Economic Principles
Midterm Exam
Course Introduction
Economic Principles introduces students to the foundational concepts that underpin the study of economics, including supply and demand, market equilibrium, opportunity cost, and the role of incentives. The course explores both microeconomic and macroeconomic perspectives, emphasizing how individuals, firms, and governments make choices in the face of scarcity. Students will analyze real-world issues such as pricing strategies, resource allocation, and the impact of government policies on economic outcomes, developing a solid understanding of how economic forces shape society and influence decision-making at various levels.
Recommended Textbook
Principles of Macroeconomics 8th Edition by N. Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Q1) Which of the following is correct?
A)The word economy comes from the Greek word for "rational thinker."
B)Economists study the management of scarce resources.
C)Because economists believe that people pursue their best interests,they are not interested in how people interact.
D)All of the above are correct.
Answer: B
Q2) Resources are
A)scarce for households but plentiful for economies.
B)plentiful for households but scarce for economies.
C)scarce for households and scarce for economies.
D)plentiful for households and plentiful for economies.
Answer: C
Q3) Coal is considered to be a non-renewable energy source.Which of the following statements is correct?
A)Coal is an unlimited resource.
B)Coal is a scarce resource.
C)Coal is a non-scarce resource.
D)Coal is not a resource.
Answer: B
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Chapter 1: Ten Principles of Economics: How People Make Decisions
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Sample Questions
Q1) One effect of the government-imposed seat belt law in the U.S.has been
A)a dramatic decrease in the number of pedestrian deaths.
B)safer driving.
C)an increase in the number of accidents.
D)a dramatic decrease in the number of driver deaths.
Answer: C
Q2) A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies
A)enhance equality.
B)enhance efficiency.
C)increase the reward for working hard.
D)All of the above are correct.
Answer: A
Q3) People are likely to respond to a policy change
A)only if they think the policy is a good one.
B)only if the policy change changes the costs of their behavior.
C)only if the policy change changes the benefits of their behavior.
D)if the policy changes either the costs or benefits of their behavior.
Answer: D
Page 4
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Chapter 1: Ten Principles of Economics: How People Interact
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Q1) Market economies are distinguished from other types of economies largely on the basis of
A)the political affiliations of government officials.
B)the process by which government officials are elected or appointed.
C)the ways in which scarce resources are allocated.
D)the number of retail outlets available to consumers.
Answer: C
Q2) Which of these activities will most likely impose an external cost?
A)An athlete works out at a gym.
B)A secretary smokes a cigarette in a crowded break room.
C)A young mother pushes her baby in a stroller.
D)A construction worker eats a hotdog during his lunch break.
Answer: B
Q3) When the government prevents prices from adjusting naturally to supply and demand,
A)it equates the amount buyers want to buy with the amount sellers want to sell.
B)it adversely affects the allocation of resources.
C)it improves equality and efficiency.
D)it improves efficiency but reduces equality.
Answer: B
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Chapter 1: Ten Principles of Economics: How the Economy
As a Whole Works
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Q1) To increase living standards,public policy should
A)ensure that workers are well educated and have the necessary tools and technology.
B)make unemployment benefits more generous.
C)move workers into jobs directly from high school.
D)ensure a greater degree of equality,taking all income-earners into account.
Q2) In the short run,which of the following is not correct?
A)Increasing the money supply increases the demand for goods and services.
B)Increasing the money supply encourages firms to hire more workers.
C)Lowering the money supply leads to a higher level of unemployment.
D)Policies that encourage higher employment will also induce a lower rate of inflation.
Q3) President Gerald Ford referred to inflation as
A)a blight on our nation's economy.
B)a necessary evil to combat high unemployment.
C)public enemy number one.
D)a fly in the ointment.
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Chapter 1: Ten Principles of Economics: Part A
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Q1) The term ------ refers to a small incremental adjustment to an existing plan of action.
Q2) Under what conditions might government intervention in a market economy improve the economy's performance?
Q3) Refer to Scenario 1-3.What is the company's marginal cost?
Q4) Melinda quits her job at a bank,which pays $30,000 a year,to enroll in a two-year graduate program.Her annual school expenses are $22,000 for tuition and fees and $2,000 for books.What is her opportunity cost of attending the two-year graduate program?
Q5) Explain how government policies that redistribute income from the rich to the poor might reduce efficiency.
Q6) Economists use the term ------ to refer to fluctuations in economic activity,such as employment and production.
Q7) Refer to Scenario 1-6.A customer is willing to pay $60 for the 601<sup>st</sup> heart rate monitor.Should the company produce and sell it? Explain.
Q8) Economists use the term ------ to refer to an increase in the overall level of prices in the economy.
Q9) Rational people make decisions "at the margin" by comparing ------.
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Chapter 1: Ten Principles of Economics: Part B
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Q1) Economics is the study of how society allocates its unlimited resources.
A)True
B)False
Q2) Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality.
A)True
B)False
Q3) Suppose one county in Missouri decides it wants to reduce alcohol consumption,so the county passes a law that raises the price of a bottle of beer by $1.As a result,people drive to other counties to drink alcohol,which results in an increase in drunk driving.This illustrates the principle that people respond to incentives.
A)True
B)False
Q4) Equality means distributing society's resources in the most efficient manner.
A)True
B)False
Q5) Trade with any nation can be mutually beneficial.
A)True
B)False
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Chapter 2: Thinking Like an Economist
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Q1) Studying which of the following is helpful in learning to think like an economist?
A)theory.
B)case studies.
C)examples of economics in the news.
D)all of the above.
Q2) The language of economics is
A)needlessly arcane.
B)valuable because it provides a new and useful way of learning about the world.
C)easy to learn within a day.
D)unnecessary to learn for a thorough understanding of economics.
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Chapter 2: Thinking Like an Economist: The Economist As Scientist
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Q1) In constructing models,economists
A)leave out equations,since equations and models tend to contradict one another.
B)ignore the long run,since models are useful only for short-run analysis.
C)sometimes make assumptions that are contrary to features of the real world.
D)try to include every feature of the economy.
Q2) In the circular-flow diagram,
A)firms own the factors of production.
B)the factors of production are labor,land,and capital.
C)the factors of production are also called "output."
D)All of the above are correct.
Q3) The decision of which assumptions to make is
A)an easy decision for an economist,but a difficult decision for a physicist or a chemist.
B)not a particularly important decision for an economist.
C)usually regarded as an art in scientific thinking.
D)usually regarded as the easiest part of the scientific method.
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Chapter 2: Thinking Like an Economist: The Economist As Policy Adviser
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Q1) President Truman once said he wanted to find a one-armed economist because when he asked his economists for advice,they always answered,"On the one hand,...On the other hand,..." Truman's observation that economists' advice is not always straightforward
A)is rooted in the principle that people face tradeoffs.
B)indicates that economists recognize that there are opportunity costs associated with policy decisions.
C)confirms that economists are not suited to be presidential advisers.
D)More than one of the above is correct.
Q2) Which of the following statements is an example of a positive,as opposed to normative,statement?
A)Americans deserve a cleaner environment.
B)Reducing emissions reduces days missed from school due to asthma.
C)All Americans are entitled to quality health care.
D)Economic policies should focus on improving equality.
Q3) A statement describing how the world is
A)is a normative statement.
B)is a positive statement.
C)would only be made by an economist speaking as a policy adviser.
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D)would only be made by an economist employed by the government.
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Chapter 2: Thinking Like an Economist: Why Economists
Disagree
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Q1) President Ronald Reagan once joked that a Trivial Pursuit game designed for economists would
A)have no questions but hundreds of answers.
B)have 100 questions and 3,000 answers.
C)have 1,000 questions but no answers.
D)never produce a winner.
Q2) Almost all economists agree that tariffs and import quotas
A)reduces general economic welfare.
B)increases general economic welfare.
C)have no effect on general economic welfare.
D)stimulate a less than fully employed economy.
Q3) Almost all economists agree that local and state governments should
A)eliminate subsidies to professional sports franchises.
B)increase subsidies to professional sports franchises.
C)copy economic policy from Washington,D.C.
D)prevent companies from outsourcing work.
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Q1) According to economist John Maynard Keynes,a great economist must also be a(n)
A)mathematician.
B)historian.
C)philosopher.
D)All of the above are correct.
Q2) Congressman Dearmark justified spending $3 million on a new entertainment complex in his district because it will create 450 new jobs for his residents.As a student of economics,you know that
A)this is a case of the "broken window fallacy."
B)this is a great use of taxpayer dollars.
C)this policy diverts money from spending somewhere else in the economy.
D)Both a and c are correct.
Q3) When a government program is justified not on its merits but on the number of jobs it will create,
A)the program is an efficient use of taxpayer dollars.
B)it should be approved only if the unemployment rate is low.
C)taxes should be raised to fund the program.
D)it is known as the "broken window fallacy."
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Chapter 2: Thinking Like an Economist: Graphing a Brief Review
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Q1) The slope of a line is equal to A)rise divided by run.
B)run divided by rise.
C)rise minus run.
D)rise plus run.
Q2) A demand curve shows the relationship between price and A)income.
B)quantity demanded.
C)production.
D)income and quantity demanded.
Q3) A demand curve displaying the relationship between the price of cars and the quantity demanded of cars should have a slope that is A)less than 0.
B)between zero and 1.
C)between one and infinity.
D)undefined.
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Chapter 2: Thinking Like an Economist: Part A
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Q1) Refer to Figure 2-3.What do the rectangles represent in the figure?
Q2) Refer to Figure 2-3.What does the arrow going from oval B to rectangle 2 represent in the figure?
Q3) Economists at which administrative department analyze data on workers and those looking for work to help formulate labor-market policies?
Q4) Who would be more likely to study the effects of government spending on the unemployment rate,a macroeconomist or a microeconomist?
Q5) What you must give up to get something else is called the
Q6) Who would be more likely to study the effects of rent control on housing in New York City,a macroeconomist or a microeconomist?
Q7) Like biologists and physicists,economists use the dispassionate development and testing of how the world works known as the
Q8) Refer to Figure 2-15.Consider the production possibilities frontier for an economy that produces only sofas and cars.The opportunity cost of one car is
Q9) Economists at which administrative department help enforce the nation's antitrust laws?
Q10) Refer to Figure 2-3.What do the inner arrows represent in the figure?
Page 15
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Chapter 2: Thinking Like an Economist: Part B
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Q1) Refer to Figure 2-14.It is possible for this economy to produce 30 doghouses and 20 dishwashers.
A)True
B)False
Q2) Refer to Figure 2-14.The opportunity cost of an additional doghouse increases as more doghouses are produced.
A)True
B)False
Q3) When a production possibilities frontier is bowed outward,the opportunity cost of one good in terms of the other depends on how much of each good is being produced. A)True
B)False
Q4) Points on the production possibilities frontier represent efficient levels of production. A)True B)False
Q5) Economists use one standard set of assumptions to answer all economic questions. A)True B)False
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Chapter 3: Interdependence and the Gains From Trade
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Q1) When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all
A)rely upon the government to provide us with the basic necessities of life.
B)rely upon one another for the goods and services we consume.
C)have similar tastes and abilities.
D)are concerned about one another's well-being.
Q2) People who provide you with goods and services
A)are acting out of generosity.
B)do so because they get something in return.
C)have chosen not to become interdependent.
D)are required to do so by the government.
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Chapter 3: Interdependence and the Gains From Trade: A Parable for the Modern Economy
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Q1) Consider two individuals - Howard and Mai - each of whom would like to wear sweaters and eat tasty food.The gains from trade between Howard and Mai are least obvious in which of the following cases?
A)Howard is very good at knitting sweaters and at cooking tasty food,but Mai's skills in both of these activities are very poor.
B)Howard is very good at knitting sweaters and at cooking tasty food;Mai is very good at knitting sweaters,but she knows nothing about cooking tasty food.
C)Howard's skills in knitting sweaters are fairly good,but his skills in cooking tasty food are fairly bad;Mai's skills in knitting sweaters are fairly bad,but her skills in cooking tasty food are fairly good.
D)Howard's skills are such that he can produce only sweaters,and Mai's skills are such that she can produce only tasty food.
Q2) For a self-sufficient producer,the production possibilities frontier
A)is the same as the consumption possibilities frontier.
B)is greater than the consumption possibilities frontier.
C)is less than the consumption possibilities frontier.
D)is always a straight line.
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) When describing the opportunity cost of two producers,economists use the term
A)natural advantage.
B)trading advantage.
C)comparative advantage.
D)absolute advantage.
Q2) Refer to Figure 3-21.Azerbaijan's opportunity cost of one nail is
A)1/4 bolt and Uzbekistan's opportunity cost of one nail is 1/2 bolt.
B)1/4 bolt and Uzbekistan's opportunity cost of one nail is 2 bolts.
C)4 bolts and Uzbekistan's opportunity cost of one nail is 1/2 bolt.
D)4 bolts and Uzbekistan's opportunity cost of one nail is 2 bolts.
Q3) Refer to Figure 3-14.Arturo has an absolute advantage in the production of
A)burritos and a comparative advantage in the production of tacos.
B)burritos and a comparative advantage in the production of burritos.
C)neither good and a comparative advantage in the production of tacos.
D)neither good and a comparative advantage in the production of burritos.
Q4) Refer to Figure 3-24.Bob has
A)an absolute and comparative advantage producing good x.
B)an absolute but not a comparative advantage producing good x.
C)a comparative but not an absolute advantage producing good x.
D)neither a comparative nor an absolute advantage producing good x.
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Chapter 3: Interdependence and the Gains From Trade: Applications
of Comparative Advantage
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Q1) Which of the following would not result from all countries specializing according to the principle of comparative advantage?
A)The size of the economic pie would increase.
B)Worldwide production of goods and services would increase.
C)The well-being of citizens in each country would be enhanced.
D)Each country's production possibilities frontier would shift inward.
Q2) When two countries trade with one another,it is most likely because
A)the wealthy people in each of the two countries are able to benefit,through trade,by taking advantage of other people who are poor.
B)some people involved in the trade do not understand that one of the two countries will become worse-off because of the trade.
C)the opportunity costs of producing various goods are identical for the two countries.
D)the two countries wish to take advantage of the principle of comparative advantage.
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Which of the following is not an example of the principle that trade can make everyone better off?
A)Americans buy tube socks from China.
B)Residents of Maine drink orange juice from Florida.
C)A homeowner hires the kid next door to mow the lawn.
D)All of the above are examples of the principle that trade can make everyone better off.
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Chapter 3: Interdependence and the Gains From Trade:
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Sample Questions
Q1) Refer to Scenario 3-1.What is Catherine's opportunity cost of producing ice cream? Explain how you derived your answer.
Q2) Define comparative advantage.
Q3) Refer to Figure 3-26.What is Kate's opportunity cost of one muffin?
Q4) Refer to Scenario 3-1.What is Catherine's opportunity cost of producing cake? Explain how you derived your answer.
Q5) Refer to Scenario 3-1.What is Greg's opportunity cost of producing ice cream? Explain how you derived your answer.
Q6) Refer to Scenario 3-2.Which country,if either,has an absolute advantage producing broccoli? Defend your answer.
Q7) Refer to Figure 3-26.What is Kate's opportunity cost of one cookie?
Q8) Charlotte can produce pork and beans and can switch between producing them at a constant rate.If it takes her 10 hours to produce a pound of pork and 5 hours to produce a pound of beans,what is her opportunity cost of pork and what is her opportunity cost of beans?
Q10) Refer to Figure 3-26.What is Mary's opportunity cost of one muffin? Page 22
Q9) Economists use the term ------ to refer to the ability to produce a good at a lower opportunity cost than another producer.
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Chapter 3: Interdependence and the Gains From Trade:
Part B
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Q1) Trade can only benefit a nation if that nation has an absolute advantage in the production of that good.
A)True
B)False
Q2) Jake can complete an oil change in 45 minutes and he can write a poem in 90 minutes.Ming-la can complete an oil change in 30 minutes and she can write a poem in 90 minutes.Jake's opportunity cost of writing a poem is lower than Ming-la's opportunity cost of writing a poem.
A)True
B)False
Q3) As long as two people have different opportunity costs,each can gain from trade with the other,since trade allows each person to obtain a good at a price lower than his or her opportunity cost.
A)True
B)False
Q4) Trade allows all countries to achieve greater prosperity.
A)True
B)False
24
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Chapter 4: The Market Forces of Supply and Demand
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Q1) In a market economy,supply and demand are important because they
A)are direct policy tools used by government agencies to regulate the economy.
B)illustrate when an market is in equilibrium,but they are not helpful when a market is out of equilibrium.
C)can be used to predict the impact on the economy of various events and policies.
D)All of the above are correct.
Q2) The two words economists use most often are
A)inflation and trade.
B)supply and demand.
C)competition and prices.
D)markets and equilibrium.
Q3) The two words most often used by economists are
A)prices and quantities.
B)resources and allocation.
C)supply and demand.
D)efficiency and equity.
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Chapter 4: The Market Forces of Supply and
Demand:Markets and Competition
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Q1) Assume the market for pork is perfectly competitive.When one pork buyer exits the market,
A)the price of pork increases.
B)the price of pork decreases.
C)the price of pork does not change.
D)there is no longer a market for pork.
Q2) A competitive market is a market in which
A)an auctioneer helps set prices and arrange sales.
B)there are only a few sellers.
C)the forces of supply and demand do not apply.
D)no individual buyer or seller has any significant impact on the market price.
Q3) If buyers and sellers in a certain market are price takers,then individually
A)they have no influence on market price.
B)they have some influence on market price but that influence is limited.
C)buyers will be able to find prices lower than those determined in the market.
D)sellers will find it difficult to sell all they want to sell at the market price.
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Chapter 4: The Market Forces of Supply and Demand: Demand
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Q1) Refer to Figure 4-5.Which of the following would cause the demand curve to shift from Demand B to Demand A in the market for oranges in the United States?
A)a freeze in Florida
B)a technological advance that allows oranges to ripen faster
C)a decrease in the price of apples
D)an announcement by the FDA that oranges prevent heart disease
Q2) An increase in demand is represented by a
A)movement downward and to the right along a demand curve.
B)movement upward and to the left along a demand curve.
C)rightward shift of a demand curve.
D)leftward shift of a demand curve.
Q3) "Other things equal,when the price of a good rises,the quantity demanded of the good falls,and when the price falls,the quantity demanded rises." This relationship between price and quantity demanded
A)applies to most goods in the economy.
B)is represented by a downward-sloping demand curve.
C)is referred to as the law of demand.
D)All of the above are correct.
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Chapter 4: The Market Forces of Supply and Demand: Supply
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Q1) A market supply curve is determined by
A)vertically summing individual supply curves.
B)horizontally summing individual supply curves.
C)finding the average quantity supplied by sellers at each possible price.
D)finding the average price at which sellers are willing and able to sell a particular quantity of the good.
Q2) Which of the following would not shift the supply curve for mp3 players?
A)an increase in the price of mp3 players
B)a decrease in the number of sellers of mp3 players
C)an increase in the price of plastic,an input into the production of mp3 players
D)an improvement in the technology used to produce mp3 players
Q3) A CPA recently has come to expect higher prices for expert tax advice in the near future.We would expect
A)the CPA to supply more expert tax advice now than she was supplying previously.
B)the CPA to supply less expert tax advice now than she was supplying previously.
C)the demand for this CPA's expert tax advice to fall.
D)no change in the CPA's current supply;instead,future supply will be affected.
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Chapter 4: The Market Forces of Supply and Demand:
Supply and Demand Together
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Q1) Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at
A)prices at and above the equilibrium price.
B)prices at and below the equilibrium price.
C)prices above and below the equilibrium price,but not at the equilibrium price.
D)the equilibrium price but not above or below the equilibrium price.
Q2) A surplus exists in a market if
A)there is an excess demand for the good.
B)quantity demanded exceeds quantity supplied.
C)the current price is above its equilibrium price.
D)All of the above are correct.
Q3) What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive,digital cameras become cheaper,the cost of the resources needed to manufacture traditional film falls,and more firms decide to manufacture traditional film?
A)Price will fall,and the effect on quantity is ambiguous.
B)Price will rise,and the effect on quantity is ambiguous.
C)Quantity will fall,and the effect on price is ambiguous.
D)Quantity will rise,and the effect on price is ambiguous.
Page 29
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Chapter 4: The Market Forces of Supply and
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Q1) In any economic system,scarce resources have to be allocated among competing uses.Market economies harness the forces of
A)government to allocate scarce resources.
B)supply and demand to allocate scarce resources.
C)credit cards to allocate scarce resources.
D)nature to allocate scarce resources.
Q2) The signals that guide the allocation of resources in a market economy are
A)surpluses and shortages.
B)quantities.
C)government policies.
D)prices.
Q3) Who gets scarce resources in a market economy?
A)the government
B)whoever the government decides gets them
C)whoever wants them
D)whoever is willing and able to pay the price
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) Refer to Figure 4-31.What are the values of the equilibrium price and quantity?
Q2) Refer to Figure 4-30.In this market for iPhones,the technology improves while all other factors remain constant.Explain the change(s)in the equilibrium price and quantity.
Q3) Since individual buyers and individual sellers in a competitive market have no influence on the market price,what do we call the buyers and sellers in a competitive market?
Q4) If the supply of pencils,a substitute for pens,increases,what will happen to the equilibrium price of pencils and to the equilibrium price of pens?
Q5) Refer to Figure 4-31.Suppose there is an improvement in technology in this market and the price of lamps,a complementary good,increases.What changes do you predict in the equilibrium price and quantity?
Q6) Studies show that lower cigarette prices are associated with greater use of marijuana;therefore,tobacco and marijuana are
Q7) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if a news report stated that the price of this good was expected to increase next week.
Q8) A group of buyers and sellers of a particular good or service is called a
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) An increase in the price of maple syrup will decrease both the equilibrium price and quantity in the market for pancakes.
A)True
B)False
Q2) Supply and demand together determine the price and quantity of a good sold in a market.
A)True
B)False
Q3) If something happens to alter the quantity supplied at any given price,then we move along the fixed supply curve to a new quantity supplied.
A)True
B)False
Q4) Demand refers to the amount buyers wish to buy,whereas the quantity demanded refers to the position of the demand curve.
A)True
B)False
Q5) Local cable television companies frequently are monopolists.
A)True
B)False
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Chapter 5: Elasticity and Its Applications
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Q1) In general,elasticity is a measure of
A)the extent to which advances in technology are adopted by producers.
B)the extent to which a market is competitive.
C)how firms' profits respond to changes in market prices.
D)how much buyers and sellers respond to changes in market conditions.
Q2) When studying how some event or policy affects a market,elasticity provides information on the
A)equity effects on the market by identifying the winners and losers.
B)magnitude of the effect on the market.
C)speed of adjustment of the market in response to the event or policy.
D)number of market participants who are directly affected by the event or policy.
Q3) When studying how some event or policy affects a market,elasticity provides information on the
A)change in the costs of production.
B)tradeoff between equality and efficiency.
C)effect on the budget deficit or surplus.
D)direction and magnitude of the effect.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Demand
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Sample Questions
Q1) For a particular good,a 2 percent increase in price causes a 12 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?
A)There are no close substitutes for this good.
B)The good is a luxury.
C)The market for the good is broadly defined.
D)The relevant time horizon is short.
Q2) Which of the following is likely to have the most price inelastic demand?
A)mint-flavored toothpaste
B)toothpaste
C)Colgate mint-flavored toothpaste
D)a generic mint-flavored toothpaste
Q3) If the price elasticity of demand for a good is 0.2,then a 3 percent decrease in price results in a
A)0.6 percent increase in the quantity demanded.
B)1.5 percent increase in the quantity demanded.
C)2 percent increase in the quantity demanded.
D)6 percent increase in the quantity demanded.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Supply
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Sample Questions
Q1) Refer to Figure 5-14.Using the midpoint method,what is the price elasticity of supply between $16 and $40?
A)0.125
B)0.86
C)1.0
D)2.5
Q2) Holding all other factors constant and using the midpoint method,if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60,then supply is
A)inelastic,since the price elasticity of supply is equal to .91.
B)inelastic,since the price elasticity of supply is equal to 1.1.
C)elastic,since the price elasticity of supply is equal to 0.91.
D)elastic,since the price elasticity of supply is equal to 1.1.
Q3) Refer to Figure 5-15.Using the midpoint method,what is the price elasticity of supply between points B and C?
A)1.67
B)1.19
C)0.84
D)0.61
Page 35
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Q1) In the early 1970s,OPEC's goal was to
A)decrease the world-wide price of oil so that the quantity demanded increased,thus raising total revenues for OPEC members.
B)increase the world-wide price of oil by reducing the quantity of oil supplied.
C)increase the world-wide price of oil by increasing the quantity of oil supplied,thus raising total revenues for OPEC members.
D)decrease the world-wide price of oil so that quantity demanded increased.
Q2) Farm programs that pay farmers not to plant crops on all their land
A)hurt farmers by lowering their total revenue and hurt consumers by causing shortages of some food items.
B)help farmers by cutting costs,which helps consumers by lowering food prices.
C)help farmers by increasing total revenue in the market but hurt consumers by raising food prices.
D)help farmers directly since they receive government payments but have no real effects on consumers.
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Chapter 5: Elasticity and Its Applications: Part A
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Sample Questions
Q1) Suppose that good X has few close substitutes and that good Y has many close substitutes.Which good would you expect to have more price elastic demand?
Q2) With regard to elasticity,as a firm nears its production capacity,supply becomes more
Q3) Refer to Scenario 5-2.Using the midpoint method,if the price of good Y is $10 and the price of good X decreases from $5 to $3,what is the price elasticity of demand for good X? Is the demand elastic,unitary elastic,or inelastic?
Q4) If the income elasticity of demand for a good is 0.56,is the good a normal or inferior good?
Q5) In the short run,as compared to the long run,both the price elasticity of demand and the price elasticity of supply tend to be more
Q6) Refer to Scenario 5-6.Considering the cross price elasticity of demand for mobile and landline telephone service,is the cross price elasticity of demand positive or negative and do the consumers of Plainville regard these goods as substitutes or complements?
Q7) If the cross-price elasticity of demand between two goods is negative,what is the relationship between the two goods?
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Chapter 5: Elasticity and Its Applications: Part B
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Q1) If we observe that when consumers' incomes rise by 10%,the quantity demanded of ice cream increases by 5%,then ice cream is an inferior good.
A)True
B)False
Q2) The demand for desserts tends to be more inelastic than the demand for red velvet cake.
A)True
B)False
Q3) The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.
A)True
B)False
Q4) The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.
A)True
B)False
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Chapter 6: Supply Demand and Government Policies
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Q1) Which of the following is not an example of a public policy?
A)rent-control laws
B)minimum-wage laws
C)taxes
D)equilibrium laws
Q2) Policymakers use taxes
A)to raise revenue for public purposes but not to influence market outcomes.
B)both to raise revenue for public purposes and to influence market outcomes.
C)when they realize that price controls alone are insufficient to correct market inequities.
D)only in those markets in which the burden of the tax falls clearly on the sellers.
Q3) Which of the following is not correct?
A)Economists have two roles: scientist and policy adviser.
B)As scientists,economists develop and test theories to explain the world around them.
C)Economic policies rarely have effects that their architects did not intend or anticipate.
D)As policy advisers,economists use their theories to help change the world for the better.
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Chapter 6: Supply Demand and Government Policies:
Controls on Prices
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Q1) If a nonbinding price ceiling is imposed on a market,then the A)quantity sold in the market will decrease.
B)quantity sold in the market will stay the same.
C)price in the market will increase.
D)price in the market will decrease.
Q2) If the minimum wage exceeds the equilibrium wage,then
A)the quantity demanded of labor will exceed the quantity supplied.
B)the quantity supplied of labor will exceed the quantity demanded.
C)the minimum wage will not be binding.
D)there will be no unemployment.
Q3) If a binding price floor is imposed on the video game market,then
A)the quantity of video games demanded will decrease.
B)the quantity of video games supplied will increase.
C)a surplus of video games will develop.
D)All of the above are correct.
Q4) Refer to Figure 6-9.At which price would a price ceiling be binding?
A)$8
B)$5
C)$6
D)$7
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Chapter 6: Supply Demand and Government Policies: Taxes
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Q1) Refer to Figure 6-24.What is the amount of the tax per unit?
A)$8
B)$6
C)$4
D)$2
Q2) A tax imposed on the buyers of a good will raise the
A)price paid by buyers and lower the equilibrium quantity.
B)price paid by buyers and raise the equilibrium quantity.
C)effective price received by sellers and lower the equilibrium quantity.
D)effective price received by sellers and raise the equilibrium quantity.
Q3) Which of the following statements is correct concerning the burden of a tax imposed on take-out food?
A)Buyers bear the entire burden of the tax.
B)Sellers bear the entire burden of the tax.
C)Buyers and sellers share the burden of the tax.
D)We have to know whether it is the buyers or the sellers that are required to pay the tax to the government in order to make this determination.
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Chapter 6: Supply Demand and Government Policies: Part
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Q1) When a price ceiling is binding,is the price ceiling set above or below the market equilibrium price?
Q2) Refer to Scenario 6-1.If the government set a price ceiling at $8,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q3) Refer to Figure 6-33.Suppose a $3 per-unit tax is imposed on the sellers of this good.What is the effective price that sellers will receive for the good after the tax is imposed?
Q4) Refer to Scenario 6-2.Suppose the government sets a price ceiling at $12 for this product.Is this price ceiling binding,and what will be the size of the shortage/surplus in this market?
Q5) Refer to Figure 6-31.If the government set a price ceiling at $15,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q6) Define a price floor.
Q7) If the demand curve is more price elastic than the supply curve in a particular market,will the buyers or the sellers bear a larger burden of a per-unit tax imposed on the market?
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Q8) How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
Chapter 6: Supply Demand and Government Policies: Part B
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Sample Questions
Q1) A price ceiling set below the equilibrium price is binding.
A)True
B)False
Q2) Price floors are typically imposed to benefit buyers.
A)True
B)False
Q3) Refer to Figure 6-36.If the government places a $2 tax in the market,the buyer pays $4.
A)True
B)False
Q4) Minimum-wage laws dictate the lowest wage that firms may pay workers.
A)True
B)False
Q5) If the demand curve is very elastic and the supply curve is very inelastic in a market,then the sellers will bear a greater burden of a tax imposed on the market,even if the tax is imposed on the buyers.
A)True
B)False
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Chapter 7: Consumers Producers and the Efficiency of Markets
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Q1) The study of how the allocation of resources affects economic well-being is called A)consumer economics.
B)macroeconomics.
C)willingness-to-pay economics.
D)welfare economics.
Q2) Welfare economics is the study of A)taxes and subsidies.
B)how technology is best put to use in the production of goods and services.
C)government welfare programs for needy people.
D)how the allocation of resources affects economic well-being.
Q3) Which of the following statements is correct?
A)Buyers always want to pay less and sellers always want to be paid more.
B)Buyers always want to pay less and sellers always want to be paid less.
C)Buyers always want to pay more and sellers always want to be paid more.
D)Buyers always want to pay more and sellers always want to be paid less.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Consumer Surplus
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Q1) Which of the following will cause a decrease in consumer surplus?
A)an increase in the number of sellers of the good
B)a decrease in the production cost of the good
C)sellers expect the price of the good to be lower next month
D)the imposition of a binding price floor in the market
Q2) Denise values a stainless steel dishwasher for her new house at $500.The actual price of the dishwasher is $650.Denise
A)buys the dishwasher,and on her purchase she experiences a consumer surplus of $150.
B)buys the dishwasher,and on her purchase she experiences a consumer surplus of $-150.
C)does not buy the dishwasher,and on her purchase she experiences a consumer surplus of $150.
D)does not buy the dishwasher,and on her purchase she experiences a consumer surplus of $0.
Q3) Consumer surplus is a good measure of economic welfare if policymakers want to A)maximize total benefit.
B)minimize deadweight loss.
C)respect the preferences of sellers.
D)respect the preferences of buyers.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Producer Surplus
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Sample Questions
Q1) David tunes pianos in his spare time for extra income.Buyers of his service are willing to pay $135 per tuning.One particular week,David is willing to tune the first piano for $115,the second piano for $125,the third piano for $140,and the fourth piano for $175.Assume David is rational in deciding how many pianos to tune.His producer surplus is
A)$-15.
B)$20.
C)$30.
D)$75.
Q2) Refer to Figure 7-11.If the supply curve is S',the demand curve is D,and the equilibrium price is $150,what is the producer surplus?
A)$625
B)$1,250
C)$2,500
D)$5,000
Q3) The marginal seller is the seller who
A)cannot compete with the other sellers in the market. B)would leave the market first if the price were any lower. C)can produce at the lowest cost.
D)has the largest producer surplus.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Market Efficiency
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Q1) Refer to Figure 7-27.If the government mandated a price increase from P1 to a higher price,then
A)total surplus would decrease.
B)consumer surplus would increase.
C)total surplus would increase,since producer surplus would increase.
D)total surplus would remain unchanged.
Q2) Refer to Figure 7-24.If 4 units of the good are produced and sold,then
A)producer surplus is greater than consumer surplus.
B)consumer surplus is $16.
C)total surplus is minimized.
D)total surplus is not maximized.
Q3) Refer to Figure 7-19.At the equilibrium price,total surplus is
A)$125.
B)$450.
C)$250.
D)$500.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Conclusion Market Efficiency and Market Failure
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Q1) Externalities are
A)side effects passed on to a party other than the buyers and sellers in the market.
B)side effects of government intervention in markets.
C)external forces that cause the price of a good to be higher than it otherwise would be.
D)external forces that help establish equilibrium price.
Q2) The decisions of buyers and sellers that affect people who are not participants in the market create
A)market power.
B)externalities.
C)profiteering.
D)market equilibrium.
Q3) Which of the following statements is not correct?
A)An invisible hand leads buyers and sellers to an equilibrium that maximizes total surplus.
B)Market power can cause markets to be inefficient.
C)Externalities can cause markets to be inefficient.
D)The invisible hand can remedy all types of market failures.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part A
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Sample Questions
Q1) Given the following two equations:
1)Total Surplus = Consumer Surplus + Producer Surplus
2)Total Surplus = Value to Buyers - Cost to Sellers
Show how equation (1)can be used to derive equation (2).
Q2) Refer to Figure 7-32.At what price will total surplus be maximized in this market?
Q3) Refer to Figure 7-31.If the market equilibrium price is $35,how much is total producer surplus in this market?
Q4) Refer to Figure 7-33.Suppose demand shifts such that consumers wish to purchase 12 fewer units at every price.How much is total producer surplus in this market at the new equilibrium price?
Q5) Refer to Figure 7-30.If the market equilibrium price falls from $120 to $80,how much consumer surplus do consumers entering the market after the price drop receive?
Q6) Refer to Figure 7-30.If the market equilibrium price falls from $120 to $80,how much is the increase in consumer surplus to the consumers who were initially in the market at the $120 price?
Q7) Refer to Figure 7-33.How much is total producer surplus in this market at the equilibrium price?
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part B
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Q1) Economists generally believe that,although there may be advantages to society from ticket-scalping,the costs to society of this activity outweigh the benefits.
A)True
B)False
Q2) The area below the demand curve and above the supply curve measures the producer surplus in a market.
A)True
B)False
Q3) If the government imposes a binding price floor in a market,then the consumer surplus in that market will decrease.
A)True
B)False
Q4) Economists argue that restrictions against ticket scalping actually drive up the cost of many tickets.
A)True
B)False
Q5) The cost of production plus producer surplus is the price a seller is paid.
A)True
B)False
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Chapter 8: Application the Cost of Taxation
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Q1) Anger over British taxes played a significant role in bringing about the A)election of John Adams as the second American president.
B)American Revolution.
C)War of 1812.
D)"no new taxes" clause in the U.S.Constitution.
Q2) In 1776,the American Revolution was sparked by anger over A)the extravagant lifestyle of British royalty.
B)the crimes of British soldiers stationed in the American colonies.
C)British taxes imposed on the American colonies.
D)the failure of the British to protect American colonists from attack by hostile Native Americans.
Q3) Who once said that taxes are the price we pay for a civilized society?
A)Aristotle
B)George Washington
C)Oliver Wendell Holmes,Jr.
D)Ronald Reagan
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Chapter 8: Application the Cost of Taxation: The
Deadweight Loss of Taxation
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Q1) Refer to Figure 8-5.The tax causes a reduction in consumer surplus that is represented by area A)A.
B)B+C.
C)C+H.
D)F.
Q2) A tax levied on the buyers of a good shifts the
A)supply curve upward (or to the left).
B)supply curve downward (or to the right).
C)demand curve downward (or to the left).
D)demand curve upward (or to the right).
Q3) Refer to Figure 8-9.The imposition of the tax causes the quantity sold to
A)increase by 20 units.
B)increase by 500 units.
C)decrease by 20 units.
D)decrease by 500 units.
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Chapter 8: Application the Cost of Taxation: The Determinants
of the Deadweight
Loss
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Q1) Which of the following is a tax on labor?
A)Medicare tax
B)Social Security tax
C)federal income tax
D)All of the above are labor taxes.
Q2) Taxes on labor encourage which of the following?
A)labor demand to be more inelastic
B)mothers to stay at home rather than work in the labor force
C)workers to work overtime
D)fathers to take on second jobs
Q3) Taxes on labor encourage all of the following except
A)older workers to take early retirement from the labor force.
B)mothers to stay at home rather than work in the labor force.
C)workers to work overtime.
D)people to be paid "under the table."
Q4) Economists generally agree that the most important tax in the U.S.economy is the A)income tax.
B)tax on labor.
C)inheritance or death tax.
D)tax on corporate profits.
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Chapter 8: Application the Cost of Taxation: Deadweight
Loss and Tax Revenue As Taxes Vary
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Q1) Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the
A)base of the triangle that represents the deadweight loss doubles.
B)height of the triangle that represents the deadweight loss doubles.
C)deadweight loss of the tax quadruples.
D)All of the above are correct.
Q2) If the tax on a good is doubled,the deadweight loss of the tax
A)increases by 50 percent.
B)doubles.
C)triples.
D)quadruples.
Q3) Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is not correct?
A)Compared to the original tax,the larger tax will decrease tax revenue.
B)Compared to the original tax,the smaller tax will decrease deadweight loss.
C)Compared to the original tax,the smaller tax will decrease tax revenue.
D)Compared to the original tax,the larger tax will increase deadweight loss.
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Chapter 8: Application the Cost of Taxation: Conclusion
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Q1) Taxes are of interest to
A)microeconomists because they consider how to balance equality and efficiency. B)microeconomists because they consider how best to design a tax system.
C)macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity.
D)All of the above are correct.
Q2) Taxes are costly to market participants because they A)transfer resources from market participants to the government. B)alter incentives.
C)distort market outcomes.
D)All of the above are correct.
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Chapter 8: Application the Cost of Taxation: Part A
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Q1) Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.What price will sellers receive for the good after the tax is imposed?
Q2) Refer to Figure 8-27.Suppose that Market A is characterized by Demand 1 and Supply 1,and Market B is characterized by Demand 2 and Supply 1.If an identical tax is imposed on each market,the tax will create a larger deadweight loss in which market? Explain.
Q3) Refer to Figure 8-29.If you were a policymaker choosing between a $3,$6,or $9 tax,which would you choose and why?
Q4) Refer to Figure 8-25.What are the equilibrium price and equilibrium quantity in this market?
Q5) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How many units of this good will be bought and sold after the tax is imposed?
Q6) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How much tax revenue is collected after the tax is imposed?
Q7) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How much is the deadweight loss from this tax?
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Chapter 8: Application the Cost of Taxation: Part B
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Q1) If a tax did not induce buyers or sellers to change their behavior,it would not cause a deadweight loss.
A)True B)False
Q2) When the government imposes taxes on buyers and sellers of a good,society loses some of the benefits of market efficiency.
A)True B)False
Q3) The more elastic the supply,the larger the deadweight loss from a tax,all else equal.
A)True B)False
Q4) Normally,both buyers and sellers of a good become worse off when the good is taxed.
A)True B)False
Q5) When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.
A)True B)False
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Chapter 9: Application International Trade
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Q1) A logical starting point from which the study of international trade begins is
A)the recognition that not all markets are competitive.
B)the recognition that government intervention in markets sometimes enhances the economic welfare of the society.
C)the principle of absolute advantage.
D)the principle of comparative advantage.
Q2) Which of the following is not an important question for economic policy raised by the experience of the textile industry?
A)How does international trade affect consumer well-being?
B)Who gains and who loses from free trade among countries?
C)How do the gains from trade compare to the losses?
D)Which argument for restricting free trade is politically feasible?
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Chapter 9: Application International Trade: The Determinants of Trade
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Q1) A country has a comparative advantage in a product if the world price is
A)lower than that country's domestic price without trade.
B)higher than that country's domestic price without trade.
C)equal to that country's domestic price without trade.
D)not subject to manipulation by organizations that govern international trade.
Q2) The nation of Isolani forbids international trade.In Isolani,you can exchange 1 car for 5 motorcycles.In other countries,you can exchange 1 car for 4 motorcycles.These facts indicate that
A)other countries have an absolute advantage,relative to Isolani,in producing cars.
B)Isolani has a comparative advantage,relative to other countries,in producing cars.
C)if Isolani were to allow trade,it would import motorcycles.
D)the world price of motorcycles exceeds the price of motorcycles in Isolani.
Q3) If the world price of coffee is higher than Colombia's domestic price of coffee without trade,then Colombia
A)should import coffee.
B)has a comparative advantage in coffee and should export coffee.
C)should produce just enough coffee to satisfy domestic demand.
D)should produce no coffee domestically.
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Chapter 9: Application International Trade: The Winners
and Losers From Trade
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Q1) When a country allows trade and becomes an importer of coal,
A)the losses of the domestic producers of coal exceed the gains of the domestic consumers of coal.
B)the losses of the domestic consumers of coal exceed the gains of the domestic producers of coal.
C)the gains of the domestic producers of coal exceed the losses of the domestic consumers of coal.
D)the gains of the domestic consumers of coal exceed the losses of the domestic producers of coal.
Q2) Refer to Figure 9-20.From the figure it is apparent that
A)Vietnam will experience a shortage of rice if trade is not allowed.
B)Vietnam will experience a surplus of rice if trade is not allowed.
C)Vietnam has a comparative advantage in producing rice,relative to the rest of the world.
D)foreign countries have a comparative advantage in producing rice,relative to Vietnam.
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Chapter 9: Application International Trade: The Arguments for Restricting Trade
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Q1) "Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the
A)national-security argument.
B)infant-industry argument.
C)unfair-competition argument.
D)jobs argument.
Q2) The "unfair-competition" argument might be cited by an American who believes that A)almost every country has a comparative advantage,relative to the United States,in producing almost all goods.
B)young industries should be protected against foreign competition until they become profitable.
C)the American automobile industry should be protected against Japanese firms that are able to produce automobiles at relatively low cost.
D)the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products.
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61
Chapter 9: Application International Trade: Conclusion
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Q1) Most economists view the United States' experience with trade as
A)one from which no firm conclusions about the virtues of free trade can be reached,due to the relatively short history of international trade in the U.S.
B)one from which no firm conclusions about the virtues of free trade can be reached,due to the lack of trade within the U.S.throughout most of the early history of the U.S.
C)an ongoing experiment that confirms the virtues of free trade.
D)an ongoing experiment that calls into serious question the notion that free trade enhances the economic well-being of a nation.
Q2) Economists view the fact that Florida grows oranges,Texas pumps oil,and California makes wine as
A)confirmation of the virtues of free trade.
B)confirmation of the infant-industry argument.
C)confirmation that free trade agreements are not necessary.
D)confirmation that specialization in absolute advantage works.
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Chapter 9: Application International Trade: Part A
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Q1) Refer to Figure 9-29.Suppose the country imposes a $1 per unit tariff.If the country allows trade with a tariff,how much is total surplus?
Q2) Refer to Scenario 9-3.Suppose the world price in this market is $8 per unit.If the country allows free trade,will the country import or export this good,and how many units will be imported/exported?
Q3) Refer to Scenario 9-3.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus in this market?
Q4) Refer to Scenario 9-3.Suppose the world price in this market is $8 per unit.If the country allows free trade,how much are consumer surplus,producer surplus,and producer surplus with trade?
Q5) 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.
Q6) List five arguments given to support trade restrictions.
Q7) Refer to Figure 9-28.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus in this market?
Q8) List four benefits of international trade.
Page 63
Q9) How does an import quota differ from an equivalent tariff?
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Chapter 9: Application International Trade: Part B
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Q1) The nation of Aviana soon will abandon its no-trade policy and adopt a free-trade policy.If the world price of goose meat is $3 per pound and the domestic price of goose meat without trade is $2 per pound,then Aviana should export goose meat.
A)True
B)False
Q2) If a country allows free trade and imports cars,then it is the case that the gains to domestic producers outweigh the losses to domestic consumers.
A)True
B)False
Q3) We can conclude that international trade is beneficial because,regardless of whether the country imports or exports a good,the overall increase in well-being outweighs the losses associated with trade.
A)True
B)False
Q4) The small-economy assumption is necessary to analyze the gains and losses from international trade.
A)True
B)False
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64
Chapter 10: Measuring a Nations Income
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Q1) Which of the following headlines is more closely related to what microeconomists study than to what macroeconomists study?
A)Unemployment rate falls from 7.5 percent to 7.3 percent.
B)Real GDP falls by 0.4 percent in the third quarter.
C)Inflation was 2.4 percent last year.
D)The price of gasoline rises due to rising oil prices.
Q2) A macroeconomist is interested in
A)explaining how changes in sellers' behavior affect prices of a particular good.
B)explaining price changes in a particular market.
C)explaining why the unemployment rate is higher.
D)All of the above are correct.
Q3) Macroeconomists study
A)the decisions of individual households and firms.
B)the interaction between households and firms.
C)economy-wide phenomena.
D)regulations imposed on firms and unions.
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Chapter 10: Measuring a Nations Income: The Economy's
Income and Expenditure
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Sample Questions
Q1) In the GDP accounts production equals A)income.
B)income + saving.
C)income - government expenditures.
D)income - imports.
Q2) For the economy as a whole,
A)income must be greater than expenditure.
B)unemployment must rise when GDP rises.
C)expenditure must equal income.
D)consumption must be greater than investment.
Q3) In a simple circular-flow diagram,total income and total expenditure are
A)never equal because total income always exceeds total expenditure.
B)seldom equal because of the ongoing changes in an economy's unemployment rate.
C)equal only when the government purchases no goods or services.
D)always equal because every transaction has a buyer and a seller.
Q4) Expenditures on a nation's domestic production
A)are less than its domestic production.
B)are equal to its domestic production.
C)are greater than its domestic production.
D)could be less than,equal to,or greater than its domestic production.
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Chapter 10: Measuring a Nations Income: The
Measurement of GDP
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Q1) U.S.GNP
A)includes production of foreigners working in the U.S.and production of U.S.citizens working in foreign countries.
B)includes production of foreigners working in the U.S.but excludes production of U.S.citizens working in foreign countries.
C)excludes production of foreigners working in the U.S.but includes production by U.S.citizens working in foreign countries.
D)excludes production of foreigners working in the U.S.and production by U.S.citizens working in foreign countries.
Q2) The residents of country A earn $500 million of income from abroad.Residents of other countries earn $200 million in country A.These earnings are accounted for in country A's
A)GNP which is larger than GDP in country A.
B)GNP which is smaller than GDP in country A.
C)GDP which is larger than GNP in country A.
D)GDP which is smaller than GNP in country A.
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Chapter 10: Measuring a Nations Income: The Components of GDP
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Sample Questions
Q1) Which of the following measures includes the effects of taxes?
A)Net national product.
B)Gross national product.
C)National income.
D)Personal income.
Q2) In the economy of Talikastan in 2015,consumption was 75% of GDP,government purchases were $200,imports were $50 and 125% of the value of exports,investment was one-sixth of the value of consumption.What was Talikastan's GDP in 2015?
A)$218
B)$2500
C)$1520
D)$2100
Q3) Which of the following is included in the consumption component of U.S.GDP?
A)purchases of staplers,paper clips,and pens by U.S.business firms
B)purchases of natural gas by U.S.households
C)purchases of newly constructed homes by U.S.households
D)All of the above are correct.
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Page 68
Chapter 10: Measuring a Nations Income: Real Versus Nominal
GDP
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Sample Questions
Q1) Suppose an economy produces only cranberries and maple syrup.In 2010,50 units of cranberries are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit.In 2009,the base year,the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit.For 2010,
A)nominal GDP is $1800,real GDP is $2000,and the GDP deflator is 90.
B)nominal GDP is $1800,real GDP is $2000,and the GDP deflator is 111.1.
C)nominal GDP is $2000,real GDP is $1800,and the GDP deflator is 90.
D)nominal GDP is $2000,real GDP is $1800,and the GDP deflator is 111.1.
Q2) If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same,which would rise?
A)both real GDP and nominal GDP.
B)real GDP but not nominal GDP.
C)nominal GDP but not real GDP.
D)neither nominal GDP nor real GDP.
Q3) If real GDP is 5,100 and nominal GDP is 4,900,then the GDP deflator is
A)104.1 so prices are higher than in the base year.
B)104.1 so prices are lower than in the base year.
C)96.1 so prices are higher than in the base year.
D)96.1 so prices are lower than in the base year.
Page 69
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Chapter 10: Measuring a Nations Income: Is GDP a
Measure of Economic Well-Being
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Sample Questions
Q1) GDP per person tells us the income and expenditure of the A)richest person in the economy.
B)poorest person in the economy.
C)average person in the economy.
D)entire economy.
Q2) Suppose the government passes a law eliminating holidays and,as a result,the production of goods and services increases because people work more days per year (and thus enjoy less leisure per year).Based on this scenario,which of the following statements is correct?
A)GDP would definitely increase,despite the fact that GDP includes leisure.
B)GDP would definitely increase because GDP excludes leisure.
C)GDP could either increase or decrease because GDP includes leisure.
D)GDP could either increase or decrease because GDP excludes leisure.
Q3) GDP is not a perfect measure of well-being;for example,
A)GDP excludes the value of volunteer work.
B)GDP does not address the distribution of income.
C)GDP does not address environmental quality.
D)All of the above are correct.
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Chapter 10: Measuring a Nations Income: Part A
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Sample Questions
Q1) Refer to Figure 23-2.Identify the location of firms and households.
Q2) Alexandria,a British citizen,owns and manages a fish and chips shop in Washington,D.C.
She buys fresh food produced by U.S.workers,pays utilities to a U.S.company,and employs only U.S.citizens.What part,if any,of the restaurant's production is included in U.S.GDP? What part,if any,of the restaurant's production is included in U.S.GNP?
Q3) In 2011 a country had a real GDP of $13.89 trillion and GDP deflator of 110.In 2012 it had a nominal GDP of $17.8 trillion and real GDP of 14.24 trillion.What is the rate of inflation in 2012?
Q4) Consumption is $7 trillion,investment is $1.5 trillion,government expenditures are $2 trillion,government transfer payments are $1 trillion,exports are $1.50 trillion and imports are $1.25 trillion.What is GDP?
Q5) How frequently is U.S.GDP reported? Is GDP adjusted for seasonality?
Q6) Refer to Figure 23-2.Identify the location for markets for factors of production and markets for goods and services.
Q7) What are transfer payments,and how do they affect the calculation of GDP?
Q8) Write the formula for calculating a country's inflation rate using the GDP deflator.
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Chapter 10: Measuring a Nations Income: Part B
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Sample Questions
Q1) Both the value of hamburgers sold by a restaurant and the value of the beef it used to make these hamburgers are included in GDP.
A)True
B)False
Q2) Disposable personal income is the income that households and noncorporate businesses have left after satisfying all their obligations to the government.
A)True
B)False
Q3) The government computes measures of income other than GDP because these other measures usually tell different stories about overall economic conditions.
A)True
B)False
Q4) At a rummage sale,you buy two old books and an old rocking chair;your spending on these items is not included in current GDP.
A)True
B)False
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Chapter 11: Measuring the Cost of Living
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Q1) When the overall level of prices in the economy is increasing,economists say that the economy is experiencing
A)economic growth.
B)stagflation.
C)inflation.
D)deflation.
Q2) The consumer price index is used to
A)monitor changes in the level of wholesale prices in the economy.
B)monitor changes in the cost of living over time.
C)monitor changes in the level of real GDP over time.
D)monitor changes in the stock market.
Q3) The term inflation is used to describe a situation in which
A)the overall level of prices in the economy is increasing.
B)incomes in the economy are increasing.
C)stock-market prices are rising.
D)the economy is growing rapidly.
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Chapter 11: Measuring the Cost of Living: The Consumer Price Index
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Q1) Suppose a basket of goods and services has been selected to calculate the CPI.In 2002,the basket's cost was $80;in 2008,the basket's cost was $92;and in 2010,the basket's cost was $108.The base year must be A)2002.
B)2008.
C)one of the years between 2008 and 2010.
D)The base year cannot be determined from the given information.
Q2) To calculate the CPI,the Bureau of Labor Statistics uses
A)the prices of all goods and services produced domestically.
B)the prices of all final goods and services.
C)the prices of all consumer goods.
D)the prices of some consumer goods.
Q3) In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the smallest?
A)education & communication
B)apparel
C)medical care
D)recreation
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Chapter 11: Measuring the Cost of Living: Correcting
Economic Variables for the Effects of Inflation
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Sample Questions
Q1) Refer to Scenario 24-3.In real terms,Sue Holloway's income amounts to about what percentage of Josh Holloway's income?
A)11.0 percent
B)65.2 percent
C)70.9 percent
D)114.7 percent
Q2) A COLA automatically raises the wage when A)GDP increases.
B)taxes increase.
C)the consumer price index increases.
D)the producer price index increases.
Q3) The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent.If the consumer price index was 200 in 2007,what would the consumer price index value be in 2008?
A)192
B)208
C)209
D)217
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Chapter 11: Measuring the Cost of Living: Part A
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Q1) If the CPI was 120 in 1994,was 126 in 1995,and was 134.82 in 1996,what was the inflation rate in 1995 and in 1996?
Q2) Consumer spending in what category is the largest component of the CPI?
Q3) If the real interest rate is 6.8% and the inflation rate is 3.9%,what is the nominal interest rate?
Q4) Refer to Scenario 24-5.Using 2010 as the base year,what is the inflation rate in 2010?
Q5) Refer to Scenario 24-5.What are the prices of books,CDs,and DVDs in 2009?
Q6) List the five steps for calculating the consumer price index and inflation rate.
Q7) Suppose the typical basket for the calculation of the CPI includes one computer.Since computers have gotten better over time as a result of technological change,what problem does this create for calculating the CPI?
Q8) Refer to Scenario 24-5.Using 2009 as the base year,what is the inflation rate in 2010?
Q9) What measure reflects the overall cost of goods and services produced domestically?
Q10) Suppose the Tooth Fairy paid 50 cents for a tooth in 1970.The CPI in 1970 was 38.8,while the CPI in 2010 was 218.1.What is the value of the Tooth Fairy's payment in 2010 dollars?
Page 76
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Chapter 11: Measuring the Cost of Living: Part B
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Q1) When a new good is introduced,consumers have more variety from which to choose,and this in turn increases the cost of maintaining the same level of economic well-being.
A)True
B)False
Q2) Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 7 percent during the year the money was deposited,then Bob's purchasing power has increased by 12 percent.
A)True
B)False
Q3) The U.S.income tax system is completely indexed for inflation.
A)True
B)False
Q4) Changes in the consumer price index are useful in predicting changes in the producer price index.
A)True
B)False
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Chapter 12: Production and Growth
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Q1) In which of the following countries has economic growth been sufficiently high that income would double every ten years?
A)Singapore
B)Nigeria
C)India
D)Indonesia
Q2) In which of the following countries has economic growth been sufficiently high that income would double every ten years?
A)India
B)Mexico
C)South Korea
D)Zimbabwe
Q3) Which of the following is a good gauge of economic progress?
A)the level of real GDP per person,but not the growth rate of real GDP per person
B)the level of real GDP per person and the growth rate of real GDP per person
C)the growth rate of real GDP per person,but not the level of real GDP per person
D)neither the level nor the growth rate of real GDP per person
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Chapter 12: Production and Growth: Economic Growth
Around the World
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Q1) In 2009,the imaginary nation of Mainland had a population of 7,000 and real GDP of 210,000.In 2010 the population was 7,300 and real GDP of 223,380.Over the year in question,real GDP per person in Mainland grew by
A)2 percent,which is high compared to average U.S.growth over the last one-hundred years.
B)2 percent,which is about the same as average U.S.growth over the last one-hundred years.
C)4 percent,which is high compared to average U.S.growth over the last one-hundred years.
D)4 percent,which is about the same as average U.S.growth over the last one-hundred years.
Q2) Countries that have lower levels of real GDP per person than the United States
A)tend to have growth rates that are higher than that of the United States.
B)tend to have growth rates that are about the same as that of the United States.
C)tend to have growth rates that are lower than that of the United States.
D)in some cases have growth rates that are higher than that of the United States and in other cases lower than that of the United States.
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Chapter 12: Production and Growth: Productivity Its Role and Determinants
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Q1) A management professor discovers a way for corporate management to operate more efficiently.He publishes his findings in a journal.His findings are
A)proprietary and common knowledge.
B)common,but not proprietary,knowledge.
C)proprietary,but not common,knowledge.
D)neither proprietary nor common knowledge.
Q2) Given that a country's real output has increased,in which of the following cases can we be sure that its productivity also has increased?
A)The total number of hours worked rose.
B)The total number of hours worked stayed the same.
C)The total number of hours worked fell.
D)Both b and c are correct.
Q3) Human capital
A)can be thought of,metaphorically,as the quality of society's textbooks,whereas technological knowledge can be thought of as the time that the population has devoted to reading textbooks.
B)is more tangible than physical capital.
C)is an input in the production of goods and services.
D)is the same as the quantity of labor.
Page 80
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Chapter 12: Production and Growth: Economic Growth and Public Policy
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Q1) Which of the following statements is correct?
A)In an economy-wide sense,property rights are an important prerequisite for the price system to work.
B)Property rights give people the ability to exercise authority over the resources they own.
C)Based on the available evidence,the existence of well-established and well-enforced property rights appears to be associated with an enhanced standard of living.
D)All of the above are correct.
Q2) According to the traditional view of the production function,which of the following values of the additions to output per worker would be consistent with moving from 5 to 6,and then from 6 to 7,and then from 7 to 8 units of capital per worker in that order?
A)40,40,40
B)40,35,38
C)40,34,32
D)40,43,48
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Chapter 12: Production and Growth: Conclusion the
Importance of Long-Run Growth
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Sample Questions
Q1) In order to promote growth in living standards,policymakers must A)protect property rights.
B)maintain political stability.
C)encourage the accumulation of factors of production.
D)All of the above
Q2) Economists differ in their views of the role of the government in promoting economic growth.A controversial idea is that government should A)lend support to the invisible hand by maintaining property rights and political stability. B)lower barriers and impediments to free trade.
C)encourage capital formation.
D)target and subsidize specific industries important for technological progress.
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Chapter 12: Production and Growth: Part A
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Q1) Consider the production function \( Y=2 F(L, K, H, N) \). Suppose \( F(12,10,9,7)=100 \) and \( F(24,20,18,14)=180 \) . Does the production function have the property of constant returns to scale? Why or why not?
Q2) Compare and contrast the population theories of Malthus and Kremer.
Q3) In recent decades,economic growth has been much more rapid in South Korea than in the United States.What is the likely explanation for this fact?
Q4) What term do we use to refer to the understanding of the best ways to produce goods and services?
Q5) Why do we refer to physical capital as a produced factor of production?
Q6) Consider the nations of India,Indonesia,and Japan.Over the past century,which of these three nations has experienced,by far,more rapid economic growth than the other two nations?
Q7) Is physical capital a produced factor of production? Is human capital a produced factor of production?
Q8) Refer to Figure 25-1.Does the figure represent the idea that the amount of capital per worker influences the amount of output per worker,or does the figure represent the idea that the amount of output per worker influences the amount of capital per worker?
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Chapter 12: Production and Growth: Part B
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Q1) Economists generally believe that policies such as reducing barriers to trade are likely to foster economic growth.
A)True
B)False
Q2) Randomized control trials can help economists evaluate the impact of global aid programs in the same way that doctors test drugs.
A)True
B)False
Q3) A forest is an example of a nonrenewable resource.
A)True
B)False
Q4) Countries with high population growth rates tend to have lower levels of educational attainment.
A)True
B)False
Q5) Investment in human capital has opportunity costs,but investment in physical capital does not.
A)True
B)False
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Chapter 13: Saving Investment and the Financial System
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Q1) The primary economic function of the financial system is to A)keep interest rates low.
B)provide expert advice to savers and investors.
C)match one person's consumption expenditures with another person's capital expenditures.
D)match one person's saving with another person's investment.
Q2) When a country saves a larger portion of its GDP than it did before,it will have
A)more capital and higher productivity.
B)more capital and lower productivity.
C)less capital and higher productivity.
D)less capital and lower productivity.
Q3) Institutions that help to match one person's saving with another person's investment are collectively called the A)Federal Reserve system.
B)banking system.
C)monetary system.
D)financial system.
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Chapter 13: Saving Investment and the Financial System: Financial Institutions in the US economy
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Q1) If people expect future earnings of Galt Corporation to be high relative to current earnings,then
A)the P/E ratio of its stock will be high.A P/E ratio of 8 is relatively high.
B)the P/E ratio of its stock will be high.A P/E ratio of 8 is relatively low.
C)the P/E ratio of its stock will be low.A P/E ratio of 8 is relatively high.
D)the P/E ratio of its stock will be low.A P/E ratio of 8 is relatively low.
Q2) Other things the same,which bond would you expect to pay the highest interest rate?
A)a bond issued by the U.S.government
B)a bond issued by Microsoft Corporation
C)a bond issued by the state of Montana
D)a bond issued by a new chain of Brazilian-style restaurants
Q3) The primary advantage of mutual funds is that they
A)always provide the highest return.
B)always allow people to "beat the market."
C)allow people to diversify and reduce risk.
D)allow people to diversify,which increases risk and return.
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Page 86
Chapter 13: Saving Investment and the Financial System:
Saving and Investment in the National Income Accounts
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Q1) Which of the following equations represents GDP for an open economy?
A)Y = C + I + G + NX
B)NX = I - G
C)I = Y - C + G + NX
D)Y = C + I + G
Q2) For a closed economy,GDP is $12 trillion,consumption is $7 trillion,taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion.What are private saving and national saving?
A)$5 trillion and $3 trillion,respectively
B)$5 trillion and $1 trillion,respectively
C)$2 trillion and $3 trillion,respectively
D)$2 trillion and $1 trillion,respectively
Q3) Refer to Scenario 26-3.This economy's government is running a
A)budget deficit of $75.
B)budget deficit of $80.
C)budget deficit of $50.
D)budget deficit of $100.
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Page 87
Chapter 13: Saving Investment and the Financial System:
The Market for Loanable Funds
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Q1) In the terminology of macroeconomics,what's the difference between a saver and an investor?
Q2) What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?
A)The supply of loanable funds would shift rightward and investment would increase.
B)The supply of loanable funds would shift leftward and investment would decrease.
C)The demand for loanable funds would shift rightward and investment would increase.
D)The demand for loanable funds would shift leftward and investment would decrease.
Q3) If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,
A)there is a surplus so interest rates will rise.
B)there is a surplus so interest rates will fall.
C)there is a shortage so interest rates will rise.
D)there is a shortage so interest rates will fall.
Q4) What variable adjusts to balance demand and supply in the market for loanable funds?
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Page 88
Chapter 13: Saving Investment and the Financial System:
Part A
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Q1) Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture,which manufactures wooden furniture.He wants your advice on whether to buy stock or bonds.Explain how each of his quotes below should affect his choice between the stock and the bond.
a."I have reason to believe that people are soon going to find rocking chairs have health benefits."
b."I would like to tell people I am part owner of Cedar Valley Furniture."
c."I do not want to take on much risk."
Q2) In a closed economy,GDP is $1000,government purchases are $200,and consumption is $700.If the government has a budget surplus of $25,what are investment,taxes,private saving,and national saving?
Q3) When tax code changes increase saving incentives, the interest rate will _____ and investment will _____.
Q4) What is the main function of the financial system?
Q5) Congress and the President implement an investment tax credit.Which curve in the market for loanable funds shifts,which direction does it shift,and what happens to the interest rate?
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Q6) The two most important financial markets are the _____ market and the _____ market.
Chapter 13: Saving Investment and the Financial System:
Part B
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Q1) Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.
A)True
B)False
Q2) By definition,government purchases and taxes are zero for a closed economy.
A)True
B)False
Q3) In a closed economy,each unit of output is either consumed by households or invested.
A)True
B)False
Q4) Mutual funds are a type of financial intermediary.
A)True
B)False
Q5) The sale of either stocks or bonds to raise money is known as equity finance.
A)True
B)False
Q6) Lenders sell bonds and borrowers buy them.
A)True
B)False Page 90
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Chapter 14: The Basic Tools of Finance
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Q1) The financial system
A)involves bank accounts,mortgages,stock prices,and many other items.
B)involves decisions and actions undertaken by people at a point in time that affect their lives in the future.
C)coordinates the economy's saving and investment.
D)All of the above are correct.
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Chapter 14: The Basic Tools of Finance: Present Value
Measuring the Time Value of Money
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Q1) At which interest rate is the present value of $360 three years from today equal to about $310 today?
A)4.7 percent
B)5.1 percent
C)5.5 percent
D)5.9 percent
Q2) Suppose you are deciding whether to buy a particular bond.If you buy the bond and hold it for 4 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than
A)$8,225.06.
B)$7,920.94.
C)$7,672.58.
D)$6,998.98.
Q3) Suppose your uncle offers you $100 today or $150 in 10 years.You would prefer to take the $100 today if the interest rate is A)3 percent.
B)4 percent.
C)5 percent.
D)None of the above is correct.
Page 93
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Chapter 14: The Basic Tools of Finance: Managing Risk
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Q1) Refer to Figure 27-6.Point A represents a situation in which
A)all of a person's savings are allocated to a class of safe assets.
B)the person knows with certainty that his or her return will be 3 percent.
C)the standard deviation of the person's portfolio is zero.
D)All of the above are correct.
Q2) Risk aversion helps to explain various things we observe in the economy,including A)adherence to the old adage,"Don't put all your eggs in one basket."
B)insurance.
C)the risk-return trade-off.
D)All of the above are correct.
Q3) A measure of the volatility of a variable is its A)present value.
B)future value.
C)return.
D)standard deviation.
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Chapter 14: The Basic Tools of Finance: Asset Valuation
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Q1) Whenever the price of an asset rises above what appears to be its fundamental value,the market is said to be experiencing a
A)conjectural mistake.
B)fundamental mishap.
C)speculative bubble.
D)temporary inefficiency.
Q2) The possibility of speculative bubbles in the stock market arises in part because A)stock prices may not depend at all on psychological factors.
B)fundamental analysis may be the correct way to evaluate the value of stocks.
C)future streams of dividend payments are very hard to estimate.
D)the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold.
Q3) Fundamental analysis shows that stock in Widgets-R-Us has a present value that is lower than its price.
A)This stock is overvalued;you should consider adding it to your portfolio.
B)This stock is overvalued;you shouldn't consider adding it to your portfolio.
C)This stock is undervalued;you should consider adding it to your portfolio.
D)This stock is undervalued;you shouldn't consider adding it to your portfolio.
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Chapter 14: The Basic Tools of Finance: Conclusion
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Q1) Stock market fluctuations
A)often go hand in hand with fluctuations in the economy more broadly.
B)rarely have anything to do with fluctuations in the economy more broadly.
C)have few,if any,macroeconomic implications.
D)are attributable to the widespread belief that the efficient markets hypothesis is correct.
Q2) Economists disagree as to whether
A)the stock price of a company should reflect the company's expected profitability.
B)the basic tools of finance reflect valid ideas.
C)stock prices reflect rational estimates of a company's true worth.
D)there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.
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Chapter 14: The Basic Tools of Finance: Part A
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Sample Questions
Q1) Refer to Scenario 27-1.Is Lisa risk averse? Explain.
Q2) Write the formula for finding the future value in n years of $x today.
Q3) Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.
Q4) According to the efficient markets hypothesis,what changes the price of a share of a corporation's stock? Make up an example.
Q5) Suppose you place $500 into a savings account that will pay you 6% interest per year.What will be the future value of the savings account in 15 years?
Q6) Define the efficient markets hypothesis.
Q7) Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000,with the first payment today,the second payment one year from now,and the third payment two years from now.What is the present value of this stream of payments?
Q8) If the interest rate is 5 percent,then what is the present value of $2,000 to be received in three years?
Q9) If a savings account pays 3.5% interest,then according to the rule of 70 how long will it take for the account balance to double?
Q10) How does adverse selection affect the insurance market?
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Chapter 14: The Basic Tools of Finance: Part B
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Q1) People who are risk averse dislike bad outcomes more than they like comparable good outcomes.
A)True
B)False
Q2) The market for insurance is one example of reducing risk by using diversification.
A)True
B)False
Q3) Adverse selection is illustrated by people who take greater risks after they purchase insurance.
A)True
B)False
Q4) The future value of $1 saved today is $1/(1 + r).
A)True
B)False
Q5) The market for insurance is an example of diversification.
A)True
B)False
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Chapter 15: Unemployment
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Q1) In the long run the unemployment rate equals A)zero.
B)the cyclical rate of unemployment.
C)the natural rate of unemployment.
D)the sum of the cyclical and natural rate of unemployment.
Q2) Cyclical unemployment is closely associated with A)long-term economic growth.
B)short-run ups and downs of the economy.
C)fluctuations in the natural rate of unemployment.
D)changes in the minimum wage.
Q3) The amount of unemployment that an economy normally experiences is called the A)average rate of unemployment.
B)natural rate of unemployment.
C)cyclical rate of unemployment.
D)typical rate of unemployment.
Q4) The deviation of unemployment from its natural rate is called A)the economic rate of unemployment.
B)cyclical unemployment.
C)frictional unemployment.
D)structural unemployment.
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Chapter 15: Unemployment: Identifying Unemployment
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Questions
Q1) Unemployment that results because the number of jobs available in some labor markets may be insufficient to give a job to everyone who wants one is called
A)the natural rate of unemployment.
B)cyclical unemployment.
C)structural unemployment.
D)frictional unemployment.
Q2) Unemployment numbers reported by the Bureau of Labor Statistics are reported based on a
A)monthly survey of about 60,000 households.
B)monthly survey of about 6,000 households.
C)weekly survey of about 60,000 households.
D)weekly survey of about 6,000 households.
Q3) Data on the unemployment rate in the U.S.since 1960 show that the unemployment rate is
A)always zero.
B)sometimes zero.
C)rarely zero.
D)never zero.
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Chapter 15: Unemployment: Job Search
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Q1) A typical American worker covered by unemployment insurance receives
A)50 percent of his former wages for 26 weeks.
B)50 percent of his former wages for 52 weeks.
C)100 percent of his former wages for 26 weeks.
D)100 percent of his former wages for 52 weeks.
Q2) Unemployment insurance tends to
A)decrease structural unemployment.
B)decrease cyclical unemployment.
C)increase frictional unemployment.
D)increase the number of discouraged workers.
Q3) Public policy
A)can reduce both frictional unemployment and the natural rate of unemployment.
B)can reduce frictional unemployment,but it cannot reduce the natural rate of unemployment.
C)cannot reduce frictional unemployment,but it can reduce the natural rate of unemployment.
D)cannot reduce either frictional unemployment or the natural rate of unemployment.
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Chapter 15: Unemployment: Minimum-Wage Laws
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Q1) Wages in excess of their equilibrium level help explain
A)frictional but not structural unemployment.
B)structural but not frictional unemployment.
C)both frictional and structural unemployment.
D)neither frictional nor structural unemployment.
Q2) Refer to Figure 28-3.If the government imposes a minimum wage of $8,then how many workers will be unemployed?
A)0
B)3,000
C)4,000
D)7,000
Q3) An increase in the minimum wage
A)increases both the quantity demanded and the quantity supplied of labor.
B)decreases both the quantity demanded and the quantity supplied of labor.
C)increases the quantity of labor demanded but decreases the quantity of labor supplied.
D)decreases the quantity of labor demanded but increases the quantity of labor supplied.
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Chapter 15: Unemployment: Unions and Collective Bargaining
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Q1) Suppose that roofers are not unionized.If roofers unionize,then the supply of labor in other sectors of the economy will
A)decrease,raising wages in industries that are not unionized.
B)decrease,reducing wages in industries that are not unionized.
C)increase,raising wages in industries that are not unionized.
D)increase,reducing wages in industries that are not unionized.
Q2) Which of the following is not correct?
A)An organized withdrawal of labor from a firm by a union is called a strike.
B)The power of a union comes from its ability to strike if the union and the firm do not agree on the terms of employment.
C)Economists who study the effects of unions typically find that union workers earn about 25 to 35 percent more than similar workers who do not belong to unions.
D)Workers in unions reap the benefit of collective bargaining,while workers not in unions bear some of the cost.
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Chapter 15: Unemployment: The Theory of Efficiency Wages
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Q1) Efficiency wages
A)increase productivity and reduce unemployment.
B)increase productivity but increase unemployment.
C)decrease productivity but reduce unemployment.
D)decrease productivity and increase unemployment.
Q2) Wages set above the equilibrium wage by
A)firms to increase morale are called collective bargaining wages.
B)lawmakers to decrease cyclical unemployment are called minimum wages laws.
C)firms to increase productivity are called efficiency wages.
D)lawmakers to decrease the length of a job search are called efficiency wages.
Q3) Efficiency wages,minimum-wage laws,and unions all keep wages
A)below the equilibrium level,causing a shortage of labor.
B)below the equilibrium level,causing a surplus of labor.
C)above the equilibrium level,causing a shortage of labor.
D)above the equilibrium level,causing a surplus of labor.
Q4) Efficiency wages
A)may increase productivity.
B)will increase unemployment.
C)may improve worker health.
D)All of the above are correct.
Page 104
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Chapter 15: Unemployment: Part A
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Q1) Refer to Figure 28-7.If the minimum wage is set at $100,how many will be unemployed?
Q2) The Internet may reduce frictional unemployment because it __________.
Q3) Briefly summarize the advantages and disadvantages of unemployment insurance.
Q4) How does the government measure the economy's rate of unemployment?
Q5) Minimum wage laws,labor unions,and efficiency wages all generate unemployment by what common mechanism?
Q6) Why have labor-force participation rates for women in the United States increased since World War II while labor-force participation rates for men have decreased?
Q7) Do economists believe that labor unions are good or bad for the U.S. economy?
Q8) Most spells of unemployment are short,and most unemployment observed at any given time is long term.How can this be?
Q9) What problems arise in interpreting unemployment data?
Q10) Unemployment insurance __________ the amount of unemployment.
Q11) Refer to Figure 28-6.What type of unemployment is measured by the differences between lines A and B?
Q13) Define efficiency wages. Page 105
Q12) List the four ways to explain unemployment in the long run.
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Chapter 15: Unemployment: Part B
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Q1) The adult population must equal the sum of the employed,the unemployed,and those not in the labor force.
A)True B)False
Q2) The Bureau of Labor Statistics computes unemployment rates for the entire adult population and for groups based on age,gender,and race.
A)True B)False
Q3) Within the U.S.population,teenagers (ages 16-19)have higher rates of unemployment than adults of prime working age (ages 25-54),regardless of race or gender.
A)True
B)False
Q4) Retirees are included in the Bureau of Labor Statistics' "not in the labor force" category.
A)True B)False
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Page 107
Chapter 16: The Monetary System
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Q1) Diana tutors Tiago for two hours before his economics final exam.Tiago pays Diana through a direct transfer from his bank on a payment app.Diana then uses her debit card to buy pizza for dinner from the local pizza parlor.This is an example of
A)the exchange of money facilitating production and trade.
B)trade between two people who each have a good or service that the other wants.
C)an inefficient allocation of scarce resources.
D)the creation of money through monetary policy.
Q2) The existence of money leads to
A)greater specialization in production,but not to a higher standard of living.
B)a higher standard of living,but not to greater specialization.
C)greater specialization and to a higher standard of living.
D)neither greater specialization nor to a higher standard of living.
Q3) As opposed to a payments system based on barter,a payments system based on money
A)requires a double coincidence of wants.
B)leads to less specialization.
C)makes trades less costly.
D)None of the above is correct.
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Page 108
Chapter 16: The Monetary System: The Meaning of Money
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Q1) Liquidity refers to
A)the ease with which an asset is converted to the medium of exchange.
B)the measurement of the intrinsic value of commodity money.
C)the measurement of the durability of a good.
D)how many time a dollar circulates in a given year.
Q2) In measuring the stock of money in the U.S. ,M1 includes
A)traveler's checks.
B)savings deposits.
C)credit cards
D)none of the above.
Q3) Money is
A)the most liquid asset and a perfect store of value.
B)the most liquid asset but an imperfect store of value.
C)not the most liquid asset but a perfect store of value.
D)neither the most liquid asset and nor a perfect store of value.
Q4) Which of the following defer payments?
A)credit cards and debit cards
B)neither credit cards nor debit cards
C)credit cards but not debit cards
D)debit cards but not credit cards
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Chapter 16: The Monetary System: The Federal Reserve System
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Q1) Who can vote on Federal Open Market Committee decisions?
A)all of the members of the Board of Governors and all of the Federal Reserve Bank presidents
B)all of the members of the Board of Governors and some of the Federal Reserve Bank presidents
C)some of the members of the Board of Governors and all of the Federal Reserve Bank presidents
D)some of the members of the Board of Governors and some of the Federal Reserve Bank presidents
Q2) All of the presidents of the regional Federal Reserve banks
A)attend each FOMC meeting.
B)have voting rights at each FOMC meeting.
C)are appointed by the president of the U.S.and confirmed by the U.S.Senate.
D)All of the above are correct.
Q3) The Federal Reserve
A)was created in 1913.
B)is the U.S.'s central bank.
C)has other duties in addition to controlling the money supply.
D)All of the above are correct.
Page 110
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Chapter 16: The Monetary System: Banks and the Money Supply
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Sample Questions
Q1) If the reserve ratio is 4 percent,then $81,250 of new money can be generated by A)$325 of new reserves.
B)$3,250 of new reserves.
C)$20,312.50 of new reserves.
D)$2,031,250 of new reserves.
Q2) If the reserve ratio is 10 percent,$1,400 of additional reserves can create up to A)$140 of new money.
B)$14,000 of new money.
C)$140,000 of new money.
D)None of the above is correct.
Q3) If the reserve ratio is 5 percent,then $600 of additional reserves can create up to A)$30 of new money.
B)$3,000 of new money.
C)$12,000 of new money.
D)None of the above is correct.
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Chapter 16: The Monetary System: The Feds Tools of Monetary Control
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Sample Questions
Q1) Suppose banks decide to hold fewer excess reserves relative to deposits.Other things the same,this action will cause the A)money supply to fall.To reduce the impact of this the Fed could sell Treasury bonds. B)money supply to fall.To reduce the impact of this the Fed could buy Treasury bonds. C)money supply to rise.To reduce the impact of this the Fed could sell Treasury bonds. D)money supply to rise.To reduce the impact of this the Fed could buy Treasury bonds.
Q2) If the reserve requirement 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
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Page 112
Chapter 16: The Monetary System: Part A
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Source URL: https://quizplus.com/quiz/79656
Sample Questions
Q1) List the two main functions performed by the Fed?
Q2) Suppose that in a country the total holdings of banks were as follows: required reserves = $45 million excess reserves = $15 million deposits = $750 million loans = $600 million Treasury bonds = $90 million Show that the balance sheet balances if these are the only assets and liabilities. Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks dont change their holdings of Treasury bonds? How much does the money supply change by?
Q3) The ease with which an asset can be converted into the economys medium of exchange is known as _____.
Q4) The Fed ____ bonds when it conducts an open-market purchase. This action _____ the money supply.
Q5) In many circumstances,prisoners are not allowed to possess cash.Does this mean there is no money in prison? Explain.
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Chapter 16: The Monetary System: Part B
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57 Verified Questions
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Source URL: https://quizplus.com/quiz/79633
Sample Questions
Q1) Money allows people to specialize in what they do best,thereby raising everyone's standard of living.
A)True
B)False
Q2) Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.
A)True
B)False
Q3) The federal funds rate is a long-term interest rate banks charge one another for loans.
A)True
B)False
Q4) Other things the same,if banks decide to hold a smaller part of their deposits as excess reserves,the money supply will fall.
A)True
B)False
Q5) Roundabout trade decreases production.
A)True B)False
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Chapter 17: Money Growth and Inflation
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Source URL: https://quizplus.com/quiz/79726
Sample Questions
Q1) Which of the following is correct?
A)A period of hyperinflation is a period of extraordinarily low inflation.
B)A period of deflation is any period during which the inflation rate is decreasing.
C)In the 1970s,U.S.inflation averaged about 7.8 percent per year
D)All of the above are correct.
Q2) In the last part of the 1800's
A)deflation made it harder for farmers to pay off their debt.
B)deflation made it easier for farmers to pay off their debt.
C)inflation made it harder for farmers to pay off their debt.
D)inflation made it easier for farmers to pay off their debt.
Q3) If the price level increased from 120 to 144,then what was the inflation rate?
A)24 percent.
B)25 percent.
C)20 percent.
D)17 percent.
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Chapter 17: Money Growth and Inflation: The Classical
Theory of Inflation
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Sample Questions
Q1) When the money market is drawn with the value of money on the vertical axis,the price level decreases if
A)either money demand or money supply shifts right.
B)either money demand or money supply shifts left.
C)money demand shifts right or money supply shifts left.
D)money demand shifts left or money supply shifts right.
Q2) The data on hyperinflation show a clear link between the quantity of money and A)the price level.
B)growth rate of GDP.
C)unemployment rate.
D)velocity.
Q3) If real output in an economy is 1,000 goods per year,the money supply is $300,and each dollar is spent an average of 4 times per year,then according to the quantity equation,the average price level is
A)3.33.
B)0.83.
C)1.20.
D)13.33.
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Chapter 17: Money Growth and Inflation: The Costs of Inflation
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Sample Questions
Q1) When Haley states that inflation by itself always reduces the real return on her saving,she
A)has expressed the idea of the inflation tax.
B)has expressed the idea behind menu costs.
C)has committed the inflation fallacy.
D)has expressed the idea behind shoeleather costs.
Q2) Tara deposits money into an account with a nominal interest rate of 6 percent.She expects inflation to be 2 percent.Her tax rate is 20 percent.Tara's after-tax real rate of interest
A)will be 2.8 percent if inflation turns out to be 2 percent;it will be higher if inflation turns out to be higher than 2 percent.
B)will be 2.8 percent if inflation turns out to be 2 percent;it will be lower if inflation turns out to be higher than 2 percent.
C)will be 3.2 percent if inflation turns out to be 2 percent;it will be higher if inflation turns out to be higher than 2 percent.
D)will be 3.2 percent if inflation turns out to be 2 percent;it will be lower if inflation turns out to be higher than 2 percent.
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Page 117
Chapter 17: Money Growth and Inflation: Conclusion
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Sample Questions
Q1) Inflation costs are minimized under which inflation rate?
A)-20 percent
B)5 percent
C)15 percent
D)575 percent
Q2) Inflation costs are minimized during periods of A)hyperinflation.
B)large,unexpected deflation.
C)moderate inflation.
D)rapid money growth.
Q3) In order to maintain stable prices,a central bank must
A)maintain low interest rates.
B)keep unemployment low.
C)tightly control the money supply.
D)sell indexed bonds.
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118
Chapter 17: Money Growth and Inflation: Part A
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Sample Questions
Q1) Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime.He complains,however,that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero.You respectfully tell your grandfather that he is committing the_________,because his annual income would have increased at an average rate of only five percent if inflation had been zero.
Q2) An economy produces two goods,x and y.A year ago the price of x was $4 and the price of y was $6.Today the price of x is $8 and the price of y is $10.What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?
Q3) When the consumer price index increases,the value of your money has _____.According to the quantity theory of money this is caused by an increase in the
Q4) What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?
Q5) If the government were to run a budget deficit and wanted to finance it by printing money,would it have the central bank conduct open market purchases or open market sales?
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Chapter 17: Money Growth and Inflation: Part B
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Sample Questions
Q1) For a given level of money and real GDP,an increase in velocity would lead to an increase in the price level.
A)True
B)False
Q2) The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system,and real variables are not.
A)True
B)False
Q3) Inflation is costly only if it is unanticipated.
A)True
B)False
Q4) The quantity theory of money can explain hyperinflations but not moderate inflation. A)True
B)False
Q5) According to the Fisher effect,if inflation rises then the nominal interest rate rises. A)True
B)False
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Chapter 18: Open Economy Macroeconomics Basic Concepts
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Sample Questions
Q1) Which type(s)of economies interact with other economies?
A)only closed economies
B)only open economies
C)closed economies and open economies
D)neither closed nor open economies
Q2) International trade
A)raises the standard of living in all trading countries.
B)lowers the standard of living in all trading countries.
C)leaves the standard of living unchanged.
D)raises the standard of living for importing countries and lowers it for exporting countries.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: The International Flows of Goods and Capital
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Source URL: https://quizplus.com/quiz/79721
Sample Questions
Q1) In which of the following situations must national saving rise?
A)Both domestic investment and net capital outflow increase.
B)Domestic investment increases and net capital outflow decreases.
C)Domestic investment decreases and net capital outflow increases.
D)Both domestic investment and net capital outflow decrease.
Q2) A country has net capital outflow of $40 billion.Which of the following is consistent with this net capital outflow?
A)It has -$40 billion of net exports.
B)Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreign residents by $40 billion.
C)Its saving is $35 billion and its domestic investment is $5 billion.
D)All of the above are consistent with a net capital outflow of $40 billion.
Q3) Other things the same,a country could move from having a trade surplus to having a trade deficit if either
A)saving rose or domestic investment rose.
B)saving rose or domestic investment fell.
C)saving fell or domestic investment rose.
D)saving fell or domestic investment fell.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: The Prices for International Transactions Real and Nominal Exchange Rates
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76 Verified Questions
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Sample Questions
Q1) If the U.S.real exchange rate appreciates,U.S.exports to Europe
A)and European exports to the U.S.both rise.
B)and European exports to the U.S.both fall.
C)rise,and European exports to the U.S.fall.
D)fall,and European exports to the U.S.rise.
Q2) The nominal exchange rate is 2 Barbados dollars per U.S.dollar.If the price of a good in Barbados is 3 Barbados dollars and the price in the U.S.is 2 U.S.dollars,what is the real exchange rate to the nearest 100th?
A)3 Barbados goods per U.S.good
B)1.33 Barbados goods per U.S.good
C).75 Barbados goods per U.S.good
D)none of the above is correct
Q3) If the exchange rate is 5 Egyptian pounds per U.S.dollar,a watch that costs $25 US dollars costs
A)125 Egyptian pounds
B)50 Egyptian pounds
C)5 Egyptian pounds
D)None of the above is correct.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: A First Theory of Exchange-Rate Determination
Purchasing-Power Parity
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Sample Questions
Q1) If over the next six months inflation is higher in the U.S.than in foreign countries,then according to purchasing-power parity
A)only the nominal exchange rate depreciates.
B)both the real and nominal exchange rate appreciate.
C)both the real and nominal exchange rate depreciate.
D)only the real exchange rate appreciates.
Q2) If purchasing-power parity holds,the price level in the U.S.is 250,and the price level in Japan is 260,which of the following is true?
A)the real exchange rate is 250/260
B)the real exchange rate is 260/250
C)the nominal exchange rate is 250/260
D)the nominal exchange rate is 260/250
Q3) According to the theory of purchasing-power parity,the nominal exchange rate between two countries must reflect the differing
A)price levels in those countries.
B)resource endowments in those countries.
C)income levels in those countries.
D)standards of living between those countries.
Page 124
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part A
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67 Verified Questions
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Sample Questions
Q1) Can purchasing-power parity be used to explain the fact that the U.S.dollar depreciated by more than 50 percent against the German mark between 1970 and 1998,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.
Q2) A dozen eggs cost $2 in the U.S.and 12 pesos in Argentina.If the real exchange rate is 5/6,what is the nominal exchange rate? Show your work.
Q3) While on vacation in Europe you notice that a tablet computer is selling for 600 euros in France and for 533 pounds in Britain.You also know that the exchange rates are .75 euros per dollar and .65 British pounds per dollar.Where is the number of dollars you would pay for the tablet lower? How many dollars would you have to pay to buy it there?
Q4) A pair of hiking boots costs $120 in the U.S. ,if the real exchange rate is 6/5 and the nominal exchange rate is 2 Brazilian reais per dollar,what is the price of the same hiking boots in Brazil? Show your work.
Q5) A country recently had GDP of $1,200 billion.Its consumption expenditures were $700 billion,its government spent $200 billion,and it had domestic investment of $175 billion.What was the value of this country's net capital outflow? Show your work.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part B
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63 Verified Questions
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Source URL: https://quizplus.com/quiz/79630
Sample Questions
Q1) If a nation is selling more goods and services to foreigners than it is buying from them,then on net it must be selling assets abroad.
A)True
B)False
Q2) If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S. ,and China uses the $50 million to purchase U.S.bonds,U.S.net exports and U.S.net capital outflow both fall.
A)True
B)False
Q3) From 2008 to 2012 both U.S.saving and U.S.investment fell.
A)True
B)False
Q4) Other things the same,if the government reduced its budget deficit,the country's trade balance would rise.
A)True
B)False
Q5) Reductions in transportation costs help explain the increase in U.S.trade flows.
A)True
B)False
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Chapter 19: A Macroeconomic Theory of the Open Economy
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Sample Questions
Q1) The open-economy macroeconomic model examines the determination of
A)the output growth rate and the real interest rate.
B)unemployment and the exchange rate.
C)the output growth rate and the inflation rate.
D)the trade balance and the exchange rate.
Q2) The open-economy macroeconomic model includes
A)only the market for loanable funds.
B)only the market for foreign-currency exchange.
C)both the market for loanable funds and the market for foreign-currency exchange.
D)neither the market for loanable funds nor the market for foreign-currency exchange.
Q3) Over the past three decades,the United States has
A)generally had,or been very near to a trade balance.
B)had trade deficits in about as many years as it has trade surpluses.
C)persistently had a trade deficit.
D)persistently had a trade surplus.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Supply and Demand for Loanable Funds and for
Foreign-Currency Exchange
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141 Verified Questions
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Source URL: https://quizplus.com/quiz/79717
Sample Questions
Q1) Other things the same,if the expected return on U.S.assets increases,the
A)supply of dollars in the market for foreign-currency exchange shifts right.
B)supply of dollars in the market for foreign-currency exchange shifts left.
C)demand for dollars in the market for foreign-currency exchange shifts right
D)demand for dollars in the market for foreign-currency exchange shifts left.
Q2) In the open-economy macroeconomic model,the supply of dollars in the market for foreign-currency exchange comes from
A)net exports
B)net capital outflow
C)net exports + net capital outflow
D)net exports - net capital outflow
Q3) If the demand for loanable funds shifts left,then
A)the real interest rate and the equilibrium quantity of loanable funds both fall.
B)the real interest rate falls and the equilibrium quantity of loanable funds rises.
C)the real interest rate and the equilibrium quantity of loanable funds both rise.
D)the real interest rate rises and the equilibrium quantity of loanable funds falls.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Equilibrium in the Open Economy
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45 Verified Questions
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Sample Questions
Q1) In the open-economy macroeconomic model,a decrease in the domestic interest rate shifts
A)demand in the market for foreign-currency exchange to the right.
B)demand in the market for foreign-currency exchange to the left.
C)supply in the market for foreign-currency exchange to the right.
D)supply in the market for foreign-currency exchange to the left.
Q2) If U.S.residents chose to travel overseas less due to concerns about the safety of foreign travel,then in the open-economy macroeconomic model
A)the demand for dollars in the market for foreign-currency exchange shifts right.
B)the demand for dollars in the market for foreign-currency exchange shifts left.
C)the supply of dollars in the market for foreign-currency exchange shifts right.
D)the supply of dollars in the market for foreign-currency exchange shifts left.
Q3) In the open-economy macroeconomic model,if investment demand increases,then
A)net exports and the real exchange rate rise.
B)net exports rise and the real exchange rate falls.
C)net exports fall and the real exchange rate rises.
D)net exports and the real exchange rate fall.
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Page 129
Chapter 19: A Macroeconomic Theory of the Open
Economy: How Policies and Events Affect an Open Economy
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Sample Questions
Q1) If a country imposes a tariff on some good,then which of the following curves shifts right?
A)both the demand for loanable funds and demand in the market for foreign-currency exchange.
B)the demand for loanable funds and demand in the market for foreign-currency exchange.
C)demand in the market for foreign-currency exchange but not the demand for loanable funds.
D)neither the demand for loanable funds nor demand in the market for foreign-currency exchange.
Q2) Which of the following results if the U.S.removes an import quota on computer components?
A)U.S.exports and U.S.imports both increase
B)U.S.exports increase but U.S.imports are unchanged
C)U.S.imports increase but U.S.exports are unchanged
D)None of the above are correct
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part A
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47 Verified Questions
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Source URL: https://quizplus.com/quiz/79652
Sample Questions
Q1) How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?
Q2) If there is a shortage in the market for foreign-currency exchange,what happens to the exchange rate and to net exports?
Q3) An economy recently had 800 billion euros of saving and 600 billion euros of net capital outflow.What was its investment? What was its quantity of loanable funds supplied?
Q4) What do trade policies do to the standard of living?
Q5) What happens to each of the following if the supply of loanable funds shifts right?
A.the interest rate
B.net capital outflow
C.the exchange rate
Q6) What happens to domestic investment as the real interest rate rises? Explain your answer.
Q7) What is the source of the demand for dollars in the market for foreign-currency exchange?
Page 131
Q8) What effect do protectionist policies have on the trade deficit?
Q9) Why do higher real interest rates lead to lower net capital outflow?
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132
Chapter 19: A Macroeconomic Theory of the Open
Economy: Part B
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Sample Questions
Q1) An increase in a country's real interest rate reduces that country's net capital outflow.
A)True
B)False
Q2) In the open-economy macroeconomic model,if there is currently a surplus in the foreign exchange market,the quantity of desired net exports will increase as the market moves to equilibrium.
A)True
B)False
Q3) In the 1980s,both the U.S.government budget and U.S.trade deficits increased.
A)True
B)False
Q4) Capital flight shifts the demand for loanable funds to the left.
A)True
B)False
Q5) An increase in national saving reduces the interest rate and so reduces net capital outflow.
A)True
B)False
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Chapter 20: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) On average,over the last 50 years,real GDP has grown by about
A)3 percent per year.
B)2 percent per year.
C)1 percent per year.
D)4 percent per year.
Q2) During a recession the economy experiences
A)rising employment and income.
B)rising employment and falling income.
C)rising income and falling employment.
D)falling employment and income.
Q3) In October 2009,the official unemployment rate rose to A)10%.
B)8%.
C)6%
D)4%.
Q4) During recessions
A)workers are laid off.
B)factories are idle.
C)firms may find they are unable to sell all they produce.
D)All of the above are correct.
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Three Key Facts About Economic Fluctuations
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Sample Questions
Q1) Which of the following is correct?
A)Short run fluctuations in economic activity happen only in developing countries.
B)During economic contractions most firms experience rising profits.
C)Recessions come at irregular intervals and are easy to predict.
D)When real GDP falls,the rate of unemployment generally rises.
Q2) Historically,the change in real GDP during recessions has been
A)mostly a change in investment spending.
B)mostly a change in consumption spending.
C)about equally divided between consumption and investment spending.
D)sometimes mostly a change in consumption and sometimes mostly a change in investment.
Q3) Real GDP
A)moves in the opposite direction as unemployment.
B)increases as production falls.
C)falls when households save a smaller fraction of their income.
D)All of the above are correct.
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135
Explaining Short-Run Economic Fluctuations
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Sample Questions
Q1) In order to understand how the economy works in the short run,we need to A)study the classical model.
B)study a model in which real and nominal variables interact.
C)understand that "money is a veil."
D)understand that money is neutral in the short run.
Q2) The aggregate-demand curve shows the
A)quantity of labor and other inputs that firms want to buy at each price level.
B)quantity of labor and other inputs that firms want to buy at each inflation rate.
C)quantity of domestically produced goods and services that households want to buy at each price level.
D)quantity of domestically produced goods and services that households,firms,the government,and customers abroad want to buy at each price level.
Q3) According to the classical model,an increase in the money supply causes A)output to increase in the long run.
B)the unemployment rate to fall in the long run.
C)prices to rise in the long run.
D)interest rates to fall in the long run.
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Page 136
Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Demand Curve
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Sample Questions
Q1) Which of the following both shift aggregate demand left?
A)a decrease in taxes and at a given price level consumers feel more wealthy
B)a decrease in taxes and at a given price level consumers feel less wealthy
C)an increase in taxes and at a given price level consumers feel more wealthy
D)an increase in taxes and at a given price level consumers feel less wealthy
Q2) Other things the same,an increase in the price level causes the interest rate to
A)increase,the dollar to depreciate,and net exports to increase.
B)increase,the dollar to appreciate,and net exports to decrease.
C)decrease,the dollar to depreciate,and net exports to increase.
D)decrease,the dollar to appreciate,and net exports to decrease.
Q3) The aggregate-demand curve
A)has a slope that is explained in the same way as the slope of the demand curve for a particular product.
B)is vertical in the long run.
C)shows an inverse relation between the price level and the quantity of all goods and services demanded.
D)All of the above are correct.
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Page 137
Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Supply Curve
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Sample Questions
Q1) An increase in the expected price level shifts short-run aggregate supply to the A)right,and an increase in the actual price level shifts short-run aggregate supply to the right.
B)right,and an increase in the actual price level does not shift short-run aggregate supply.
C)left,and an increase in the actual price level shifts short-run aggregate supply to the left.
D)left,and an increase in the actual price level does not shift short-run aggregate supply.
Q2) The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,
A)production is more profitable and employment rises.
B)production is more profitable and employment falls.
C)production is less profitable and employment rises.
D)production is less profitable and employment falls.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Two Causes of Economic Fluctuations
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Sample Questions
Q1) Refer to Pessimism.Which curve shifts and in which direction?
A)aggregate demand shifts right
B)aggregate demand shifts left
C)aggregate supply shifts right.
D)aggregate supply shifts left.
Q2) In the early 1930s in the United States,there was a
A)large increase in output.In the early 1940s there was also a large increase in output.
B)large increase in output.In the early 1940s there was a large decrease in output.
C)large decrease in output.In the early 1940s there was a large increase in output.
D)large decrease in output.In the early 1940s there was also a large decrease in output.
Q3) The short-run effects of an increase in the expected price level include
A)a lower level of output and a lower price level.
B)a lower level of output and a higher price level.
C)a higher level of output and a lower price level.
D)a higher level of output and a higher price level.
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Page 139
Chapter 20: Aggregate Demand and Aggregate Supply:
Part A
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59 Verified Questions
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Sample Questions
Q1) Who wrote the 1936 book titled The General Theory of Employment, Interest, and Money?
Q2) What curve shows the quantity of goods and services that households,firms,the government,and customers abroad want to buy at each price level?
Q3) Illustrate the classical analysis of growth and inflation with aggregate demand and long-run aggregate supply curves.
Q4) Using the aggregate demand and aggregate supply model,an increase in what curve is by itself consistent with the changes in prices and output that occurred during World War II?
Q5) Name two macroeconomic variables that decline when an economy goes into recession,and name one macroeconomic variable that rises.
Q6) A recession with inflation is know by what term?
Q7) List the three alternative explanations for the upward slope of the short run aggregate supply curve.
Q8) What do most economists believe concerning the relation between the price level and real output?
Page 140
Q9) Who is credited for the original development of the model of aggregate demand and aggregate supply?
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part B
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Q1) A decrease in the money supply causes the interest rate to rise so that investment falls.
A)True
B)False
Q2) Policymakers who influence aggregate demand can potentially mitigate the severity of economic fluctuations.
A)True
B)False
Q3) An increase in the expected price level shifts the short-run aggregate supply curve to the right.
A)True
B)False
Q4) In the long-run,an increase in aggregate demand increases the price level,but not real GDP.
A)True
B)False
Q5) Recessions occur at irregular intervals and are almost impossible to predict with much accuracy.
A)True
B)False
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Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Shifts in the aggregate-demand curve can cause fluctuations in
A)neither the level of output nor the level of prices.
B)the level of output,but not in the level of prices.
C)the level of prices,but not in the level of output.
D)the level of output and in the level of prices.
Q2) Shifts in aggregate demand affect the price level in
A)the short run but not in the long run.
B)the long run but not in the short run.
C)both the short and long run.
D)neither the short nor long run.
Q3) Fiscal policy affects the economy
A)only in the short run.
B)only in the long run.
C)in both the short and long run.
D)in neither the short nor the long run.
Q4) The Federal Open Market Committee is
A)the group at the Federal Reserve that sets monetary policy.
B)in charge of tax collection.
C)the group that sets the amount of government spending.
D)the group that reviews income assistance programs.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Monetary Policy Influences
Aggregate Demand
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198 Verified Questions
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Q1) Economists who are skeptical about the relevance of "liquidity traps" argue that
A)a central bank continues to have tools to stimulate the economy,even after its interest rate target hits its lower bound of zero.
B)a central bank continues to have the option of committing itself to future monetary contraction,even after its interest rate target hits its lower bound of zero.
C)a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero.
D)while the concept of a liquidity trap is theoretically possible,nothing resembling a liquidity trap ever has been observed in the real world.
Q2) Which of the following events would shift money demand to the left?
A)an increase in the interest rate or an increase in the price level
B)an increase in the interest rate,but not an increase in the price level
C)an increase in the price level,but not an increase in the interest rate
D)neither an increase in the interest rate nor an increase in the price level
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Page 144
Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand:
How Fiscal Policy Influences
Aggregate Demand
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Q1) Government purchases are said to have a
A)multiplier effect on aggregate supply.
B)multiplier effect on aggregate demand.
C)liquidity-enhancing effect on aggregate supply.
D)liquidity-enhancing effect on aggregate demand.
Q2) Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?
A)the multiplier effect
B)the crowding-out effect
C)the accelerator effect
D)All of the above are correct.
Q3) Supply-side economists focus more than other economists on
A)how fiscal policy affects consumption.
B)the multiplier effect of fiscal policy.
C)how fiscal policy affects aggregate supply.
D)the money supply.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Using Policy to Stabilize the Economy
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Q1) Critics of stabilization policy argue that
A)policy affects aggregate demand quickly,but the effects on aggregate demand are long-lived.
B)policy affects aggregate demand with a lag,and the effects on aggregate demand are long-lived.
C)policy affects aggregate demand with a lag,but the effects are short-lived.
D)policy does not affect aggregate demand.
Q2) Critics of stabilization policy argue that
A)there is a lag between the time policy is passed and the time policy has an impact on the economy.
B)the impact of policy may last longer than the problem it was designed to offset.
C)policy can be a source of,instead of a cure for,economic fluctuations.
D)All of the above are correct.
Q3) During recessions,taxes tend to
A)rise and thereby increase aggregate demand.
B)rise and thereby decrease aggregate demand.
C)fall and thereby increase aggregate demand.
D)fall and thereby decrease aggregate demand.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part A
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Sample Questions
Q1) When the money supply increases,there is an excess ----- of money.As a result,interest rates ----- and aggregate demand -----.
Q2) A decrease in taxes will shift aggregate demand to the -----,cause consumption to -----,and cause output to -----.Due to the crowding-out effect,investment will -----.
Q3) How does a reduction in the money supply by the Fed make owning stocks less attractive?
Q4) Suppose that there are no crowding-out effects and the MPC is .9.By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?
Q5) The crowding-out effect occurs because an increase in government spending ----interest rates,causing ----- to fall.
Q6) To increase output,policymakers can ----- the money supply,----- taxes,and/or ----- government purchases.
Q7) The ease with which an asset can be converted into the medium of exchange is known as -----.
Q8) The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as -----.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part B
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Q1) The theory of liquidity preference was developed by Irving Fisher.
A)True
B)False
Q2) One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.
A)True
B)False
Q3) If the government faced a balanced budget rule,it would be forced to raise taxes or decrease spending during a recession.
A)True
B)False
Q4) If the marginal propensity to consume is 4/5,then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.
A)True
B)False
Q5) During recessions,unemployment insurance payments tend to rise.
A)True
B)False
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment
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Q1) The misery index is calculated as the
A)inflation rate plus the unemployment rate.
B)unemployment rate minus the inflation rate.
C)actual inflation rate minus the expected inflation rate.
D)natural unemployment rate times the inflation rate
Q2) In the long run,
A)the natural rate of unemployment depends primarily on the level of aggregate demand.
B)inflation depends primarily upon the money supply growth rate.
C)there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)All of the above are correct.
Q3) The misery index is supposed to measure the A)social cost of unemployment.
B)health of the economy.
C)lost output associated with a particular unemployment rate.
D)short-run tradeoff between inflation and unemployment.
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Page 149
Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Phillips Curve
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Q1) Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?
A)Teresa reads in the newspaper that the central bank recently raised the money supply.
B)Jackie gets fewer job offers.
C)Miguel makes larger increases in the prices at his health food store.
D)Julie's nominal wage increase is larger.
Q2) Refer to Figure 35-1.Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2012,and those two points correspond to points B and C,respectively,on the left-hand graph.Then it is apparent that the price index equaled
A)130 in 2011.
B)115 in 2011.
C)110 in 2011.
D)100 in 2011.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Shifts in the Phillips Curve the Role of Expectations
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Sample Questions
Q1) According to classical macroeconomic theory,in the long run
A)monetary growth affects both real and nominal variables.
B)the only real variable affected by monetary growth is the unemployment rate.
C)a number of factors that affect unemployment are influenced by monetary growth.
D)monetary growth affects nominal but not real variables.
Q2) Suppose the central bank pursues an unexpectedly tight monetary policy.In the short-run the effects of this are shown by
A)moving to the left along the short-run Phillips curve.
B)moving to the right along the short-run Phillips curve.
C)shifting the short-run Phillips curve to the right.
D)shifting the short-run Phillips curve to the left.
Q3) If the government reduced the minimum wage and pursued expansionary monetary policy,then in the long run
A)both the unemployment rate and the inflation rate would be higher.
B)both the unemployment rate and the inflation rate would be lower.
C)the unemployment rate would be higher and the inflation rate would be lower.
D)the unemployment rate would be lower and the inflation rate would be higher.
Page 151
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Shifts in the Phillips Curve the Role of Supply Shocks
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Sample Questions
Q1) A favorable supply shock will shift short-run aggregate supply
A)left,making output rise.
B)left,making output fall.
C)right,making output rise.
D)right,making output fall.
Q2) If there is a temporary adverse supply shock,then the short-run Phillips curve shifts to the
A)right.It remains to the right regardless of monetary policy.
B)right.It remains to the right if the central bank pursues expansionary monetary policy.
C)left.It remains to the left regardless of monetary policy.
D)left.It remains to the left if the central bank pursues expansionary monetary policy.
Q3) Refer to Figure 35-9.The shift of the aggregate-supply curve from AS<sub>1</sub> to AS<sub>2</sub>
A)results in a more favorable trade-off between inflation and unemployment.
B)results in a more favorable trade-off between inflation and the growth rate of real GDP.
C)represents an adverse shock to aggregate supply.
D)represents a favorable shock to aggregate supply.
Page 152
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Cost of Reducing Inflation
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87 Verified Questions
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Sample Questions
Q1) The consequences of the Volcker disinflation demonstrated that when Volcker announced his intention to reduce inflation quickly,on average the public thought
A)he would try to fool them by raising inflation to decrease unemployment.
B)inflation would be unchanged.
C)inflation would fall but not by as much or as quickly as Volcker claimed.
D)inflation would fall even further than Volcker was willing to admit.
Q2) The long-run response to an increase in the growth rate of the money supply is shown by shifting
A)the short-run and long-run Phillips curves left.
B)the short-run and long-run Phillips curves right.
C)only the short-run Phillips curve left.
D)only the short-run Phillips curve right.
Q3) Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires
A)a sacrifice of 5 percent of annual output.
B)a sacrifice of 5 percent of government spending.
C)an increase in the unemployment rate of 5 percentage points.
D)a 5 percent increase in the government budget deficit.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part A
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Sample Questions
Q1) Some countries have inflation around or in excess of 8 percent. Suppose that the sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent? In your answer, define the sacrifice ratio and explain how you found the cost of inflation reduction.
Q2) List one specific policy that would shift the long-run Phillips curve to the right.
Q3) What does the natural-rate hypothesis claim?
Q4) An increase in the natural rate of unemployment shifts the short-run Phillips curve to the -----.If the central bank sees the increase in the unemployment rate,but thinks the natural rate has remained the same and so wants to reduce unemployment,it would -------- the money supply growth rate.If it maintains this money supply growth rate,eventually the short run Phillips curve will shift ----- and unemployment will be -----.
Q5) Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 2%.
Q6) What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?
Page 154
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part B
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Sample Questions
Q1) An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.
A)True
B)False
Q2) A decrease in government expenditures serves as an example of an adverse supply shock.
A)True
B)False
Q3) Other things the same,an increase in aggregate demand reduces unemployment and raises inflation in the short run.
A)True
B)False
Q4) Neither monetary policy nor any government policy can change the natural rate of unemployment.
A)True
B)False
Q5) Friedman and Phelps believed that the natural rate of unemployment was constant.
A)True
B)False
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary and Fiscal Policymakers Try to Stabilize the Economy
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Q1) In the summer of 2008,consumers indicated that they were less optimistic about the future of the economy.Such a change in sentiment is likely to
A)shift aggregate demand to the left.
B)increase output.
C)decrease unemployment.
D)increase prices.
Q2) Policymakers following a "lean against the wind" policy would
A)increase government expenditures when output is low and decrease them when output is high.
B)increase government expenditures when output is low and do nothing when output is high.
C)decrease government expenditures when output is low and increase them when output is high.
D)decrease government expenditures when output is high and do nothing when output is low.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Fight Recessions With Spending
Hikes Rather Than Tax Cuts
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Q1) According to computer estimates using a traditional macroeconomic model,the Obama administration found that the multiplier for tax cuts and government expenditures were respectively
A).99 and 1.59.
B)1.59 and .99
C)1.3 and 1.7
D)1.7 and 1.3
Q2) Which of the following can tax cuts influence?
A)Aggregate demand
B)Aggregate supply
C)Investment spending
D)All of the above
Q3) Suppose a tax cut affected aggregate demand and aggregate supply.The shift in aggregate supply would make the
A)price level and real GDP change by more than otherwise.
B)price level change by more than otherwise and real GDP change by less than otherwise.
Page 157
C)price level change by less than otherwise and real GDP change by more than otherwise.
D)price level and real GDP change by more than otherwise
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary Policy Be Made by Rule Rather Than by Discretion
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Q1) The Federal Open Market Committee
A)by law must focus on maintaining low inflation rather than stabilizing output.
B)by law must focus on stabilizing output rather than maintaining low inflation.
C)by law must follow a mechanical rule that takes into account deviations of unemployment from its natural rate and deviations of inflation from a target.
D)operates with almost complete discretion over monetary policy.
Q2) Paul Volcker,former chair of the Fed,implemented
A)contractionary policy which increased the popularity of the U.S.president who had appointed him.
B)contractionary policy which decreased the popularity of the U.S.president who had appointed him.
C)expansionary policy which increased the popularity of the U.S.president who had appointed him.
D)expansionary policy which decreased the popularity of the U.S.president who had appointed him.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Central Bank Aim for Zero Inflation
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Q1) Using the typical estimate of the sacrifice ratio,how much output would be lost in reducing inflation from 3% to 1%?
A)5%
B)10%
C)15%
D)20%
Q2) Inflation
A)causes people to spend more time reducing money balances.When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
B)causes people to spend more time reducing money balances.When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.
C)causes people to spend less time reducing money balances.When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
D)causes people to spend less time reducing money balances.When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.
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160
Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Balance Its Budget
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Q1) Which of the programs below would not transfer wealth from young to old generations?
A)Taxes are reduced as a result of cutting expenditures on education.
B)Taxes are raised to improve government infrastructure such as roads and bridges.
C)Taxes are raised to provide more generous Social Security benefits.
D)Taxes are raised to provide more generous Medicare benefits.
Q2) Between 1980 and 1995 government debt as a percentage of GDP
A)increased from about 25% to 50%.
B)decreased from about 50% to 25%.
C)decreased from about 25% to almost zero.
D)increased from about 10% to 20%.
Q3) In fiscal year 2011,the U.S.government ran a deficit of about $1,300 billion.In fiscal year 2012,the government ran a deficit of about $1,087 billion.Other things the same,this change would be expected to have
A)decreased interest rates and investment.
B)decreased interest rates and increased investment.
C)increased interest rates and investment.
D)increased interest rates and decreased investment.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Source URL: https://quizplus.com/quiz/79694
Sample Questions
Q1) A reduction in the tax rate on interest income
A)would necessarily raise national saving.
B)would primarily benefit the wealthy.
C)both a and b are correct.
D)None of the above are correct.
Q2) Which of the following raise the incentive for households to save?
A)means-testing of government benefits and inheritance taxes
B)means-testing of government benefits but not inheritance taxes
C)inheritance taxes,but not means-testing of government benefits
D)neither means-testing of government benefits nor inheritance taxes
Q3) Which of the following reduce the incentive for households to save?
A)both means-testing of government benefits and inheritance taxes
B)means-testing of government benefits but not inheritance taxes
C)inheritance taxes,but not means-testing of government benefits
D)neither means-testing of government benefits nor inheritance taxes
Q4) Higher saving is associated with
A)a larger capital stock and higher productivity.
B)a larger capital stock but not higher productivity.
C)higher productivity but not a higher capital stock.
D)neither a higher capital stock nor higher productivity.
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Chapter 23: Six Debates Over Macroeconomic Policy:
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Q1) The six debates over macroeconomic policy exist mostly because A)economists disagree over basic issues such as the importance of saving for economic growth.
B)there are tradeoffs and people disagree about the best way to deal with them.
C)politicians offer misleading information.
D)people fail to clearly see the benefits or the costs of most changes.
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Sample Questions
Q1) Explain what is meant by the time inconsistency of monetary policy.
Q2) Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year.How large of a deficit can the government run (as a percentage of GDP)without raising the debt-to-income ratio?
Q3) According to a 1977 amendment to the Federal Reserve Act of 1913,what are the goals the Fed should promote?
Q4) List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008-2009 recession.
Q5) Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?
Q6) According to traditional Keynesian analysis,which has a greater impact on aggregate demand,changing taxes or changing government expenditures? Why?
Q7) Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?
Q8) Approximately how often does the Federal Open Market Committee meet?
Page 164
Q9) Identify three government policies that discourage saving.
Q10) Explain what is meant by saying that capital income is taxed twice.
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Sample Questions
Q1) Tax laws do not give preferential treatment to some kinds of retirement saving. A)True
B)False
Q2) The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.
A)True
B)False
Q3) The laws that created the Fed give it only vague recommendations about what goals it should pursue,and they do not tell the Fed how to pursue whatever goals it might choose.
A)True
B)False
Q4) Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.
A)True B)False
Q5) A recession has no benefit to society-it represents a sheer waste of resources. A)True
B)False
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Q1) For state and local governments,in 2011,sales taxes and property taxes made up approximately
A)10 percent of all receipts.
B)22 percent of all receipts.
C)33 percent of all receipts.
D)43 percent of all receipts.
Q2) In 2011,social insurance taxes represented approximately what percentage of total receipts for the federal government?
A)5%
B)12%
C)36%
D)44%
Q3) A person's tax liability refers to
A)the percentage of income that a person must pay in taxes.
B)the amount of tax a person owes to the government.
C)the amount of tax the government is required to refund to each person.
D)deductions that can be legally subtracted from a person's income each year.
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