Economics for Business
Chapter Exam Questions
Course Introduction
Economics for Business provides students with a foundational understanding of key economic concepts and how they apply to real-world business scenarios. The course explores both microeconomic and macroeconomic principles, focusing on how markets operate, the behavior of consumers and firms, market structures, and the impact of government policies on business activity. Students will learn to analyze demand and supply, production costs, pricing strategies, and market competition, as well as broader topics such as economic cycles, inflation, and international trade. Through case studies and practical examples, the course equips students with analytical tools to make informed business decisions in an ever-changing economic environment.
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) A typical worker in Italy can produce 24 units of product in an eight-hour day,while a typical worker in Poland can produce 25 units of product in a 10-hour day.We can conclude that
A)worker productivity in Poland is higher than in Italy.
B)the standard of living will likely be higher in Italy than in Poland.
C)productivity is 3 units per hour for the Polish worker and 2¹/ units per hour for the Italian worker.
D)there will be no difference between the standard of living in Italy and Poland.
Answer: B
Q2) If the United States decides to trade with Mexico,we know that
A)Mexico will benefit, but trade with a less developed country could not benefit the United States.
B)it will not benefit Mexico because workers in the United States are more productive.
C)Mexico and the United States can both benefit.
D)it will not benefit either country because their cultural differences are too vast.
Answer: C
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) When economists are trying to explain the world they are acting as scientists,and when they are trying to improve it,they are policymakers.
A)True
B)False
Answer: True
Q2) Refer to Figure 2-6.What is the opportunity cost to society of the movement from point A to point C?
A)50 baseballs
B)100 baseballs
C)100 bananas
D)300 bananas
Answer: B
Q3) The two loops in the circular-flow diagram represent
A)(i) the flow of goods and (ii) the flow of services.
B)(i) the flow of dollars and (ii) other financial flows.
C)(i) inputs into production processes and (ii) outputs from production processes.
D)(i) the flows of inputs and outputs and (ii) the flow of dollars.
Answer: D
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-3.If Montana and Missouri trade based on the principle of comparative advantage,Montana will export
A)baskets and Missouri will export birdhouses.
B)birdhouses and Missouri will export baskets.
C)neither good and Missouri will export both goods.
D)both goods and Missouri will export neither good.
Answer: B
Q2) Refer to Table 3-5.If the United States and Japan specialize and trade based on the principle of comparative advantage,the United States will
A)export cars and Japan will export airplanes.
B)export airplanes and Japan will export cars.
C)export cars and Japan will export cars.
D)export airplanes and Japan will export airplanes.
Answer: B
Q3) Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods.
A)True
B)False
Answer: True
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Refer to Figure 4-8.In this market,equilibrium price and quantity,respectively,are
A)$14 and 70.
B)$12 and 40.
C)$10 and 50.
D)$8 and 50.
Q2) The law of supply states that,other things equal,when the price of a good rises,the quantity supplied of the good falls.
A)True
B)False
Q3) A supply curve slopes upward because
A)as more is produced, total cost of production falls.
B)an increase in input prices increases supply.
C)the quantity supplied of most goods and services increases over time.
D)an increase in price gives producers an incentive to supply a larger quantity.
Q4) Each of the following is a determinant of demand except A)tastes.
B)technology.
C)expectations.
D)the prices of related goods.
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Chapter 5: Elasticity and Its Applications
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Sample Questions
Q1) When a technological advance in wheat production is developed and applied to wheat farming,which of the following consequences is most likely?
A)The price of wheat decreases by 6 percent and the quantity of wheat sold increases by 10 percent.
B)The price of wheat decreases by 10 percent and the quantity of wheat sold increases by 6 percent.
C)Wheat farmers' total revenue increases.
D)All of the above are equally likely.
Q2) For which of the following types of goods would the income elasticity of demand be positive and relatively large?
A)all inferior goods
B)all normal goods
C)goods for which there are many good complements
D)luxuries
Q3) For which of the following goods is demand probably most inelastic?
A)camcorders
B)insulin
C)apples
D)devices that remove cores from apples
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) Refer to Figure 6-14.The amount of the tax per unit is
A)$16.
B)$14.
C)$8.
D)$6.
Q2) A legal minimum price at which a good can be sold is
A)exemplified by rent-control laws.
B)usually intended to enhance efficiency in a market.
C)called a price ceiling.
D)called a price floor.
Q3) A tax imposed on the sellers of a good
A)raises both the price buyers pay and the effective price for sellers.
B)raises the price buyers pay and lowers the effective price for sellers.
C)lowers the price buyers pay and raises the effective price for sellers.
D)lowers both the price buyers pay and the effective price for sellers.
Q4) If the equilibrium wage rate is $4 per hour,and the minimum wage is $5.15 per hour,a shortage of labor will exist.
A)True
B)False
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Suppose Lauren,Leslie and Lydia all purchase bulletin boards for their rooms for $15 each.Lauren's willingness to pay was $35,Leslie's willingness to pay was $25,and Lydia's willingness to pay was $30.Total consumer surplus for these three would be
A)$15.
B)$30.
C)$45.
D)$90.
Q2) Refer to Figure 7-11.The equilibrium allocation of resources is A)efficient because total surplus is maximized at the equilibrium.
B)efficient because consumer surplus is maximized at the equilibrium.
C)inefficient because consumer surplus is larger than producer surplus at the equilibrium.
D)inefficient because total surplus is maximized when 10 units of output are produced and sold.
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) Illustrate on three demand-and-supply graphs how the size of a tax (small,medium and large)can alter total revenue and deadweight loss.
Q2) Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the
A)smaller the deadweight loss from the tax.
B)greater the deadweight loss from the tax.
C)more efficient is the tax.
D)more equitable is the distribution of the tax burden between buyers and sellers.
Q3) For a good that is taxed,the area on the relevant supply-and-demand graph that represents government's tax revenue is
A)smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.
B)bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers.
C)a right triangle.
D)a triangle, but not necessarily a right triangle.
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Aquilonia has decided to end its policy of not trading with the rest of the world.When it ends its trade restrictions,it discovers that it is importing incense,exporting steel,and neither importing nor exporting rugs.We can conclude that Aquilonia's new free-trade policy has
A)increased consumer surplus and producer surplus in the incense market.
B)increased consumer surplus in the steel market and left producer surplus in the rug market unchanged.
C)decreased consumer surplus in both the steel and rug markets.
D)decreased consumer surplus in the steel market and increased total surplus in the incense market.
Q2) A tariff
A)lowers the domestic price of the exported good below the world price.
B)keeps the domestic price of the exported good the same as the world price.
C)raises the domestic price of the imported good above the world price.
D)lowers the domestic price of the imported good below the world price.
Q3) Refer to Figure 9-10.Producer surplus in this market before trade is
A)C.
B)B + C.
C)A + B + D.
D)B + C + D.
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Chapter 10: Externalities
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Questions
Q1) Suppose that flower gardens create a positive externality equal to $1 per plant.What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?
A)They are equal.
B)The equilibrium quantity is greater than the socially optimal quantity.
C)The equilibrium quantity is less than the socially optimal quantity.
D)There is not enough information to answer the question.
Q2) An optimal tax on pollution would result in which of the following?
A)Producers will choose not to produce any pollution.
B)Producers will internalize the cost of the pollution.
C)Producers will maximize production.
D)The value to consumers at market equilibrium will exceed the social cost of production.
Q3) The best remedy for market failure is often
A)properly redirected market forces.
B)central planning.
C)government regulations.
D)ignoring externalities.
Q4) Why are efficiency taxes preferred to regulatory policies as methods remedy externalities?
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Depending on congestion,national parks can be either a common resource or a public good.
A)True
B)False
Q2) Government intervention cannot improve the allocation of resources for goods that do not have prices attached to them.
A)True
B)False
Q3) Why has the value of ivory threatened the extinction of the elephant,whereas the value of beef has enhanced the survival of the cow?
A)Cows are a common resource, whereas elephants are owned by governments.
B)Elephants are larger than cows, requiring more economic resources.
C)Elephants live in Africa, where economic resources are scarce.
D)Elephants are a common resource, whereas cows are privately owned.
Q4) In deciding whether a good is a public good,one must determine the A)incomes of those who benefit from the good.
B)value of the external benefits that accrue to resource owners.
C)excludability of the good.
D)All of the above are correct.
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Some states do not have a state income tax.
A)True
B)False
Q2) The deadweight loss of a tax is
A)the reduction in economic welfare of taxpayers that exceeds the revenue raised by the government.
B)the improved efficiency created as people reallocate resources according to the tax incentive rather than the true costs and benefits.
C)the loss in tax revenues.
D)Both a and b are correct.
Q3) A recent increase in federal gasoline taxes was estimated to cause a $150 million reduction in the total surplus (consumer plus producer surplus)in the gasoline market.If tax revenues increased by $100 million,what is the deadweight loss associated with the tax? As a result of the tax,10,000 people sold their cars and started riding their bicycles to work.How much of the burden of the deadweight loss is incurred by the bicycle riders?
Q4) A budget surplus occurs when government receipts exceed government spending.
A)True
B)False
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Which of the following must always be true as the quantity of output increases?
A)Marginal cost must rise.
B)Average total cost must rise.
C)Average variable cost must rise.
D)Average fixed cost must fall.
Q2) Refer to Scenario 13-1.If Joe purchases the factory with his own money,what is the annual implicit opportunity cost of purchasing the factory?
A)$0
B)$3,000
C)$12,000
D)$15,000
Q3) Marginal cost tells us the
A)value of all resources used in a production process.
B)marginal increment to profitability when price is constant.
C)amount by which total cost rises when output is increased by one unit.
D)amount by which output rises when labor is increased by one unit.
Q4) A key difference between accountants and economists is their different treatment of the cost of capital.Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) Mrs.Smith is operating a firm in a competitive market.The market price is $6.50. At her profit-maximizing level of output,her average total cost of production is $7.00 and her average variable cost of production is $6.00.
A)Mrs.Smith is earning a loss and should shutdown in the short run.
B)Mrs.Smith is earning a loss but should continue to operate in the short run.
C)Mrs.Smith is earning a profit since the price is above the average variable cost.
D)Without knowing Mrs.Smith's marginal cost we cannot determine whether she should stay in business or shut down.
Q2) In the long-run equilibrium of a competitive market,the number of firms in the market adjusts until the market demand is satisfied at a price equal to
A)average fixed cost for the marginal firm.
B)the maximum of marginal cost of the marginal firm.
C)the minimum of average total cost of the marginal firm.
D)the minimum of average variable cost of the marginal firm.
Q3) Describe the difference between average revenue and marginal revenue.Why are both of these revenue measures important to a profit-maximizing firm?
Q4) List and describe the characteristics of a perfectly competitive market.
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Chapter 15: Monopoly
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Sample Questions
Q1) The key issue in determining the efficiency of public versus private ownership of a monopoly is
A)the tendency for efficient management of publicly owned enterprises.
B)the inability of private monopolies to get rid of managers that are doing a bad job.
C)the propensity of private monopolies to generate excessive profits.
D)how ownership of the firm affects the cost of production.
Q2) A reduction in a monopolist's fixed costs would
A)decrease the profit-maximizing price and increase the profit-maximizing quantity produced.
B)increase the profit-maximizing price and decrease the profit-maximizing quantity produced.
C)not effect the profit-maximizing price or quantity.
D)possibly increase, decrease or not effect profit-maximizing price and quantity, depending on the elasticity of demand.
Q3) The proper level of government intervention is ambiguous when dealing with a monopoly.
A)True
B)False
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Chapter 16: Oligopoly
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Sample Questions
Q1) The theory of oligopoly provides another reason that free trade can benefit all countries because (i) as the number of firms within a given market increases,the price of the good falls.
(ii) increased competition leads to smaller deadweight losses.
(iii) profit increases with the level of competition for oligopoly firms.
A)(i) only
B)(ii) only
C)(i) and (ii)
D)(i), (ii), and (iii)
Q2) A tit-for-tat strategy starts out
A)conciliatory and then encourages an optimal social outcome among the other players.
B)unfriendly and then encourages friendly strategies among players.
C)friendly, then penalizes unfriendly players, and forgives them if warranted.
D)aggressive, then compensates losing players, and eventually forgives unfriendly players.
Q3) Describe the output and price effects that influence the profit-maximizing decision faced by a firm in an oligopoly market.How does this differ from output and price effects in a monopoly market?
Q4) Outline the purpose of antitrust laws.What do they accomplish?
Page 18
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) Before a new firm enters a monopolistically competitive market with a new product,it considers
A)the profit opportunities.
B)the business-stealing externality.
C)the product-variety externality.
D)Both b and c are correct.
Q2) 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.
Q3) As firms exit a monopolistically competitive market,profits of remaining firms
A)decline and product diversity in the market decreases.
B)decline and product diversity in the market increases.
C)rise and product diversity in the market decreases.
D)rise and product diversity in the market increases.
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) To maximize profit,a competitive firm hires workers up to the point of intersection of the
A)marginal product curve and the wage line.
B)value of marginal product curve and the wage line.
C)value of marginal product curve and the marginal revenue curve.
D)total revenue curve and the wage line.
Q2) Refer to Table 18-2.Suppose that there is a technological advance that allows Davis Golf Balls,Inc.employees to produce more golf balls than they could before.Because of this change,
A)the firm's demand for labor shifts right.
B)the firm's demand for labor shifts left.
C)the firm's supply of labor shifts right.
D)the firm's supply of labor shifts left.
Q3) Labor-augmenting technological advances decrease the marginal productivity of labor.
A)True
B)False
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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Sample Questions
Q1) In the early twentieth century,streetcars in many southern cities were segregated by race.This racial segregation was the result of
A)laws that required such segregation.
B)long-standing southern traditions about which the law was silent.
C)streetcar firms trying to maximize profits.
D)streetcar firms trying to minimize costs.
Q2) In the United States,the earnings gap between workers with college degrees and workers with high school degrees
A)has never been documented by reliable evidence.
B)is evident, but it has remained roughly constant over the past 20 years.
C)is evident, but it has diminished over the last 20 years.
D)is evident, and it has widened over the last 20 years.
Q3) The accumulation of investments in people,such as education and on the job training,is known as
A)physical capital.
B)human capital.
C)efficiency wage.
D)a union.
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Chapter 20: Income Inequality and Poverty
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Q1) When the government taxes income as part of a redistribution program,
A)the poor pay higher taxes.
B)the rich always benefit more than the poor.
C)the poor are encouraged to work.
D)incentives to earn income are diminished.
Q2) Compare and contrast the "life cycle" hypothesis and the "permanent income" hypothesis.What are their respective implications for inequality in the income distribution?
Q3) Which of the following will not occur when government policies are enacted to make the distribution of income more equitable?
A)People will alter their behaviors.
B)Incentives will be distorted.
C)Total utility will necessarily be constant.
D)The allocation of resources will be less efficient.
Q4) Which of the following statements is characteristic of utilitarianism?
A)An extra dollar of income provides higher marginal utility to a poor person than to a rich person.
B)Social policies should be created behind a "veil of ignorance."
C)Society should strive to maximize the utility of its wealthiest member.
D)Equality of opportunity is more important than equality of incomes.
Page 22
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Chapter 21: The Theory of Consumer Choice
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Q1) Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese.The price of one pound of cheese is $6 and the price of a bottle of wine is $10.The consumer should
A)increase consumption of cheese and decrease consumption of wine, and move to a lower indifference curve.
B)increase consumption of cheese and decrease consumption of wine, and move to a higher indifference curve.
C)increase consumption of wine and decrease consumption of cheese, and move to a higher indifference curve.
D)increase consumption of cheese and decrease consumption of wine, and remain on the same indifference curve.
Q2) Suppose the price of good x falls and the consumption of good x increases.From this we can infer that
A)x is a normal good.
B)x is an inferior good.
C)x is a Giffen good.
D)None of the above
Q3) 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) Refer to Table 22-2.Which of the following statements is correct?
A)In a pairwise election, "school" beats "road."
B)In a pairwise election, "road" beats "park."
C)In a pairwise election, "school" beats "park."
D)All of the above are correct.
Q2) Which of the following relationships involves asymmetric information?
A)An employee knows more than his employer knows about his work effort.
B)A borrower knows more than the lender about his ability to repay the loan.
C)The seller of a 30-year-old house knows more than the buyer about the condition of the house.
D)All of the above are correct.
Q3) Evidence from studies of workers' choices on whether or not to participate in 401(k)plans suggests that the workers' behavior appears to exhibit A)indifference. B)ignorance.
C)inertia. D)overconfidence.
Q4) Majority rule will produce the outcome most preferred by the median voter. A)True B)False
Page 24
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Chapter 23: Measuring a Nations Income
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Q1) In a certain small country,the unit of currency is the huck.That country's government recently announced that "GDP amounted to 400 million hucks in the quarter that just ended." Assuming this country has adopted American GDP accounting conventions,this statement means that GDP,after seasonal adjustment,actually amounted to
A)100 million hucks in the quarter that just ended.
B)100 million hucks over the last four quarters, including the one that just ended.
C)400 million hucks in the quarter that just ended.
D)400 million hucks over the last four quarters, including the one that just ended.
Q2) Refer to Table 23-2.From this information we can conclude that
A)real GDP was higher in 2006 than in 2005, and real GDP was higher in 2005 than in 2004.
B)real GDP was higher in 2005 than in 2004, and real GDP was higher in 2005 than in 2006.
C)real GDP was higher in 2004 than in 2005, and real GDP was higher in 2005 than in 2006.
D)real GDP was higher in 2004 than in 2006, and real GDP was higher in 2005 than in 2004.
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Chapter 24: Measuring the Cost of Living
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Q1) The price index in the first year is 110,in the second year is 100,and in the third year is 96.The economy experienced
A)9.1 percent deflation between the first and second years, and 4 percent deflation between the second and third years.
B)9.1 percent deflation between the first and second years, and 9.6 percent deflation between the second and third years.
C)10 percent deflation between the first and second years, and 4 percent deflation between the second and third years.
D)10 percent deflation between the first and second years, and 8.7 percent deflation between the second and third years.
Q2) If the price of American-made power tools increases,then
A)the consumer price index and the GDP deflator will both increase.
B)the consumer price index will increase, and the GDP deflator will be unaffected.
C)the consumer price index will be unaffected, and the GDP deflator will increase.
D)the consumer price index and the GDP deflator will both be unaffected.
Q3) Why does the GDP deflator give a different rate of inflation than does the CPI?
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Chapter 25: Production and Growth
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Q1) Which of the following is correct?
A)If developing countries limit career and educational opportunities for women, birth rates are likely to be lower.
B)Growth rates in developed and developing countries are nearly the same.
C)Historically, in periods where the rate of population growth was high, so was the rate of growth in world real GDP per person.
D)None of the above is correct.
Q2) Suppose Albania increases its saving rate.In the long run
A)the growth rates of productivity and real GDP per person increase.
B)productivity and real GDP per person increase.
C)the growth rate of productivity increases, and real GDP per person increases.
D)productivity increases, and the growth rate of real GDP per person increases.
Q3) The catch-up effect refers to the idea that
A)saving will always catch-up with investment spending.
B)it is easier for a country to grow fast and so catch-up if it starts out relatively poor.
C)population eventually catches-up with increased output.
D)if investment spending is low, increased saving will help investment to "catch-up."
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Chapter 26: Saving, investment, and the Financial System
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Q1) Which of the following is not correct?
A)American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan.
B)Saving is an important long-run determinant of a nation's standard of living.
C)A change in tax laws that encouraged greater saving would lower interest rates.
D)Taxes on interest income can substantially decrease the future value of current saving.
Q2) A budget surplus is created if
A)the government sells more bonds than it buys back.
B)the government spends more than it receives in tax revenue.
C)private saving is greater than zero.
D)None of the above is correct.
Q3) Over-the-Rhine Cheese Corporation had a PE ratio of 20,retained earnings of $1.5 per share and a dividend of $.50.What was its dividend yield?
A)1.25%
B)1.67%
C)3.33%
D)7.50%
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Chapter 27: The Basic Tools of Finance
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Q1) Rita puts $10,000 into to two different assets.The first pays 10% and the second pays 5%.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?
A)$12,000
B)$14,000
C)$17,000
D)$20,000
Q2) Which of the following is correct concerning diversification?
A)It only reduces firm-specific risk, but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
B)It only reduces firm-specific risk; much of the reduction comes from increasing the number of stocks in a portfolio from 1 to 30.
C)It only reduces market risk, but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
D)None of the above is correct.
Q3) What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.
Q4) List three different ways that a risk-averse person can reduce financial risk.
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Chapter 28: Unemployment
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Q1) The natural rate of unemployment
A)is a constant.
B)is the desirable rate of unemployment.
C)cannot be altered by economic policy.
D)None of the above is correct.
Q2) Which of the following definitions is correct?
A)Labor force = number of employed.
B)Labor force = population - number of unemployed.
C)Unemployment Rate = (number of unemployed ÷ [number of employed + number of unemployed]) × 100.
D)Unemployment Rate = (number of unemployed ÷ adult population) × 100.
Q3) Latoya,an unpaid homemaker who works as a volunteer at the local Red Cross and is currently not looking for a paid job,is counted as
A)employed and in the labor force.
B)unemployed and in the labor force.
C)unemployed but not in the labor force.
D)not in the labor force.
Q4) Most spells of unemployment are short,and most unemployment observed at any given time is long term.How can this be?
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Chapter 29: The Monetary System
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Q1) Which of the following is not a tool of monetary policy?
A)open market operations
B)reserve requirements
C)changing the discount rate
D)increasing the deficit
Q2) The Fed's primary tool to change the money supply is
A)changing the discount rate.
B)changing the reserve requirement.
C)conducting open market operations.
D)redeeming Federal Reserve notes.
Q3) What is the difference between money and wealth?
Q4) Over one time horizon or another Fed policy decisions influence
A)inflation and employment.
B)inflation but not employment.
C)employment but not inflation.
D)neither inflation nor employment.
Q5) An increase in reserve requirements raises the reserve ratio and decreases the money supply.
A)True
B)False
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Chapter 30: Money Growth and Inflation
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Q1) Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate falls,then
A)both the nominal and the real interest rate fall.
B)neither the nominal nor the real interest rate fall.
C)the nominal interest rate falls, but the real interest rate does not.
D)the real interest rate falls, but the nominal interest rate does not.
Q2) You put money in an account that earns a 5 percent nominal interest rate.The inflation rate is 3 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?
A)3.4 percent
B)1.6 percent
C)1 percent
D)None of the above is correct.
Q3) When the money market is drawn with the value of money on the vertical axis,as the price level increases,the value of money
A)increases, so the quantity of money demanded increases.
B)increases, so the quantity of money demanded decreases.
C)decreases, so the quantity of money demanded decreases.
D)decreases, so the quantity of money demanded increases.
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.
A)True
B)False
Q2) Suppose the Kenyan nominal exchange rate declines,and prices are unchanged in Kenya and abroad.Based on this information,the Kenyan real exchange rate
A)does not change.
B)rises.
C)declines
D)None of the above is necessarily correct.
Q3) Sonya,a citizen of Denmark,produces boots and shoes that she sells to department stores in the United States.Other things the same,these sales
A)increase U.S.net exports and have no effect on Danish net exports.
B)decrease U.S.net exports and have no effect on Danish net exports.
C)increase U.S.net exports and decrease Danish net exports.
D)decrease U.S.net exports and increase Danish net exports.
Q4) How do we find the real exchange rate from the nominal exchange rate?
Q5) What does purchasing-power parity imply about the real exchange rate?
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) If a country went from a government budget deficit to a surplus, A)national saving would increase, shifting the supply of loanable funds right.
B)national saving would increase, shifting the supply of loanable funds left.
C)national saving would decrease, shifting the demand for loanable funds right.
D)national saving would decrease, shifting the demand for loanable funds left.
Q2) The value of net exports equals the value of A)national saving.
B)public saving.
C)national saving - net exports.
D)national saving - domestic investment.
Q3) If a U.S.resident wants to buy a foreign bond,his actions are included
A)in the U.S.supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
B)in the U.S.supply of loanable funds and the demand for dollars in the market for foreign-currency exchange.
C)in the U.S.demand for loanable funds and the supply of dollars in the market for foreign-currency exchange.
D)in the U.S.demand for loanable funds and the supply of dollars in the market for foreign-currency exchange
Page 34
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) Other things the same,the aggregate quantity of output supplied will decrease if the price level
A)is lower than expected so that firms believe the relative price of their output has increased.
B)is lower than expected so that firms believe the relative price of their output has decreased.
C)is higher than expected so that firms believe the relative price of their output has increased.
D)is higher than expected so that firms believe the relative price of their output has decreased.
Q2) Most economists use the aggregate demand and aggregate supply model primarily to analyze
A)short-run fluctuations in the economy.
B)the effects of macroeconomic policy on the prices of individual goods.
C)the long-run effects of international trade policies.
D)productivity and economic growth.
Q3) Make a list of expenditures whose sum equals GDP.
Q4) Make a list of things that would shift the long-run aggregate supply curve to the right.
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) If there is excess money demand,people will
A)deposit more into interest-bearing accounts, and the interest rate will fall.
B)deposit more into interest-bearing accounts, and the interest rate will rise.
C)withdraw money from interest-bearing accounts, and the interest rate will fall.
D)withdraw money from interest-bearing accounts, and the interest rate will rise.
Q2) According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?
A)interest rate
B)money supply
C)quantity of output
D)price level
Q3) Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?
A)buy bond to raise the interest rate
B)buy bonds to lower the interest rate
C)sell bonds to raise the interest rate
D)sell bonds to raise the interest rate.
Q4) What is the difference between monetary policy and fiscal policy?
Page 36
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Chapter 35: The Short Run Trade Off Between Inflation and Unemployment
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Q1) From 1993-2001 the economy experienced
A)relatively low inflation and unemployment rates.
B)relatively high inflation and unemployment rates.
C)relatively low inflation rates and relatively high unemployment rates.
D)relatively high inflation rates and relatively low unemployment rates.
Q2) If the sacrifice ratio is 2,reducing the inflation rate from 4 percent to 2 percent would
A)cost 1 percent of annual output.
B)cost 4 percent of annual output.
C)imply that unemployment would rise by 1%.
D)imply that unemployment would rise by 4%.
Q3) The short-run relationship between inflation and unemployment is often called
A)the Classical Dichotomy.
B)Money Neutrality.
C)the Phillips curve.
D)the Keynesian cross.
Q4) Fiscal policy cannot be used to move the economy along the short-run Phillips curve.
A)True
B)False
Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Inflation reduction has the lowest cost when the efforts are
A)credible so that the sacrifice ratio is low.
B)credible so that the sacrifice ratio is high.
C)unexpected so that the sacrifice ratio is high.
D)unexpected so that the sacrifice ratio is low.
Q2) A program to reduce inflation is likely to have lower costs if the sacrifice ratio is
A)high, and the reduction is unexpected.
B)high, and the reduction is expected.
C)low, and the reduction is unexpected.
D)low, and the reduction is expected.
Q3) Which of the following is not correct?
A)Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so.
B)Deficits and surpluses could be used to avoid fluctuations in the tax rate.
C)The only times deficits have increased have been during times of war or economic downturns.
D)Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off.
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