curve.
d.In what way does the demand curve represent the benefit consumers receive from participating in a market? In addition to the demand curve,what else must be considered to determine consumer surplus?
Q3) Refer to Figure 7-22.At the quantity Q3,
A)the market is in equilibrium.
B)consumer surplus is maximized.
C)the sum of consumer surplus and producer surplus is maximized.
D)the marginal value to buyers is less than the marginal cost to sellers.
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Chapter 8: Application: The Costs of Taxation
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Sample Questions
Q1) The higher a country's tax rates,the more likely that country will be
A)at the top of the Laffer curve.
B)on the positively sloped part of the Laffer curve.
C)on the negatively sloped part of the Laffer curve.
D)experiencing small deadweight losses.
Q2) John has been in the habit of mowing Carl's lawn each week for 20 dinar.John's opportunity cost is 15 dinar,and Carl would be willing to pay 25 dinar to have his lawn mowed.What is the maximum tax the government can impose on lawn mowing without discouraging John and Carl from continuing their mutually beneficial arrangement?
Q3) When a tax is placed on the buyers of a product,a result is that buyers effectively pay
A)less than before the tax,and sellers effectively receive less than before the tax.
B)less than before the tax,and sellers effectively receive more than before the tax.
C)more than before the tax,and sellers effectively receive less than before the tax.
D)more than before the tax,and sellers effectively receive more than before the tax.
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Chapter 9: Application: International Trade
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Sample Questions
Q1) What are the arguments in favor of trade restrictions,and what are the counterarguments?
According to most economists,do any of these arguments really justify trade restrictions?
Explain.
Q2) An import quota
A)is preferable to a tariff since an import quota does not create a deadweight loss.
B)is a tax on imported goods.
C)reduces the welfare of domestic consumers.
D)reduces the welfare of domestic producers.
Q3) Deadweight loss measures the decrease in total surplus that results from a tariff or quota.
A)True
B)False
Q4) A quota is
A)a tax placed on imports.
B)a limit on the quantity of imports.
C)a tax on exports to other countries.
D)an excess of exports over imports.
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Chapter 10: Externalities
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Sample Questions
Q1) In many cases the Coase theorem does not work well because
A)there are too few parties at the negotiation table.
B)the government does not know about the Coase theorem.
C)transaction costs are too high.
D)transaction costs are too low.
Q2) An optimal tax on pollution would result in which of the following?
A)Producers will choose not to produce any pollution.
B)Producers will internalize the cost of the pollution.
C)Producers will maximize production.
D)The value to consumers at market equilibrium will exceed the social cost of production.
Q3) The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.
A)True
B)False
Q4) When the government uses a command-and-control policy to solve an externality,it
A)is usually the most effective policy option available.
B)creates policies that directly regulate behavior.
C)usually involves taxing the consumption of a commodity.
D)typically refers to the Coase theorem to structure the policy.
Page 12
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Even economists who advocate small government agree that national defense is a good that the government should provide.
A)True
B)False
Q2) Consider a good for which the number of people who benefit from the good is large and the exclusion of any one those people is impossible.In this case,the market for this good will likely
A)be provided by a private firm rather than the government.
B)have a free-rider problem.
C)not exist.
D)be limited to a small number of units of production.
Q3) Using a toll to reduce traffic when congestion is greatest is an example of a
A)regulation solution.
B)command-and-control policy.
C)corrective tax.
D)Coase theorem solution.
Q4) National Public Radio would be considered a club good.
A)True
B)False
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) The concept that people should pay taxes based on the benefits they receive from government services is called
A)the ability-to-pay principle.
B)the benefits principle.
C)horizontal equity.
D)vertical equity.
Q2) A person's marginal tax rate equals
A)her tax obligation divided by her average tax rate.
B)the increase in taxes she would pay as a percentage of the rise in her income.
C)her tax obligation divided by her income.
D)the increase in taxes if her average tax rate were to rise by 1%.
Q3) Corporate income taxes are based on the amount of revenue a corporation earns.
A)True
B)False
Q4) The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.
A)True
B)False
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Refer to Table 13-13.What is the total fixed cost for this firm?
A)20
B)30
C)40
D)50
Q2) Average total cost and marginal cost express information that is already contained in a firm's total cost.
A)True
B)False
Q3) Refer to Scenario 13-7.What are Wanda's explicit costs per glass?
A)0.18
B)0.10
C)0.08
D)0.02
Q4) The production function depicts a relationship between which two variables? Also,draw a production function that exhibits diminishing marginal product.
Q5) A firm's total profit equals its marginal revenue minus its marginal cost. A)True
B)False
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) The short-run market supply curve in a perfectly competitive industry
A)shows the total quantity supplied by all firms at each possible price.
B)is perfectly inelastic at the market price.
C)is perfectly elastic at the market price.
D)shows the variety of prices that different firms will charge for a given quantity.
Q2) A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average total cost; otherwise,the firm will shut down.
A)True
B)False
Q3) Competitive firms that earn a loss in the short run should A)shut down if P < AVC.
B)raise their price.
C)lower their output.
D)All of the above are correct.
Q4) Because there are many sellers in a competitive market,individual firms are unable to maximize profits.
A)True
B)False
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Chapter 15: Monopoly
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Sample Questions
Q1) For a monopolist,when the output effect is greater than the price effect,marginal revenue is
A)positive.
B)negative.
C)zero.
D)maximized.
Q2) During the holiday season,high-end retailers frequently place a high price on merchandise on weekends and discount the price during the week.They do this because they believe that two groups of customers exist: shoppers with little free time and bargain hunters.Bargain hunters have time to shop around and frequently shop during the week.What do economists call this price strategy used by high-end retailers?
A)oligopoly
B)price discrimination
C)compensating differential
D)in-kind transfers
Q3) Average revenue for a monopoly is the total revenue divided by the quantity produced.
A)True
B)False
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Page 17
Chapter 16: Monopolistic Competition
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Sample Questions
Q1) In the short run,a firm in a monopolistically competitive market operates much like a
A)firm in a perfectly competitive market.
B)firm in an oligopoly.
C)monopolist.
D)monopsonist.
Q2) A monopolistically competitive firm is currently earning a positive economic profit.If other firms enter the market,we would expect that the added competition will cause this firm to adjust its output such that it
A)will operate closer to its efficient scale.
B)will operate further from its efficient scale.
C)will no longer be at its efficient scale.
D)might move either closer to or further from its efficient scale.
Q3) In perfect competition as well as in monopolistic competition,
A)marginal revenue is equal to price for each firm.
B)profit is positive in a long-run equilibrium for each firm.
C)entry and exit by firms are restricted.
D)there are many firms in a single market.
Q4) Why does a typical monopolistically competitive firm face a downward-sloping demand curve?
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Chapter 17: Oligopoly
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Q1) All cartels are inherently reliant on
A)a horizontal demand curve.
B)an inelastic demand for their product.
C)the cooperation of their members.
D)enforcement of antitrust laws.
Q2) 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 her 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.
Q3) A group of firms that collude is called a cartel.
A)True
B)False
Q4) The essence of an oligopolistic market is that there are only a few sellers.
A)True
B)False
Q5) Outline the purpose of antitrust laws.What do they accomplish?
Q6) Explain the practice of tying and discuss why it is controversial.
Page 19
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Chapter 18: The Market for the Factors of Production
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Q1) Refer to Figure 18-8.What is measured along the vertical axis on the graph?
A)the quantity of automobiles produced
B)the price of automobiles
C)the wage paid to automobile workers
D)time spent by workers producing automobiles
Q2) The term Luddite is used to describe
A)a person who readily adopts the latest technological advances.
B)a person who is opposed to a reduction in the number of immigrants that are allowed into the country each year.
C)a person who opposes technological advance.
D)any mythical historical figure.
Q3) Refer to Figure 18-4.The graph above illustrates the market for bakers who make homemade breads and breakfast pastries.If the supply of commercial-grade ovens in which the bakers bake their breads and pastries decreases,what happens in the market for bakers?
A)Demand increases from D1 to D2.
B)Demand decreases from D2 to D1.
C)Supply increases from S1 to S2.
D)Supply decreases from S2 to S1.
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Page 20
Chapter 19: Earnings and Discrimination
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Q1) Which of these instances would constitute labor-market discrimination?
Traci and Carol are identical in all of their labor-market characteristics except that Traci earns a higher salary than Carol because
A)Traci is beautiful and Carol is not.
B)Traci is 40 years old and Carol is 60 years old.
C)Traci works the night shift and Carol works the day shift.
D)Traci has 15 years of experience and Carol has 10 years of experience.
Q2) Consumers are often a primary source of discrimination in labor markets.
A)True
B)False
Q3) Economists argue competitive markets provide a "natural remedy" to discriminatory wage practices.Which of the following is widely recognized as a potential limit to the effectiveness of that natural remedy?
A)Some workers are members in unions.
B)Some firms pay efficiency wages; others do not.
C)Some customers are discriminatory in their buying habits.
D)Some employees have accumulated more human capital than other employees.
Q4) Explain the role that consumers play in perpetuating discrimination in labor markets.
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Page 21
Chapter 20: Income Inequality and Poverty
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Q1) Many economists believe that a family bases its spending decisions on its permanent,or average,income rather than on transitory income.
A)True
B)False
Q2) 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
Q3) The concept of diminishing marginal utility is embedded in the utilitarian rationale for
A)trickle-down effects.
B)enhancing market efficiency.
C)redistributing income.
D)maintaining the status quo income distribution.
Q4) Of the four countries below,the country that has the most income equality is A)Japan.
B)Brazil.
C)South Africa.
D)the United States.
Page 22
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Chapter 21: The Theory of Consumer Choice
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Q1) If income decreases and prices are unchanged,the consumer's budget constraint
A)remains the same.
B)shifts outward.
C)shifts inward.
D)rotates outward along the horizontal axis.
Q2) We can use the theory of consumer choice to analyze
A)why most demand curves slope downward.
B)the tradeoff between work and leisure
C)how interest rates affect household saving.
D)All of the above are correct.
Q3) Refer to Figure 21-17.Bundle D represents a point where
A)MRS<sub>xy</sub> > P<sub>y</sub>/P<sub>x</sub>.
B)MRS<sub>xy</sub> = P<sub>x</sub>/P<sub>y</sub>.
C)MRS<sub>xy</sub> < P<sub>x</sub>/P<sub>y</sub>.
D)MRS<sub>xy</sub> < P<sub>y</sub>/P<sub>x</sub>.
Q4) The theory of consumer choice provides a(n) A)literal account of how people make decisions.
B)unrealistic picture of how people make decisions.
C)model that is consistent with how people make decisions.
D)in-depth model that is based more in psychology than in economics.
Page 23
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Chapter 22: Frontiers of Microeconomics
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Q1) When a night watchman only performs two walk-throughs per night when he is being paid to perform five walk-throughs per night,it is an example of
A)both moral hazard and adverse selection.
B)neither moral hazard nor adverse selection.
C)moral hazard,but not adverse selection.
D)adverse selection,but not moral hazard.
Q2) The median voter
A)is the voter exactly in the middle of the distribution.
B)is the voter whose preferred outcome beats any other proposal in a two-way race.
C)always has more than half the votes on his side in a two-way race.
D)All of the above are correct.
Q3) The two major problems caused by asymmetric information are the moral-hazard problem and the principal-agent problem.
A)True
B)False
Q4) How have insights from the field of psychology influenced the thinking of economists in recent years?
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) Expenditures by households on education are included in the consumption component of GDP.
A)True
B)False
Q2) You find that your paycheck for the year is higher this year than last.Does that mean that your real income has increased?
Explain carefully.
Q3) 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.
Q4) Which of the following statements about recessions is true?
A)An old rule of thumb defining recession is two consecutive quarters of falling nominal GDP.
B)Recessions occur at regular intervals and last standard amounts of time.
C)There is no ironclad rule for the declaration of recessions.
D)Recessions are associated with low unemployment and high income.
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Chapter 24: Measuring the Cost of Living
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Q1) The content of the basket of goods and services used to compute the CPI changes every month.
A)True
B)False
Q2) What basket of goods and services is used to construct the CPI?
A)a random sample of all goods and services produced in the economy
B)the goods and services that are typically bought by consumers as determined by government surveys
C)only food,clothing,transportation,entertainment,and education
D)the least expensive and the most expensive goods and services in each major category of consumer expenditures
Q3) If the consumer price index is 120 in 2009 and 139.2 in 2010,then the rate of inflation for 2010 is 39.2 percent.
A)True
B)False
Q4) Which is likely to have the larger effect on the CPI,a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.
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Chapter 25: Production and Growth
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Q1) What is the difference between human capital and technology?
Q2) Dilbert's Incorporated produced 5,000,000 units of accounting software in 2008.At the start of 2009 the pointy-haired boss reduced total annual hours of employment from 10,000 to 8,000 and production was 4,800,000.These numbers indicate that productivity
A)fell by 4%.
B)fell by 20%.
C)rose by 12%.
D)rose by 20%.
Q3) Inward-oriented policies
A)include imposing tariffs and other trade restrictions.
B)have generally increased productivity and growth in the countries that pursued them. C)promote the production of goods and services that the country produces most efficiently.
D)All of the above are correct.
Q4) Two countries with the same saving rates must have the same growth rate of real GDP per person.
A)True
B)False
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Chapter 26: Saving,investment,and the Financial System
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Q1) A government may use deficit financing to smooth tax rates over time.
A)True
B)False
Q2) When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.
A)True
B)False
Q3) Refer to Figure 26-1.Which of the following events would shift the supply curve from S1 to S2?
A)In response to tax reform,firms are encouraged to invest more than they previously invested.
B)In response to tax reform,households are encouraged to save more than they previously saved.
C)Government goes from running a balanced budget to running a budget deficit.
D)Any of the above events would shift the supply curve from S1 to S2.
Q4) What are the basic differences between bonds and stocks?
Q5) Banks and mutual funds are examples of financial markets.
A)True
B)False
Q6) Draw and label a graph showing equilibrium in the market for loanable funds.
Page 28
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Chapter 27: The Basic Tools of Finance
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Q1) Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?
A)Interest rates rise and truck prices rise.
B)Interest rates fall and truck prices rise.
C)Interest rates rise and truck prices fall.
D)Interest rates fall and truck prices fall.
Q2) Which of the following changes would decrease the present value of a future payment?
A)a decrease in the size of the payment
B)an increase in the time until the payment is made
C)an increase in the interest rate
D)All of the above are correct.
Q3) If a savings account pays 5 percent annual interest,then the rule of 70 tells us that the account value will double in approximately 14 years.
A)True
B)False
Q4) List three different ways that a risk-averse person can reduce financial risk.
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Chapter 28: Islamic Finance
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Q1) During the 2008 financial crisis Islamic banks were more resilient in avoiding direct financial losses.Why do you think this might have been?
Explain your reasoning.
Q2) To highlight the growing importance of Islamic finance in global business,the Dow Jones (DJ)and Financial Times Stock Exchange indicator (FTSE)have created their own Islamic securities indices.
A)True
B)False
Q3) Which of the following statements is not a key difference between Islamic and conventional banks.?
A)A conventional bank aims to maximize profits for the shareholders and provide adequate returns to depositors.
B)Conventional bank financing is interest orientated and both fixed and variable rates can be charged for the use of money.
C)In conventional banking speculative ventures can be.and are undertaken.
D)In conventional banking depositors gain interest and a guarantee of principal repayment.
Q4) Explain in your own words the three key principles of Islamic finance.
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Chapter 29: Unemployment
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Q1) Government-run employment agencies and public training programs are operated by the government to try to facilitate job search and reduce unemployment.
A)Almost all economists agree that such programs are of no use.
B)Almost all economists agree that such programs work very well.
C)Some economists claim that the government can do these things no better than firms and individuals could do them for themselves.
D)Some economists claim that these programs increase frictional unemployment.
Q2) Minimum wages create unemployment in markets where they create a
A)shortage of labor.Unemployment of this type is called frictional.
B)shortage of labor.Unemployment of this type is called structural.
C)surplus of labor.Unemployment of this type is called frictional.
D)surplus of labor.Unemployment of this type is called structural.
Q3) Refer to Table 29-3.What is the adult population in Meditor?
A)90 million
B)160 million
C)230 million
D)240 million
Q4) What is the theory of efficiency wages?
Provide four reasons that employers might pay efficiency wages.
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Chapter 30: The Monetary System
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Q1) In a system of 100-percent-reserve banking,
A)banks do not make loans.
B)currency is the only form of money.
C)deposits are banks' only assets.
D)All of the above are correct.
Q2) What does the text mean by the question,"Where Is All the Currency? " How does it answer the question?
Q3) Today,bank runs are
A)uncommon because of the high reserve requirement.
B)uncommon because of FDIC deposit insurance.
C)common because of the low reserve requirement.
D)common because the FDIC is nearly bankrupt.
Q4) Explain how each of the following changes the money supply.
a.the Fed buys bonds
b.the Fed auctions credit
c.the Fed raises the discount rate
d.the Fed raises the reserve requirement
Q5) Economists argue that the move from barter to money increased trade and production.How is this possible?
Page 32
Q6) What is the difference between money and wealth?
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Chapter 31: Money Growth and Inflation
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Q1) As the price level falls,the value of money falls.
A)True
B)False
Q2) The price level is determined by the supply of,and demand for,money.
A)True
B)False
Q3) The inflation rate is measured as the percentage change in a price index.
A)True
B)False
Q4) The source of all four classic hyperinflations was high rates of money growth.
A)True
B)False
Q5) Inflation distorts savings when real interest income,rather than nominal interest income,is taxed.
A)True
B)False
Q6) Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.
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Chapter 32: Open-Economy Macroeconomic Models
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Q1) Consider an identical basket of goods in both Algeria and India.For a given nominal exchange rate,in which case is it certain that the Algerian real exchange rate with India falls?
A)the price of the basket of goods rises in Algeria and India.
B)the price of the basket of goods rises in Algeria and falls in India.
C)the price of the basket of goods falls in Algeria and rises in India.
D)the price of the basket of goods falls in both India and Algeria.
Q2) If Thailand has a trade surplus,then
A)foreign countries purchase more Thai assets than Thailand purchases from them.This makes Thai saving greater than Thai domestic investment.
B)foreign countries purchase more Thai assets than Thailand purchases from them.This makes Thai saving smaller then Thai domestic investment.
C)foreign countries purchase fewer Thai assets than Thailand purchases from them.This makes Thai saving greater than Thai domestic investment
D)foreign countries purchase fewer Thai assets than Thailand purchases from them.This makes Thai saving greater than Thai domestic investment.,
Q3) What does purchasing-power parity imply about the real exchange rate?
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Chapter 33: A Macroeconomic Theory of the Open Economy
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Q1) Other things the same,as the real interest rate rises
A)domestic investment and net capital outflow both rise.
B)domestic investment and net capital outflow both fall.
C)domestic investment rises and net capital outflow falls.
D)domestic investment falls and net capital outflow rises.
Q2) The slope of the supply of loanable funds is based on an increase in
A)only national saving when the interest rate rises.
B)both national saving and net capital outflow when the interest rate rises.
C)only national saving when the interest rate falls.
D)both national saving and net capital outflow when the interest rate falls.
Q3) The value of net exports equals the value of A)national saving.
B)public saving.
C)national saving - net capital outflow.
D)national saving - domestic investment.
Q4) If a country raises its budget deficit,then its
A)net capital outflow and net exports rise.
B)net capital outflow rises and net exports fall.
C)net capital outflow falls and net exports rise.
D)net capital outflow and net exports fall.
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Chapter 34: Aggregate Demand and Aggregate Supply
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Q1) Which of the following effects helps to explain the slope of the aggregate-demand curve?
A)the exchange-rate effect
B)the wealth effect
C)the interest-rate effect
D)All of the above are correct.
Q2) Some countries have high minimum wages and require a lengthy and costly process to get permission to open a business
A)Reducing either the minimum wage or the time and cost to open a business would have no effect on the long-run aggregate supply curve.
B)Reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right.
C)Reducing the minimum wage would shift long-run aggregate supply to the right.Reducing the time and cost to open a business would have no affect on the long-run aggregate supply curve.
D)Reducing the minimum wage would have no affect on the long-run aggregate supply curve.Reducing the time and cost to open a business would shift the long-run aggregate supply curve to the right.
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Chapter 35: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) The most important reason for the slope of the aggregate-demand curve is that as the price level
A)increases,interest rates increase,and investment decreases.
B)increases,interest rates decrease,and investment increases.
C)decreases,interest rates increase,and investment increases.
D)decreases,interest rates decrease,and investment decreases.
Q2) In the long run,fiscal policy influences
A)saving,investment,and growth; in the short run,fiscal policy primarily influences technology and the production function.
B)saving,investment,and growth; in the short run,fiscal policy primarily influences the aggregate demand for goods and services.
C)technology and the production function; in the short run,fiscal policy primarily influences saving,investment,and growth.
D)the aggregate demand for goods and services; in the short run,fiscal policy primarily influences technology and the production function.
Q3) Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.
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Chapter 36: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) If the central bank decreases the money supply,then in the short run prices
A)rise and unemployment falls.
B)fall and unemployment rises.
C)and unemployment rise.
D)and unemployment fall.
Q2) If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same,then policymakers
A)Can not exploit a tradeoff between inflation and unemployment in either the short or long run.
B)Can exploit a tradeoff between inflation and unemployment in the short run but not in the long run.
C)Can exploit a tradeoff between inflation and unemployment in both the short run and the long run.
D)Can exploit a tradeoff between inflation and unemployment in the long run,but not the short run.
Q3) Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.
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Chapter 37: Six Debates Over Macroeconomic Policy
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Q1) People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.
A)True
B)False
Q2) Explain the main arguments in favor of economic stabilization.
Q3) The argument that an increase in government expenditures will have a larger impact on aggregate demand than tax cuts is based on the idea that
A)tax cuts have no multiplier affect.
B)people will save part of a tax cut.
C)an increase in consumption expenditures has a smaller effect on real GDP than an equal increase in government expenditures.
D)None of the above is correct.
Q4) Higher saving is associated with
A)a larger capital stock and a higher standard of living.
B)a larger capital stock but not a higher standard of living.
C)a higher standard of living but not a larger capital stock.
D)neither a higher standard of living nor a higher capital stock.
Q5) Explain how it is possible for the government debt to grow forever.
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