Foundations of Macroeconomics Chapter Exam Questions
Course Introduction
Foundations of Macroeconomics introduces students to the key principles and analytical tools used to understand the functioning of the overall economy. Topics include the measurement of national income, inflation, and unemployment; the roles of government fiscal and monetary policy; aggregate demand and supply; economic growth; and international trade and finance. By examining how economies operate at a large scale, students will develop a framework for analyzing contemporary economic issues and evaluating policy decisions intended to foster economic stability and growth.
Recommended Textbook Principles of Macroeconomics 8th Edition by N.
Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Q1) In most societies,resources are allocated by A)a single central planner.
B)a small number of central planners.
C)those firms that use resources to provide goods and services.
D)the combined actions of millions of households and firms.
Answer: D
Q2) Fundamentally,economics deals with A)scarcity.
B)money.
C)poverty.
D)banking.
Answer: A
Q3) In the broadest sense,economics is the study of A)production methods.
B)how society manages its scarce resources.
C)how households decide who performs which tasks.
D)the interaction of business and government.
Answer: B
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Chapter 1: Ten Principles of Economics: How People Make Decisions
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Q1) For which of the following individuals would the opportunity cost of going to college be highest?
A)a promising young mathematician who will command a high salary once she earns her college degree
B)a student with average grades who has never held a job
C)a famous,highly-paid actor who wants to take time away from show business to finish college and earn a degree
D)a student who is the best player on his college basketball team,but who lacks the skills necessary to play professional basketball
Answer: C
Q2) It costs a company $35,000 to produce 500 graphing calculators.The company's cost will be $35,080 if it produces an additional graphing calculator.If the company produces 501 graphing calculators then
A)its average cost is greater than its marginal cost.
B)its average cost and its marginal cost are equal.
C)its average cost is less than its marginal cost.
D)This cannot be determined from the information given.
Answer: C
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Chapter 1: Ten Principles of Economics: How People Interact
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Q1) To say that government intervenes in the economy to promote equality is to say that government is aiming to
A)create a more fair distribution of income.
B)change the ingredients that are used to "bake" the economic pie.
C)enlarge the economic pie.
D)All of the above are correct.
Answer: A
Q2) Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person.Which country can benefit?
A)only the one with a low level of output per person.
B)only the one with a high level of output per person.
C)both
D)neither
Answer: C
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Chapter 1: Ten Principles of Economics: How the Economy
As a Whole Works
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Q1) In response to the deep economic downturn in the US in 2008 and 2009,the US
A)reduced taxes.
B)increased government spending.
C)increased the supply of money.
D)All of the above are correct.
Q2) The increase in living standards of American workers over the past century is primarily due to
A)the success of labor unions.
B)minimum-wage laws.
C)improvements in productivity.
D)None of the above are correct.
Q3) During the early 1920s in Germany,prices
A)doubled annually.
B)doubled monthly.
C)tripled monthly.
D)tripled annually.
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Chapter 1: Ten Principles of Economics: Part A
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Q1) Economists use the term ------ to refer to the ability of a single person (or a small group)to have a substantial influence on market prices.
Q2) Tracy quits her job,which pays $25,000 a year,to finish her college degree.Her annual college expenses are $12,000 for tuition and fees and $1,000 for books.What is her opportunity cost of attending college for the year?
Q3) Economists use the term ------ to refer to a situation in which the market on its own fails to produce an efficient allocation of resources.
Q4) Explain how government policies that redistribute income from the rich to the poor might reduce efficiency.
Q5) Refer to Scenario 1-6.What is the company's marginal cost?
Q6) Refer to Scenario 1-1.What is your opportunity cost of studying economics?
Q7) Rational people make decisions "at the margin" by comparing ------.
Q8) What does the "invisible hand" refers to?
Q9) Debbie quits her job,which pays $30,000 a year,to finish her college degree.Her annual college expenses are $10,000 for tuition,$2,000 for books,and $700 for food.What is her opportunity cost of attending college for the year?
Q10) What are the two reasons for the government to intervene in a market?
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Chapter 1: Ten Principles of Economics: Part B
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Q1) In the short-run,society faces a tradeoff between inflation and unemployment.
A)True
B)False
Q2) Inflation measures the increase in the quantity of goods and services produced from each hour of a worker's time.
A)True
B)False
Q3) The opportunity cost of working out for one hour is the value of the next-best activity that you could have done in that hour.
A)True
B)False
Q4) Market power and externalities are two possible causes of market failure. A)True B)False
Q5) Government policies that improve equality usually increase efficiency at the same time.
A)True B)False
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Chapter 2: Thinking Like an Economist
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Q1) Studying which of the following is helpful in learning to think like an economist?
A)theory.
B)case studies.
C)examples of economics in the news.
D)all of the above.
Q2) The language of economics is
A)needlessly arcane.
B)valuable because it provides a new and useful way of learning about the world.
C)easy to learn within a day.
D)unnecessary to learn for a thorough understanding of economics.
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Chapter 2: Thinking Like an Economist: The Economist As Scientist
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Q1) Refer to Figure 2-9,Panel (a).The opportunity cost of one cup of coffee is highest when the economy produces
A)0 cups of coffee.
B)2 cups of coffee.
C)4 cups of coffee.
D)6 cups of coffee.
Q2) A certain production possibilities frontier shows production possibilities for two goods,jewelry and clothing.Which of the following concepts cannot be illustrated by this model?
A)the flow of dollars between sellers of jewelry and clothing and buyers of jewelry and clothing
B)the tradeoff between production of jewelry and production of clothing
C)the opportunity cost of clothing in terms of jewelry
D)the effect of economic growth on production possibilities involving jewelry and clothing
Q3) Economists believe that production possibilities frontiers
A)never have a bowed shape.
B)rarely have a bowed shape.
C)often have a bowed shape.
D)always have a bowed shape.
Page 10
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Chapter 2: Thinking Like an Economist: The Economist As Policy Adviser
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Q1) Normative statements are
A)prescriptive,whereas positive statements are descriptive.
B)descriptive,whereas positive statements are prescriptive.
C)backward-looking,whereas positive statements are forward-looking.
D)forward-looking,whereas positive statements are backward-looking.
Q2) One way to characterize the difference between positive statements and normative statements is as follows:
A)Positive statements tend to reflect optimism about the economy and its future,whereas normative statements tend to reflect pessimism about the economy and its future.
B)Positive statements offer descriptions of the way things are,whereas normative statements offer opinions on how things ought to be.
C)Positive statements involve advice on policy matters,whereas normative statements are supported by scientific theory and observation.
D)Economists outside of government tend to make normative statements,whereas government-employed economists tend to make positive statements.
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Chapter 2: Thinking Like an Economist: Why Economists
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Q1) A survey of professional economists revealed that more than three-fourths of them agreed with fourteen economic propositions.Which of the following is not one of those propositions?
A)The United States should not restrict employers from outsourcing work to foreign countries.
B)The United States should withdraw from the North American Free Trade Agreement (NAFTA).
C)The United States should eliminate agricultural subsidies.
D)Local and state governments should eliminate subsidies to professional sports franchises.
Q2) A survey of professional economists revealed that more than three-fourths of them agreed with a number of statements,including which of the following?
A)Tariffs and import quotas usually reduce general economic welfare.
B)A large federal budget deficit has an adverse effect on the economy.
C)Minimum wage increases unemployment among young and unskilled workers.
D)All of the above are correct.
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Q1) According to economist John Maynard Keynes,a great economist must also be a(n)
A)mathematician.
B)historian.
C)philosopher.
D)All of the above are correct.
Q2) How did the influential economist John Maynard Keynes explain his remark that though economics is an easy subject compared with the higher branches of philosophy or pure science,it is a subject at which few excel?
A)Most people who study economics are not very bright.
B)Good economists must possess a rare combination of gifts.
C)Economics is quite boring;hence,people tend to lose interest in it before mastering it.
D)Good thinkers become frustrated with economics because it does not make use of the scientific method.
Q3) John Maynard Keynes referred to economics as an easy subject,
A)at which very few excel.
B)but not as easy as philosophy or the pure sciences.
C)which very few can enjoy.
D)which deals primarily with common sense.
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Chapter 2: Thinking Like an Economist: Graphing a Brief Review
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Q1) A demand curve displaying the relationship between the price of cars and the quantity demanded of cars should have a slope that is
A)less than 0.
B)between zero and 1.
C)between one and infinity.
D)undefined.
Q2) Which of the following is not correct?
A)When developing economic theories,graphs offer a way to visually express ideas that might be less clear if described with equations or words.
B)Graphs are one way of expressing the relationships among variables.
C)When studying the relationship between two economic variables,graphs allow economists to draw indisputable conclusions about causes and effects.
D)When analyzing economic data,graphs provide a powerful way of finding and interpreting patterns.
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Chapter 2: Thinking Like an Economist: Part A
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Q1) When economists disagree about whether the government should tax a household's income or its consumption,they are expressing a difference in
Q2) Is the following a positive or normative statement? The federal minimum wage is lower than many state minimum wages.
Q3) Refer to Figure 2-3.What do the outer arrows represent in the figure?
Q4) What you must give up to get something else is called the
Q5) Since 1946,the president of the United States has received guidance from a group comprised of three members and a staff of a few dozen economists known as the
Q6) Refer to Figure 2-3.What do the inner arrows represent in the figure?
Q7) Refer to Figure 2-22.What are the coordinates of point C?
Q8) Refer to Figure 2-3.What are two elements not included in this figure that could be included in a more complex model?
Q9) Who would be more likely to study the effects of rent control on housing in New York City,a macroeconomist or a microeconomist?
Q10) Who would be more likely to study the inflation rate in the United States,a macroeconomist or a microeconomist?
Q11) Refer to Figure 2-22.What is the x-coordinate of point R?
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Chapter 2: Thinking Like an Economist: Part B
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Q1) Normative statements describe how the world is,while positive statements prescribe how the world should be.
A)True
B)False
Q2) Economists try to address their subject with a scientist's objectivity.
A)True
B)False
Q3) While the scientific method is applicable to studying natural sciences,it is not applicable to studying a nation's economy.
A)True
B)False
Q4) The scientific method can be applied to the study of economics. A)True
B)False
Q5) Refer to Figure 2-14.It is possible for this economy to produce 75 doghouses. A)True
B)False
Q6) Macroeconomics is the study of economy-wide phenomena. A)True
B)False
Page 16
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Chapter 3: Interdependence and the Gains From Trade
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Q1) People who provide you with goods and services
A)are acting out of generosity.
B)do so because they get something in return.
C)have chosen not to become interdependent.
D)are required to do so by the government.
Q2) When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all
A)rely upon the government to provide us with the basic necessities of life.
B)rely upon one another for the goods and services we consume.
C)have similar tastes and abilities.
D)are concerned about one another's well-being.
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Chapter 3: Interdependence and the Gains From Trade: A Parable for
the Modern Economy
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Q1) For a self-sufficient producer,the production possibilities frontier
A)is the same as the consumption possibilities frontier.
B)is greater than the consumption possibilities frontier.
C)is less than the consumption possibilities frontier.
D)is always a straight line.
Q2) Refer to Figure 3-3.If the production possibilities frontiers shown are each for one day of production,then which of the following combinations of tacos and burritos could Arturo and Dina together not produce in a given day?
A)200 tacos and 400 burritos
B)300 tacos and 350 burritos
C)400 tacos and 300 burritos
D)600 tacos and 250 burritos
Q3) Which of the following is not a reason people choose to depend on others for goods and services?
A)to improve their lives
B)to allow them to enjoy a greater variety of goods and services
C)to consume more of each good without working any more hours
D)to allow people to produce outside their production possibilities frontiers
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Both Dave and Caroline produce sweaters and socks.If Dave's opportunity cost of 1 sweater is 3 socks and Caroline's opportunity cost of 1 sweater is 5 socks,then
A)Dave has a comparative advantage in the production of sweaters.
B)Caroline has a comparative advantage in the production of sweaters.
C)Dave has a comparative advantage in the production of socks.
D)Dave has a comparative advantage in the production of both sweaters and socks.
Q2) Suppose Jim and Tom can both produce baseball bats.If Jim's opportunity cost of producing baseball bats is lower than Tom's opportunity cost of producing baseball bats,then
A)Tom must have an absolute advantage in the production of baseball bats.
B)Jim must have an absolute advantage in the production of baseball bats.
C)Tom has a comparative advantage in the production of baseball bats.
D)Jim has a comparative advantage in the production of baseball bats.
Q3) Refer to Figure 3-15.The opportunity cost of 1 novel for Perry is
A)1/6 poem.
B)2 poems.
C)6 poems.
D)12 poems.
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Chapter 3: Interdependence and the Gains From Trade:
Applications of Comparative Advantage
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Q1) Serena Williams should probably not mow her own lawn because
A)her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her.
B)she has a comparative advantage in mowing her lawn relative to a landscaping service.
C)she has an absolute advantage in mowing her lawn relative to a landscaping service.
D)she might sprain her ankle.
Q2) Goods produced abroad and sold domestically are called A)exports.
B)imports.
C)exchange rates.
D)opportunity costs.
Q3) When a country has a comparative advantage in producing a certain good,
A)the country should import that good.
B)the country should produce just enough of that good for its own consumption.
C)the country's opportunity cost of that good is high relative to other countries' opportunity costs of that same good.
D)None of the above is correct.
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Which of the following is not an example of the principle that trade can make everyone better off?
A)Americans buy tube socks from China.
B)Residents of Maine drink orange juice from Florida.
C)A homeowner hires the kid next door to mow the lawn.
D)All of the above are examples of the principle that trade can make everyone better off.
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Julia can fix a meal in 1 hour,and her opportunity cost of one hour is $50.Jacque can fix the same kind of meal in 2 hours,and his opportunity cost of one hour is $20.Will both Julia and Jacque be better off if she pays him $45 per meal to fix her meals? Explain.
Q2) Refer to Figure 3-26.Who has a comparative advantage in making muffins?
Q3) Under what conditions is an economy's production possibilities frontier also its consumption possibilities frontier?
Q4) Frank can make 20 hot dogs an hour or 10 pints of potato salad an hour.Earnest can make 30 hot dogs an hour or 20 pints of potato salad an hour.Who has the comparative advantage making hot dogs and who has the comparative advantage making potato salad?
Q5) Economists use the term ------ to refer to the ability to produce a good using fewer inputs than another producer.
Q6) Refer to Figure 3-26.What is Mary's opportunity cost of one muffin?
Q7) Refer to Figure 3-26.What is Mary's opportunity cost of one cookie?
Q8) The gains from specialization and trade are based on ------ advantage.
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Q9) Refer to Scenario 3-2.Which country,if either,has a comparative advantage producing broccoli? Defend your answer using the numbers given.
Chapter 3: Interdependence and the Gains From Trade:
Part B
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Q1) Opportunity cost measures the trade-off between two goods that each producer faces.
A)True
B)False
Q2) Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.
A)True
B)False
Q3) Ellie and Brendan both produce apple pies and vanilla ice cream.If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream,Ellie has a comparative advantage in the production of ice cream.
A)True
B)False
Q4) Unless two people who are producing two goods have exactly the same opportunity costs,then one person will have a comparative advantage in one good,and the other person will have a comparative advantage in the other good.
A)True
B)False
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Chapter 4: The Market Forces of Supply and Demand
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Q1) The two words economists use most often are
A)inflation and trade.
B)supply and demand.
C)competition and prices.
D)markets and equilibrium.
Q2) The two words most often used by economists are
A)prices and quantities.
B)resources and allocation.
C)supply and demand.
D)efficiency and equity.
Q3) In a market economy,supply and demand are important because they
A)are direct policy tools used by government agencies to regulate the economy.
B)illustrate when an market is in equilibrium,but they are not helpful when a market is out of equilibrium.
C)can be used to predict the impact on the economy of various events and policies.
D)All of the above are correct.
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Chapter 4: The Market Forces of Supply and
Demand:Markets and Competition
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Q1) Assume the market for tennis balls is perfectly competitive.When one tennis ball producer exits the market,
A)the price of tennis balls increases.
B)the price of tennis balls decreases.
C)the price of tennis balls does not change.
D)there is no longer a market for tennis balls.
Q2) The demand for a good or service is determined by A)those who buy the good or service.
B)the government.
C)those who sell the good or service.
D)both those who buy and those who sell the good or service.
Q3) The supply of a good or service is determined by A)those who buy the good or service.
B)the government.
C)those who sell the good or service.
D)both those who buy and those who sell the good or service.
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Chapter 4: The Market Forces of Supply and Demand: Demand
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Q1) A decrease in demand is represented by a
A)movement downward and to the right along a demand curve.
B)movement upward and to the left along a demand curve.
C)rightward shift of a demand curve.
D)leftward shift of a demand curve.
Q2) Kara receives a promotion at work,which increases her income.We would expect Kara's demand for
A)each good she purchases to remain unchanged.
B)normal goods to decrease.
C)substitute goods to increase.
D)inferior goods to decrease.
Q3) Refer to Figure 4-5.Which of the following would cause the demand curve to shift from Demand C to Demand A in the market for tennis balls in the United States?
A)an increase in the price of tennis balls
B)a decrease in the price of tennis racquets
C)an expectation by buyers that their incomes will increase in the very near future
D)a decrease in the number of people in the United States under age 70
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Chapter 4: The Market Forces of Supply and Demand: Supply
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Q1) A rightward shift of a supply curve is called a(n)
A)increase in supply.
B)decrease in supply.
C)decrease in quantity supplied.
D)increase in quantity supplied.
Q2) An increase in which of the following would shift the supply curve for gasoline to the right?
A)demand for gasoline
B)price of gasoline
C)number of producers of gasoline
D)price of oil,an input into the production of gasoline
Q3) Refer to Figure 4-12.If these are the only two sellers in the market,then the market quantity supplied at a price of $4 is
A)6 units.
B)7 units.
C)8 units.
D)14 units.
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Chapter 4: The Market Forces of Supply and Demand:
Supply and Demand Together
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Q1) If the demand for a product increases,then we would expect equilibrium price
A)to increase and equilibrium quantity to decrease.
B)to decrease and equilibrium quantity to increase.
C)and equilibrium quantity both to increase.
D)and equilibrium quantity both to decrease.
Q2) Which of the following events must cause equilibrium quantity to fall?
A)demand increases and supply decreases
B)demand and supply both decrease
C)demand decreases and supply increases
D)demand and supply both increase
Q3) What would happen to the equilibrium price and quantity of lattés if the cost to produce steamed milk,which is used to make lattés,increased,and scientists discovered that lattés cause heart attacks?
A)Both the equilibrium price and quantity would increase.
B)Both the equilibrium price and quantity would decrease.
C)The equilibrium price would decrease,and the effect on equilibrium quantity would be ambiguous.
D)The equilibrium quantity would decrease,and the effect on equilibrium price would be ambiguous.
Page 28
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Chapter 4: The Market Forces of Supply and
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Q1) In any economic system,scarce resources have to be allocated among competing uses.Market economies harness the forces of
A)government to allocate scarce resources.
B)supply and demand to allocate scarce resources.
C)credit cards to allocate scarce resources.
D)nature to allocate scarce resources.
Q2) Suppose the United States had a short-term shortage of farmers.Which mechanisms would adjust to remove the shortage?
A)The government would provide tax incentives to encourage people to become farmers.
B)The government would subsidize the production of food.
C)The prices of food and the wages of farmers would adjust.
D)There are no mechanisms to remove the shortage.
Q3) The signals that guide the allocation of resources in a market economy are A)surpluses and shortages.
B)quantities.
C)government policies. D)prices.
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) Refer to Figure 4-30.In this market for iPhones,the technology improves while all other factors remain constant.Explain the change(s)in the equilibrium price and quantity.
Q2) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if the price of this good increases.
Q3) Refer to Figure 4-31.What are the values of the equilibrium price and quantity?
Q4) If the supply of tennis balls,a complement to tennis racquets,decreases,what will happen to the equilibrium price of tennis balls and to the equilibrium price of tennis racquets?
Q5) If income rises in the market for an inferior good,will the demand curve for the inferior good shift to the right or to the left?
Q6) Suppose researchers discover a new,lower cost method of producing calculators.As a result,will the supply of calculators increase or decrease?
Q7) Refer to Figure 4-31.At a price of $6,is there a shortage or surplus,and how large is the shortage/surplus?
Q8) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if the price of a substitute for this good becomes more expensive.
Page 30
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Chapter 4: The Market Forces of Supply and Demand: Part
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Sample Questions
Q1) A decrease in supply will cause an increase in price,which will cause a decrease in quantity demanded.
A)True
B)False
Q2) If something happens to alter the quantity supplied at any given price,then we move along the fixed supply curve to a new quantity supplied.
A)True
B)False
Q3) When the market price is below the equilibrium price,suppliers are unable to sell all they want to sell.
A)True
B)False
Q4) A decrease in demand will cause a decrease in price,which will cause a decrease in supply.
A)True
B)False
Q5) Price will rise to eliminate a surplus.
A)True
B)False
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Chapter 5: Elasticity and Its Applications
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Q1) When studying how some event or policy affects a market,elasticity provides information on the
A)equity effects on the market by identifying the winners and losers.
B)magnitude of the effect on the market.
C)speed of adjustment of the market in response to the event or policy.
D)number of market participants who are directly affected by the event or policy.
Q2) In general,elasticity is a measure of
A)the extent to which advances in technology are adopted by producers.
B)the extent to which a market is competitive.
C)how firms' profits respond to changes in market prices.
D)how much buyers and sellers respond to changes in market conditions.
Q3) When studying how some event or policy affects a market,elasticity provides information on the
A)change in the costs of production.
B)tradeoff between equality and efficiency.
C)effect on the budget deficit or surplus.
D)direction and magnitude of the effect.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Demand
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Sample Questions
Q1) If the price elasticity of demand for a good is 2.0,then a 10 percent increase in price results in a
A)0.2 percent decrease in the quantity demanded.
B)5 percent decrease in the quantity demanded.
C)20 percent decrease in the quantity demanded.
D)40 percent decrease in the quantity demanded.
Q2) Which of the following should be held constant when calculating an income elasticity of demand?
A)the price of the good B)prices of related goods
C)tastes
D)All of the above should be held constant.
Q3) The smaller the price elasticity of demand,the
A)more likely the product is a luxury.
B)smaller the responsiveness of quantity demanded to a change in price.
C)more substitutes the product has.
D)greater the responsiveness of quantity demanded to a change in price.
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Page 33
Chapter 5: Elasticity and Its Applications: The Elasticity of Supply
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Q1) Generally,a firm is more willing and able to increase quantity supplied in response to a price change when
A)the relevant time period is short rather than long.
B)the relevant time period is long rather than short.
C)supply is inelastic.
D)the firm is experiencing capacity problems.
Q2) A key determinant of the price elasticity of supply is the A)time horizon.
B)income of consumers.
C)price elasticity of demand.
D)importance of the good in a consumer's budget.
Q3) A key determinant of the price elasticity of supply is
A)the ability of sellers to change the price of the good they produce.
B)the ability of sellers to change the amount of the good they produce.
C)how responsive buyers are to changes in sellers' prices.
D)the slope of the demand curve.
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Chapter
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Q1) Suppose that corn farmers want to increase their total revenue.Knowing that the demand for corn is inelastic,corn farmers should
A)plant more corn so that they would be able to sell more each year.
B)increase spending on fertilizer in an attempt to produce more corn on the acres they farm.
C)reduce the number of acres on which they plant corn.
D)contribute to a fund that promotes technological advances in corn production.
Q2) Refer to Scenario 5-5.What would we expect to observe in the caviar market?
A)Equilibrium prices and quantities will increase.
B)Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic.
C)Total revenues to caviar firms will increase if the demand for caviar is inelastic.
D)All of the above are correct.
Q3) Refer to Scenario 5-4.The change in equilibrium price will be
A)greater in the milk market than in the beef market.
B)greater in the beef market than in the milk market.
C)the same in the milk and beef markets.
D)Any of the above could be correct.
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Chapter 5: Elasticity and Its Applications: Part A
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Q1) If a supply curve is perfectly horizontal,what is the value of the price elasticity of supply?
Q2) Adam and Barb go to the store to purchase some lottery tickets.Without looking at the price,Adam says "I'll take 10 lottery tickets," and Barb says "I'll take $10 worth of lottery tickets." What is each person's price elasticity of demand for lottery tickets?
Q3) If the income elasticity of demand for a good is 0.56,is the good a normal or inferior good?
Q4) Suppose a market has the demand function Q<sup>d</sup>=20-0.5P.At what price will total revenue be maximized?
Q5) If the income elasticity of demand for a good is -1.40,is the good a normal or inferior good?
Q6) The measure of how willing consumers are to buy less of a good as its price rises is called
Q7) When the Shaffers had a monthly income of $4,000,they usually ate out 8 times a month.Now that the couple makes $4,500 a month,they eat out 10 times a month.Compute the couple's income elasticity of demand using the midpoint method.Explain your answer.Is a restaurant meal a normal or inferior good to the couple?
Page 36
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Chapter 5: Elasticity and Its Applications: Part B
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Sample Questions
Q1) The cross-price elasticity of garlic salt and onion salt is -2,which indicates that garlic salt and onion salt are substitutes.
A)True
B)False
Q2) Along the elastic portion of a linear demand curve,total revenue rises as price rises.
A)True
B)False
Q3) Normal goods have negative income elasticities of demand,while inferior goods have positive income elasticities of demand.
A)True
B)False
Q4) If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%,then the price must have decreased by 3%.
A)True
B)False
Q5) If the price elasticity of demand is equal to 0,then demand is unit elastic.
A)True
B)False
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Chapter 6: Supply Demand and Government Policies
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Q1) Policymakers use taxes
A)to raise revenue for public purposes but not to influence market outcomes.
B)both to raise revenue for public purposes and to influence market outcomes.
C)when they realize that price controls alone are insufficient to correct market inequities.
D)only in those markets in which the burden of the tax falls clearly on the sellers.
Q2) Which of the following is not correct?
A)Economists have two roles: scientist and policy adviser.
B)As scientists,economists develop and test theories to explain the world around them.
C)Economic policies rarely have effects that their architects did not intend or anticipate.
D)As policy advisers,economists use their theories to help change the world for the better.
Q3) Which of the following is not an example of a public policy?
A)rent-control laws
B)minimum-wage laws
C)taxes
D)equilibrium laws
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Chapter 6: Supply Demand and Government Policies:
Controls on Prices
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Sample Questions
Q1) Minimum-wage laws dictate the
A)average price employers must pay for labor.
B)highest price employers may pay for labor.
C)lowest price employers may pay for labor.
D)the highest and lowest prices employers may pay for labor.
Q2) If the government removes a binding price ceiling from a market,then the price paid by buyers will
A)increase,and the quantity sold in the market will increase.
B)increase,and the quantity sold in the market will decrease.
C)decrease,and the quantity sold in the market will increase.
D)decrease,and the quantity sold in the market will decrease.
Q3) An outcome that can result from either a price ceiling or a price floor is
A)a surplus in the market.
B)a shortage in the market.
C)a nonbinding price control.
D)long lines of frustrated buyers.
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Chapter 6: Supply Demand and Government Policies: Taxes
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Sample Questions
Q1) When a tax is levied on buyers of tea,
A)buyers of tea and sellers of tea both are made worse off.
B)buyers of tea are made worse off,and the well-being of sellers is unaffected.
C)buyers of tea are made worse off,and sellers of tea are made better off.
D)the well-being of both buyers of tea and sellers of tea is unaffected.
Q2) If a tax is levied on the sellers of a product,then there will be a(n)
A)downward shift of the demand curve.
B)upward shift of the demand curve.
C)decrease in quantity demanded.
D)increase in quantity demanded.
Q3) Refer to Figure 6-23.Which of the following is correct?
A)The entire burden of the tax falls on sellers,and none of the burden of the tax falls on buyers.
B)One-third of the burden of the tax falls on buyers,and two-thirds of the burden of the tax falls on sellers.
C)One-half of the burden of the tax falls on buyers,and one-half of the burden of the tax falls on sellers.
D)Two-thirds of the burden of the tax falls on buyers,and one-third of the burden of the tax falls on sellers.
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Page 40
Chapter 6: Supply Demand and Government Policies: Part
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Q1) Refer to Figure 6-34.If the government imposes a tax of $6 per unit in this market,how much is the burden of the tax on the sellers in this market?
Q2) Refer to Figure 6-32.If the government set a price floor at $70,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q3) Define a price floor.
Q4) If the supply curve is more price elastic than the demand curve in a particular market,will the buyers or the sellers bear a larger burden of a per-unit tax imposed on the market?
Q5) Refer to Scenario 6-1.What are the equilibrium price and quantity in the market for good X?
Q6) Refer to Figure 6-31.If the government set a price floor at $17,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q7) Refer to Figure 6-34.If the government imposes a tax of $6 per unit in this market,what price will buyers pay per unit after the tax is imposed?
Q8) Refer to Figure 6-32.If the government set a price ceiling at $80,would there be a shortage or surplus,and how large would be the shortage/surplus?
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Chapter 6: Supply Demand and Government Policies: Part
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Q1) The term tax incidence refers to how the burden of a tax is distributed among the various people who make up the economy.
A)True
B)False
Q2) If a price ceiling of $1.50 per gallon is imposed on gasoline,and the market equilibrium price is $2,then the price ceiling is a binding constraint on the market.
A)True
B)False
Q3) A tax on sellers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tax was levied.
A)True
B)False
Q4) A tax on sellers shifts the supply curve but not the demand curve.
A)True
B)False
Q5) A binding minimum wage creates a shortage of labor.
A)True
B)False
42
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Chapter 7: Consumers Producers and the Efficiency of Markets
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Q1) Welfare economics explains which of the following in the market for televisions?
A)The government sets the price of televisions;firms respond to the price by producing a specific level of output.
B)The government sets the quantity of televisions;firms respond to the quantity by charging a specific price.
C)The market equilibrium price for televisions maximizes the total welfare of television buyers and sellers.
D)The market equilibrium price for televisions maximizes consumer welfare and minimizes producer profit.
Q2) Welfare economics is the study of
A)the well-being of less fortunate people.
B)welfare programs in the United States.
C)how the allocation of resources affects economic well-being.
D)the effect of income redistribution on work effort.
Q3) An example of normative analysis is studying
A)how market forces produce equilibrium.
B)surpluses and shortages.
C)whether equilibrium outcomes are socially desirable.
D)income distributions.
Page 43
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Consumer Surplus
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Sample Questions
Q1) Dallas buys strawberries,and he would be willing to pay more than he now pays.Suppose that Dallas has a change in his tastes such that he values strawberries more than before.If the market price is the same as before,then
A)Dallas's consumer surplus would be unaffected.
B)Dallas's consumer surplus would increase.
C)Dallas's consumer surplus would decrease.
D)Dallas would be wise to buy fewer strawberries than before.
Q2) If the cost of producing sofas decreases,then consumer surplus in the sofa market will
A)increase.
B)decrease.
C)remain constant.
D)increase for some buyers and decrease for other buyers.
Q3) Brock is willing to pay $400 for a new suit,but he is able to buy the suit for $250.His consumer surplus is
A)$650.
B)$150.
C)$250.
D)$400.
Page 44
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Producer Surplus
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Sample Questions
Q1) The marginal seller is the seller who A)cannot compete with the other sellers in the market. B)would leave the market first if the price were any lower. C)can produce at the lowest cost. D)has the largest producer surplus.
Q2) Refer to Figure 7-16.Suppose the price of the good is $450.Then,on the first unit of the good that is sold,producer surplus is
A)$250,and on the second unit of the good that is sold,producer surplus is $100.
B)$250,and on the second unit of the good that is sold,producer surplus is $150.
C)$350,and on the second unit of the good that is sold,producer surplus is $100.
D)$350,and on the second unit of the good that is sold,producer surplus is $150.
Q3) Refer to Figure 7-10.Which area represents producer surplus when the price is P2?
A)BCG
B)ACH
C)ABGD
D)AHGB
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Page 45
Chapter 7: Consumers Producers and the Efficiency of
Markets: Market Efficiency
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Sample Questions
Q1) Refer to Figure 7-28.At the quantity Q2,the marginal value to buyers
A)and the marginal cost to sellers are both P2.
B)is P2,and the marginal cost to sellers is P3.
C)and the marginal cost to sellers are both P3.
D)is P3,and the marginal cost to sellers is P2.
Q2) Refer to Figure 7-24.At equilibrium,total surplus is A)$36.
B)$54.
C)$18.
D)$108.
Q3) Refer to Figure 7-26.At the equilibrium price,producer surplus is A)$600.
B)$900.
C)$1,200.
D)$1,800.
Q4) Refer to Figure 7-29.Which of the following statements is correct?
A)The market is in equilibrium at Q1.
B)At Q2,the cost to sellers exceeds the value to buyers.
C)At Q4,the value to buyers is less than the cost to sellers.
D)At Q3,the market is producing too much output.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Conclusion Market Efficiency and Market Failure
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Q1) Market power refers to the
A)side effects that may occur in a market.
B)government regulations imposed on the sellers in a market.
C)ability of market participants to influence price.
D)forces of supply and demand in determining equilibrium price.
Q2) Which of the following is not correct?
A)Market power can cause markets to be inefficient.
B)When the decisions of buyers and sellers affect nonparticipants,markets may be inefficient.
C)The tools of welfare economics cannot help economists when markets are inefficient.
D)Externalities can cause markets to be inefficient.
Q3) The decisions of buyers and sellers that affect people who are not participants in the market create
A)market power.
B)externalities.
C)profiteering.
D)market equilibrium.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part A
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Q1) Refer to Figure 7-34.Suppose there is initially a price floor set at $10 in this market.If the government removed the price floor,by how much would total consumer surplus increase?
Q2) Refer to Scenario 7-1.If the market equilibrium price falls from $10 to $5,how much additional consumer surplus do consumers initially in the market at the $10 price receive?
Q3) Given the following two equations:
1)Total Surplus = Consumer Surplus + Producer Surplus
2)Total Surplus = Value to Buyers - Cost to Sellers
Show how equation (1)can be used to derive equation (2).
Q4) Refer to Scenario 7-2.How much is total producer surplus at the equilibrium price in this market?
Q5) Refer to Scenario 7-1.If the market equilibrium price falls from $10 to $5,how much consumer surplus do consumers entering the market after the price drop receive?
Q6) Refer to Figure 7-32.If the government imposed a price floor at $35 in this market,how much is consumer surplus?
Q7) Refer to Scenario 7-2.How much is total surplus at the equilibrium price in this market?
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part B
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Sample Questions
Q1) The lower the price,the lower the producer surplus,all else equal.
A)True
B)False
Q2) The current policy on kidney donation effectively sets a price ceiling of zero.
A)True
B)False
Q3) An increase in price increases consumer surplus.
A)True
B)False
Q4) If the government imposes a binding price floor in a market,then the consumer surplus in that market will decrease.
A)True
B)False
Q5) Producing a soccer ball costs Jake $5.He sells it to Darby for $35.Darby values the soccer ball at $50.For this transaction,the total surplus in the market is $40.
A)True
B)False
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Chapter 8: Application the Cost of Taxation
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Q1) In 1776,the American Revolution was sparked by anger over
A)the extravagant lifestyle of British royalty.
B)the crimes of British soldiers stationed in the American colonies.
C)British taxes imposed on the American colonies.
D)the failure of the British to protect American colonists from attack by hostile Native Americans.
Q2) Anger over British taxes played a significant role in bringing about the A)election of John Adams as the second American president.
B)American Revolution.
C)War of 1812.
D)"no new taxes" clause in the U.S.Constitution.
Q3) To fully understand how taxes affect economic well-being,we must compare the A)consumer surplus to the producer surplus.
B)price paid by buyers to the price received by sellers.
C)reduced welfare of buyers and sellers to the revenue raised by the government.
D)consumer surplus to the deadweight loss.
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Chapter 8: Application the Cost of Taxation: The
Deadweight Loss of Taxation
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Q1) Refer to Figure 8-2.The imposition of the tax causes the price paid by buyers to A)decrease by $2.
B)increase by $3.
C)decrease by $4.
D)increase by $5.
Q2) A tax placed on buyers of tuxedoes shifts the A)demand curve for tuxedoes downward,decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to increase.
B)demand curve for tuxedoes downward,decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to decrease.
C)supply curve for tuxedoes upward,decreasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to increase.
D)supply curve for tuxedoes upward,increasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to decrease.
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Chapter 8: Application the Cost of Taxation: The Determinants of the Deadweight Loss
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Q1) The deadweight loss from a $3 tax will be largest in a market with
A)inelastic supply and elastic demand.
B)inelastic supply and inelastic demand.
C)elastic supply and elastic demand.
D)elastic supply and inelastic demand.
Q2) The amount of deadweight loss from a tax depends upon the A)price elasticity of demand.
B)price elasticity of supply.
C)amount of the tax per unit.
D)All of the above are correct.
Q3) Refer to Figure 8-14.Which of the following combinations will maximize the deadweight loss from a tax?
A)supply 1 and demand 1
B)supply 2 and demand 2
C)supply 1 and demand 2
D)supply 2 and demand 1
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Chapter 8: Application the Cost of Taxation: Deadweight
Loss and Tax Revenue As Taxes Vary
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Q1) Refer to Figure 8-22.Suppose the government changed the per-unit tax from $3.00 to $4.50.Compared to the original tax rate,this higher tax rate would
A)increase tax revenue and increase the deadweight loss from the tax.
B)increase tax revenue and decrease the deadweight loss from the tax.
C)decrease tax revenue and increase the deadweight loss from the tax.
D)decrease tax revenue and decrease the deadweight loss from the tax.
Q2) Refer to Figure 8-21.Suppose the market is represented by Demand 1 and Supply 1.At first the government places a $3 per-unit tax on this good.Then the government decides to raise the tax to $6 per unit.Compared to the original tax rate,the higher tax will
A)increase tax revenue and increase the deadweight loss from the tax.
B)not change tax revenue and increase the deadweight loss from the tax.
C)decrease tax revenue and increase the deadweight loss from the tax.
D)decrease tax revenue and decrease the deadweight loss from the tax.
Q3) The Laffer curve relates
A)the tax rate to tax revenue raised by the tax.
B)the tax rate to the deadweight loss of the tax.
C)the price elasticity of supply to the deadweight loss of the tax.
D)government welfare payments to the birth rate.
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Chapter 8: Application the Cost of Taxation: Conclusion
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Q1) Taxes are costly to market participants because they A)transfer resources from market participants to the government.
B)alter incentives.
C)distort market outcomes.
D)All of the above are correct.
Q2) Taxes are of interest to
A)microeconomists because they consider how to balance equality and efficiency.
B)microeconomists because they consider how best to design a tax system.
C)macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity.
D)All of the above are correct.
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Chapter 8: Application the Cost of Taxation: Part A
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Q1) John has been in the habit of mowing Willa's lawn each week for $20.John's opportunity cost is $15,and Willa would be willing to pay $25 to have her lawn mowed.What is the maximum tax the government can impose on lawn mowing without discouraging John and Willa from continuing their mutually beneficial arrangement?
Q2) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.What price will consumers pay for the good after the tax is imposed?
Q3) Provide several examples of important taxes on labor in the United States.For a typical worker,what is the marginal tax rate on labor income once all the labor taxes are summed?
Q4) Suppose that the market for product X is characterized by a typical,downward-sloping,linear demand curve and a typical,upward-sloping,linear supply curve.If a $2 tax per unit results in a deadweight loss of $200,how large would be the deadweight loss from a $4 tax per unit?
Q5) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How much tax revenue is collected after the tax is imposed?
Q6) Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.How much is the deadweight loss from this tax?
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Chapter 8: Application the Cost of Taxation: Part B
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Sample Questions
Q1) When a tax is imposed,the loss of consumer surplus and producer surplus as a result of the tax exceeds the tax revenue collected by the government.
A)True
B)False
Q2) The more inelastic are demand and supply,the greater is the deadweight loss of a tax.
A)True B)False
Q3) When a tax is imposed on a good,the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.
A)True
B)False
Q4) When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.
A)True B)False
Q5) Taxes on labor tend to increase the number of hours that people choose to work. A)True B)False
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Chapter 9: Application International Trade
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Q1) Which of the following is not an important question for economic policy raised by the experience of the textile industry?
A)How does international trade affect consumer well-being?
B)Who gains and who loses from free trade among countries?
C)How do the gains from trade compare to the losses?
D)Which argument for restricting free trade is politically feasible?
Q2) A logical starting point from which the study of international trade begins is
A)the recognition that not all markets are competitive.
B)the recognition that government intervention in markets sometimes enhances the economic welfare of the society.
C)the principle of absolute advantage.
D)the principle of comparative advantage.
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Chapter 9: Application International Trade: The Determinants of Trade
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Sample Questions
Q1) By comparing the world price of pecans to India's domestic price of pecans,we can determine whether India
A)will export pecans (assuming trade is allowed).
B)will import pecans (assuming trade is allowed).
C)has a comparative advantage in producing pecans.
D)All of the above are correct.
Q2) Assume,for England,that the domestic price of wine without international trade is higher than the world price of wine.This suggests that,in the production of wine,
A)England has a comparative advantage over other countries and England will export wine.
B)England has a comparative advantage over other countries and England will import wine.
C)other countries have a comparative advantage over England and England will export wine.
D)other countries have a comparative advantage over England and England will import wine.
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58
Chapter 9: Application International Trade: The Winners
and Losers From Trade
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Sample Questions
Q1) Suppose Iceland goes from being an isolated country to being an importer of coats.As a result,
A)consumer surplus increases for consumers of coats in Iceland.
B)producer surplus increases for producers of coats in Iceland.
C)total surplus remains unchanged in the coat market in Iceland.
D)it is reasonable to infer that Iceland has a comparative advantage over other countries in coat production.
Q2) Refer to Scenario 9-2.If Boxland prohibits international trade in cardboard,then the equilibrium price of a ton of cardboard is
A)$36 and the equilibrium quantity of cardboard is 74 tons.
B)$44 and the equilibrium quantity of cardboard is 88 tons.
C)$52 and the equilibrium quantity of cardboard is 96 tons.
D)$60 and the equilibrium quantity of cardboard is 100 tons.
Q3) Refer to Figure 9-12.With trade allowed,this country
A)exports 400 units of the good.
B)exports 800 units of the good.
C)imports 400 units of the good.
D)exports 1,600 units of the good.
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Chapter 9: Application International Trade: The Arguments for Restricting Trade
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Sample Questions
Q1) When a country takes a unilateral approach to free trade,it
A)removes trade restrictions on its own.
B)reduces its trade restrictions while other countries do the same.
C)does not remove trade restrictions no matter what other countries do.
D)is willing to trade with multiple countries at once.
Q2) The problem with the protection-as-a-bargaining-chip argument for trade restrictions is
A)if it works consumer surplus will decline.
B)if it works producer surplus falls.
C)if it fails the country faces a choice between two bad options.
D)if it fails total surplus will increase.
Q3) About what percent of total world trade is accounted for by countries that belong to the World Trade Organization?
A)54 percent
B)72 percent
C)89 percent
D)97 percent
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Page 60
Chapter 9: Application International Trade: Conclusion
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Q1) In 2008,the Los Angeles Times asked members of the American public whether free international trade has helped or hurt the economy.Of those surveyed,
A)57 percent said free international trade helped the economy.
B)26 percent said free international trade helped the economy.
C)30 percent said free international trade hurt the economy.
D)16 percent said free international trade hurt the economy.
Q2) Economists view the fact that Florida grows oranges,Texas pumps oil,and California makes wine as
A)confirmation of the virtues of free trade.
B)confirmation of the infant-industry argument.
C)confirmation that free trade agreements are not necessary.
D)confirmation that specialization in absolute advantage works.
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Chapter 9: Application International Trade: Part A
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Sample Questions
Q1) List four benefits of international trade.
Q2) Refer to Figure 9-29.If the country allows free trade,how many units will domestic consumers demand and how many units will domestic producers supply?
Q3) A tax on an imported good is called a ------ .
Q4) Refer to Figure 9-27.If the country allows free trade,will the country import or export this good,and how many units will be imported/exported?
Q5) Refer to Figure 9-29.Suppose the country imposes a $1 per unit tariff.If the country allows trade with a tariff,how much is the deadweight loss caused by the tariff?
Q6) List five arguments given to support trade restrictions.
Q7) Refer to Figure 9-26.Suppose the world price in this market is $7.If the country allows free trade,how much are consumer surplus,producer surplus,and total surplus with trade?
Q8) Refer to Figure 9-29.If the country allows free trade,will the country import or export this good,and how many units will be imported/exported?
Q9) Refer to Figure 9-29.If the country allows free trade,how much are consumer surplus,producer surplus,and total surplus with trade?
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Chapter 9: Application International Trade: Part B
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Q1) The rules established under the General Agreement on Tariffs and Trade (GATT)are enforced by an international body called the World Trade Organization (WTO).
A)True
B)False
Q2) Suppose that Australia imposes a tariff on imported beef.If the increase in producer surplus is $100 million,the increase in tariff revenue is $200 million,and the reduction in consumer surplus is $500 million,the deadweight loss of the tariff is $300 million.
A)True
B)False
Q3) According to the principle of comparative advantage,all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.
A)True B)False
Q4) Trade decisions are based on the principle of absolute advantage. A)True
B)False
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Chapter 10: Measuring a Nations Income
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Q1) Macroeconomists study
A)the decisions of individual households and firms.
B)the interaction between households and firms.
C)economy-wide phenomena.
D)regulations imposed on firms and unions.
Q2) Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?
A)Why do prices in general rise by more in some countries than in others?
B)Why do wages differ across industries?
C)Why do national production and income increase in some periods and not in others?
D)How rapidly is GDP currently increasing?
Q3) Which of the following headlines is more closely related to what microeconomists study than to what macroeconomists study?
A)Unemployment rate falls from 7.5 percent to 7.3 percent.
B)Real GDP falls by 0.4 percent in the third quarter.
C)Inflation was 2.4 percent last year.
D)The price of gasoline rises due to rising oil prices.
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Chapter 10: Measuring a Nations Income: The Economy's
Income and Expenditure
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Q1) According to the circular-flow diagram GDP
A)can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.
B)can be computed as the revenue firms receive from the sales of goods and services but not as the payments they make to factors of production.
C)can be computed as payments firms make to factors of production but not as revenues they receive from the sales of goods and services.
D)cannot be computed as either the revenue firms receive or the payments they make to factors of production.
Q2) Because every transaction has a buyer and a seller,
A)GDP is more closely associated with an economy's income than it is with an economy's expenditure.
B)every transaction contributes equally to an economy's income and to its expenditure.
C)the number of firms must be equal to the number of households in a simple circular-flow diagram.
D)firms' profits are necessarily zero in a simple circular-flow diagram.
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65
Chapter 10: Measuring a Nations Income: The Measurement
of GDP
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117 Verified Questions
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Sample Questions
Q1) Suppose that an economy produces 20,000 units of good A which sells at $3 a unit and 40,000 units of good B which sells at $1 per unit.Production of good A contributes
A)1/3 times as much to GDP as the production of good B.
B)3/2 times as much to GDP as the production of good B.
C)3 times as much to GDP as the production of good B.
D)2/3 times as much to GDP as production of good B.
Q2) Which of the following items is included in U.S.GDP?
A)goods produced by foreign citizens working in the United States
B)the difference in the price of the sale of an existing home and its original purchase price
C)known illegal activities
D)None of the above is included in U.S.GDP.
Q3) Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity.To do this,GDP makes use of A)market prices.
B)statistical estimates of the value of goods and services to consumers.
C)prices based on the assumption that producers make no profits.
D)the maximum amount consumers would be willing to pay.
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Chapter 10: Measuring a Nations Income: The Components of GDP
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Sample Questions
Q1) In the economy of Talikastan in 2015,consumption was $4000,exports were $800,GDP was $7500,imports were $200,and investment was $1000.What were Talikastan's government purchases in 2015?
A)$1200
B)$1900
C)$2500
D)$4500
Q2) An American soldier stationed in North Carolina receives a paycheck from the federal government for $300,which she uses to purchase a $100 MP3 player made in China by a Chinese firm and $200 for fruit and vegetables from a local farmers market.As a result,U.S.GDP increases by
A)$200.
B)$300.
C)$500.
D)$600.
Q3) Net exports equal A)exports plus imports. B)exports minus imports.
C)imports minus exports.
D)GDP minus imports.
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Chapter 10: Measuring a Nations Income: Real Versus Nominal GDP
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Sample Questions
Q1) Real GDP will increase
A)only when prices increase.
B)only when output increases.
C)when prices increase or output increases.
D)All of the above are correct.
Q2) An economy recently reported nominal GDP of 3 trillion euro and a GDP deflator of 200.What was real GDP?
A)1.5 trillion euro,and real GDP is a better gauge of economic activity than nominal GDP.
B)1.5 trillion euro,but nominal GDP is a better gauge of economic activity than real GDP.
C)6 trillion euro,and real GDP is a better gauge of economic activity than nominal GDP.
D)6 trillion euro,but nominal GDP is a better gauge of economic activity than real GDP.
Q3) Real GDP is the yearly production of final goods and services valued at A)current prices.
B)constant prices.
C)expected future prices.
D)the ratio of current prices to constant prices.
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Chapter 10: Measuring a Nations Income: Is GDP a Good Measure of Economic Well-Being
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Sample Questions
Q1) Suppose that twenty-five years ago a country had nominal GDP of $1,000,a GDP deflator of 200,and a population of 100.Today it has nominal GDP of $3,000,a GDP deflator of 400,and population of 150.What happened to the real GDP per person?
A)It more than doubled.
B)It increased,but it less than doubled.
C)It was unchanged.
D)It decreased.
Q2) Which of the following is a true statement?
A)International data leave few doubts that a nation's GDP per person is associated with its citizens' standard of living.
B)Rich and poor countries often have vastly different standards of living,but similar levels of real GDP per person.
C)The value of leisure time is included in the calculation of GDP per person.
D)International data indicate that measures on the distribution of income are closely associated with GDP per person.
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Chapter 10: Measuring a Nations Income: Part A
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Sample Questions
Q1) Last quarter Newton computers produced 3,000 computers.Two thousand of these computers were sold to households,750 were sold to businesses,and 250 were added to Newton's inventory.How many of the computers should have been included in last quarter's GDP?
Q2) Are sales of used goods included in GDP? Explain why or why not.Hint: Remember how GDP is defined.
Q3) A U.S.-owned automobile factory uses $50 million worth of materials produced in the U.S.and $10 million worth of material purchased from foreign countries to produce $100 million of automobiles.$70 million worth of these automobiles are purchased by U.S.consumers,$25 million are sold in foreign countries,and $5 million are added to inventory.How much of this production is included in U.S.GDP? By how much do these transactions alone affect U.S.net exports?
Q4) Calculate the inflation rate for a country where the GDP deflator rises from 120 to 165.
Q5) Calculate GDP for an economy with exports of $5 trillion,investment of $1.5 trillion,consumption spending of $11 trillion,imports of $6 trillion,and government purchases of $3 trillion.
Q6) Nominal GDP is $12 trillion and real GDP is $15 trillion.What is the GDP deflator? Show your work.
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Chapter 10: Measuring a Nations Income: Part B
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Q1) U.S.GDP includes estimates of the value of items that are produced and consumed at home,such as housework and car maintenance.
A)True
B)False
Q2) The overall effect of accounting for purchases of foreign goods in GDP reduces GDP.
A)True
B)False
Q3) An increase in nominal U.S.GDP necessarily implies that the United States is producing a larger output of goods and services.
A)True
B)False
Q4) When an American doctor opens a practice in Bermuda,his production there is part of U.S.GNP.
A)True
B)False
Q5) U.S.GDP was almost $12 trillion in 2015.
A)True
B)False
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Chapter 11: Measuring the Cost of Living
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Q1) The term inflation is used to describe a situation in which
A)the overall level of prices in the economy is increasing.
B)incomes in the economy are increasing.
C)stock-market prices are rising.
D)the economy is growing rapidly.
Q2) When the overall level of prices in the economy is increasing,economists say that the economy is experiencing
A)economic growth.
B)stagflation.
C)inflation.
D)deflation.
Q3) When the consumer price index rises,the typical family
A)has to spend more dollars to maintain the same standard of living.
B)can spend fewer dollars to maintain the same standard of living.
C)finds that its standard of living is not affected.
D)can offset the effects of rising prices by saving more.
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Chapter 11: Measuring the Cost of Living: The Consumer Price Index
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Sample Questions
Q1) In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?
A)When 2006 is chosen as the base year,the consumer price index is 90 in 2007.
B)When 2006 is chosen as the base year,the inflation rate is 150 percent in 2007.
C)When 2007 is chosen as the base year,the consumer price index is 100 in 2006.
D)When 2007 is chosen as the base year,the inflation rate is 50 percent in 2007.
Q2) When the relative price of a good decreases,consumers respond by buying
A)a larger quantity of that good and a larger quantity of substitutes for that good.
B)a larger quantity of that good and a smaller quantity of substitutes for that good.
C)a smaller quantity of that good and a larger quantity of substitutes for that good.
D)a smaller quantity of that good and a smaller quantity of substitutes for that good.
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73
Chapter 11: Measuring the Cost of Living: Correcting
Economic Variables for the Effects of Inflation
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Sample Questions
Q1) If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent,then the inflation rate is
A)-6.5 percent.
B)-1.5 percent.
C)1.5 percent.
D)6.5 percent.
Q2) If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent,then the inflation rate is
A)-2.5 percent.
B)0.45 percent.
C)2.5 percent.
D)13.5 percent.
Q3) When box office receipts are not corrected for inflation,the most popular movie of all time is
A)Star Wars: The Force Awakens.
B)Avatar.
C)Gone With the Wind.
D)The Dark Knight.
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Chapter 11: Measuring the Cost of Living: Part A
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Q1) Refer to Scenario 24-5.Using 2009 as the base year,what is the CPI in each year?
Q2) Suppose that the price of one gallon of milk was $0.25 in 1950,that the CPI in 1950 was 25,and that in 2000 the CPI was 200.What is the price of a 1950 gallon of milk in 2000 dollars?
Q3) Refer to Scenario 24-5.What are the prices of books,CDs,and DVDs in 2009?
Q4) If the inflation rate decreased from 3.33% to 2.90% between October and November,while the nominal interest rate increased from 4.75% to 4.80%,what is the real interest rate in November?
Q5) What do real interest rates account for that nominal interest rates do not?
Q6) Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010.What is the CPI in 2010?
Q7) What measure reflects the overall cost of goods and services produced domestically?
Q8) If the nominal interest rate is 8.3% and the inflation rate is 4.4%,what is the real interest rate?
Q9) Refer to Scenario 24-5.What are the prices of books,CDs,and DVDs in 2010?
Page 75
Q10) Write the formula for computing the cost of a basket of goods in a given period assuming you only have two goods,X and Y,which are bought in quantities Qx and Qy,and sold at prices of Px and Py.
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Chapter 11: Measuring the Cost of Living: Part B
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Sample Questions
Q1) The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.
A)True
B)False
Q2) Archie has a savings account at a bank.If he earns 6 percent interest on his account and if there is deflation,then his purchasing power rises by more than 6 percent over the course of a year.
A)True
B)False
Q3) The U.S.income tax system is completely indexed for inflation. A)True
B)False
Q4) If the consumer price index is 120 in 2009 and 139.2 in 2010,then the rate of inflation for 2010 is 39.2 percent.
A)True B)False
Q5) The CPI is always 1 in the base year. A)True B)False
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Chapter 12: Production and Growth
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Q1) The average income in a rich country,such as the United States or Japan,is more than
A)3 times,but less than 5 times,the average income in a poor country,such as Indonesia or Nigeria.
B)5 times,but less than 10 times,the average income in a poor country,such as Indonesia or Nigeria.
C)10 times,but less than 20 times,the average income in a poor country,such as Indonesia or Nigeria.
D)more than 20 times the average income in a poor country,such as Indonesia or Nigeria.
Q2) Average income has been stagnant for many years in A)Western European counties.
B)some Asian countries like South Korea and Singapore.
C)some Sub-Saharan African countries.
D)All of the above are correct.
Q3) There are large differences in the standard of living
A)across countries,but not within countries.
B)within countries over time,but not across countries.
C)across countries and within countries over time.
D)across countries,but not in technology or healthcare.
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Chapter 12: Production and Growth: Economic Growth
Around the World
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Q1) Which of the following is higher in Mali than in the United Kingdom?
A)Modern sanitation access
B)Income per person
C)Child mortality
D)Percent of the population enrolled in college
Q2) Which of the following countries had the lowest level of real GDP per person in 2014?
A)Bangladesh
B)Indonesia
C)Mexico
D)China
Q3) Which of the following statements is correct? In 2014,
A)real income per person in the U.S.was about 4 times that in China.
B)real income per person in China was more than 2 times that in India.
C)the typical resident of India had less real income than the typical resident of England in 1870.
D)All of the above are correct.
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Chapter 12: Production and Growth: Productivity Its Role and Determinants
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Sample Questions
Q1) After adjusting for inflation,over time the prices of most natural resources have been
A)steady or falling,meaning that our ability to conserve them is growing more rapidly than their supplies are dwindling.
B)steady or falling,meaning that their supplies are dwindling more rapidly than our ability to conserve them is growing.
C)rising,meaning that our ability to conserve them is growing more rapidly than their supplies are dwindling.
D)rising,meaning that their supplies are dwindling more rapidly than our ability to conserve them is growing.
Q2) The production function for Country A exhibits constant returns to scale.Suppose that physical capital per worker,human capital per worker,and natural resources per worker all triple.At the same time,Country A's technological knowledge doubles.Productivity
A)does not change.
B)is now two times larger.
C)is now three times larger.
D)is now six ties larger.
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Chapter 12: Production and Growth: Economic Growth and Public Policy
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Q1) Country A and country B both increase their capital stock by one unit.Output in country A increases by 12 while output in country B increases by 15.Other things the same,diminishing returns implies that country A is
A)richer than Country B.If Country A adds another unit of capital,output will increase by more than 12 units.
B)richer than Country B.If Country A adds another unit of capital,output will increase by less than 12 units.
C)poorer than Country B.If Country A adds another unit of capital,output will increase by more than 12 units.
D)poorer than Country B.If Country A adds another unit of capital,output will increase by less than 12 units.
Q2) In the fourteenth century it is estimated that deaths resulting from the bubonic plague reduced the population by about a third.Assuming diminishing returns,the decrease in population should have
A)increased productivity and real GDP per person.
B)increased productivity but decreased real GDP per person.
C)increased real GDP per person,but decreased productivity.
D)decreased productivity and real GDP per person.
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Chapter 12: Production and Growth: Conclusion the
Importance of Long-Run Growth
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Q1) In order to promote growth in living standards,policymakers must A)protect property rights.
B)maintain political stability.
C)encourage the accumulation of factors of production.
D)All of the above
Q2) Economists differ in their views of the role of the government in promoting economic growth.A controversial idea is that government should A)lend support to the invisible hand by maintaining property rights and political stability. B)lower barriers and impediments to free trade.
C)encourage capital formation.
D)target and subsidize specific industries important for technological progress.
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Chapter 12: Production and Growth: Part A
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Q1) Because of __________, an increase in the saving rate leads to higher growth of income and productivity only for a while.
Q2) "When workers acquire tools,they become more productive." This statement reflects the general fact that ---------- is a determinant of productivity.
Q3) Why is productivity related to the standard of living? In your answer be sure to explain what productivity and the standard of living mean.Make a list of things that determine labor productivity.
Q4) Some data that at first might seem puzzling: The share of GDP devoted to investment was similar for the United States and South Korea from 1960-1991.However,during these same years South Korea had a 6 percent growth rate of average annual income per person,while the United States had only a 2 percent growth rate.If the saving rates were the same,why were the growth rates so different?
Q5) In the production function Y=AF(L,K,H,N),Y represents the quantity of output;L represents the quantity of labor;K represents the quantity of physical capital;and H represents the quantity of human capital.What does N represent?
Q6) What particularly important role do courts play in a market economy?
Q7) Explain the distinction between technological knowledge and human capital. To view all questions and flashcards with answers, click on the resource link above. Page 82
Chapter 12: Production and Growth: Part B
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Q1) Studies confirm that controlling for other variables such as the percentage of GDP devoted to investment,poor countries tend to grow at a faster rate than rich countries.
A)True
B)False
Q2) Over the period 1890-2014,Japan experienced a 2.59 percent average annual growth rate of real GDP per person.
A)True
B)False
Q3) It is possible for a country without a lot of domestic natural resources to have a high standard of living.
A)True
B)False
Q4) The majority of economists believe that future innovations will not be transformational enough to sustain high economic growth rates in the U.S.and western Europe.
A)True
B)False
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83
Chapter 13: Saving Investment and the Financial System
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Q1) When a country saves a larger portion of its GDP than it did before,it will have
A)more capital and higher productivity.
B)more capital and lower productivity.
C)less capital and higher productivity.
D)less capital and lower productivity.
Q2) If you were to start a business delivering documents,you might need to purchase cell phones,bicycles,desks,and chairs.
A)These purchases are called capital investment.If you raise the funds to purchase them from others you are a saver.
B)These purchases are called capital investment.If you raise the funds to purchase them from others you are a borrower.
C)These purchases are called consumption.If you raise the funds to purchase them from others you are a saver.
D)These purchases are called consumption.If you raise the funds to purchase them from others you are a borrower.
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Chapter 13: Saving Investment and the Financial System: Financial Institutions in the US economy
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Sample Questions
Q1) Higher education subsidies in the form of the federal government's student loan program have the potential to
A)reduce the number of people who attend college.
B)reduce the number of universities and colleges in the future.
C)create a credit bubble and debt crisis.
D)reduce the default risk on student loans.
Q2) Atlas Corporation is in sound financial condition.It sells a long-term bond.Which of the following make the interest rate on this bond lower than otherwise?
A)Both Altas' sound finances and the long term of the bond.
B)Atlas' sound finances but not the long term of the bond.
C)The long term of the bond but not Atlas' sound finances.
D)Neither Atlas' sound finances nor the long term of the bond.
Q3) A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent.The price of a share of this stock is
A)$2.05.
B)$5.00.
C)$80.00
D)$50.00.
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Chapter 13: Saving Investment and the Financial System:
Saving and Investment in the National Income Accounts
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Sample Questions
Q1) Which of the following is not always correct for a closed economy?
A)National saving equals private saving plus public saving.
B)Net exports equal zero.
C)Real GDP measures both income and expenditures.
D)Private saving equals investment.
Q2) If an economy is closed and if it has no government,then
A)national saving = 0.
B)national saving = private saving.
C)public saving = investment.
D)gross domestic product = consumption.
Q3) In a small closed economy investment is $50 billion and private saving is $45 billion.What are public saving and national saving?
A)$5 billion and $45 billion
B)-$5 billion and $45 billion
C)$5 billion and $50 billion
D)-$5 billion and $50 billion
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Chapter 13: Saving Investment and the Financial System:
The Market for Loanable Funds
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Q1) If the inflation rate is 2 percent and the real interest rate is 7 percent,then the nominal interest rate is
A)3.5 percent.
B)5 percent.
C)9 percent
D)7 percent.
Q2) A budget deficit
A)changes the supply of loanable funds.
B)changes the demand for loanable funds.
C)changes both the supply of and demand for loanable funds.
D)does not influence the supply of or the demand for loanable funds.
Q3) Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?
A)an increase in the supply of or a decrease in the demand for loanable funds
B)an increase in the supply of or an increase in the demand for loanable funds
C)a decrease in the supply of or a decrease in the demand for loanable funds
D)a decrease in the supply of or an increase in the demand for loanable funds
Q4) When someone borrows to purchase capital goods, he is using someone elses _____ to fund his _____.
Page 87
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Chapter 13: Saving Investment and the Financial System:
Part A
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Q1) In macroeconomics, _____ refers to the purchase of new capital.
Q2) When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.
Q3) When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.
Q4) Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate.Which bond has a higher credit risk?
Q5) If federal tax rates increased,what would happen to the interest rate on municipal bonds?
Q6) The financial system is important because it helps to match one persons _____ with another persons _____.
Q7) In the terminology of macroeconomics,what's the difference between a saver and an investor?
Q8) Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold.What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?
Page 88
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Chapter 13: Saving Investment and the Financial System:
Part B
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Q1) In a closed economy,if taxes fall and consumption rises,then private saving must fall.
A)True
B)False
Q2) Mutual funds are a type of financial intermediary.
A)True
B)False
Q3) If a share of stock in Dell sells for $70,the retained earnings per share are $5,and the dividend per share is $2,then the price-earnings ratio is 10.
A)True
B)False
Q4) The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S.history.
A)True
B)False
Q5) In a closed economy,each unit of output is either consumed by households or invested.
A)True
B)False
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Chapter 14: The Basic Tools of Finance
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Q1) Which of the following statements best describes the economist's view of finance and the financial system?
A)The financial system is very important to the functioning of the economy,and the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions.
B)The financial system,while interesting,is not very important to the functioning of the economy;however,the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions.
C)The financial system is very important to the functioning of the economy;however,the tools of finance are not particularly helpful to us as individuals since we seldom make decisions for which those tools are useful.
D)The field of finance is intimately concerned with the financial system and the tools of finance,and financial economists see great importance in them;however,the "mainstream" economist sees little value in studying financial markets or the tools of finance.
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Chapter 14: The Basic Tools of Finance: Present Value
Measuring the Time Value of Money
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Q1) Assuming the interest rate is 5 percent,which of the following has the greatest present value?
A)$240 paid in three years
B)$225 paid in two years
C)$210 paid in one year
D)$200 today
Q2) If the interest rate is 2.49 percent,then what is the present value of $5,000 to be received in 4 years?
A)$4,531.52
B)$4,878.52
C)$5,124.50
D)$5,516.91
Q3) What is the present value of a payment of $200 to be made one year from today if the interest rate is 10 percent?
A)$180
B)$181.82
C)$220
D)$222.22
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Chapter 14: The Basic Tools of Finance: Managing Risk
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Q1) A risk-averse person has
A)utility and marginal utility curves that slope upward.
B)utility and marginal utility curves that slope downward.
C)a utility curve that slopes down and a marginal utility curve that slopes upward.
D)a utility curve that slopes upward and a marginal utility curve that slopes downward.
Q2) Diversification reduces
A)only market risk.
B)only firm-specific risk.
C)neither market or firm-specific risk.
D)both market and firm-specific risk.
Q3) Refer to Figure 27-6.Point A represents a situation in which
A)all of a person's savings are allocated to a class of safe assets.
B)the person knows with certainty that his or her return will be 3 percent.
C)the standard deviation of the person's portfolio is zero.
D)All of the above are correct.
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Chapter 14: The Basic Tools of Finance: Asset Valuation
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Q1) A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks
A)has a better chance of outperforming the market if stock prices follow a random walk than if they do not follow a random walk.
B)almost always chooses to hold index funds in his or her portfolio rather than actively-managed funds.
C)is spending his or her time wisely if the efficient markets hypothesis is correct.
D)is interested in the likely ability of a corporation to pay dividends in the future.
Q2) No particular stock is a better buy than any other stock if A)stock prices are driven by investors' "animal spirits."
B)the random-walk theory of stock prices is incorrect.
C)the efficient markets hypothesis is correct.
D)actively managed mutual funds always outperform index funds.
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Chapter 14: The Basic Tools of Finance: Conclusion
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Q1) Economists disagree as to whether
A)the stock price of a company should reflect the company's expected profitability.
B)the basic tools of finance reflect valid ideas.
C)stock prices reflect rational estimates of a company's true worth.
D)there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.
Q2) Stock market fluctuations
A)often go hand in hand with fluctuations in the economy more broadly.
B)rarely have anything to do with fluctuations in the economy more broadly.
C)have few,if any,macroeconomic implications.
D)are attributable to the widespread belief that the efficient markets hypothesis is correct.
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94
Chapter 14: The Basic Tools of Finance: Part A
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Sample Questions
Q1) Bill gets medical insurance and then exercises less.Lilly has health concerns and so applies for medical insurance.Identify each of these as moral hazard or adverse selection.
Q2) Demonstrate that whether you would prefer to have $225 today or wait five years for $300 depends on the interest rate.Show your work.
Q3) Suppose your bank account pays a 5% interest rate.You are considering purchasing a share of stock in DH Corporation for $250.The stock will pay you a $10 dividend at the end of years 1,2,3,4,and 5.You expect to be able to sell the stock at the end of year 5 for $300.Is DH a good investment? Provide evidence to support your answer.
Q4) Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.
Q5) According to the efficient markets hypothesis,what changes the price of a share of a corporation's stock? Make up an example.
Q6) A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years.If the interest rate is 7%,should the firm undertake the project? Show evidence to support your answer.
Q7) Refer to Scenario 27-1.Is Lisa risk averse? Explain.
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Chapter 14: The Basic Tools of Finance: Part B
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Sample Questions
Q1) If the interest rate is 8 percent,then the present value of $1,000 to be received in 4 years is $735.03.
A)True
B)False
Q2) Diversification cannot reduce market risk.
A)True
B)False
Q3) The present value of $100 to be paid in two years is less than the present value of $100 to be paid in three years.
A)True
B)False
Q4) Available evidence indicates that stock prices,even if not exactly a random walk,are very close to a random walk.
A)True
B)False
Q5) In the 15 years ending February 2016,most active portfolio managers failed to beat the market.
A)True
B)False
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Chapter 15: Unemployment
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Sample Questions
Q1) Cyclical unemployment is closely associated with
A)long-term economic growth.
B)short-run ups and downs of the economy.
C)fluctuations in the natural rate of unemployment.
D)changes in the minimum wage.
Q2) Cyclical unemployment refers to
A)the portion of unemployment created by job search.
B)short-run fluctuations around the natural rate of unemployment.
C)changes in unemployment due to changes in the natural rate of unemployment.
D)the portion of unemployment created by wages set above the equilibrium level.
Q3) The amount of unemployment varies
A)little over time and across countries.
B)little over time but substantially across countries.
C)substantially over time but little across countries.
D)substantially over time and across countries.
Q4) The deviation of unemployment from its natural rate is called
A)the economic rate of unemployment.
B)cyclical unemployment.
C)frictional unemployment.
D)structural unemployment.
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Chapter 15: Unemployment: Identifying Unemployment
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Sample Questions
Q1) Just after World War II,the labor-force participation rate of women was
A)about 25 percent,and in 2015 it was about 50 percent.
B)about 33 percent,and in 2015 it was about 60 percent.
C)about 50 percent,and in 2015 it was about 70 percent.
D)about 60 percent,and in 2015 it was about 80 percent.
Q2) Suppose that some country had an adult population of about 50 million,a labor-force participation rate of 60 percent,and an unemployment rate of 5 percent.How many people were employed?
A)1.5 million
B)28.5 million
C)30 million
D)47.5 million
Q3) According to 2014 data on the U.S.population,which of the following groups of teenagers (ages 16-19)had the lowest unemployment rate?
A)white males
B)white females
C)black males
D)black females
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Chapter 15: Unemployment: Job Search
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Sample Questions
Q1) Frictional unemployment is
A)not inevitable;rather,it can be reduced to zero by well-designed public policies.
B)not inevitable;rather,it could be reduced to zero if by the elimination of unemployment insurance.
C)inevitable,because at any given time,jobs are being created in some firms and destroyed in other firms.
D)inevitable,because in some industries,wages are always set above the level that brings supply and demand into equilibrium.
Q2) Suppose that an anti-smoking campaign in Moscow,Russia,is successful so that Muscovites smoke less and chew gum more.Tobacco companies lay off workers,while chewing gum manufacturers employ more workers.This is an example of
A)structural unemployment created by efficiency wages.
B)structural unemployment created by sectoral shifts.
C)frictional unemployment created by efficiency wages.
D)frictional unemployment created by sectoral shifts.
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Chapter 15: Unemployment: Minimum-Wage Laws
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Q1) Refer to Figure 28-3.If unemployment is 2,000 workers,then the minimum wage must be
A)$4.
B)$5.
C)$7.
D)$8.
Q2) Refer to Figure 28-4.If the government imposes a minimum wage of $16,how many workers will be unemployed?
A)0
B)4,000
C)8,000
D)12,000
Q3) Minimum-wage laws
A)create unemployment.
B)do not apply in states with right-to-work laws.
C)affect highly-educated workers more than high school dropouts.
D)cause labor shortages,which further raise wages above equilibrium.
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Chapter 15: Unemployment: Unions and Collective Bargaining
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Q1) In the absence of right-to-work laws,workers
A)that went on strike could be permanently replaced.
B)might be required to join the union if they worked for a unionized firm.
C)would not be able to unionize.
D)would not be able to strike.
Q2) Consider two labor markets in which jobs are equally attractive in all respects other than the wage rate.All workers are equally able to do either job.Initially,both labor markets are perfectly competitive.If a union organizes workers in one of the markets,then the wage rates will tend to
A)rise in both markets.
B)fall in both markets
C)rise for the union jobs,but remain unchanged for the nonunion jobs.
D)rise for the union jobs and fall for the nonunion jobs.
Q3) When a union bargains successfully with employers,in that industry,
A)both wages and unemployment increase.
B)wages increase and unemployment decreases.
C)wages decrease and unemployment increases.
D)both wages and unemployment decrease.
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Chapter 15: Unemployment: The Theory of Efficiency Wages
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Sample Questions
Q1) Michael decides to hire some additional workers for his roofing company.The equilibrium wage is $17 per hour.Efficiency wage theory suggests that it is reasonable for Michael to offer
A)$17 per hour.
B)less than $17 per hour because some people would be willing to work for less.
C)less than $17 an hour to prevent shirking.
D)more than $17 per hour in order to attract a better pool of applicants.
Q2) In which of the following situations should a firm pay efficiency wages?
A)A hiring manager can easily judge the quality of applicants,and after workers have worked for the firm a while,they tend not to look for other jobs.
B)A hiring manager can easily judge the quality of applicants,and after workers have worked for the firm a while,they tend to look for other jobs.
C)A hiring manager cannot easily judge the quality of applicants,and after workers have worked for the firm a while,they tend to look for other jobs.
D)A hiring manager cannot easily judge the quality of applicants,and after workers have worked for the firm a while,they tend not to look for other jobs.
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Chapter 15: Unemployment: Part A
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Sample Questions
Q1) Write the formula for calculating the labor force participation rate.
Q2) Why have labor-force participation rates for women in the United States increased since World War II while labor-force participation rates for men have decreased?
Q3) List the main employment characteristics over which a labor union negotiates for its workers.
Q4) Explain the effect of right-to-work laws on the collective bargaining power of labor unions.
Q5) List the four ways to explain unemployment in the long run.
Q6) How are discouraged workers counted in the unemployment rate?
Q7) Most spells of unemployment are short,and most unemployment observed at any given time is long term.How can this be?
Q8) Almost half of all spells of unemployment end when the unemployed person
Q9) Some degree of unemployment is __________ in a complex economy.
Q10) Briefly compare the structural unemployment that arises from minimum-wage laws to the frictional unemployment that arises from the process of job search.
Q11) Define efficiency wages.
Q12) Define the natural rate of unemployment and cyclical unemployment. Page 103
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Chapter 15: Unemployment: Part B
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Sample Questions
Q1) Public policy,without intending to do so,can increase frictional unemployment.
A)True
B)False
Q2) In the U.S. ,it is illegal for employers to interfere when workers try to organize unions.
A)True
B)False
Q3) Measuring unemployment is the job of the Bureau of Labor Statistics.
A)True
B)False
Q4) Structural unemployment is often thought to explain relatively short spells of unemployment.
A)True
B)False
Q5) The unemployment that results from the process of matching workers and jobs is called structural unemployment.
A)True
B)False
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Page 105
Chapter 16: The Monetary System
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Sample Questions
Q1) Money
A)is more efficient than barter.
B)makes trades easier.
C)allows greater specialization.
D)All of the above are correct.
Q2) As opposed to a payments system based on barter,a payments system based on money
A)requires a double coincidence of wants.
B)leads to less specialization.
C)makes trades less costly.
D)None of the above is correct.
Q3) The existence of money
A)reduces specialization.
B)makes trade easier.
C)allows for barter.
D)hinders production.
Q4) When we say that trade is roundabout we mean that
A)people sometimes trade goods for goods.
B)trades require a double coincidence of wants.
C)currency is accepted primarily to make further trades.
D)people must spend time searching for the products they wish to purchase.
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Chapter 16: The Monetary System: The Meaning of Money
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Q1) You receive money as payment for babysitting your neighbors' children.This best illustrates which function of money?
A)medium of exchange
B)unit of account
C)store of value
D)liquidity
Q2) Which of the following is not included in M1?
A)currency
B)demand deposits
C)traveler's checks
D)credit cards
Q3) You pay for cheese and bread from the deli with currency.Which function of money does this best illustrate?
A)medium of exchange
B)unit of account
C)store of value
D)liquidity
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107
Chapter 16: The Monetary System: The Federal Reserve System
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Q1) Monetary policy affects employment
A)only in the long run.
B)only in the short run.
C)in both the long run and the short run.
D)in neither the long run nor the short run.
Q2) Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?
A)the Board of Governors
B)the FOMC
C)the regional Federal Reserve Bank presidents
D)the Central Bank Policy Commission
Q3) The Fed can influence unemployment in
A)the short run and in the long run.
B)the short run,but not in the long run.
C)the long run,but not in the short run.
D)neither the short nor the long run.
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Chapter 16: The Monetary System: Banks and the Money Supply
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Sample Questions
Q1) If the reserve ratio is 7.5 percent,the money multiplier is A)7.5.
B)10.3.
C)13.3.
D)11.3.
Q2) If you deposit $100 of currency into a demand deposit at a bank,this action by itself
A)does not change the money supply.
B)increases the money supply.
C)decreases the money supply.
D)has an indeterminate effect on the money supply.
Q3) If the reserve ratio is 15 percent,the money multiplier is A)7.7.
B)6.7.
C)5.7.
D)15.
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Chapter 16: The Monetary System: The Feds Tools of Monetary Control
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Sample Questions
Q1) During the Great Depression in the early 1930s,
A)bank runs closed many banks.
B)the money supply rose sharply.
C)the Fed decreased reserve requirements.
D)both a and b are correct.
Q2) The banking system currently has $200 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 4 percent.If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion worth of bonds,then by how much does the money supply change?
A)It rises by $600 billion.
B)It rises by $125 billion.
C)It falls by $2,500 billion.
D)None of the above is correct.
Q3) In a fractional-reserve banking system,a decrease in reserve requirements
A)increases both the money multiplier and the money supply.
B)decreases both the money multiplier and the money supply.
C)increases the money multiplier,but decreases the money supply.
D)decreases the money multiplier,but increases the money supply.
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Chapter 16: The Monetary System: Part A
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Sample Questions
Q1) What does the text mean by the question,"Where Is All the Currency?" How does it answer the question?
Q2) The primary tool used by the Federal Reserve to change the money supply is _____.
Q3) Money, such as gold, with some intrinsic value is called _____. Money with no intrinsic value is called _____.
Q4) The existence of money makes trade easier.How is it that money can also increase the standard of living?
Q5) Discuss why the Fed rarely changes the reserve requirements.
Q6) Suppose a bank is operating with a leverage ratio of 20.What is the maximum decrease in the market value of assets before the bank becomes insolvent?
Q7) The prices of goods at a grocery store are listed in dollars.Which function of money does this illustrate?
Q8) Monetary policy has an important influence on _____ and _____ in the short run.
Q9) Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?
Q10) A bank has $30,000 in deposits and has $5,400 in reserves.What is its reserve ratio?
Page 111
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Chapter 16: The Monetary System: Part B
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Sample Questions
Q1) Credit cards are a medium of exchange.
A)True
B)False
Q2) The chair of the Board of Governors regularly testifies to Congress about Fed policy.
A)True
B)False
Q3) The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier.
A)True
B)False
Q4) The Federal Reserve is a privately operated commercial bank.
A)True
B)False
Q5) In an economy that relies on barter,trade requires a double-coincidence of wants.
A)True
B)False
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Chapter 17: Money Growth and Inflation
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Sample Questions
Q1) In the last part of the 1800's
A)deflation made it harder for farmers to pay off their debt.
B)deflation made it easier for farmers to pay off their debt.
C)inflation made it harder for farmers to pay off their debt.
D)inflation made it easier for farmers to pay off their debt.
Q2) Deflation
A)increases incomes and enhances the ability of debtors to pay off their debts.
B)increases incomes and reduces the ability of debtors to pay off their debts.
C)decreases incomes and enhances the ability of debtors to pay off their debts.
D)decreases incomes and reduces the ability of debtors to pay off their debts.
Q3) Between 1880 and 1896 the average level of prices in the U.S.economy
A)fell 23 percent.
B)fell 4 percent.
C)rose 23 percent.
D)rose 50 percent.
Q4) Inflation can be measured by the
A)change in the consumer price index.
B)percentage change in the consumer price index.
C)percentage change in the price of a specific commodity.
D)change in the price of a specific commodity.
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Chapter 17: Money Growth and Inflation: The Classical
Theory of Inflation
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Sample Questions
Q1) The data on hyperinflation show a clear link between the quantity of money and A)the price level.
B)growth rate of GDP.
C)unemployment rate.
D)velocity.
Q2) The price of a Honda Accord
A)and the price of a Honda Accord divided by the price of a Honda Civic are both real variables.
B)and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables.
C)is a real variable,and the price of a Honda Accord divided by a Honda Civic is a nominal variable.
D)is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.
Q3) The source of hyperinflations is primarily A)lower output growth.
B)continuing declines in velocity.
C)increases in money-supply growth.
D)continuing increases in money demand.
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Chapter 17: Money Growth and Inflation: The Costs of Inflation
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Sample Questions
Q1) Indexing the tax system to take into account the effects of inflation would by itself
A)mean that only real interest earnings are taxed.
B)mean an end to taxing capital gains.
C)mean an increase in average tax rates.
D)All of the above are correct.
Q2) Given a nominal interest rate of 6 percent,in which of the following cases would you earn the highest after-tax real rate of interest?
A)Inflation is 2.5 percent;the tax rate is 25 percent.
B)Inflation is 3 percent;the tax rate is 20 percent.
C)Inflation is 2 percent;the tax rate is 30 percent.
D)The after-tax real interest rate is the same for all of the above.
Q3) Studies have found which of the following economic terms mentioned most often in U.S.newspapers?
A)Unemployment
B)Productivity
C)Inflation
D)Monetary policy
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Chapter 17: Money Growth and Inflation: Conclusion
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Sample Questions
Q1) Inflation costs are minimized during periods of A)hyperinflation.
B)large,unexpected deflation.
C)moderate inflation.
D)rapid money growth.
Q2) Inflation costs are minimized under which inflation rate?
A)-20 percent
B)5 percent
C)15 percent
D)575 percent
Q3) In order to maintain stable prices,a central bank must A)maintain low interest rates.
B)keep unemployment low.
C)tightly control the money supply.
D)sell indexed bonds.
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116
Chapter 17: Money Growth and Inflation: Part A
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Q1) Suppose the rate of inflation rate is two percent and the nominal interest rate is five percent.According to the Fisher Effect,an increase in the inflation rate to six percent should cause the nominal interest rate to increase from five percent to_______ in the long run.
Q2) Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?
Q3) A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.
Q4) An increase in the price level causes the value of money to_____.Therefore,people will want to hold _____ money,because the cost of their purchases has increased.
Q5) Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?
Q6) An increase in the price level means that a dollar buys__________ goods and services so the value of a dollar __________.
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Page 117
Chapter 17: Money Growth and Inflation: Part B
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Sample Questions
Q1) Shoeleather costs and menu costs are both costs of anticipated inflation.
A)True
B)False
Q2) The hyperinflation in Zimbabwe ended in April 2009 when the central bank purchased government bonds in open-market operations.
A)True
B)False
Q3) If the real interest rate is 5% and the inflation rate is 3%,then the nominal interest rate is 8%.
A)True
B)False
Q4) Jimmy Carter,Ronald Reagan,and Gerald Ford are all U.S.presidents whose political careers were helped by inflation.
A)True
B)False
Q5) Hyperinflations are associated with governments printing money to finance expenditures.
A)True
B)False
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Chapter 18: Open Economy Macroeconomics Basic Concepts
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Sample Questions
Q1) 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.
Q2) Which type(s)of economies interact with other economies?
A)only closed economies
B)only open economies
C)closed economies and open economies
D)neither closed nor open economies
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: The International Flows of Goods and Capital
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227 Verified Questions
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Sample Questions
Q1) A country has net capital outflow of -10 billion euros and domestic investment of 20 billion euros.What is its national saving?
A)30 billion euros
B)10 billion euros
C)-10 billion euros
D)-30 billion euros
Q2) Other things the same,if a country's domestic investment decreases,then
A)net capital outflow rises,so net exports rise.
B)net capital outflow rises,so net exports fall.
C)net capital outflow falls,so net exports rise.
D)net capital outflow falls,so net exports fall.
Q3) A nation's domestic investment is greater than its savings.Which of the following is correct?
A)This nation has a negative net capital outflow.
B)This nation has a trade surplus.
C)Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners.
D)All of the above are correct.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: The Prices for International Transactions Real and Nominal Exchange Rates
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76 Verified Questions
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Sample Questions
Q1) Other things the same,the real exchange rate between U.S.and Belgian goods would be higher if
A)prices in the U.S.were higher,or the number of euro the dollar purchased were higher.
B)prices in the U.S.were higher,or the number of euro the dollar purchased were lower.
C)prices in the U.S.were lower,or the number of euro the dollar purchased were higher. D)prices in the U.S.were lower,or the number of euro the dollar purchased were lower.
Q2) If the exchange rate is .60 British pounds = $1,a bottle of ale that costs 3 pounds costs
A)$1.80.
B)$4.80.
C)$5.
D)None of the above is correct.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: A First Theory of Exchange-Rate Determination
Purchasing-Power Parity
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Sample Questions
Q1) If purchasing-power parity holds but then U.S.prices rise,which of the following move the exchange rate back towards purchasing-power parity?
A)foreign prices rise or the U.S.nominal exchange rate rises
B)foreign prices rise or the U.S.nominal exchange rate falls
C)foreign prices fall or the U.S.nominal exchange rate rises
D)foreign prices fall or the U.S.nominal exchange rate falls
Q2) If the Canadian nominal exchange rate does not change,but prices rise faster abroad than in Canada,then the Canadian real exchange rate
A)does not change.
B)rises.
C)declines.
D)None of the above is necessarily correct.
Q3) If purchasing-power parity holds,a bushel of rice costs $10 in the U.S. ,and the nominal exchange rate is 25 Thai baht per dollar,what is the price of rice in Thailand?
A)400 baht
B)250 bhat
C)100 bhat
D)None of the above is correct.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part A
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67 Verified Questions
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Sample Questions
Q1) Over the last 5 years the amount of country A's currency it took to buy a unit of country B's currency more than doubled.
A.Did country A's currency depreciate or appreciate?
B.According to purchasing-power parity,what explains the change in the value of country B's currency?
Q2) A pound of steak costs $10 in the U.S.and 56.25 riyals (the currency of Saudi Arabia)in Saudi Arabia.If the real exchange rate is 2/3,what is the nominal exchange rate? Show your work.
Q3) Colonial America had little industry and so had mostly raw materials to export.At the same time,there were many opportunities to purchase capital goods and earn a high rate of return because there was little existing capital so that the marginal product of capital was relatively high.What does this suggest about net exports and net capital outflow in colonial America?
Q4) In the U.S.a box of tea costs $5.The same box of tea in Uganda costs 10,000 schillings (the currency of Uganda).If the real exchange rate is 5/4,what is the nominal exchange rate? Show your work.
Q5) How do the nominal exchange rate and the real exchange rate differ?
Page 123
Q6) Why are net exports and net capital outflow always equal?
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part B
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63 Verified Questions
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Sample Questions
Q1) Other things the same,if U.S.net capital outflow rises,so does U.S.saving.
A)True
B)False
Q2) If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan,then the euro should depreciate relative to the Japanese yen.
A)True
B)False
Q3) If purchases of foreign assets by U.S.residents exceed purchases of U.S.assets by foreign residents,then U.S.net capital outflow is positive.
A)True B)False
Q4) If a U.S.firm buys Chinese toys using previously obtained Chinese currency,then both U.S.net exports and U.S.net capital outflow decrease. A)True B)False
Q5) Reductions in transportation costs help explain the increase in U.S.trade flows. A)True B)False
124
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Chapter 19: A Macroeconomic Theory of the Open Economy
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Sample Questions
Q1) Over the past three decades,the United States has
A)generally had,or been very near to a trade balance.
B)had trade deficits in about as many years as it has trade surpluses.
C)persistently had a trade deficit.
D)persistently had a trade surplus.
Q2) The open-economy macroeconomic model examines the determination of
A)the output growth rate and the real interest rate.
B)unemployment and the exchange rate.
C)the output growth rate and the inflation rate.
D)the trade balance and the exchange rate.
Q3) The open-economy macroeconomic model includes
A)only the market for loanable funds.
B)only the market for foreign-currency exchange.
C)both the market for loanable funds and the market for foreign-currency exchange.
D)neither the market for loanable funds nor the market for foreign-currency exchange.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Supply and Demand for Loanable Funds and for
Foreign-Currency Exchange
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141 Verified Questions
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Sample Questions
Q1) Which of the following would make the equilibrium real interest rate increase and the equilibrium quantity of funds decrease?
A)The demand for loanable funds shifts right.
B)The demand for loanable funds shifts left.
C)The supply of loanable funds shifts right.
D)The supply of loanable funds shifts left.
Q2) Other things the same,if the U.S.interest rate falls,then U.S.residents will want to purchase
A)more foreign assets,which increases the quantity of loanable funds demanded.
B)fewer foreign assets,which decreases the quantity of loanable funds demanded.
C)more foreign assets,which increase the quantity of loanable funds supplied.
D)fewer foreign assets,which decreases the quantity of loanable funds supplied.
Q3) At the equilibrium real interest rate in the open-economy macroeconomic model
A)saving = domestic investment
B)saving = net capital outflow
C)net capital outflow = domestic investment
D)net capital outflow + domestic investment = saving
Page 126
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Equilibrium in the Open Economy
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Sample Questions
Q1) In the open-economy macroeconomic model,if the supply of loanable funds shifts left
A)the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts right.
B)the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left.
C)the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts right.
D)the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts left.
Q2) Which of the following is correct concerning the open-economy macroeconomic model?
A)The net-capital-outflow curve slopes upward.
B)The key determinant of net capital outflow is the real exchange rate.
C)The supply of dollars in the market for foreign-currency exchange is vertical.
D)None of the above is correct.
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127
Chapter 19: A Macroeconomic Theory of the Open
Economy: How Policies and Events Affect an Open Economy
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Sample Questions
Q1) If a country's budget deficit decreases,then the exchange rate
A)rises,which raises net exports.
B)rises,which reduces net exports.
C)falls,which raises net exports.
D)falls,which reduces net exports.
Q2) An increase in the budget surplus
A)raises net exports and domestic investment.
B)raises net exports and reduces domestic investment.
C)reduces net exports and raises domestic investment.
D)reduces net exports and domestic investment.
Q3) An increase in the budget deficit makes domestic interest rates
A)rise because the supply of loanable funds shifts left.
B)fall because the supply of loanable funds shifts left.
C)rise because the demand for loanable funds shifts right.
D)fall because the demand for loanable funds shifts right.
Q4) An increase in the budget deficit causes domestic interest rates
A)and investment to rise.
B)to rise and investment to fall.
C)to fall and investment to rise.
D)and investment to fall.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part A
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) If the government budget deficit rises,what happens to the interest rate? What does this change in the interest rate do to net capital outflow? Provide a detailed explanation of why this change in the interest rate changes net capital outflow.
Q2) State what,if anything,each of the following does to the supply or demand of loanable funds.
a.net capital outflow increases at each interest rate
b.domestic investment increases at each interest rate
c.the government deficit increases
d.private saving increases
Q3) Suppose that U.S.savers decide that holding Brazilian assets has become riskier.What happens to U.S.net capital outflow? What happens to the U.S.real interest rate?
Q4) If there is a shortage in the market for foreign-currency exchange,what happens to the exchange rate and to net exports?
Q5) In the market for foreign-currency exchange, the source of the supply of dollars is _________. The supply curve is _________ because _____________.
Q6) What effect do protectionist policies have on the trade deficit?
Q7) Why do higher real interest rates lead to lower net capital outflow?
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part B
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Sample Questions
Q1) Because depreciation of the real exchange rate of the dollar increases U.S.net exports,the demand curve for dollars in the foreign-currency exchange market is downward sloping.
A)True
B)False
Q2) An increase in the government budget deficit shifts the supply of domestic currency in the market for foreign exchange to the right.
A)True
B)False
Q3) Other things the same,if foreigners desire to purchase more U.S.bonds,then the demand for loanable funds shifts left.
A)True
B)False
Q4) In the open-economy macroeconomic model,other things the same,an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.
A)True B)False
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Chapter
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Sample Questions
Q1) During recessions
A)workers are laid off.
B)factories are idle.
C)firms may find they are unable to sell all they produce.
D)All of the above are correct.
Q2) A relatively mild period of falling incomes and rising unemployment is called a(n)
A)depression.
B)recession.
C)expansion.
D)business cycle.
Q3) 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.
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Three Key Facts About Economic Fluctuations
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Sample Questions
Q1) Which part of real GDP fluctuates most over the course of the business cycle?
A)consumption expenditures
B)government expenditures
C)investment expenditures
D)net exports
Q2) Which of the following is correct?
A)Real GDP is the variable most commonly used to measure short-run economic fluctuations.These fluctuations can be predicted with a much accuracy.
B)Real GDP is the variable most commonly used to measure short-run economic fluctuations.It is almost impossible to predict these fluctuations with much accuracy.
C)Nominal GDP is the variable most commonly used to measure short-run economic fluctuations.These fluctuations can be predicted with some accuracy.
D)Nominal GDP is the variable most commonly used to measure short-run economic fluctuations.It is almost impossible to predict these fluctuations with much accuracy.
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Explaining Short-Run Economic Fluctuations
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Sample Questions
Q1) Most economists believe that in the long run,changes in the money supply
A)affect nominal but not real variables.This view that money is ultimately neutral is consistent with classical theory.
B)affect nominal but not real variables.This view that money is ultimately neutral is inconsistent with classical theory.
C)affect real but not nominal variables.This view that money is ultimately neutral is consistent with classical theory.
D)affect real but not nominal variables.This view that money is ultimately neutral is inconsistent with classical theory.
Q2) The model of aggregate demand and aggregate supply explains the relationship between
A)the price and quantity of a particular good.
B)unemployment and output.
C)wages and employment.
D)real GDP and the price level.
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Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Demand Curve
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Sample Questions
Q1) Which of the following is not included in aggregate demand?
A)purchases of stock and bonds
B)purchases of services such as visits to the doctor
C)purchases of capital goods such as equipment in a factory
D)purchases by foreigners of consumer goods produced in the United States
Q2) Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases.Their reaction would initially shift
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.
Q3) Which of the following would both shift aggregate demand right?
A)the price level decreases and government expenditures increase.
B)the price level decreases and the government repeals an investment tax credit.
C)taxes decrease and government expenditures increase.
D)None of the above are correct.
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The Aggregate-Supply Curve
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Sample Questions
Q1) The classical dichotomy and monetary neutrality are represented graphically by
A)an upward-sloping long-run aggregate-supply curve.
B)a vertical long-run aggregate-supply curve.
C)an upward-sloping short-run aggregate-curve.
D)a downward-sloping aggregate-demand curve.
Q2) If the price level is higher than expected,firms might raise their production in the short run if
A)the nominal wage they pay their employees was set based on the expected price level.
B)prices are costly to adjust and they have set their price at some time in the past but are not ready to change it.
C)they believe that the price of their product has risen relative to the price of other products,when in fact the rise in the price of their product reflects an increase in the general price level.
D)All of the above are correct.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Two Causes of Economic Fluctuations
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Sample Questions
Q1) Refer to Figure 33-6.Which of the long-run aggregate-supply curves is consistent with a short-run economic expansion?
A)LRAS<sub>1</sub>
B)LRAS<sub>2</sub>
C)LRAS<sub>3</sub>
D)Both LRAS<sub>1</sub> and LRAS<sub>3</sub>
Q2) Which of the following would increase the price level?
A)an increase in the money supply.
B)an increase in taxes.
C)a decrease in the expected price level.
D)a decrease in the natural rate of unemployment.
Q3) Stagflation exists when prices
A)rise and unemployment falls.
B)rise and unemployment rises.
C)fall and unemployment rises.
D)fall and unemployment falls.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part A
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Sample Questions
Q1) Explain how an increase in the price level changes interest rates.How does this change in interest rates lead to changes in investment and net exports?
Q2) Illustrate the classical analysis of growth and inflation with aggregate demand and long-run aggregate supply curves.
Q3) List the three alternative explanations for the upward slope of the short run aggregate supply curve.
Q4) The long-run trend in real GDP is upward.How is this possible given business cycles? What explains the upward trend?
Q5) Suppose a nation experiences increased immigration from abroad.Which curves in the aggregate demand and aggregate supply model would be affected,and which way would they shift?
Q6) Using the aggregate demand and aggregate supply model,a decrease of what curve is by itself consistent with the changes in prices and output that occurred during the onset of the Great Depression?
Q7) A decrease in what variable will raise the quantity of goods and services supplied,and shift only the short run aggregate supply curve to the right?
Q8) Briefly state the three key facts about economic fluctuations.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part B
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Sample Questions
Q1) The exchange-rate effect is the idea that a higher U.S.price level causes the value of the dollar to increase in foreign exchange markets,and this effect contributes to the downward slope of the aggregate-demand curve.
A)True
B)False
Q2) According to classical macroeconomic theory,changes in the money supply change nominal but not real variables.
A)True
B)False
Q3) If aggregate demand and aggregate supply both shift right,we can be sure that the price level is higher in the short run.
A)True
B)False
Q4) Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.
A)True
B)False
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Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand
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Q1) The Federal Open Market Committee is
A)the group at the Federal Reserve that sets monetary policy.
B)in charge of tax collection.
C)the group that sets the amount of government spending.
D)the group that reviews income assistance programs.
Q2) Shifts in aggregate demand affect the price level in
A)the short run but not in the long run.
B)the long run but not in the short run.
C)both the short and long run.
D)neither the short nor long run.
Q3) A goal of monetary policy and fiscal policy is to
A)offset the shifts in aggregate demand and thereby eliminate unemployment.
B)offset shifts in aggregate demand and thereby stabilize the economy.
C)enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.
D)enhance the shifts in aggregate demand and thereby increase economic growth
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Monetary Policy Influences
Aggregate Demand
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Q1) Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?
A)As the money supply increases,the interest rate falls,so spending rises.
B)As the money supply increases,the interest rate rises,so spending falls.
C)As the price level increases,the interest rate falls,so spending rises.
D)As the price level increases,the interest rate rises,so spending falls.
Q2) The theory of liquidity preference is most helpful in understanding
A)the wealth effect.
B)the exchange-rate effect.
C)the interest-rate effect.
D)misperceptions theory.
Q3) If,at some interest rate,the quantity of money supplied is less than the quantity of money demanded,people will desire to
A)sell interest-bearing assets,causing the interest rate to decrease.
B)sell interest-bearing assets,causing the interest rate to increase.
C)buy interest-bearing assets,causing the interest rate to decrease.
D)buy interest-bearing assets,causing the interest rate to increase.
Page 141
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Fiscal Policy Influences
Aggregate Demand
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Q1) If the investment accelerator from an increase in government purchases is larger than the crowding-out effect,then
A)the multiplier is probably zero.
B)the multiplier is probably equal to one.
C)the multiplier is probably greater than one.
D)the multiplier is probably less than one.
Q2) Refer to Scenario 34-2.In response to which of the following events could aggregate demand increase by $1,500?
A)A stock-market boom increases households' wealth by $500,and there is an operative crowding-out effect.
B)A stock-market boom increases households' wealth by $575,and there is an operative crowding-out effect.
C)An economic boom overseas increases the demand for U.S.net exports by $600,and there is no crowding-out effect.
D)Aggregate demand could increase by $1,500 in response to any of these events.
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Page 142
Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Using Policy to Stabilize the Economy
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Q1) Suppose stock prices rise.To offset the resulting change in output the Federal Reserve could
A)increase the money supply.This increase would also move the price level closer to its value before the rise in stock prices.
B)increase the money supply.However,this increase would move the price level farther from its value before the rise in stock prices.
C)decrease the money supply.This decrease would also move the price level closer to its value before the rise in stock prices.
D)decrease the money supply.However,this decrease would move the price level farther from its value before the rise in stock prices.
Q2) Suppose households attempt to increase their money holdings.To stabilize output by countering this increase in money demand,the Federal Reserve would
A)increase government spending.
B)increase the money supply.
C)decrease government spending.
D)decrease the money supply.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part A
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Q1) When the money supply increases,there is an excess ----- of money.As a result,interest rates ----- and aggregate demand -----.
Q2) A decrease in the domestic ----- causes domestic goods to become less expensive relative to foreign goods and increases net exports.The increase in net exports causes a(n)----- in the quantity of domestic aggregate goods and services demanded and is known as the ----- effect.
Q3) The crowding-out effect occurs because an increase in government spending ----interest rates,causing ----- to fall.
Q4) Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.
Q5) An increase in taxes shifts the aggregate ----- curve to the -----.
Q6) The additional shifts in aggregate demand that result when there is an increase in government spending is known as the -----.
Q7) Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?
Q8) Suppose a wave of optimism causes firms to increase investment.To stabilize output and employment,the Federal Reserve will -----.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part B
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Q1) Other things the same,an increase in taxes shifts aggregate demand to the left.In the short run this makes output fall which makes the interest rate rise.
A)True
B)False
Q2) When the Fed increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand,so the aggregate-demand curve shifts to the right.
A)True
B)False
Q3) If the MPC is 4/5,the multiplier is 5/4.
A)True
B)False
Q4) If the marginal propensity to consume is 4/5,then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.
A)True
B)False
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Page 145
Chapter 22: The Short Run Trade Off Between Inflation and Unemployment
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Q1) The misery index is supposed to measure the A)social cost of unemployment.
B)health of the economy.
C)lost output associated with a particular unemployment rate.
D)short-run tradeoff between inflation and unemployment.
Q2) In the long run,
A)the natural rate of unemployment depends primarily on the level of aggregate demand.
B)inflation depends primarily upon the money supply growth rate.
C)there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)All of the above are correct.
Q3) One determinant of the natural rate of unemployment is the A)rate of growth of the money supply.
B)minimum wage rate.
C)expected inflation rate.
D)All of the above are correct.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Phillips Curve
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Q1) A.W.Phillips's discovery of a particular relationship between unemployment and inflation for the United Kingdom
A)could not be extended to other countries,despite many researchers' attempts to provide that extension.
B)was quickly extended to other countries by researchers.
C)was extended to only one other country - the United States.
D)was harshly criticized by the American economists Paul Samuelson and Robert Solow on the grounds that Phillips's study was fundamentally flawed.
Q2) When aggregate demand shifts right along the short-run aggregate supply curve,unemployment
A)falls,so there are upward pressures on wages and prices.
B)falls,so there are downward pressures on wages and prices.
C)rises,so there are upward pressures on wages and prices.
D)rises,so there are downward pressures on wages and prices.
Q3) If the government raises government expenditures,then in the short run prices
A)rise and unemployment falls.
B)fall and unemployment rises.
C)and unemployment rise.
D)and unemployment fall.
Page 147
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Chapter 22: The Short Run Trade Off Between Inflation and
Shifts in the Phillips Curve the Role of Expectations
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Q1) The equation,
Unemployment rate = Natural rate of unemployment - a × ( ctual inflation - Expected inflation),
A)is the equation of the short-run Phillips curve.
B)implies there can be no stable short-run Phillips curve.
C)reflects the reasoning of Friedman and Phelps.
D)All of the above are correct.
Q2) Suppose the Federal Reserve makes monetary policy more expansionary.In the long run
A)both inflation and the unemployment rate are higher than they were prior to the change in policy.
B)inflation is higher and the unemployment rate is the same as it was prior to the change in policy.
C)inflation is lower and the unemployment rate is lower than it was prior to the change in policy.
D)inflation is lower and unemployment is the same as it was prior to the change in policy.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Shifts in the Phillips Curve the Role of Supply Shocks
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Q1) Which of the following is correct if there is an adverse supply shock?
A)The short-run aggregate supply curve and the short-run Phillips curve both shift right.
B)The short-run aggregate supply curve and the short-run Phillips curve both shift left.
C)The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.
D)The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.
Q2) An adverse supply shock shifts the short-run Phillips curve to the
A)right.This means the unemployment rate is higher at each inflation rate.
B)right.This means the unemployment rate is lower at each inflation rate.
C)left.This means the unemployment rate is higher at each inflation rate.
D)left.This means the unemployment rate is lower at each inflation rate.
Q3) After an oil price shock,which of the following would move unemployment back towards its natural rate?
A)the Fed sells bonds
B)the government raises taxes
C)the government increases expenditures
D)All of the above are correct.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Cost of Reducing Inflation
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87 Verified Questions
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Sample Questions
Q1) Refer to The Economy in 2008.Given the effects of the financial and housing crisis on the price level and output and the effects of increased world commodity prices on the price level and output,the aggregate demand and aggregate supply model tells us that A)output rises and the price level falls.
B)output may rise,fall or stay the same and the price level rises. C)output falls and the price level may rise,fall or stay the same. D)None of the above is correct.
Q2) Proponents of rational expectations theory argued that,in the most extreme case,if policymakers are credibly committed to reducing inflation and rational people understand that commitment and quickly lower their inflation expectations,the sacrifice ratio could be as small as A)0.
B)1.
C)4.
D)5.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part A
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Q1) If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?
Q2) Suppose that the Fed unexpectedly pursues contractionary monetary policy. What will happen to unemployment in the short run? What will happen to unemployment in the long run? Justify your answer using the Phillips curves.
Q3) If asset prices fall and inflation expectations remain unchanged,what happens to inflation and unemployment? Defend your answer.
Q4) If consumer confidence rises and inflation expectations remain unchanged,what happens to inflation and unemployment? Defend your answer.
Q5) If there were a favorable supply shock and the central bank wanted to offset the change in the unemployment rate, what would it do?
Q6) Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 4%.
Q7) Does a more steeply sloped Phillips curve make the sacrifice ratio smaller or larger than otherwise?
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part B
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Sample Questions
Q1) Although monetary policy cannot reduce the natural rate of unemployment,other types of government policies can.
A)True
B)False
Q2) Other things the same,if the Fed increases the rate at which it increases the money supply then the short-run Phillips curve shifts right in the long run.
A)True
B)False
Q3) Other things the same,an increase in aggregate demand reduces unemployment and raises inflation in the short run.
A)True
B)False
Q4) In a famous article published in 1958,A.W.Phillips used data for the United Kingdom to show a negative relationship between the rate of change of wages in the U.K.and the U.K.unemployment rate.
A)True
B)False
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary and Fiscal Policymakers Try to Stabilize the Economy
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44 Verified Questions
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Q1) President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model
A)both the tax cut and the increase in government expenditures would tend to increase output.
B)only the tax cut would tend to increase output.
C)only the increase in government expenditures would tend to increase output.
D)neither the tax cut nor the increase in government expenditures would tend to increase output.
Q2) Which of the following is correct?
A)Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes.
B)Economic forecast are precise and aggregate spending responds to interest rate changes with a lag.
C)Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes.
D)Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Fight Recessions With Spending
Hikes Rather Than Tax Cuts
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Q1) In which cases were tax cuts followed by robust growth?
A)the ones of the Kennedy administration in 1964 and the ones of the Reagan administration in 1981
B)the ones of the Kennedy administration in 1964 but not the ones of the Reagan administration in 1981
C)the ones of the Reagan administration in 1981 but not the ones of the Kennedy administration in 1964
D)neither the ones of the Kennedy administration in 1964 nor the ones of the Reagan administration in 1981
Q2) Suppose a tax cut affects aggregate demand and aggregate supply.Which of the shifts raise real GDP?
A)both the shift of aggregate demand and the shift of aggregate supply
B)the shift of aggregate demand,but not the shift of aggregate supply
C)the shift of aggregate supply,but not the shift of aggregate demand
D)neither the shift of aggregate demand nor the shift of aggregate supply
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary Policy Be Made by Rule Rather Than by Discretion
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Q1) The Federal Open Market Committee
A)operates with almost complete discretion over monetary policy.
B)is required to increase the money supply by a given growth rate each year.
C)is required to keep short-term interest rates within a range set by Congress.
D)is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.
Q2) 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 easier for the Fed to increase output by increasing the money supply.
C)people will believe Fed policy will be less inflationary than the Fed claims.
D)what policymakers say they will do is usually not what they do,but people believe them anyway.
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155
Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Central Bank Aim for Zero Inflation
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Q1) If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply the central bank
A)would have to increase the money supply.This would move unemployment closer to the natural rate.
B)would have to increase the money supply.This would move unemployment further from the natural rate.
C)would have to decrease the money supply.This would move unemployment closer to the natural rate.
D)would have to decrease the money supply.This would move unemployment further from the natural rate.
Q2) 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.
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156
Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Balance Its Budget
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Q1) Between 1980 and 1995 government debt as a percentage of GDP
A)increased from about 25% to 50%.
B)decreased from about 50% to 25%.
C)decreased from about 25% to almost zero.
D)increased from about 10% to 20%.
Q2) In fiscal year 1997,the U.S.government ran a deficit of about $21.9 billion.In fiscal year 1998,the government ran a surplus of about $69.3 billion.Other things the same,we would expect this change
A)decreased interest rates and investment.
B)decreased interest rates and increased investment.
C)increased interest rates and investment.
D)increased interest rates and decreased investment.
Q3) Which of the following are justifications for running a budget deficit?
A)stabilizing the economy during a recession
B)future generations will benefit from some current expenditures
C)both a and b
D)neither a nor b
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Page 157
Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Tax Laws Be Reformed to Encourage Saving
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Q1) Higher saving is associated with
A)a larger capital stock and a higher standard of living.
B)a larger capital stock but not a higher standard of living.
C)a higher standard of living but not a larger capital stock.
D)neither a higher standard of living nor a higher capital stock.
Q2) IRAs,and 401(k)and 403(b)plans
A)impose added taxes on those who save.
B)place no limits on the amount people can deposit into these programs.
C)impose penalties for withdrawals except under certain circumstances.
D)None of the above is correct.
Q3) Which of the following is not an argument by those who oppose tax-law changes to encourage saving?
A)Saving is not very responsive to changes in the tax rate.
B)Saving is not an important determinant of a nation's ability to produce output.
C)Reducing the budget deficit instead of changing the tax laws could raise saving.
D)Changes in the tax laws to induce saving would distribute the tax burden less fairly.
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Chapter 23: Six Debates Over Macroeconomic Policy:
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Q1) The six debates over macroeconomic policy exist mostly because A)economists disagree over basic issues such as the importance of saving for economic growth.
B)there are tradeoffs and people disagree about the best way to deal with them.
C)politicians offer misleading information.
D)people fail to clearly see the benefits or the costs of most changes.
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Q1) Approximately how often does the Federal Open Market Committee meet?
Q2) Explain the main arguments in favor of economic stabilization.
Q3) Why is there a lag between the Fed's actions and the economy's response?
Q4) Explain why fiscal policy actions typically work with a lag.
Q5) Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year.How large of a deficit can the government run (as a percentage of GDP)without raising the debt-to-income ratio?
Q6) Suppose tax policies are changed to encourage saving.Explain how the income effect and substitution effect influence the amount saved.
Q7) Explain the time inconsistency of monetary policy.
Q8) Why do many economists advocate a consumption tax rather than an income tax?
Q9) According to a 1977 amendment to the Federal Reserve Act of 1913,what weights should the Fed put on the goals of maximum employment,stable prices,and moderate long-term interest rates?
Q10) Provide an example of how current expenditures might benefit future generations.
Q11) One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly.What is the cost of reducing the inflation rate? Page 160
Q12) Describe three costs of inflation.
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Q1) The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.
A)True
B)False
Q2) A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.
A)True
B)False
Q3) Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.
A)True
B)False
Q4) In effect,a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).
A)True
B)False
Q5) Tax laws do not give preferential treatment to some kinds of retirement saving. A)True B)False
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Q1) Suppose that in 2020 the average citizen's federal tax bill is $12,466,and total federal spending is $10,824 per person.In 2020,the federal government will have A)a budget surplus.
B)a budget deficit.
C)horizontal equity.
D)vertical equity.
Q2) In 2011 the largest percentage of federal government spending was on A)national defense.The largest source of federal revenues was from corporate income taxes.
B)health.The largest source of federal revenues was from individual income taxes. C)income security.The largest source of federal revenues was from corporate income taxes.
D)income security.The largest source of federal revenues was from individual income taxes.
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