Economic Theory
Mock Exam
Course Introduction
Economic Theory is a foundational course that explores the fundamental principles governing the allocation of scarce resources within an economy. Covering both microeconomic and macroeconomic perspectives, the course examines how individuals, firms, and governments make decisions regarding production, consumption, and distribution of goods and services. Students will learn about core concepts such as supply and demand, market structures, consumer behavior, production costs, and the impact of policy interventions. Through theoretical models and real-world applications, the course provides essential tools for analyzing economic phenomena and understanding the mechanisms that drive economic growth, efficiency, and welfare.
Recommended Textbook
Principles of Economics 4th Edition by N.
Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) The slow growth of U.S.incomes during the 1970s and 1980s can best be explained by
A)unstable economic conditions in Eastern Europe.
B)increased competition from abroad.
C)a decline in the rate of increase in U.S.productivity.
D)a strong U.S.dollar abroad, hurting U.S.exports.
Answer: C
Q2) Policies to enhance living standards should be designed to ensure that workers
A)have access to the best available methods of producing goods and services.
B)have the appropriate equipment to produce goods and services.
C)receive good educations.
D)All of the above are correct.
Answer: D
Q3) 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 equity, taking all income-earners into account.
Answer: A
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) A production possibilities frontier that is a straight line shows
A)a truer picture of the real world than does a bowed-out production possibilities frontier.
B)that resources can be shifted easily and seamlessly from the production of one good to the production of a different good.
C)that the opportunity cost of one good in terms of another good depends on the quantities of the two goods that the economy is producing.
D)All of the above are correct.
Answer: B
Q2) Which of the following would be considered a topic of study in macroeconomics?
A)the effect of agricultural price support programs on the cotton industry
B)the effect on U.S.steel producers of an import quota imposed on foreign steel
C)the effect of an increasing inflation rate on national living standards
D)the effect of an increase in the price of imported coffee beans on the U.S.coffee industry
Answer: C
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) A country's consumption possibilities frontier can be outside its production possibilities frontier if
A)the country's technology is superior to the technologies of other countries.
B)the citizens of the country have a greater desire to consume goods and services than do the citizens of other countries.
C)the country engages in trade.
D)All of the above are correct.
Answer: C
Q2) Refer to Table 3-1.The rancher has an absolute advantage in A)both goods, and the farmer has a comparative advantage in meat.
B)both goods, and the farmer has a comparative advantage in potatoes.
C)meat, and the farmer has a comparative advantage in potatoes.
D)meat, and the farmer has a comparative advantage in neither good.
Answer: C
Q3) A good that is produced abroad and sold domestically is called A)a quota.
B)a tariff.
C)an import.
D)an export.
Answer: C
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Whenever a determinant of demand other than price changes,the demand curve shifts.
A)True
B)False
Q2) Which of the following events would cause a movement upward and to the right along the supply curve for tomatoes?
A)The number of sellers of tomatoes increases.
B)There is an advance in technology that reduces the cost of producing tomatoes.
C)The price of fertilizer decreases, and fertilizer is an input in the production of tomatoes.
D)The price of tomatoes rises.
Q3) Two goods are complements if a decrease in the price of one good
A)decreases the quantity demanded of the other good.
B)decreases the demand for the other good.
C)increases the quantity demanded of the other good.
D)increases the demand for the other good.
Q4) Local cable TV companies frequently are monopolists.
A)True
B)False
Q5) The behavior of buyers and sellers drives markets toward equilibrium.
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Chapter 5: Elasticity and Its Applications
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Q1) Which of the following statements is valid when the market supply curve is vertical?
A)Market quantity supplied does not change when the price changes.
B)Supply is perfectly elastic.
C)An increase in market demand will increase the equilibrium quantity.
D)An increase in market demand will not increase the equilibrium price.
Q2) Which of the following expressions represents a cross-price elasticity of demand?
A)percentage change in quantity demanded of apples divided by percentage change in quantity supplied of apples
B)percentage change in quantity demanded of apples divided by percentage change in price of pears
C)percentage change in price of apples divided by percentage change in quantity demanded of apples
D)percentage change in quantity demanded of apples divided by percentage change in income
Q3) Demand is inelastic if the price elasticity of demand is greater than 1.
A)True
B)False
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) The minimum wage is an example of
A)a price ceiling.
B)a price floor.
C)a wage subsidy.
D)a price control that is not binding.
Q2) Refer to Figure 6-14.As the figure is drawn,who directly pays the tax to the government?
A)The buyers pay the full tax to the government.
B)The sellers pay the full tax to the government.
C)A portion of the tax is paid to the government by buyers and the remaining portion is paid to the government by sellers.
D)As the figure is drawn, any of the above is possible.
Q3) Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower price.
A)True
B)False
Q4) How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Figure 7-8.Buyers who value this good less than price are represented by which line segment?
A)AC.
B)CE.
C)BC.
D)CD.
Q2) Refer to Figure 7-6.Area B represents
A)the combined profits of all producers when the price is P .
B)the increase in producer surplus to all producers as the result of an increase in the price from P to P .
C)producer surplus to new producers entering the market as the result of an increase in the price from P to P .
D)that portion of the increase in producer surplus that is offset by a loss in consumer surplus when the price increases from P to P .
Q3) In a competitive market,sales go to those producers who are willing to supply the product at the lowest price.
A)True
B)False
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) Which of the following taxes is,at least in large part,a tax on labor?
A)the Social Security tax
B)the Medicare tax
C)the federal income tax
D)All of the above are correct.
Q2) A tax on a good
A)raises the price that buyers effectively pay and raises the price that sellers effectively receive.
B)raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
C)lowers the price that buyers effectively pay and raises the price that sellers effectively receive.
D)lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.
Q3) Ronald Reagan believed that reducing income tax rates would
A)do little, if anything, to encourage hard work.
B)result in large increases in deadweight losses.
C)raise economic well-being and perhaps even tax revenue.
D)lower economic well-being, even though tax revenue could possibly increase.
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Page 10
Chapter 9: Application: International Trade
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Sample Questions
Q1) Refer to Figure 9-1.With free trade,consumer surplus is
A)$45.
B)$80.
C)$210.
D)$245.
Q2) Refer to Figure 9-10.Producer surplus plus consumer surplus in this market after trade is
A)A + B.
B)A + B + C.
C)B + C + D.
D)A + B + C + D.
Q3) In principle,trade can make everyone better off,since the gains to the winners exceed the losses to the losers.
A)True
B)False
Q4) When a country allows international trade and becomes an exporter of a good, A)domestic producers of the good become better off.
B)domestic consumers of the good become worse off.
C)the gains of the winners exceed the losses of the losers.
D)All of the above are correct.
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Chapter 10: Externalities
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Sample Questions
Q1) The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?
Q2) To ensure the market reaches the socially optimal equilibrium in presence of a technology spillover,the government should subsidize producers by A)imposing a corrective tax.
B)an amount equal to the value of the technology spillover C)helping those companies that are adversely affected by the new technology. D)transferring income to the poor by offering them free technology.
Q3) Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of
A)a situation in which the Coase theorem fails to explain the lawn mowing arrangement. B)an improper allocation of resources.
C)a private solution to a negative externality problem.
D)an exploitation of a common resource.
Q4) Why are efficiency taxes preferred to regulatory policies as methods remedy externalities?
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Page 12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Imagine a 2,000-acre park with picnic benches,trees,and a pond.Suppose it is publicly owned,and people are invited to enjoy its beauty.When the weather is nice,it is difficult to find parking,and the trash cans overflow with food wrappers on summer afternoons.Otherwise,it is a great place.The park is a common resource because A)trash cans produce a negative externality, while good weather produces a positive externality.
B)access is limited due to driving distances.
C)if too many people use it, one person's use can prevent others from using it.
D)it is easy to fence in the park to control access.
Q2) The national defense of the United States is not rival because
A)my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States.
B)my enjoyment of the national defense does diminish your enjoyment of the national defense of the United States.
C)my enjoyment of the national defense excludes you from enjoying the national defense of the United States.
D)Both b and c are correct.
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Page 13
Chapter 12: The Design of the Tax System
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Sample Questions
Q1) A value-added tax or VAT is a tax on
A)retail purchases only.
B)wholesale purchases only.
C)pollution.
D)all stages of production of a good.
Q2) Part of the administrative burden of a tax is
A)the money people pay to the government in taxes.
B)reducing the size of the market because of the tax.
C)the hassle of filling out tax forms that is imposed on taxpayers who comply with the tax.
D)the cost of administering programs that use tax revenue.
Q3) A lump-sum tax
A)is most frequently used to tax real property.
B)does not distort incentives.
C)distorts incentives more than any other type of tax.
D)is the most fair tax.
Q4) Resources devoted to complying with the tax laws are a type of deadweight loss.
A)True
B)False
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Refer to Scenario 13-1.Suppose Joe purchases the factory using $200,000 of his own money and $200,000 borrowed from a bank at an interest rate of 6 percent.What is Joe's annual opportunity cost of purchasing the factory?
A)$3,000
B)$6,000
C)$15,000
D)$18,000
Q2) Refer to Table 13-7.What is the average fixed cost for the month if nine instructional modules are produced?
A)$108.00
B)$120.00
C)$150.00
D)$811.11
Q3) Implicit costs
A)do not require an outlay of money by the firm.
B)do not enter into the economist's measurement of a firm's profit.
C)are also known as variable costs.
D)are not part of an economist's measurement of opportunity cost.
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) Joe's Garage operates in a perfectly competitive market.At the point where marginal cost equals marginal revenue,ATC = $20,AVC = $15,and the price per unit is $10.In this situation,
A)Joe's Garage is earning a positive economic profit.
B)Joe's Garage should shut down immediately.
C)Joe's is losing money in the short run, but should continue to operate.
D)the market price will rise in the short run to increase profits.
Q2) Refer to Table 14-3.If the firm finds that its marginal cost is $5,it should
A)reduce fixed costs by lowering production.
B)increase production to maximize profit.
C)decrease production to maximize profit.
D)maintain its current level of production to maximize profit.
Q3) Refer to Table 14-4.What is the total revenue from selling 4 units?
A)$80
B)$320
C)$360
D)$480
Q4) If identical firms that remain in a competitive market over the long run make zero economic profit,why do these firms choose to remain in the market?
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Chapter 15: Monopoly
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Sample Questions
Q1) When a monopolist increases the number of units it sells,there are two effects on revenue.They are the
A)demand effect and the supply effect.
B)competition effect and the cost effect.
C)competitive effect and the monopoly effect.
D)output effect and the price effect.
Q2) Refer to Table 15-2.What is the total revenue from selling 6 shirts?
A)$100
B)$600
C)$625
D)$660
Q3) Generic drugs enter the pharmaceutical drug market once
A)the ingredients to the name brand drug have been discovered.
B)10 years have passed.
C)they are patented.
D)the patent on the name brand drug expires.
Q4) For a monopoly,marginal revenue is often greater than the price they charge for their good.
A)True
B)False
Page 17
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Chapter 16: Oligopoly
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Sample Questions
Q1) Refer to Table 16-1.What is the concentration ratio in Industry C?
A)29%
B)39%
C)45%
D)56%
Q2) Which of these situations produces the largest profits for oligopolists?
A)The firms reach a Nash equilibrium.
B)The firms reach the monopoly outcome.
C)The firms reach the competitive outcome.
D)The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.
Q3) Very often,the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that
A)each player tries to capture a large portion of the market share.
B)the players play the game not once but many times.
C)the game becomes more competitive.
D)self interest results in the Nash equilibrium which is the best outcome for the players.
Q4) Explain the practice of resale price maintenance and discuss why it is controversial.
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Page 18
Chapter 17: Monopolistic Competition
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Sample Questions
Q1) Which of the following statements is correct? Among arguments for and against advertising,both sides agree that advertising leads to
A)higher prices and less competitive markets.
B)higher prices and more competitive markets.
C)lower prices and more competitive markets.
D)None of the above is correct.The debate fails to resolve the question of advertising's effect on prices and competition.
Q2) A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door,since a sale to that customer will not increase the firm's profit.
A)True
B)False
Q3) Critics of advertising argue that advertising
A)creates demand for products that people otherwise do not want or need.
B)lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors.
C)increases competition by providing information about prices.
D)encourages monopolization of markets by raising entry barriers too high.
Q4) List five goods that are likely sold in a monopolistically competitive market.
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Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) For maximum profit,a firm hires labor up to the point at which the wage equals (i) the value of the marginal product of labor.
(ii) the marginal cost of an additional unit of output.
(iii) output price multiplied by the marginal product of labor.
A)(i) and (ii)
B)(i) and (iii)
C)(ii) and (iii)
D)All of the above are correct.
Q2) Refer to 18-2.What is the value of the marginal product of the fifth worker?
A)$7.50
B)$25
C)$37.50
D)$75
Q3) Refer to Table 18-3.What is the marginal profit of the fourth worker?
A)$400
B)$100
C)$0
D)$-100
Q4) Using the theory of wage determination,explain why wages in developing countries are typically quite low.
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Chapter 19: Earnings and Discrimination
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Q1) Refer to Scenario 19-3.Which of the following statements would weaken the discrimination complaint against Eddy's Hardware?
A)Cowboys are more productive than farm boys.
B)Cowboys work longer hours than farm boys and their effort is greater.
C)Cowboys are generally less educated than farm boys in the field of hardware.
D)All of the above would weaken the discrimination complaint.
Q2) Evidence suggests that business owners are generally
A)unable to determine the link between discrimination and profitability.
B)interested in profits only when discrimination is illegal.
C)more interested in making a profit than in discriminating against a particular group.
D)more interested in discrimination than in making a profit.
Q3) A prestigious private high school requires each of its teachers to have a Ph.D.in the subject they teach.This requirement is likely to
A)increase the supply of teachers to this school.
B)increase wages for teachers at the private school relative to those at public schools.
C)decrease the marginal product of teachers at the private school.
D)All of the above are correct.
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Page 21
Chapter 20: Income Inequality and Poverty
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Q1) In-kind transfers are transfers to the poor
A)given in the form of goods and services rather than cash.
B)including goods, services, and cash.
C)from private charitable organizations.
D)from the federal government.
Q2) Refer to Scenario 20-1.Assuming that utility is directly proportional to the cash value of after-tax income,which government policy would an advocate of liberalism prefer?
A)Plan A
B)Plan B
C)either Plan A or Plan B
D)neither Plan A nor Plan B because any plan that forcibly redistributes income is against the philosophy
Q3) Robert Nozick criticizes Rawls' concept of justice by using an example of A)minimum wage laws.
B)the grade distribution in an economics class.
C)a leaky bucket.
D)All of the above are correct.
Q4) Explain the relationship between labor earnings and the distribution of income.
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Chapter 21: The Theory of Consumer Choice
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Q1) When a budget constraint shifts outward
A)it could only have been caused by in increase in income.
B)the consumer is indifferent to goods X and Y.
C)it could only have been caused by an increase in the price of one of the goods.
D)the consumer can reach a higher indifference curve.
Q2) Refer to Figure 21-9.Assume that the consumer depicted in the figure has an income of $40,the price of a bag of marshmallows is $2,and the price of a bag of chocolate chips is $2.The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?
A)bundle A
B)bundle B
C)bundle C
D)bundle D
Q3) Giffen goods are inferior goods for which the income effect dominates the substitution effect.
A)True
B)False
Q4) List and briefly explain each of the four properties of indifference curves.
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Chapter 22: Frontiers of Microeconomics
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Q1) Evidence points to the fact that,in the real world,people appear to care about fairness
A)only when it coincides with their own self-interest.
B)only when it coincides with their determination to be consistent over time.
C)even when it does not coincide with their own self-interest.
D)not at all.
Q2) Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting.
A)True
B)False
Q3) Valerie prefers A to B and she prefers B to C.If Valerie's preferences are transitive,then she prefers A to C.
A)True
B)False
Q4) Majority rule will produce the outcome most preferred by the median voter. A)True
B)False
Q5) Explain the Condorcet paradox.To which type of voting system does it apply?
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Chapter 23: Measuring a Nations Income
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Q1) Real GDP is the production of final goods and services valued at A)current year prices.
B)constant prices.
C)expected future prices.
D)the ratio of current year prices to constant year prices.
Q2) The local Chevrolet dealership has an increase in inventory of 25 cars in 2006.In 2007 it sells all 25 cars.Which of the following statements is correct?
A)The full value of the increased inventory will be counted as part of GDP in 2006, and the value of the cars sold in 2007 will not cause 2007 GDP to increase.
B)The value of the increased inventory will not affect 2006 GDP; instead, the full value of the inventory will be counted as part of 2007 GDP.
C)The value of the increased inventory will be counted as part of 2006 GDP and the value of the cars sold in 2007 will increase 2007 GDP.
D)One-half of the value of the increased inventory will be counted as part of 2006 GDP and the other one-half of the value will be counted as part of 2007 GDP.
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Chapter 24: Measuring the Cost of Living
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Q1) The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?
A)The two measures are constructed differently, but they will always indicate the same inflation rate.
B)The substitution bias applies equally to both measures.
C)A change in the price of Japanese-made televisions shows up in the consumer price index but not in the GDP deflator.
D)All of the above are correct.
Q2) Refer to Table 24-3.Using 2002 as the base year,what was the inflation rate between 2002 and 2003?
A)-8.89 percent
B)-7.14 percent
C)3.75 percent
D)11.25 percent
Q3) The CPI is computed by finding the price of a market basket of goods whose contents vary each year.
A)True
B)False
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Chapter 25: Production and Growth
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Q1) On a production function,as capital per worker increases,output per worker
A)increases.This increase is larger at larger values of capital per worker.
B)increases.This increase is smaller at larger values of capital per worker.
C)decreases.This decrease is larger at larger value of capital per worker.
D)decreases.This decrease is smaller at larger value of capital per worker.
Q2) Countries that grew the fastest over the last 100 years had growth rates of about
A)0.5 percent.
B)1.5 percent.
C)2.0 percent.
D)2.5 percent.
Q3) In the length of one generation,which of the following countries has gone from being among the poorest countries in the world to being among the richest?
A)Chad
B)Ethiopia
C)India
D)South Korea
Q4) Michael Kramer found that world growth rates fell as population increased.
A)True
B)False
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Chapter 26: Saving, investment, and the Financial System
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Q1) Lucy starts her own psychiatric practice,but her expenditures to open the practice exceed her income.Lucy is a
A)saver who demands money from the financial system.
B)saver who supplies money to the financial system.
C)borrower who demands money from the financial system.
D)borrower who supplies money to the financial system.
Q2) What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?
A)There would be an increase in the amount of loanable funds borrowed.
B)There would be a reduction in the amount of loanable funds borrowed.
C)There would be no change in the amount of loanable funds borrowed.
D)The change in loanable funds is uncertain.
Q3) World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs.We would expect that this would
A)raise the demand for existing shares of the stock, causing the price to rise.
B)decrease the demand for existing shares of the stock, causing the price to fall.
C)raise the supply of the existing shares of stock, causing the price to rise.
D)raise the supply of the existing shares of stock, causing the price to fall.
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Chapter 27: The Basic Tools of Finance
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Q1) The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that its not a good idea to build the factory.If interest rates fall after the meeting
A)the present value of the factory rises.It's more likely the company will build the factory.
B)the present value of the factory rises.It's less likely the company will build the factory.
C)the present value of the factory falls.It's more likely the company will build the factory.
D)the present value of the factory falls.It's less likely the company will build the factory.
Q2) Risk-averse persons will take no risks.
A)True
B)False
Q3) In the late 1990s,Fed Chair Alan Greenspan believed that the market was
A)undervalued, and evidence later showed that this was clearly correct.
B)undervalued, but whether it was remains debatable.
C)overvalued, and evidence later showed that this was clearly correct.
D)overvalued, but whether it was remains debatable.
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Chapter 28: Unemployment
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Q1) The labor-force participation rate is defined as
A)(Employed ÷ Adult Population) × 100.
B)(Employed ÷ Labor Force) × 100.
C)(Labor Force ÷ Adult Population) × 100.
D)(Adult Population ÷ Labor Force) × 100.
Q2) In the United States in recent years,for people age 20 and over,the unemployment rate of blacks has been
A)less than that of whites.
B)about the same as that of whites.
C)about 50 percent higher than that of whites.
D)about double that of whites.
Q3) Who would be included in the labor force?
A)Homer, who is waiting for his new job to start
B)Michelle, who has become discouraged looking for a job and has quit looking for awhile
C)Derrick, an unpaid homemaker
D)None of the above would be included in the labor force.
Q4) Over one-half of the unemployed are recent entrants into the labor force.
A)True
B)False
Page 30
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Chapter 29: The Monetary System
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Q1) The discount rate is
A)the rate at which public banks lend to other public banks.
B)the rate at which the Fed lends to banks.
C)the percentage difference between the face value of a Treasury bond and what the Fed pays for it.
D)the percentage of deposits banks hold as excess reserves.
Q2) What is the difference between money and wealth?
Q3) The agency responsible for regulating the money supply in the United States is A)the Comptroller of the Currency.
B)the U.S.Treasury.
C)the Federal Reserve.
D)the U.S.Bank.
Q4) In recent years the Federal Open Market Committee has focused on a target for A)M1 growth.
B)the federal funds rate.
C)the number of Treasury Securities issued by the federal government.
D)total reserves of banks.
Q5) Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.
Page 31
Q6) What makes the New York Federal Reserve regional bank so important?
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Chapter 30: Money Growth and Inflation
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Q1) Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.
Q2) When the money market is drawn with the value of money on the vertical axis,if the value of money is below the equilibrium level,
A)the price level will rise.
B)the value of money will rise.
C)money demand will shift left.
D)money demand will shift right.
Q3) Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with
A)both higher inflation and higher nominal interest rates.
B)a higher inflation rate, but not higher nominal interest rates.
C)a higher nominal interest rate, but not higher inflation.
D)neither a higher inflation rate nor a higher nominal interest rate.
Q4) U.S.prices rose at an average annual rate of about 4 percent over the last 70 years.
A)True
B)False
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) Imagine the real exchange rate is 1/2 gallon of Canadian gasoline per gallon of U.S.gasoline,a gallon of U.S.gasoline costs $2.50 U.S.,and a gallon of Canadian gas costs
$6 Canadian.What is the nominal exchange rate?
A).60 Canadian dollars per U.S.dollar
B)1.20 Canadian dollars per U.S.dollar
C)2.40 Canadian dollars per U.S.dollar
D)None of the above is correct.
Q2) According to purchasing-power parity,if prices in the United States increase by a larger percentage than prices in Poland,then
A)the real exchange defined as Polish goods per unit of U.S.goods rises.
B)the real exchange defined as Polish goods per unit of U.S.goods falls.
C)the nominal exchange rate defined as Polish currency per dollar rises.
D)the nominal exchange rate defined as Polish currency per dollar falls.
Q3) 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.
Page 33
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) Which of the following is the most likely result from an increase in the government's budget surplus?
A)higher interest rates
B)lower imports
C)lower net capital outflows
D)lower domestic investment
Q2) In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save exactly balances desired domestic investment.
A)True
B)False
Q3) When a country experiences capital flight its currency
A)appreciates and net exports rise.
B)appreciates and net exports fall.
C)depreciates and net exports rise.
D)depreciates and net exports fall.
Q4) Suppose the U.S.government institutes a "Buy American" campaign,in order to encourage spending on domestic goods.What effect will this have on the U.S.trade balance?
Q5) What effect do protectionist policies have on the trade deficit?
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) During 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.
Q2) Refer to Optimism.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.
Q3) Refer to Pessimism.In the long run,the change in price expectations created by pessimism shifts
A)long-run aggregate supply right.
B)long-run aggregate supply left.
C)short-run aggregate supply right.
D)short-run aggregate supply left.
Q4) John Maynard Keynes advocated policies that would increase aggregate demand as a way to decrease unemployment caused by recessions.
A)True
B)False
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?
A)increase government expenditures or increase the money supply
B)increase government expenditures or decrease the money supply
C)decrease government expenditures or increase the money supply
D)decrease government expenditures or decrease the money supply
Q2) Other things the same,which of the following responses would we expect to result from an increase in U.S.interest rates?
A)Your aunt puts more money in her savings account.
B)Foreign citizens decide to buy fewer U.S.bonds.
C)You decide to purchase a new oven for your cookie factory.
D)All of the above are correct.
Q3) The Kennedy tax cut of 1964 included an investment tax credit designed to
A)increase aggregate demand in the short run and aggregate supply in the long run.
B)increase aggregate supply in the short run and aggregate demand in the long run.
C)only increase aggregate supply in the long run.
D)only increase aggregate demand in the short run.
Q4) Explain how unemployment insurance acts as an automatic stabilizer.
Page 36
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Chapter 35: The Short Run Trade Off Between Inflation and Unemployment
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Q1) Phillips found a
A)positive relation between unemployment and inflation in the United Kingdom.
B)positive relation between unemployment and inflation in the United States.
C)negative relation between unemployment and inflation in the United States.
D)negative relation between unemployment and inflation in the United Kingdom.
Q2) Which of the following leads to a higher level of unemployment in the long run?
A)both an increase in the size of the money supply and an increase in the money supply growth rate.
B)an increase in the size of the money supply but not an increase in the money supply growth rate.
C)an increase in the money supply growth rate, but not an increase in the size of the money supply.
D)neither an increase in the size of the money supply nor an increase in the money supply growth rate.
Q3) An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.
A)True
B)False
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Page 37
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Monetary policymakers are allowed
A)almost no discretion and so there is no political business cycle.
B)a lot of discretion which makes it unlikely that there is a political business cycle.
C)almost no discretion so there is no political business cycle.
D)a lot of discretion which makes it possible to have a political business cycle.
Q2) Which of the following is a cost of inflation?
A)shoeleather costs
B)menu costs
C)relative price variability
D)All of the above are correct.
Q3) The time inconsistency of policy implies that
A)what policymakers say they will do is generally what they will do, but people don't believe them because of current policy.
B)when people expect that inflation will be low, it is harder for the Fed to increase output by increasing the money supply.
C)people will believe Fed policy will be more inflationary than the Fed claims.
D)None of the above is correct.
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