Economics for Social Sciences
Textbook Exam Questions
Course Introduction
This course introduces students to fundamental concepts and analytical tools in economics, tailored specifically for applications in the social sciences. It explores how individuals, households, and societies make choices under conditions of scarcity, examining microeconomic principles such as supply and demand, market structures, and consumer behavior. The course also delves into macroeconomic themes like economic growth, unemployment, and inflation, considering their broader social implications. Emphasis is placed on integrating economic reasoning with insights from other social science disciplines to analyze contemporary social issues, inform policy decisions, and understand economic behavior in a multidisciplinary context.
Recommended Textbook Principles of Economics 5th Edition by Joshua Gans
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Chapter 1: Ten Lessons From Economics
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Sample Questions
Q1) In a market economy:
A) firms decide whom to hire and what to produce
B) profit and self-interest guide the decisions of firms and households
C) households decide which firms to work for and what to buy with their incomes
D) all of the above are true
Answer: D
Q2) An externality is the impact of:
A) society's decisions on the well-being of society
B) a person's actions on that person's well being
C) society's decisions on the well-being of one person
D) one person's actions on the wellbeing of a bystander
Answer: D
Q3) Inflation is defined as:
A) a period of rising productivity in the economy
B) an increase in the overall level of output in the economy
C) a period of rising income in the economy
D) an increase in the overall level of prices in the economy
Answer: D
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) What is the purpose of models in economics? What are the two economic models presented in chapter two?
Answer: Economic models are designed to illustrate the important features of an economy. They are built from assumptions, and are most often composed of diagrams and equations. Like all useful models, economic models simplify reality in order to improve our understanding of it. The two economic models presented in chapter two are the circular-flow diagram and the production possibilities frontier.
Q2) The policy results from economic modelling:
A) focus on the cheapest price option
B) focus on the fairest result for everyone
C) tend to be aimed at winning the most political votes
D) none of the above
Answer: D
Q3) Normative statements are essentially value judgements about the issue being considered.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Differences in opportunity cost and comparative advantage allow for gains from trade.
A)True
B)False
Answer: True
Q2) According to Table 3-4:
A) England has a comparative advantage in bread, and Spain has a comparative advantage in cheese
B) England has a comparative advantage in cheese, and Spain has a comparative advantage in bread
C) England has a comparative advantage in both goods, and Spain has a comparative advantage in neither goods
D) England has a comparative advantage in neither goods, and Spain has a comparative advantage in both goods
Answer: A
Q3) The central argument for free trade has changed a lot in the past two centuries. A)True
B)False
Answer: False
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Why do we use the demand-and-supply graphs to explain human behaviours regarding production and consumption?
Q2) In a market economy, prices determine who produces each good and how much is produced.
A)True
B)False
Q3) The price of any good adjusts until quantity demanded equals quantity supplied.
A)True
B)False
Q4) In a free market system, what is the mechanism for rationing scarce resources?
A) sellers
B) buyers
C) prices
D) the government
Q5) Which of the following would not shift the demand curve for beef?
A) a reduction in the price of cattle farm fencing
B) a change in the incomes of beef consumers
C) an effective advertising campaign by pork producers
D) a widely publicised study that indicates beef increases one's cholesterol
Q6) Why would Qantas be interested in the cost of fuel?
Page 6
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Chapter 5: Elasticity and Its Application
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Q1) If the price of one good goes up, and this causes the quantity demanded of another good to go down, the cross-price elasticity of demand will be negative.
A)True
B)False
Q2) Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
A)True
B)False
Q3) The cross-price elasticity of demand measures how the quantity demanded of a good changes:
A) as its price changes
B) as the price of a related good changes
C) as income changes
D) as the slope of the demand curve changes
Q4) An inferior good is one that has:
A) a positive income elasticity of demand
B) a negative income elasticity of demand
C) a positive price elasticity of demand
D) a negative elasticity of demand
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Chapter 6: Supply, Demand and Government Policies
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Q1) According to Graph 6-6, in panel a, at the actual price there will be:
A) a shortage of wheat
B) equilibrium in the market
C) a surplus of wheat
D) an excess demand for wheat
Q2) In Graph 6-10, the price that will be paid after the tax is:
A) P<sub>0</sub>
B) P<sub>1</sub>
C) P<sub>2</sub>
D) impossible to determine
Q3) The minimum wage has its greatest adverse impact on the market for:
A) the most experienced workers
B) the most skilled workers
C) engineers
D) teenage labour
Q4) Using a demand-supply diagram, show how OPEC's raising of oil prices in the 1970s combined with a government-imposed price ceiling on gasoline created a shortage of gasoline.
Q5) How does elasticity affect the burden of a tax? Justify your answer using supply-demand diagrams.
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Chapter 7: Consumers, Producers and the Efficiency of Markets
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Sample Questions
Q1) Total surplus in a market is:
A) the total costs to sellers of providing the goods less the total value to buyers of the goods
B) always less than consumer surplus plus producer surplus
C) the total value to buyers of the goods less the costs to sellers of providing those goods
D) always greater than consumer surplus plus producer surplus
Q2) Producer surplus is the area:
A) under the supply curve
B) between the supply and demand curves
C) below the price and above the supply curve
D) under the demand curve and above the price
Q3) Suppose the price of DVD rentals increases. Explain what will happen to:
a. potential renters who are illegally downloading movies.
b. renters who have not yet begun downloading movies.
c. the consumer surplus in the DVD rental market.
d. the number of downloads that will now occur.
Q4) Many countries allow people to visit national parks, lakes or rivers for free. If a good is free in the sense of having zero market price, does this mean that the consumer surplus is also zero?
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Chapter 8: Application: The Costs of Taxation
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Sample Questions
Q1) According to Graph 8-1, the price buyers pay after the tax is:
A) P<sub>3</sub>
B) P<sub>2</sub>
C) P<sub>1</sub>
D) impossible to determine
Q2) A tax raises the price received by sellers and lowers the price paid by buyers.
A)True
B)False
Q3) Using demand-supply diagrams, show the difference in deadweight loss between a market with inelastic demand and supply curves and a market with elastic demand and supply curves.
Q4) The benefit received by the sellers of a good in a market is measured by:
A) consumer surplus
B) producer surplus
C) the amount buyers pay for the good in excess of the amount the good is actually worth
D) the amount it costs producers to produce the good
Q5) The deadweight loss of a tax rises even more rapidly than the size of the tax.
A)True
B)False
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Chapter 9: Application: International Trade
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Sample Questions
Q1) When Australia engages in international trade with India:
A) India reaps economic benefits and Australia loses
B) both India and Australia reap economic benefits
C) it is an equal trade-off so neither country benefits nor loses
D) India loses and Australia reaps economic benefits
Q2) Which of the following is an argument for restricting trade?
A) trade restrictions make all Australians better off B) trade restrictions increase economic efficiency
C) trade restrictions are necessary for economic growth
D) trade restrictions are necessary for national security
Q3) When the free trade treaty CER was signed between New Zealand and Australia, opponents claimed that New Zealand would suffer significant job losses to more efficient Australian producers. Why would you not be surprised to learn that CER did not lift unemployment in either country?
Q4) Suppose that a country that has been isolated from the rest of the world decides to open its borders to international trade. The country produces chickens and soccer balls. On what basis can the country decide which good to import and which good to export?
Q5) What is the effect on the economic wellbeing of a nation if a quota on imports is imposed? Why?
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Chapter 10: Externalities
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Sample Questions
Q1) When externalities exist, buyers and sellers:
A) neglect the external effects of their actions but the market equilibrium is still efficient
B) neglect the external effects of their actions and the market equilibrium is not efficient
C) do not neglect the external effects of their actions and the market equilibrium is efficient
D) do not neglect the external effects of their actions and the market equilibrium is not efficient
Q2) Negative externalities occur when one person's actions:
A) cause another person to lose money in a stock-market transaction.
B) cause his or her employer to lose business.
C) adversely affect the wellbeing of a bystander (or bystanders) who is (are) not party to a market exchange.
D) reveal his or her preference for foreign produced goods.
Q3) Education has negative externalities for society.
A)True
B)False
Q4) Explain the difference between market equilibrium and social optimum.
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) To determine if a good is a common resource or a public good, we need to know:
A) if the good is provided by the government
B) if my use of the good reduces its availability to you
C) if the good can be patented
D) if the good is very expensive to produce
Q2) Assuming that everyone prefers to live in a society without poverty, which of the following statements are true of private anti-poverty programs? (i) people who don't contribute still receive benefits from the general reduction in poverty
(ii) the socially optimal level of charitable donations is greater than those actually received, because of the free-rider problem
(iii) there is no individual incentive to contribute to private anti-poverty programs since the government is the sole supplier
A) (i) and (ii)
B) (i) and (iii)
C) (ii) and (iii)
D) (i), (ii) and (iii)
Q3) Explain the fundamental reason that common resources have a tendency to be exploited in private markets.
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Chapter 12: The Design of the Tax System
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Q1) In order to construct a more complete picture of the economic burden of government across income classes, economists usually:
A) include both tax payments as well as transfer payments received
B) focus only on the tax payments of wealthy tax payers
C) limit their analysis to taxes based on the ability-to-pay principle
D) focus their analysis on issues of tax efficiency
Q2) Tax evasion can occur unintentionally.
A)True
B)False
Q3) A lump-sum tax results in equality between average and marginal tax rates.
A)True
B)False
Q4) If everyone had to pay a tax of $100 to register their cars, this would be an example of a:
A) transport tax
B) consumption tax
C) lump-sum tax
D) marginal tax
Q5) Explain the difference between vertical equity and horizontal equity.
Q6) 'Tax loopholes increase the efficiency of tax systems'. Evaluate this statement.
Page 14
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Diminishing marginal product suggests that:
A) marginal cost is downward-sloping
B) additional units of output are more expensive
C) the firm is at full capacity
D) all of the above are true
Q2) To an economist, the field of industrial organisation answers which of the following questions?
A) How does the difference in the number of firms affect prices and efficiency of market outcomes?
B) Why are consumers subject to the law of demand?
C) Why do firms experience falling marginal product of labour?
D) Why do firms consider production costs when determining product supply?
Q3) Total revenue equals:
A) total output multiplied by the unit cost of output
B) total output multiplied by profit
C) total output multiplied by the unit price of output
D) total output divided by profit
Q4) What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?
Q5) Explain why the long-run average total cost curve has a U-shape.
Page 15
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Chapter 14: Firms in Competitive Markets
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Q1) A firm's short-run supply curve is part of which of the following curves?
A) marginal cost
B) average variable cost
C) marginal revenue
D) average total cost
Q2) A long-run supply curve that is more elastic than a short-run supply curve results from which of the following circumstances?
A) competitive firms have more control over demand in the long run
B) firms in a competitive market face identical cost structures
C) firms can enter and exit a market more easily in the long run than in the short run
D) long-run supply curves are sometimes downward-sloping
Q3) It is not possible for the marginal firm in a competitive market to make an economic profit in the long-run.
A)True
B)False
Q4) If a firm was producing an output that was above the marginal revenue = marginal cost point (MR = MC), explain why a reduction in output (Q) would increase its profit.
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Page 16
Chapter 15: Monopoly
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Sample Questions
Q1) In the market for home heating, consumers typically have several options (e.g. electricity, heating fuel, natural gas, propane, etc.), yet we often think of firms in this industry as behaving like monopolists. Using your understanding of monopoly, discuss the context in which your electricity provider is a monopolist. Is this characterisation universally applicable? Carefully explain your answer.
Q2) Refer to Graph 15-6. If the monopoly firm perfectly price discriminates, what will the consumer surplus be?
A) ABC
B) ADF
C) CEF
D) consumer surplus will equal zero
Q3) For a monopoly market, total surplus can be defined as the value of the good to:
A) consumers minus the costs of making the good
B) consumers plus the cost of making the good
C) producers minus the cost incurred by consumers
D) producer plus the cost incurred by consumers
Q4) Patent and copyright laws are major sources of government created monopolies.
A)True
B)False
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Chapter 16: Business Strategy
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Sample Questions
Q1) OPEC is an example of a:
A) cartel
B) collective
C) international free trade agreement
D) coalition
Q2) An oligopoly is a market with a few sellers, each offering a similar or identical product.
A)True
B)False
Q3) In markets characterised by oligopoly collusive agreements will always prevail.
A)True
B)False
Q4) Arming a country is a dominant strategy for each country is in an arms race.
A)True
B)False
Q5) The prisoners' dilemma provides insights into how easy it is to maintain cooperation.
A)True
B)False
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Chapter 17: Competition Policy
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Sample Questions
Q1) If regulators set price equal to marginal cost, then a natural monopolist will earn exactly zero profit.
A)True
B)False
Q2) Price cap regulations are intended to let monopolists keep some of the profits they generate if they lower their costs.
A)True
B)False
Q3) When attempting to limit the market power of a natural monopoly, governments tend to:
A) use regulations to limit prices
B) turn these monopolies into public enterprises
C) split natural monopolies into smaller companies
D) by all of the above measures
Q4) In Australia, the key competition regulator is the:
A) Australian Commerce and Consumer Protection Commission
B) Australian Competition and Consumer Commission
C) Trade Practices Commission
D) Australian Stock Exchange
Q5) What is resale price maintenance, predatory pricing and tying?
Page 19
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Chapter 18: Monopolistic Competition
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Q1) Brand names are associated with which of the following arguments? (i) brand names provide information about quality, when quality cannot be easily judged (ii) firms that promote brand names have strong incentives to monitor product quality (iii) firms that promote brand names face an elastic demand for their product
A) (i) only
B) (i) and (ii) only C) (ii) and (iii) only D) (i), (ii) and (iii)
Q2) Since a firm in a monopolistically competitive market faces a:
A) perfectly elastic demand curve, it will always operate at excess capacity
B) downward-sloping demand curve, it will always operate at excess capacity
C) downward-sloping demand curve, it will always operate at efficient scale D) perfectly inelastic demand curve, it will always operate at efficient scale
Q3) Are the resources devoted to advertising wasted? Explain how advertising may not be of social value.
Q4) Assume the role of a defender of advertising. Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social wellbeing of society.
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Chapter 19: The Markets for the Factors of Production
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Sample Questions
Q1) Refer to Graph 18-2. If the price of apples increases, wage will:
A) fall and less apple pickers will be hired
B) fall and more apple pickers will be hired
C) rise and less apple pickers will be hired
D) rise and more apple pickers will be hired
Q2) Which of the following would be considered key determinants of labour productivity?
(i) physical capital
(ii) human capital
(iii) technological knowledge
A) (ii) and (iii) only
B) (i) and (iii) only
C) (i) and (ii) only
D) (i), (ii) and (iii)
Q3) A key determinant of labour productivity is:
A) family size
B) the wage rate
C) the amount of human capital workers acquire through education and training
D) the demand for the final product produced by labour
Q4) Using the theory of wage determination, explain why wages in developing countries are typically quite low.
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Chapter 20: Earnings, Unions and Discrimination
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Q1) Which of the following statements would strengthen the discrimination complaint against Eddy's Hardware? (i) many cowboys take six months per year off from work to compete in a rodeo circuit, and therefore have less on-the-job experience with a hardware store (ii) farmboys are more prone to calling in sick (iii) farmboys often show up to work still intoxicated from the night before A) (i) and (ii) B) (ii) and (iii) C) (i) and (iii) D) (i) only
Q2) As a result of an increase in the earnings gap between skilled and unskilled jobs, the incentive to get a university education has been increasing.
A)True
B)False
Q3) The human capital view of education is that it:
A) leads to lower lifetime earnings
B) enhances productivity
C) reduces productivity
D) is a good in its own right, whether or not it changes productivity
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Page 22
Chapter 21: Income Inequity and Poverty
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Q1) Income inequality is something that occurs in all countries.
A)True
B)False
Q2) Suppose the government proposes a negative income tax that calculates taxes owed according to the formula TAXES OWED = (1/3 * INCOME) - 10 000. A family that earns an income of $60 000 will:
A) neither pay taxes nor receive an income subsidy
B) pay $10 000 in taxes
C) receive a subsidy of $3000
D) receive an income subsidy of $10 000
Q3) Economists who support minimum wage legislation are likely to believe that the: (i) demand for unskilled labour is relatively inelastic
(ii) demand for unskilled labour is relatively elastic
(iii) supply of unskilled labour is relatively elastic
A) (i) only
B) (i) and (ii)
C) (i) and (iii)
D) (ii) and (iii)
Q4) Discuss the permanent income hypothesis of income distribution.
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Chapter 22: The Theory of Consumer Choice
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Q1) Second-hand clothing is an example of a normal good.
A)True
B)False
Q2) Refer to the information provided. Assume that Diane decides to consume $150 000 in the work period. How much will she consume in her retirement period?
A) $110 000
B) $100 000
C) $125 000
D) we can't determine this from the information provided
Q3) One reason an individual labour supply curve may be backward-sloping is that: (i) work hours decline as technology raises worker productivity
(ii) a raise may prompt a person to devote more time to leisure than to work (iii) a wage fall may cause a person to not work as hard
A) (i)
B) (i) and (ii)
C) (i) and (iii)
D) (ii) and (iii)
Q4) Explain the relationship between the budget constraint and an indifference curve at consumer optimum.
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Chapter 23: Frontiers of Microeconomics
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Q1) The median voter theorem is used to explain why parties in a two-party political system tend to put forward very different policies.
A)True
B)False
Q2) An implication of asymmetric information in the insurance market is that people in average health may be encouraged to purchase health insurance.
A)True
B)False
Q3) In the moral hazard problem the principal tends to undertake less effort than the agent considers desirable.
A)True
B)False
Q4) If signalling is applied to advertising:
A)a firm with a good product reaps a relatively small benefit from advertising
B)firms recognise the possibility of repeated customers
C)it is irrational for a firm with a good product to pay for the cost of the signal
D)all firms have the same incentive to advertise
Q5) What are the implications of the median voter theorem?
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Chapter 24: Measuring a Nations Income
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Q1) Macroeconomics is:
A) the study of economics at the level of the industry
B) the study of the economy as a whole
C) the study of individual households and firms and their interactions in markets
D) the study of money and financial markets
Q2) If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is:
A) 0.8
B) 1.25
C) 80
D) 125
Q3) Since black market and non-market measures are excluded from measures of GDP, the GDP measure tends to:
A) overestimate the total production of an economy
B) underestimate the total production in an economy
C) not make a significant difference in determining the total production of an economy
D) lead one to the conclusion that GDP measures are not very useful to anyone but market economists
Q4) Define GDP and explain why some products are excluded.
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Chapter 25: Measuring the Cost of Living
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Q1) There is debate among economists about measurement problems of the CPI. Economists' best estimate of the CPI's degree of overstatement in the cost of living is:
A) about 0.1 per cent
B) about 1 per cent
C) about 3 per cent
D) about 5 per cent
Q2) The interest rate a bank pays is the nominal interest rate, and the interest rate adjusted for inflation is the real interest rate.
A)True
B)False
Q3) The substitution bias in the CPI results from the index not taking into account:
A) the substitution of new goods for old goods in the purchases of consumers
B) that consumers substitute towards goods that have become relatively less expensive
C) the substitution of new prices for old prices in the basket of goods from one year to the next
D) the substitution of quality for quantity in consumer purchases over time
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Chapter 26: Production and Growth
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Q1) Inward orientation policies, such as those in India between 1947 and 1993 have tended to:
A) maximise consumer benefit
B) create a highly efficient use of production resources
C) limit growth opportunities
D) enable large amounts of tariff-free trade
Q2) In some East Asian countries, such as Hong Kong, Singapore and Taiwan, average income has risen about ____ per cent per year in recent decades.
A) -4 per cent
B) 7 per cent
C) -7 per cent
D) 18 per cent
Q3) Using the rule of 70, calculate how many years it would take for John's income to double if he were to experience a 4 per cent increase in income per year.
A) 22 years
B) 17.5 years
C) 5.5 years
D) 25 years
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Chapter 27: Saving, Investment and the Financial System
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Q1) Shares enable firms to raise debt financing as the firm is in debt to its owners.
A)True
B)False
Q2) The P/E ratio is the price of the share divided by the amount the corporation earned in the last financial year.
A)True
B)False
Q3) The supply of loanable funds is upward-sloping because:
A) as the interest rate falls, the supply of loanable funds increases
B) as the interest rate falls, the supply of loanable funds falls
C) as the interest rate rises, the quantity of loanable funds supplied falls
D) as the interest rate rises, the quantity of loanable funds supplied rises
Q4) The demand for loanable funds shows the:
A) quantity of loanable funds demanded at each possible nominal interest rate
B) quantity of loanable funds demanded at each possible real interest rate
C) equilibrium quantity of money that will be borrowed at each possible real interest rate
D) equilibrium quantity of money that will be borrowed at each possible nominal interest rate
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Chapter 28: The Natural Rate of Unemployment
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Q1) Most of the economy's structural unemployment problem is attributable to:
A) relatively large numbers of workers who are jobless for relatively long periods of time
B) relatively large numbers of workers who are jobless for relatively short periods of time
C) relatively few workers who are jobless for relatively long periods of time
D) relatively few workers who are jobless for relatively short periods of time
Q2) Economists and policymakers should focus on solving problems of short-term unemployment, since long-term unemployment will be resolved eventually.
A)True
B)False
Q3) According to the theory of efficiency wages:
A) firms may choose to pay a wage above the competitive equilibrium level to reduce worker turnover
B) firms will pay a higher wage to impose a cost on shirking
C) firms will pay a high wage to provide an incentive to work hard
D) all of the above
Q4) Why is job-search unemployment inevitable?
Q5) Explain when minimum laws are binding and result in unemployment.
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Chapter 29: The Monetary System
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Q1) As banks hold more excess reserves, the money multiplier:
A) increases and the money supply increases
B) decreases and the money supply decreases
C) increases and the money supply decreases
D) decreases and the money supply increases
Q2) In spite of bank runs and inflation, money has proven to be a very useful social convention.
A)True
B)False
Q3) Money is:
A) equivalent to income
B) equivalent to wealth
C) an asset used as a medium of exchange
D) backed by gold
Q4) Money with intrinsic value is called fiat money, and money without intrinsic value is called commodity money.
A)True
B)False
Q5) What is the difference between a medium of exchange and a store of value?
Page 31
Q6) What are the problems facing the RBA in its management of the money supply?
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Chapter 30: Inflation: Its Causes and Costs
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Q1) Expected inflation redistributes wealth from _____.
A) creditors to debtors
B) owners of real property to owners of financial assets
C) debtors to creditors
D) the government to fixed income recipients
Q2) Paying for a government program by printing money:
A) reduces the opportunity cost of the program
B) is exactly like imposing an income tax to pay for the program
C) imposes an inflation tax to pay for the program
D) all of the above
Q3) The Fisher effect is that:
A) Real interest rate = Nominal interest rate + Inflation rate
B) Inflation rate = Real interest rate - Nominal interest rate
C) Nominal interest rate = Real interest rate + Inflation rate
D) Nominal interest rate = Real interest rate - Inflation rate
Q4) Unexpected inflation redistributes wealth among debtors and creditors. Who benefits - creditors or debtors? Explain.
Q5) How do the relative-price distortions caused by inflation create a misallocation of resources?
Q6) Why does the demand for money curve slope downwards to the right?
Page 32
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) Which of the following statements about the trade balance is correct? The trade balance is:
A) the value of a country's exports minus the value of its imports
B) the value of a country's exports minus the value of its production
C) the value of a country's imports minus the value of its consumption
D) none of the above
Q2) When the Big Mac in Egypt cost $US2.28, which is less than it does in converted US dollars, we can say it _____.
A) should not be measured
B) difficult to ascertain, as the currency is volatile
C) is undervalued
D) is overvalued
Q3) If the nominal exchange rate is 75 yen per dollar, and a Big Mac hamburger sells for $4 in Australia and for 200 yen in Japan, then the real exchange rate is:
A) 1.5
B) 11
C) 19
D) 50
Q4) List five factors that may influence a country's demand for goods traded?
Page 33
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) The demand curve for foreign-currency exchange slopes downwards because a lower real exchange rate makes the domestic goods more expensive and reduces the quantity of domestic currency demanded to buy those goods.
A)True
B)False
Q2) If the interest rate were below the equilibrium level, the quantity of loanable funds supplied would _____ the quantity demanded.
A) be greater than B) exactly equal C) be less than D) be independent of
Q3) Ceteris paribus, in an open economy, a stable government fiscal policy enables firms to invest more assuredly.
A)True
B)False
Q4) Net foreign investment represents the quantity of dollars demanded in the foreign-currency exchange market.
A)True
B)False
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) If the money supply increases, there will be:
A) a shift of the aggregate-demand curve
B) no effect on the aggregate-demand curve
C) a shift of the aggregate-supply curve
D) a movement along the aggregate-demand curve
Q2) The classical dichotomy refers to the separation of:
A) monetary and fiscal variables
B) predictable and unpredictable variables
C) endogenous and exogenous variables
D) real and nominal variables
Q3) Most economists believe that in the short run:
A) real and nominal variables are highly interrelated
B) only real variables are highly interrelated
C) only nominal variables are highly interrelated
D) none of the above
Q4) The slope of the AD curve only reflects the total price demanded by consumers in the economy.
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) Economists agree that:
A) fiscal policy can be used to shift the aggregate-demand curve
B) monetary policy should actively be used to stabilise the economy
C) fiscal policy should actively be used to stabilise the economy
D) all of the above
Q2) Any change in government spending has a multiplier effect on the level of economic activity.
A)True
B)False
Q3) In the long run, the level of output is:
A) determined by the quantity of goods and services demanded
B) determined by the quantity and productivity of resources
C) determined by the level of interest rates
D) none of the above
Q4) When the economy goes into a recession, the amount of taxes collected by the government falls automatically. Why?
Q5) Personal income tax and government outlays act as automatic stabilisers.
A)True B)False
Q6) Define expansionary and contractionary fiscal policy, giving examples of each. Page 36
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Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) The Phillips Curve is a short-run positive relationship between inflation and unemployment.
A)True
B)False
Q2) If the sacrifice ratio is 5 per cent, reducing the inflation rate from 10 per cent to 5 per cent would require sacrificing _____ per cent of annual output.
A) 5
B) 10
C) 20
D) 25
Q3) If a hurricane hit an oil refinery and drove up the oil price, what would be the effect on the short-run trade-off between inflation and unemployment?
Q4) TThe increase in the price of oil in 2010 could be attributed to:
A) speculation over the levels of global reserves
B) reduction in supply of oil
C) increase in the costs of drilling
D) all of the above
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Economies can be left to find their own solution.
A)True
B)False
Q2) Which of the following is the benefit of reducing inflation to zero?
A) Eliminating shoe leather costs
B) Eliminating menu costs
C) Eliminating the confusion and inconvenience resulting from a changing unit of account
D) All of the above
Q3) A nation's saving rate is a key determinant of its long-run economic prosperity.
A)True
B)False
Q4) If the economy goes into a recession, then automatic stabilisers are likely to lead to an increase in the budget deficit. Why might such a deficit be beneficial?
Q5) Fiscal policy works with a lag because of the long political process that governs changes in spending and tax
A)True
B)False
Q6) What are the costs of inflation for society?
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