Foundations of Macroeconomics Exam Preparation Guide
Course Introduction
Foundations of Macroeconomics introduces students to the fundamental principles that govern the functioning of entire economies. The course covers core concepts such as gross domestic product (GDP), unemployment, inflation, aggregate demand and supply, fiscal and monetary policy, and international trade. Through theoretical frameworks and real-world examples, students learn how economic indicators are measured, how governments and central banks influence economic activity, and the effects of macroeconomic policy on growth, stability, and long-term development. Emphasis is placed on critical thinking and the application of macroeconomic tools to analyze contemporary economic issues and policy debates.
Recommended Textbook
Principles of Macroeconomics 8th Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) In considering how to allocate its scarce resources among its various members,a household considers
A)each member's abilities.
B)each member's efforts.
C)each member's desires.
D)All of the above are correct.
Answer: D
Q2) Which of the following products would be considered scarce?
A)bread
B)baseballs autographed by Babe Ruth
C)motorcycles
D)All of the above are correct.
Answer: D
Q3) The overriding reason why households and societies face many decisions is that A)resources are scarce.
B)goods and services are not scarce.
C)incomes fluctuate with business cycles.
D)people,by nature,tend to disagree.
Answer: A
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Chapter 1: Ten Principles of Economics: How People Make Decisions
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Q1) Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor.This redistribution of wealth
A)is more efficient and more equal for society.
B)is more efficient but less equal for society.
C)is more equal but less efficient for society.
D)is less equal and less efficient for society.
Answer: C
Q2) High-school athletes who skip college to become professional athletes
A)obviously do not understand the value of a college education.
B)usually do so because they cannot get into college.
C)understand that the opportunity cost of attending college is very high.
D)are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes.
Answer: C
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Chapter 1: Ten Principles of Economics: How People Interact
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Q1) In a market economy,economic activity is guided by A)the government.
B)central planners.
C)large businesses.
D)prices and self-interest.
Answer: D
Q2) An example of an externality is the impact of
A)bad weather on the income of farmers.
B)the personal income tax on a person's ability to purchase goods and services.
C)pollution from a factory on the health of people in the vicinity of the factory.
D)increases in health care costs on the health of individuals in society.
Answer: C
Q3) Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market?
A)to promote efficiency
B)to promote equality
C)to enforce property rights
D)to protect an industry from foreign competition
Answer: D
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Chapter 1: Ten Principles of Economics: How the Economy
As a Whole Works
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Q1) For a number of years country A had inflation of 3% but for the last five years has had inflation of 6%.Country B had inflation of 4% for many years,but very recently inflation unexpectedly rose to 9%.Other things the same,in which of the countries would the higher inflation rate be more likely to reduce unemployment?
A)both country A and country B
B)neither country A nor country B
C)country A but not country B
D)country B but not country A
Q2) To improve living standards,policymakers should
A)impose restrictions on foreign competition.
B)formulate policies designed to increase productivity.
C)impose tougher immigration policies.
D)provide tax breaks for the middle class.
Q3) To raise productivity,policymakers could
A)increase spending on education.
B)provide tax credits to firms for capital improvements.
C)fund research and development.
D)All of the above are correct.
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Chapter 1: Ten Principles of Economics: Part A
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Q1) Refer to Scenario 1-4.What is your opportunity cost of going to the movies?
Q2) How does the study of economics depend upon the phenomenon of scarcity?
Q3) Invisible hand is a term used by the economist ------ in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.
Q4) Refer to Scenario 1-2.What is your opportunity cost of going to the movies?
Q5) Explain how government policies that redistribute income from the rich to the poor might reduce efficiency.
Q6) What are the two possible causes of market failure?
Q7) Explain the concept of market failure.
Q8) What are the two basic types of economies?
Q9) 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?
Q10) Refer to Scenario 1-6.A customer is willing to pay $60 for the 601<sup>st</sup> heart rate monitor.Should the company produce and sell it? Explain.
Q11) In the short run,an increase in the money supply is likely to lead to ------ inflation and ------ unemployment.
Q12) Rational people make decisions "at the margin" by comparing ------. Page 7
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Page 8
Chapter 1: Ten Principles of Economics: Part B
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Sample Questions
Q1) Economics is the study of how evenly goods and services are distributed within society.
A)True
B)False
Q2) The government can potentially improve market outcomes if market inequalities or market failure exists.
A)True
B)False
Q3) Because resources are scarce,a society cannot give all individuals the standard of living to which each aspires.
A)True
B)False
Q4) Market failure refers to a situation in which the market does not allocate resources efficiently.
A)True
B)False
Q5) Tuition is the single-largest cost of attending college for most students.
A)True
B)False
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Chapter 2: Thinking Like an Economist
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Q1) 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.
Q2) 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.
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Chapter 2: Thinking Like an Economist: The Economist As Scientist
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Q1) Which of the following is not an assumption of the productions possibilities frontier?
A)A country produces only two goods or types of goods.
B)Technology does not change.
C)The amount of available resources does not change.
D)There is a fixed quantity of money.
Q2) Macroeconomics is the study of A)individual decision makers.
B)international trade.
C)economy-wide phenomena.
D)markets for large products.
Q3) Refer to Figure 2-9,Panel (a)and Panel (b).A shift of the economy's production possibilities frontier from Panel (a)to Panel (b)could be caused by A)unemployment.
B)an improvement in donut production technology.
C)an improvement in coffee production technology.
D)an improvement in both donut and coffee production technology.
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Chapter 2: Thinking Like an Economist: The Economist As Policy Adviser
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Q1) Which of the following is an example of a positive,as opposed to normative,statement?
A)The federal government should decrease coverage of unemployment benefits to stimulate the economy out of the recession.
B)Congress should agree on lower government spending for the next fiscal year.
C)The Federal Reserve Bank should increase interest rates in response to the higher-than-expected inflation in the economy.
D)The unemployment rate last year was lower than any other year in the last century.
Q2) When an economist is asked a question like "why is unemployment higher for teenagers than for older workers?" the economist
A)is asked to explain the cause of an economic event.
B)is asked to recommend a policy to improve economic outcomes.
C)is asked as a policy adviser.
D)does not have enough information to respond.
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Chapter 2: Thinking Like an Economist: Why Economists
Disagree
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Q1) Differences in scientific judgment between economists are similar to all of the following except
A)astronomers debating whether the sun or earth was at the center of the solar system.
B)meteorologists debating the existence of global warming.
C)two politicians arguing about the fairness of the tax code.
D)explorers debating whether or not the earth was flat before the time of Christopher Columbus.
Q2) Economists sometimes give conflicting advice because
A)graduate students in economics are encouraged to argue with each other.
B)economists have different values and scientific judgment.
C)economists acting as scientists do not like to agree with economists acting as policy advisers.
D)economics is more of a belief system than a science.
Q3) Almost all economists agree that local and state governments should
A)eliminate subsidies to professional sports franchises.
B)increase subsidies to professional sports franchises.
C)copy economic policy from Washington,D.C.
D)prevent companies from outsourcing work.
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Q1) When a government program is justified not on its merits but on the number of jobs it will create,
A)the program is an efficient use of taxpayer dollars.
B)it should be approved only if the unemployment rate is low.
C)taxes should be raised to fund the program.
D)it is known as the "broken window fallacy."
Q2) Congressman Dearmark justified spending $3 million on a new entertainment complex in his district because it will create 450 new jobs for his residents.As a student of economics,you know that
A)this is a case of the "broken window fallacy."
B)this is a great use of taxpayer dollars.
C)this policy diverts money from spending somewhere else in the economy.
D)Both a and c are correct.
Q3) 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.
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Chapter 2: Thinking Like an Economist: Graphing a Brief Review
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Q1) Which of the following is not correct?
A)The slope of a line will be a small positive number for a fairly flat upward-sloping line.
B)The slope of a line will be a large positive number for a steep upward-sloping line.
C)The slope of a line will be a negative number for a downward-sloping line.
D)The slope of a line will be infinite for a horizontal line.
Q2) Refer to Figure 2-16.Cups of coffee per day and the hours that someone can go without sleep appear to have
A)a positive correlation.
B)a negative correlation.
C)a random correlation.
D)no correlation.
Q3) When a relevant variable that is not named on either axis changes, A)there will be a movement along the curve.
B)the curve will rotate clockwise.
C)the curve will be unaffected since only the variables on the axis affect the curve.
D)the curve will shift.
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Chapter 2: Thinking Like an Economist: Part A
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Q1) Refer to Figure 2-3.What do the outer arrows represent in the figure?
Q2) Suppose a war in the Middle East interrupts the flow of crude oil and oil prices skyrocket around the world.For economists,this historical episode serves as a
Q3) Is the following a positive or normative statement? The Federal Reserve should set an inflation target and employ policies to meet the target.
Q4) Economists at which administrative department analyze data on workers and those looking for work to help formulate labor-market policies?
Q5) Just like other scientific models,economic models simplify reality using
Q6) Refer to Figure 2-14.Which point(s)on the graph is(are)unattainable given current resources and technology?
Q7) The institution that sets the nation's monetary policy is called the
Q8) When economists disagree about whether the government should tax a household's income or its consumption,they are expressing a difference in
Q9) Who would be more likely to study the inflation rate in the United States,a macroeconomist or a microeconomist?
Q10) What type of statement is a descriptive statement about how the world is?
Q11) Economists at which administrative department help design tax policy?
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Chapter 2: Thinking Like an Economist: Part B
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Q1) Economists try to address their subject with a scientist's objectivity.
A)True
B)False
Q2) In economics,graphs serve two purposes: they offer a way to visually express ideas,and they provide a way of finding and interpreting patterns when analyzing economic data.
A)True B)False
Q3) Good assumptions simplify a problem without substantially affecting the answer.
A)True B)False
Q4) The circular flow model is not used anymore because it fails to perfectly replicate real world situations.
A)True
B)False
Q5) Different values are not a reason for disagreement among economists.
A)True B)False
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Chapter 3: Interdependence and the Gains From Trade
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Q1) When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all
A)rely upon the government to provide us with the basic necessities of life.
B)rely upon one another for the goods and services we consume.
C)have similar tastes and abilities.
D)are concerned about one another's well-being.
Q2) People who provide you with goods and services
A)are acting out of generosity.
B)do so because they get something in return.
C)have chosen not to become interdependent.
D)are required to do so by the government.
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Chapter 3: Interdependence and the Gains From Trade: A
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Q1) Refer to Figure 3-7.If the production possibilities frontiers shown are each for 4 hours of work,then which of the following combinations of bowls and cups could Bintu and Juba together make in a given 4-hour production period?
A)1 bowl and 14 cups
B)2 bowls and 11 cups
C)3 bowls and 10 cups
D)5 bowls and 5 cups
Q2) 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
Q3) An economy's production possibilities frontier is also its consumption possibilities frontier
A)under all circumstances.
B)under no circumstances.
C)when the economy is self-sufficient.
D)when the rate of tradeoff between the two goods being produced is constant.
Page 19
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Refer to Figure 3-21.Suppose Azerbaijan is willing to trade 3 nails to Uzbekistan for every bolt that Uzbekistan makes and sends to Azerbaijan.Which of the following combinations of bolts and nails could Azerbaijan then consume,assuming Uzbekistan specializes in making bolts and Azerbaijan specializes in making nails?
A)8 bolts and 56 nails
B)14 bolts and 44 nails
C)18 bolts and 32 nails
D)20 bolts and 26 nails
Q2) Refer to Figure 3-15.Which of the following is not correct?
A)Perry and Jordan could each consume 2 novels and 6 poems without trade.
B)Jordan could consume 2 novels and 6 poems both with and without trade.
C)Perry and Jordan could each consume 2 novels and 6 poems with trade.
D)Perry and Jordan could each consume 12 poems without trade.
Q3) Refer to Figure 3-15.Perry has an absolute advantage in the production of A)novels and Jordan has an absolute advantage in the production of poems. B)poems and Jordan has an absolute advantage in the production of novels.
C)novels and Jordan has an absolute advantage in the production of neither good.
D)neither good and Jordan has an absolute advantage in the production of novels.
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Chapter 3: Interdependence and the Gains From Trade:
Applications of Comparative Advantage
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Q1) Alexis is a lawyer.She bills her clients $100 an hour for her services.She can also mow her lawn in 30 minutes.She can hire someone to mow her lawn who takes an hour.Of the following prices,which is the highest Alexis would pay someone to mow her lawn?
A)$99
B)$49
C)$29
D)Alexis would always mow her own lawn because she can do it faster.
Q2) Belarus has a comparative advantage in the production of linen,but Russia has an absolute advantage in the production of linen.If these two countries decide to trade,
A)Belarus should export linen to Russia.
B)Russia should export linen to Belarus.
C)trading linen would provide no net advantage to either country.
D)Without additional information about opportunity costs,this question cannot be answered.
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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:
Part A
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Q1) Refer to Figure 3-26.Who has a comparative advantage in making cookies?
Q2) Tom's opportunity cost of mowing a lawn is 2 loads of laundry.Jen's opportunity cost of mowing a lawn is 1.5 loads of laundry.What is the range of prices for mowing a lawn at which Tom and Jen could both benefit from trade?
Q3) Country A and country B both produce shirts and shorts.Country B has an absolute advantage producing both shirts and shorts.Is there any condition under which the two countries could gain from trade?
Q4) 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.
Q5) Refer to Scenario 3-1.What is Catherine's opportunity cost of producing ice cream? Explain how you derived your answer.
Q6) What does a consumption possibilities frontier represent?
Q7) It takes Heather 1 hour to change the oil in the car and 20 minutes to do the dishes.It takes Zach 1.5 hours to change the oil in the car.For Zach to have a comparative advantage changing the oil it must take him more than ------ minutes to do the dishes.
Page 23
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Chapter 3: Interdependence and the Gains From Trade:
Part B
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Q1) If Wrex can produce more math problems per hour and more book reports per hour than Maxine can,then Wrex cannot gain from trading math problems and book reports with Maxine.
A)True
B)False
Q2) In an economy consisting of two people producing two goods,it is possible for one person to have the absolute advantage and the comparative advantage in both goods.
A)True
B)False
Q3) Differences in opportunity cost allow for gains from trade.
A)True
B)False
Q4) As long as two people have different opportunity costs,each can gain from trade with the other,since trade allows each person to obtain a good at a price lower than his or her opportunity cost.
A)True
B)False
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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) Which of the following is not a characteristic of a perfectly competitive market?
A)Sellers set the price of the product.
B)There are many sellers.
C)Buyers must accept the price the market determines.
D)All of the above are characteristics of a perfectly competitive market.
Q2) Which of the following is an example of a less-than-highly-organized market?
A)the market for U.S.Treasury bonds
B)the market for corn
C)the market for soybeans
D)the market for ice cream
Q3) A competitive market is a market in which
A)an auctioneer helps set prices and arrange sales.
B)there are only a few sellers.
C)the forces of supply and demand do not apply.
D)no individual buyer or seller has any significant impact on the market price.
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Chapter 4: The Market Forces of Supply and Demand: Demand
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Q1) A market demand curve shows
A)the relationship between price and the number of buyers in a market.
B)how quantity demanded changes when the number of sellers changes.
C)the sum of all prices that individual buyers are willing and able to pay for each possible quantity of the good.
D)how much of a good all buyers are willing and able to buy at each possible price.
Q2) If a increase in income decreases the demand for a good,then the good is a(n)
A)substitute good.
B)complementary good.
C)normal good.
D)inferior good.
Q3) Refer to Figure 4-3.If these are the only two consumers in the market,then the market quantity demanded at a price of $10 is
A)0 units.
B)5 units.
C)8.33 units.
D)25 units.
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Chapter 4: The Market Forces of Supply and Demand: Supply
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Q1) "Other things equal,when the price of a good rises,the quantity supplied of the good also rises,and when the price falls,the quantity supplied falls as well." This relationship between price and quantity supplied
A)is referred to as the law of supply.
B)applies only to a few goods in the economy.
C)is represented by a downward-sloping supply curve.
D)All of the above are correct.
Q2) An increase in quantity supplied
A)results in a movement downward and to the left along a fixed supply curve.
B)results in a movement upward and to the right along a fixed supply curve.
C)shifts the supply curve to the left.
D)shifts the supply curve to the right.
Q3) A market supply curve is determined by
A)vertically summing individual supply curves.
B)horizontally summing individual supply curves.
C)finding the average quantity supplied by sellers at each possible price.
D)finding the average price at which sellers are willing and able to sell a particular quantity of the good.
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Chapter 4: The Market Forces of Supply and Demand:
Supply and Demand Together
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Q1) Refer to Figure 4-26.Which of the following movements would illustrate the effect in the market for swimming lessons of an increase in the incomes of parents with school-aged children?
A)Point A to Point B
B)Point C to Point B
C)Point C to Point D
D)Point A to Point D
Q2) Refer to Figure 4-24.All else equal,a decrease in the price of the grain fed to turkeys would cause a move from
A)D<sub>A</sub> to D<sub>B</sub>.
B)D<sub>B</sub> to D<sub>A</sub>.
C)x to y.
D)y to x.
Q3) Refer to Figure 4-27.Which of the four panels represents the market for winter coats as we progress from winter to spring?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)
Page 29
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Chapter 4: The Market Forces of Supply and
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Q1) Adam Smith suggested that an invisible had guides market economies.In this analogy,what is the baton that the invisible hand uses to conduct the economic orchestra?
A)the government
B)prices
C)subsidies
D)the Federal Reserve
Q2) Who gets scarce resources in a market economy?
A)the government
B)whoever the government decides gets them
C)whoever wants them
D)whoever is willing and able to pay the price
Q3) 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.
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) Suppose goods A and B are complements.If the price of good A increases,will the demand for good B increase or decrease?
Q2) If the supply of pencils,a substitute for pens,increases,what will happen to the equilibrium price of pencils and to the equilibrium price of pens?
Q3) Suppose researchers discover a new,lower cost method of producing calculators.As a result,will the supply of calculators increase or decrease?
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) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if the price of this good increases.
Q6) If income rises in the market for a normal good,will the demand curve for the normal good shift to the right or to the left?
Q7) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if a news report stated that the price of this good was expected to increase next week.
Q8) A group of buyers and sellers of a particular good or service is called a
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Chapter 4: The Market Forces of Supply and Demand: Part
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108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/79623
Sample Questions
Q1) Most studies have found that tobacco and marijuana are complements rather than substitutes.
A)True
B)False
Q2) An increase in the price of maple syrup will decrease both the equilibrium price and quantity in the market for pancakes.
A)True
B)False
Q3) A decrease in the price of a complement will shift the demand curve for a good to the left.
A)True
B)False
Q4) Cocoa and marshmallows are complements,so a decrease in the price of cocoa will cause an increase in the demand for marshmallows.
A)True
B)False
Q5) A market is a group of buyers and sellers of a particular good or service.
A)True B)False
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Chapter 5: Elasticity and Its Applications
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Q1) In general,elasticity is a measure of
A)the extent to which advances in technology are adopted by producers.
B)the extent to which a market is competitive.
C)how firms' profits respond to changes in market prices.
D)how much buyers and sellers respond to changes in market conditions.
Q2) When studying how some event or policy affects a market,elasticity provides information on the
A)equity effects on the market by identifying the winners and losers.
B)magnitude of the effect on the market.
C)speed of adjustment of the market in response to the event or policy.
D)number of market participants who are directly affected by the event or policy.
Q3) Elasticity is
A)a measure of how much buyers and sellers respond to changes in market conditions.
B)the study of how the allocation of resources affects economic well-being.
C)the maximum amount that a buyer will pay for a good.
D)the value of everything a seller must give up to produce a good.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Demand
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Q1) Last year,Jim bought 8 tickets to sporting events when his income was $30,000.This year,his income is $33,000,and he purchased 10 tickets to sporting events.Holding other factors constant and using the midpoint method,it follows that Jim's income elasticity of demand is about
A)0.43,and Jim regards tickets to sporting events as inferior goods.
B)0.43,and Jim regards tickets to sporting events as normal goods.
C)2.33,and Jim regards tickets to sporting events as inferior goods.
D)2.33,and Jim regards tickets to sporting events as normal goods.
Q2) For which of the following goods is the income elasticity of demand likely lowest?
A)subscriptions to premium movie channels through the local cable television provider
B)hi-definition DVD players
C)champagne
D)housing
Q3) The midpoint method is used to compute elasticity because it
A)automatically computes a positive number instead of a negative number.
B)results in an elasticity that is the same as the slope of the demand curve.
C)gives the same answer regardless of the direction of change.
D)automatically rounds quantities to the nearest whole unit.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Supply
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Q1) If the price elasticity of supply is zero,then
A)supply is more elastic than it is in any other case.
B)the supply curve is horizontal.
C)the quantity supplied is the same,regardless of price.
D)a change in demand will cause a relatively small change in the equilibrium price.
Q2) If the price elasticity of supply for wheat is less than 1,then the supply of wheat is A)inelastic.
B)elastic.
C)unit elastic.
D)quite sensitive to changes in income.
Q3) Refer to Figure 5-15.Along which of these segments of the supply curve is supply least elastic?
A)GH
B)CD
C)AC
D)AB
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Page 35
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Q1) Because the demand for wheat tends to be inelastic,the development of a new,more productive hybrid wheat would tend to
A)increase the total revenue of wheat farmers.
B)decrease the total revenue of wheat farmers.
C)decrease the demand for wheat.
D)decrease the supply of wheat.
Q2) An advance in farm technology that results in an increased market supply is
A)good for farmers because it raises prices for their products but bad for consumers because it raises prices consumers pay for food.
B)bad for farmers because total revenue will fall but good for consumers because prices for food will fall.
C)good for farmers because it raises prices for their products and also good for consumers because more output is available for consumption.
D)bad for farmers because total revenue will fall and bad for consumers because farmers will raise the price of food to increase their total revenue.
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Chapter 5: Elasticity and Its Applications: Part A
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Q1) Suppose the price elasticity of demand for good A is 1.25.If the price of good A increases by 20%,what will be the resulting percentage change in quantity demanded for good A?
Q2) Suppose the price elasticity of demand for a product is 0.5.If a supplier wants to increase revenue,what change should it make to price,if any?
Q3) Suppose a market has the demand function Q<sup>d</sup>=20-0.5P.At what price will total revenue be maximized?
Q4) Refer to Scenario 5-2.Using the midpoint method,if the price of good Y is $10 and the price of good X decreases from $5 to $3,what is the price elasticity of demand for good X? Is the demand elastic,unitary elastic,or inelastic?
Q5) Refer to Scenario 5-6.Considering the cross price elasticity of demand for mobile and landline telephone service,is the cross price elasticity of demand positive or negative and do the consumers of Plainville regard these goods as substitutes or complements?
Q6) Recently,in Smalltown,the price of Twinkies fell from $0.80 to $0.70.As a result,the quantity demanded of Ho-Ho's decreased from 120 to 100.What would be the appropriate elasticity to compute? Using the midpoint method,compute this elasticity.What does your answer tell you?
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Chapter 5: Elasticity and Its Applications: Part B
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Q1) Necessities tend to have inelastic demands,whereas luxuries tend to have elastic demands.
A)True
B)False
Q2) Cross-price elasticity is used to determine whether goods are substitutes or complements.
A)True
B)False
Q3) If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12,the price elasticity of supply is 2.
A)True
B)False
Q4) Demand is inelastic if the price elasticity of demand is greater than 1.
A)True
B)False
Q5) The flatter the demand curve that passes through a given point,the more inelastic the demand.
A)True
B)False
38
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Chapter 6: Supply Demand and Government Policies
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Q1) Price controls
A)always produce a fair outcome.
B)always produce an efficient outcome.
C)can generate inequities of their own.
D)All of the above are correct.
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) 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.
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Chapter 6: Supply Demand and Government Policies:
Controls on Prices
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Q1) Refer to Figure 6-14.If the horizontal line on the graph represents a price floor,then the price floor is
A)binding and creates a shortage of 20 units of the good.
B)binding and creates a shortage of 40 units of the good.
C)not binding but creates a shortage of 40 units of the good.
D)not binding,and there will be no surplus or shortage of the good.
Q2) When a binding price floor is imposed on a market,
A)price no longer serves as a rationing device.
B)the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor.
C)only some sellers benefit.
D)All of the above are correct.
Q3) Refer to Figure 6-6.Which of the following statements is correct?
A)A price ceiling set at $12 would be binding,but a price ceiling set at $8 would not be binding.
B)A price floor set at $8 would be binding,but a price ceiling set at $8 would not be binding.
C)A price ceiling set at $9 would result in a surplus.
D)A price floor set at $11 would result in a surplus.
Page 40
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Chapter 6: Supply Demand and Government Policies: Taxes
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Q1) When a payroll tax is enacted,the wage received by workers
A)falls,and the wage paid by firms rises.
B)falls,and the wage paid by firms falls.
C)rises,and the wage paid by firms falls.
D)rises,and the wage paid by firms rises.
Q2) Suppose the government imposes a 50-cent tax on the sellers of packets of chewing gum.The tax would
A)shift the supply curve upward by less than 50 cents.
B)raise the equilibrium price by 50 cents.
C)create a 50-cent tax burden each for buyers and sellers.
D)discourage market activity.
Q3) Refer to Figure 6-25.The equilibrium price in the market before the tax is imposed is A)$1.
B)$2.
C)$5.
D)$6.
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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 will sellers receive per unit after the tax is imposed?
Q2) Will a binding price floor result in a shortage or a surplus in the market?
Q3) Refer to Scenario 6-2.Suppose the government sets a price floor at $13 for this product.Is this price floor binding,and what will be the size of the shortage/surplus in this market?
Q4) When a price floor is binding,is the price floor set above or below the market equilibrium price?
Q5) If the supply curve is more price elastic than the demand curve,will the buyers or the sellers bear a greater burden of a tax? Draw a diagram to illustrate your answer.
Q6) Refer to Figure 6-31.If the government set a price floor at $15,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,how many units will be bought and sold in the market after the tax is imposed?
Q8) How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
Page 42
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Chapter 6: Supply Demand and Government Policies: Part B
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Sample Questions
Q1) The impact of the minimum wage depends on the skill and experience of the worker.
A)True
B)False
Q2) Advocates of the minimum wage admit that it has some adverse effects,but they believe that these effects are small and that a higher minimum wage makes the poor better off.
A)True
B)False
Q3) A tax on buyers decreases demand.
A)True
B)False
Q4) Price floors are typically imposed to benefit sellers.
A)True
B)False
Q5) Since a tax imposed on buyers of a product only affects demand,such a tax has no impact on sellers in that market.
A)True
B)False
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Chapter 7: Consumers Producers and the Efficiency of Markets
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Sample Questions
Q1) 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.
Q2) The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
A)maximizes costs of the seller.
B)maximizes tax revenue for the government.
C)maximizes the combined welfare of buyers and sellers.
D)minimizes the expenditure of buyers.
Q3) Welfare economics is the study of A)taxes and subsidies.
B)how technology is best put to use in the production of goods and services.
C)government welfare programs for needy people.
D)how the allocation of resources affects economic well-being.
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44
Chapter 7: Consumers Producers and the Efficiency of
Markets: Consumer Surplus
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Sample Questions
Q1) If the price of oak lumber increases,what happens to consumer surplus in the market for oak cabinets?
A)Consumer surplus increases.
B)Consumer surplus decreases.
C)Consumer surplus will not change consumer surplus;only producer surplus changes.
D)Consumer surplus depends on what event led to the increase in the price of oak lumber.
Q2) On a graph,consumer surplus is represented by the area
A)between the demand and supply curves.
B)below the demand curve and above price.
C)below the price and above the supply curve.
D)below the demand curve and to the right of equilibrium price.
Q3) Refer to Figure 7-1.If the price of the good is $150,then consumer surplus amounts to A)$150.
B)$200.
C)$250.
D)$300.
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Page 45
Chapter 7: Consumers Producers and the Efficiency of
Markets: Producer Surplus
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Q1) Refer to Figure 7-14.If the government imposes a price ceiling of $50 in this market,then producer surplus will decrease by
A)$325.
B)$100.
C)$300.
D)$200.
Q2) Producer surplus is the area
A)under the supply curve.
B)between the supply and demand curves.
C)below the price and above the supply curve.
D)under the demand curve and above the price.
Q3) Refer to Figure 7-17.If the demand curve is D and the supply curve shifts left from S to S',what is the change in producer surplus when comparing the new equilibrium with the original equilibrium?
A)Producer surplus increases by $225.
B)Producer surplus increases by $675.
C)Producer surplus decreases by $225.
D)Producer surplus decreases by $675.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Market Efficiency
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Q1) According to many economists,government restrictions on ticket scalping do all of the following except
A)inconvenience the public.
B)reduce the audience for cultural and sports events.
C)waste police officers' time.
D)keep the cost of tickets to all consumers low.
Q2) If a market is allowed to adjust freely to its equilibrium price and quantity,then an increase in demand will
A)increase producer surplus.
B)reduce producer surplus.
C)not affect producer surplus.
D)Any of the above are possible.
Q3) Refer to Figure 7-24.If 10 units of the good are produced and sold,then
A)the marginal cost to sellers exceeds the marginal value to buyers.
B)producer surplus is maximized.
C)total surplus is minimized.
D)the marginal value to buyers exceeds the marginal cost to sellers.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Conclusion Market Efficiency and Market Failure
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Q1) 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.
Q2) Which of the following statements is not correct?
A)An invisible hand leads buyers and sellers to an equilibrium that maximizes total surplus.
B)Market power can cause markets to be inefficient.
C)Externalities can cause markets to be inefficient.
D)The invisible hand can remedy all types of market failures.
Q3) Inefficiency can be caused in a market by the presence of A)market power.
B)externalities.
C)imperfectly competitive markets.
D)All of the above are correct.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part A
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Sample Questions
Q1) Suppose John's cost for performing some carpentry work is $120.If John is paid $200 for the carpentry work,what is his producer surplus?
Q2) Refer to Scenario 7-1.If the market equilibrium price rises from $10 to $15,what is the change in total consumer surplus in the market?
Q3) Refer to Scenario 7-2.How much is total producer surplus at the equilibrium price in this market?
Q4) Refer to Figure 7-33.How much is total surplus in this market at the equilibrium price?
Q5) Refer to Figure 7-31.If the market equilibrium price is $25,how much is total producer surplus in this market?
Q6) Refer to Figure 7-30.If the market equilibrium price is $120,how much is total consumer surplus?
Q7) Refer to Figure 7-32.If the government imposed a price floor at $35 in this market,how much is consumer surplus?
Q8) Refer to Scenario 7-1.If the market equilibrium price is $10,how much is total consumer surplus 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) Consumer surplus measures the benefit to buyers of participating in a market. A)True
B)False
Q2) If producing a soccer ball costs Jake $5,and he sells it for $40,his producer surplus is $45.
A)True
B)False
Q3) All else equal,an increase in demand will cause an increase in producer surplus. A)True
B)False
Q4) When markets fail,public policy can potentially remedy the problem and increase economic efficiency.
A)True
B)False
Q5) The lower the price,the lower the consumer surplus,all else equal. A)True B)False
B)False Page 50
Q6) The current policy on kidney donation effectively sets a price ceiling of zero. A)True
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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) Who once said that taxes are the price we pay for a civilized society?
A)Aristotle
B)George Washington
C)Oliver Wendell Holmes,Jr.
D)Ronald Reagan
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Chapter 8: Application the Cost of Taxation: The
Deadweight Loss of Taxation
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Q1) Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding.Rebecca values dog sitting for the weekend at $200.Susan is willing to dog sit for Rebecca so long as she receives at least $175.Rebecca and Susan agree on a price of $185.Suppose the government imposes a tax of $30 on dog sitting.What is the deadweight loss of the tax?
A)the maximum value that Rebecca would pay for dog sitting B)the $30 tax
C)the lost benefit to Rebecca and Susan because after the tax,Susan will not dog sit for Rebecca
D)the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one who would pay the tax
Q2) Refer to Figure 8-6.Without a tax,producer surplus in this market is
A)$1,500.
B)$2,400.
C)$3,000.
D)$3,600.
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Chapter 8: Application the Cost of Taxation: The Determinants of the Deadweight Loss
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Q1) Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?
A)The greater are the price elasticities of supply and demand,the greater is the deadweight loss.
B)The greater is the price elasticity of supply and the smaller is the price elasticity of demand,the greater is the deadweight loss.
C)The smaller are the decreases in quantity demanded and quantity supplied,the greater the deadweight loss.
D)The smaller is the wedge between the effective price to sellers and the effective price to buyers,the greater is the deadweight loss.
Q2) Refer to Figure 8-14.Which of the following combinations will minimize 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
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Q1) Refer to Figure 8-20.Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)
Q2) Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?
A)As the size of the tax increases,tax revenue continually rises and deadweight loss continually falls.
B)As the size of the tax increases,tax revenue and deadweight loss rise initially,but both eventually begin to fall.
C)As the size of the tax increases,tax revenue rises initially,but it eventually begins to fall;deadweight loss continually rises.
D)As the size of the tax increases,tax revenue rises initially,but it eventually begins to fall;deadweight loss falls initially,but eventually it begins to rise.
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Chapter 8: Application the Cost of Taxation: Conclusion
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Q1) Taxes are of interest to
A)microeconomists because they consider how to balance equality and efficiency. B)microeconomists because they consider how best to design a tax system.
C)macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity.
D)All of the above are correct.
Q2) Taxes are costly to market participants because they A)transfer resources from market participants to the government. B)alter incentives.
C)distort market outcomes.
D)All of the above are correct.
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Chapter 8: Application the Cost of Taxation: Part A
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Q1) Suppose the demand curve and the supply curve in a market are both linear,and suppose the price elasticity of supply is 0.5.Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?
Q2) Illustrate on three demand-and-supply graphs how the size of a tax (small,medium and large)can alter total revenue and deadweight loss.
Q3) 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 $6 tax per unit?
Q4) Refer to Figure 8-29.As the size of the tax increases from $3 to $6 to $9,what happens to tax revenues?
Q5) Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.How many units of this good will be bought and sold after the tax is imposed?
Q6) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How much is producer surplus after the tax is imposed?
Q7) Refer to Figure 8-26.How much is consumer surplus at the market equilibrium?
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Chapter 8: Application the Cost of Taxation: Part B
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Q1) When a tax is imposed on a good,consumer surplus decreases and producer surplus remains unchanged.
A)True
B)False
Q2) Economists disagree on whether labor taxes have a small or large deadweight loss.
A)True
B)False
Q3) If a tax did not induce buyers or sellers to change their behavior,it would not cause a deadweight loss.
A)True
B)False
Q4) The demand for beer is more elastic than the demand for milk,so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk,all else equal.
A)True
B)False
Q5) A tax on insulin is likely to cause a very large deadweight loss to society.
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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Q1) A tariff is a
A)limit on how much of a good can be exported.
B)limit on how much of a good can be imported.
C)tax on an exported good.
D)tax on an imported good.
Q2) Spain allows trade with the rest of the world.We know that Spain has a comparative advantage in producing olive oil if we know that
A)Spain imports olive oil.
B)the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed.
C)consumer surplus in Spain would exceed producer surplus in Spain if trade with other countries were not allowed.
D)All of the above are correct.
Q3) If a country is an exporter of a good,then it must be the case that
A)the world price is less than its domestic price.
B)consumer surplus is higher than a no trade situation.
C)the world price is greater than its domestic price.
D)they used an infant-industry argument to protect its producers.
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Chapter 9: Application International Trade: The Winners
and Losers From Trade
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Q1) Suppose a country abandons a no-trade policy in favor of a free-trade policy.If,as a result,the domestic price of pistachios decreases to equal the world price of pistachios,then
A)that country becomes an exporter of pistachios.
B)that country has a comparative advantage in producing pistachios.
C)at the world price,the quantity of pistachios demanded in that country exceeds the quantity of pistachios supplied in that country.
D)All of the above are correct.
Q2) Refer to Figure 9-22.With free trade,total surplus is
A)$30,000.
B)$66,000.
C)$96,000.
D)$120,000.
Q3) Refer to Figure 9-8.The price corresponding to the horizontal dotted line on the graph represents the price of cars
A)after trade is allowed.
B)before trade is allowed.
C)that maximizes total surplus when trade is allowed.
D)that minimizes the well-being of domestic car producers when trade is allowed.
Page 61
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Chapter 9: Application International Trade: The Arguments for Restricting Trade
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Q1) One should be especially wary of the national-security argument for restricting trade when that argument is made by
A)representatives of industry.
B)representatives of the defense establishment.
C)members of households.
D)foreign government officials.
Q2) Which of the following arguments for trade restrictions is often advanced?
A)Trade restrictions make all Americans better off.
B)Trade restrictions increase economic efficiency.
C)Trade restrictions are necessary for economic growth.
D)Trade restrictions are sometimes necessary for national security.
Q3) In recent years,which countries have taken a unilateral approach to the removal of trade restrictions?
A)China and North Korea
B)Chile and South Korea
C)Russia and Japan
D)the United States and Mexico
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Chapter 9: Application International Trade: Conclusion
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Q1) Most economists view the United States' experience with trade as
A)one from which no firm conclusions about the virtues of free trade can be reached,due to the relatively short history of international trade in the U.S.
B)one from which no firm conclusions about the virtues of free trade can be reached,due to the lack of trade within the U.S.throughout most of the early history of the U.S.
C)an ongoing experiment that confirms the virtues of free trade.
D)an ongoing experiment that calls into serious question the notion that free trade enhances the economic well-being of a nation.
Q2) Economists view the fact that Florida grows oranges,Texas pumps oil,and California makes wine as
A)confirmation of the virtues of free trade.
B)confirmation of the infant-industry argument.
C)confirmation that free trade agreements are not necessary.
D)confirmation that specialization in absolute advantage works.
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Chapter 9: Application International Trade: Part A
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Q1) Refer to Figure 9-26.With no trade allowed,what are the equilibrium price and equilibrium quantity in this market?
Q2) Refer to Figure 9-29.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus?
Q3) List five arguments given to support trade restrictions.
Q4) Refer to Figure 9-28.Suppose the world price in this market is $6.If the country allows free trade,how much is consumer surplus?
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 are consumer surplus and producer surplus?
Q6) Refer to Figure 9-28.Suppose the world price in this market is $6.If the country allows free trade,how much is total surplus?
Q7) Suppose in the country of Nash that the price of corn is $4 per bushel with no trade allowed.If the world price of corn is $3 per bushel and if Nash allows free trade,will Nash be an importer or an exporter of corn?
Q8) 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 tariff revenue?
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Chapter 9: Application International Trade: Part B
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Q1) Suppose Ecuador imposes a tariff on imported bananas.If the increase in producer surplus is $50 million,the reduction in consumer surplus is $150 million,and the deadweight loss of the tariff is $30 million,then the tariff generates $130 million in revenue for the government.
A)True
B)False
Q2) "Trade raises the economic well-being of a nation in the sense that the gains of the winners exceed the losses of the losers." This statement is correct for a nation that exports manufactured goods,but it is not correct for a nation that imports manufactured goods.
A)True
B)False
Q3) If we know that Canada exports maple syrup,we can conclude that maple syrup consumers in Canada are worse off than they would be in the absence of trade.
A)True
B)False
Q4) Import quotas and tariffs both cause the quantity of imports to fall.
A)True
B)False
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Chapter 10: Measuring a Nations Income
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Q1) A macroeconomist is interested in
A)explaining how changes in sellers' behavior affect prices of a particular good.
B)explaining price changes in a particular market.
C)explaining why the unemployment rate is higher.
D)All of the above are correct.
Q2) 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.
Q3) 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?
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Chapter 10: Measuring a Nations Income: The Economy's
Income and Expenditure
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Q1) In the actual economy,goods and services are purchased by
A)households,but not firms or the government.
B)households and firms,but not the government.
C)households and the government,but not firms.
D)households,firms,and the government.
Q2) In a simple circular-flow diagram,total income and total expenditure are
A)never equal because total income always exceeds total expenditure.
B)seldom equal because of the ongoing changes in an economy's unemployment rate.
C)equal only when the government purchases no goods or services.
D)always equal because every transaction has a buyer and a seller.
Q3) For an economy as a whole,
A)wages must equal profit.
B)consumption must equal income.
C)income must equal expenditure.
D)consumption must equal saving.
Q4) For the economy as a whole,
A)income must be greater than expenditure.
B)unemployment must rise when GDP rises.
C)expenditure must equal income.
D)consumption must be greater than investment.
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Chapter 10: Measuring a Nations Income: The
Measurement of GDP
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Q1) Which of the following transactions adds to U.S.GDP for 2015?
A)In 2015,Ann sells a car that she bought in 2011 to Bill for $7,000.
B)An American management consultant works in Canada during the summer of 2015 and earns the equivalent of $40,000 during that time.
C)When Ken and Kim were both single,they lived in separate apartments and each paid $800 in rent.Ken and Kim got married in 2015 and they bought a previously unoccupied house that,according to reliable estimates,could be rented for $1,700 per month.
D)None of the above transactions adds to U.S.GDP for 2015.
Q2) Over time,people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves.For example,busy people with high incomes,rather than cleaning their own houses,hire people to clean their houses.By itself,this change has
A)caused measured GDP to fall.
B)not caused any change in measured GDP.
C)caused measured GDP to rise.
D)probably changed measured GDP,but in an uncertain direction;the direction of the change depends on the difference in the quality of the cleaning that has resulted.
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Chapter 10: Measuring a Nations Income: The Components of GDP
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Q1) To encourage formation of small businesses,the government could provide subsidies;these subsidies
A)would be included in GDP because they are part of government purchases.
B)would be included in GDP because they are part of investment expenditures.
C)would not be included in GDP because they are transfer payments.
D)would not be included in GDP because the government raises taxes to pay for them.
Q2) In the economy of Talikastan in 2015,consumption was $3000,GDP was $5500,government purchases were $1000,imports were $1000,and investment was $1000.What were Talikastan's exports in 2015?
A)-$500
B)$500
C)$1500
D)$-1500
Q3) Which of the following items is counted as part of government purchases?
A)The federal government pays the salary of a Navy officer.
B)The state of Nevada pays a private firm to repair a Nevada state highway.
C)The city of Las Vegas,Nevada pays a private firm to collect garbage in that city.
D)All of the above are correct.
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Chapter 10: Measuring a Nations Income: Real Versus Nominal GDP
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Q1) If total spending rises from one year to the next,then A)the economy must be producing a larger output of goods and services.
B)goods and services must be selling at higher prices.
C)either the economy must be producing a larger output of goods and services,or goods and services must be selling at higher prices,or both.
D)employment or productivity must be rising.
Q2) In the base year,the GDP deflator is always A)-1.
B)0.
C)1.
D)100.
Q3) If in some year real GDP was $25 billion and the GDP deflator was 68,what was nominal GDP?
A)$2.72 billion.
B)$17 billion.
C)$36.8 billion.
D)$43 billion.
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Chapter 10: Measuring a Nations Income: Is GDP a Good Measure of Economic Well-Being
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Q1) 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.
Q2) GDP is not a perfect measure of well-being;for example,
A)GDP excludes the value of volunteer work.
B)GDP does not address the distribution of income.
C)GDP does not address environmental quality.
D)All of the above are correct.
Q3) GDP does not reflect
A)the value of leisure.
B)the value of goods and services produced at home.
C)the quality of the environment.
D)All of the above are correct.
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Chapter 10: Measuring a Nations Income: Part A
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Q1) Are sales of used goods included in GDP? Explain why or why not.Hint: Remember how GDP is defined.
Q2) Calculate GDP for a country with investment of $2 trillion,government purchases of $3 trillion,capital depreciation of $1.5 trillion,consumption of $10 trillion,exports of $3.4 trillion,and imports of $3.9 trillion.
Q3) In 2011 a country had a real GDP of $13.89 trillion and GDP deflator of 110.In 2012 it had a nominal GDP of $17.8 trillion and real GDP of 14.24 trillion.What is the rate of inflation in 2012?
Q4) Define GDP.Remember to be specific about what it includes.
Q5) In 2012 a country had a real GDP $15.4 trillion and GDP deflator of 125.If that country's GDP deflator equals 115 in 2013,what is the rate of inflation in 2013?
Q6) 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?
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Chapter 10: Measuring a Nations Income: Part B
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Q1) If a firm produces a good and then adds it to its inventory rather than selling it,for the purposes of GDP accounting the firm is considered to have "purchased" the good so it will count as part of that period's investment expenditures.
A)True
B)False
Q2) Changes in inventory are included in the investment component of GDP.
A)True B)False
Q3) The overall effect of accounting for purchases of foreign goods in GDP reduces GDP. A)True B)False
Q4) If consumption is $7000,exports are $600,government purchases are $2000,government transfers are $900,imports are $800,and investment is $1000,then GDP is $9,800.
A)True B)False
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Chapter 11: Measuring the Cost of Living
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Q1) When the consumer price index falls,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 save less because they do not need to offset the effects of rising prices.
Q2) Which of the following is not correct?
A)The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power.
B)The consumer price index is used to monitor changes in the cost of living over time.
C)The consumer price index is used by economists to measure the inflation rate.
D)The consumer price index is used to measure the quantity of goods and services that the economy is producing.
Q3) The term inflation is used to describe a situation in which
A)the overall level of prices in the economy is increasing.
B)incomes in the economy are increasing.
C)stock-market prices are rising.
D)the economy is growing rapidly.
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Chapter 11: Measuring the Cost of Living: The Consumer Price Index
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Q1) Which is the most accurate statement about the GDP deflator and the consumer price index?
A)The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year.
B)The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.
C)Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year.
D)Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.
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Chapter 11: Measuring the Cost of Living: Correcting
Economic Variables for the Effects of Inflation
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Q1) When ranking movies by nominal box office receipts,what important fact is overlooked?
A)More people go to movies now than in the past.
B)There are no good substitutes for movies currently.
C)Prices,including those for movie tickets,have been rising over time.
D)Movies and DVD are complements.
Q2) In 1983,one could buy a model radio-controlled airplane for $11.50 each.Those same planes are available today and the price increased at exactly the rate of inflation.If the CPI today is 220.5 and in 1983 was 105,what is the price of the airplane today?
A)$24.15
B)$11.50
C)$5.48
D)$2.10
Q3) If the CPI was 104 in 1967 and is 390 today,then $10 in 1967 purchased the same amount of goods and services as
A)$2.67 purchases today.
B)$37.50 purchases today.
C)$39.00 purchases today.
D)$104.00 purchases today.
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Chapter 11: Measuring the Cost of Living: Part A
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Q1) Explain how the introduction of new goods might bias the calculation of the consumer price index.
Q2) If the real interest rate is 6.8% and the inflation rate is 3.9%,what is the nominal interest rate?
Q3) 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.
Q4) Suppose the Tooth Fairy paid 50 cents for a tooth in 1970.The CPI in 1970 was 38.8,while the CPI in 2010 was 218.1.What is the value of the Tooth Fairy's payment in 2010 dollars?
Q5) What do real interest rates account for that nominal interest rates do not?
Q6) Refer to Scenario 24-5.What are the prices of books,CDs,and DVDs in 2009?
Q7) If the CPI was 120 in 1994,was 126 in 1995,and was 134.82 in 1996,what was the inflation rate in 1995 and in 1996?
Q8) Explain how the prices of goods and services used in the CPI differ from the prices reflected by GDP deflator.
Q9) If the CPI was 170 in 1998 and was 187 in 1999,what was the inflation rate in 1999?
Q10) Consumer spending in what category is the largest component of the CPI?
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Chapter 11: Measuring the Cost of Living: Part B
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Q1) By keeping the basket of goods and services the same when computing the CPI,the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.
A)True
B)False
Q2) Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.
A)True
B)False
Q3) The real interest rate tells you how fast the purchasing power of your bank account rises over time.
A)True
B)False
Q4) Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 5 percent during the year the money was deposited,then Bob's purchasing power has not changed.
A)True
B)False
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Chapter 12: Production and Growth
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Q1) In which of the following countries did real GDP per person fall by about 13% from 2000 to 2014?
A)India
B)Singapore
C)Zimbabwe
D)None of the above are correct.
Q2) A country experiencing a growth rate of 12% per year can go from being one of the poorest to one of the richest in
A)one generation.In the last couple of decades China's growth rate has been higher than 12%.
B)one generation.However,in the last couple of decades not even China's growth rate has been this high.
C)three generations.In the last couple of decades China's growth rate has been higher than 12%.
D)three generations.However,in the last couple of decades not even China's growth rate has been this high.
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Chapter 12: Production and Growth: Economic Growth
Around the World
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Q1) In 2012,the imaginary nation of Kanmiw had a population of 8,044 and real GDP of 36,198,000.In 2013 it had a population of 7,800 and real GDP of 35,880,000.What was the growth rate of real GDP per person in Kanmiw between 2012 and 2013?
A)-2.2 percent
B)-0.7 percent
C)2.2 percent
D)4.5 percent
Q2) In 2010,the imaginary nation of Mainland had a population of 6,000 and real GDP of 120,000.In 2011 the population was 6,200 and real GDP of 128,960.Over the year in question,real GDP per person in Mainland grew by
A)2 percent,which is high compared to average U.S.growth over the last one-hundred years.
B)2 percent,which is about the same as average U.S.growth over the last one-hundred years.
C)4 percent,which is high compared to average U.S.growth over the last one-hundred years.
D)4 percent,which is about the same as average U.S.growth over the last one-hundred years.
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Chapter 12: Production and Growth: Productivity Its Role and Determinants
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Q1) Alexis and Tara both mine salt.Alexis mines 300 pounds in 20 hours.Tara mines 400 pounds in 40 hours.Which of the following is correct?
A)Alexis's productivity is greater than Tara's.This difference could be explained by Alexis having more physical capital than Tara.
B)Alexis's productivity is greater than Tara's.This difference cannot be explained by a difference in the physical capital each has.
C)Tara's productivity is greater than Alexis's.This difference could be explained by Tara having more physical capital than Alexis.
D)Tara's productivity is greater than Alexis's.This difference cannot be explained by a difference in the physical capital each has.
Q2) Which of the following is an example of physical capital?
A)the strength of workers
B)on the job training
C)financial assets like cash and bonds
D)the equipment in a factory
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Chapter 12: Production and Growth: Economic Growth and Public Policy
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Q1) When a country removes trade barriers and imports appliances and exports engineering services,
A)its growth slows.
B)its productivity decreases.
C)it is essentially transforming engineering services into appliances.
D)its economic well-being decreases while that of the country that sells appliances increases.
Q2) The BRAC anti-poverty program in Bangladesh gave poor families training on how to raise livestock,a savings account,and help with their physical and mental health.These policies can potentially improve economic growth by increasing
A)education,savings,and human capital,respectively.
B)physical capital,savings,and natural resources,respectively.
C)property rights,research and development,and human capital,respectively.
D)education,research and development,and natural resources,respectively.
Q3) Other things the same,when an economy increases its saving rate
A)consumption and production rise now.
B)consumption rises now and production rises later
C)consumption falls now and production rises later.
D)consumption falls now and production falls later.
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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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83
Chapter 12: Production and Growth: Part A
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Q1) Is coal a produced factor of production?
Q2) Brazil gives cash payments to its poor citizens on the condition that those citizens' children stay in school.In terms of the determinants of productivity,how might this public policy contribute to higher productivity in Brazil?
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) How would an economist typically assess the extent of economic progress in a nation?
Q5) Refer to Figure 25-1.In order for the figure to make sense,do we have to assume that capital is the only determinant of output? Briefly explain.
Q6) Compare and contrast the population theories of Malthus and Kremer.
Q7) Studies have found that there is a relationship between height and productivity.Briefly explain.
Q8) What term do we use to refer to the understanding of the best ways to produce goods and services?
Q9) In what sense is capital accumulation costly to a society?
Q10) What is the difference between human capital and technology?
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Chapter 12: Production and Growth: Part B
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Q1) Human capital is the term economists use to refer to the knowledge and skills that workers acquire through education,training,and experience.
A)True
B)False
Q2) Other things the same,another unit of capital will increase output by more in a poor country than in a rich country.
A)True
B)False
Q3) Real GDP per person in rich countries,such as Germany,is sometimes more than 10 times that of poor countries like India.
A)True
B)False
Q4) Productivity can be computed as the number of hours worked divided by output. A)True
B)False
Q5) Investment in human capital has opportunity costs,but investment in physical capital does not.
A)True
B)False
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Chapter 13: Saving Investment and the Financial System
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Sample Questions
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) When opening a print shop you need to buy printers,computers,furniture,and similar items.Economists call these expenditures
A)capital investment.
B)investment in human capital.
C)business consumption expenditures.
D)personal saving.
Q3) The financial system does NOT influence
A)long-run economic growth.
B)saving and investment.
C)the amount of capital in the economy.
D)the amount of natural resources in the economy.
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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) Two of the economy's most important financial intermediaries are
A)suppliers of funds and demanders of funds.
B)banks and the bond market.
C)the stock market and the bond market.
D)banks and mutual funds.
Q2) Which of the following statements is correct?
A)The expected future profitability of a corporation influences the demand for that corporation's stock.
B)When a corporation sells stock as a means of raising funds it is engaging in debt finance.
C)The owners of bonds sold by the Microsoft Corporation are part owners of that corporation.
D)All bonds are,by definition,perpetuities.
Q3) If Huedepool Beer runs into financial difficulty,the stockholders as
A)part owners of Huedepool are paid before bondholders get paid anything at all.
B)part owners of Huedepool are paid after bondholders get paid.
C)creditors of Huedepool are paid before bondholders get paid anything at all.
D)creditors of Huedepool are paid after bondholders get paid.
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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) Refer to Scenario 26-1.For this economy,investment amounts to A)$38,000.
B)$18,000.
C)$12,000.
D)$15,000.
Q2) In a closed economy,if Y remained the same,but G rose,T rose by the same amount as G,and C fell but by less than the increase in T,what would happen to private and national saving?
A)national saving would fall and private saving would rise
B)national saving would rise and private saving would fall
C)both national saving and private saving would fall
D)None of the above is correct.
Q3) Last quarter in a closed economy GDP was 200,000.Expenditures on capital goods such as business equipment and structures was 19,000,inventory rose 1,000,and new construction of homes was 8,000.Consumption was 135,000 and taxes were 32,000.What was public saving?
A)-4,000
B)-5,000
C)-14,000
D)-6,000
Page 88
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Chapter 13: Saving Investment and the Financial System:
The Market for Loanable Funds
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Q1) 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?
Q2) The nominal interest rate increases by 5 percent.What is the effect on investment?
A)The real interest rate increases and investment increases
B)The real interest rate decreases and investment decreases.
C)The real interest rate increases and investment decreases.
D)Cannot be determined from the given information
Q3) What is a bond buyer promised when she buys a bond?
Q4) If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,
A)there is a surplus and the interest rate is above the equilibrium level.
B)there is a surplus and the interest rate is below the equilibrium level.
C)there is a shortage and the interest rate is above the equilibrium level.
D)there is a shortage and the interest rate is below the equilibrium level.
Q5) Robert buys bonds.Rachel buys a new truck for her landscaping business.Identify both as savers,investors,both,or neither.
Q6) Public saving is the difference between _____ and _____.
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Chapter 13: Saving Investment and the Financial System:
Part A
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Q1) A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.
Q2) What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?
Q3) When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.
Q4) In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.
Q5) In a closed economy taxes are $750 billion,government transfers are $400 billion,government expenditures are $500 billion,and investment is $400 billion.What are private saving,public saving and national saving?
Q6) When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.
Q7) A higher interest rate makes _____ less attractive. Therefore the quantity of loanable funds demanded decreases.
Page 90
Q8) What is a mutual fund?
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Chapter 13: Saving Investment and the Financial System:
Part B
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Q1) An increase in the budget deficit shifts the demand for loanable funds to the right. A)True
B)False
Q2) If the tax rate fell,holding municipal bonds would be less desirable so the interest rates on them would fall.
A)True
B)False
Q3) We interpret the term loanable funds to mean the flow of resources available to fund private investment.
A)True
B)False
Q4) If,for an imaginary closed economy,investment amounts to $10,000 and the government is running a $2,500 deficit,then private saving must amount to $12,500. A)True
B)False
Q5) The sale of either stocks or bonds to raise money is known as equity finance. 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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Sample Questions
Q1) At which interest rate is the present value of $95.40 one year from today equal to $90 today?
A)4 percent
B)5 percent
C)6 percent
D)7 percent
Q2) Vince says that the present value of $500 to be received one year from today if the interest rate is 8 percent is more than the present value of $500 to be received two years from today if the interest rate is 4 percent.Terri says that $500 saved for two years at an interest rate of 3 percent has a larger future value than $500 saved for one years at an interest rate of 6 percent.
A)Both Vince and Terri are correct.
B)Only Vince is correct.
C)Only Terri is correct.
D)Neither Vince nor Terri is correct.
Q3) Albert Einstein once referred to compounding as
A)"an obsession among economists that defies explanation."
B)"the greatest mathematical discovery of all time."
C)his own discovery.
D)John Maynard Keynes's greatest contribution.
Page 93
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Chapter 14: The Basic Tools of Finance: Managing Risk
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Q1) A risk-averse person has
A)a utility function whose slope gets flatter as wealth rises.This means they have increasing marginal utility of wealth.
B)a utility function whose slope gets flatter as wealth rises.This means they have diminishing marginal utility of wealth.
C)a utility function whose slope gets steeper as wealth rises.This means they have increasing marginal utility of wealth.
D)a utility function whose slope gets steeper as wealth rises.This means they have diminishing utility of wealth.
Q2) The problem of moral hazard arises because
A)life is full of all sorts of risks.
B)after people buy insurance,they have less incentive to be careful about their risky behavior.
C)a high-risk person is more likely to apply for insurance than is a low-risk person.
D)insurance companies go to great effort to avoid paying claims to their policy holders.
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Chapter 14: The Basic Tools of Finance: Asset Valuation
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Sample Questions
Q1) If you believe that stock prices follow a random walk,then probably you
A)do not believe that there is positive relationship between risk and return.
B)do not believe that stock prices reflect all available information.
C)believe in the validity of the efficient markets hypothesis.
D)believe that it is a good idea to engage in fundamental analysis.
Q2) The efficient markets hypothesis implies that
A)building a portfolio based on a published list of the "most respected" companies is likely to produce a better-than-average return.
B)if a stock rose in price last year,it is likely to rise in price this year.
C)managed mutual funds should generally outperform indexed mutual funds.
D)None of the above are correct.
Q3) Suppose that interest rates unexpectedly rise and that FineLine Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down.According to the efficient markets hypothesis,which of the these things make the price of FineLine Corporation Stock fall?
A)both the interest rate rising and the revenue announcement
B)neither the interest rate rising nor the revenue announcement
C)only the interest rate rising
D)only the revenue announcement
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Page 95
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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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) If the interest rate is 5 percent,then what is the present value of $2,000 to be received in three years?
Q3) Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000,with the first payment one year from now,the second payment two years from now,and the third payment three years from now.What is the present value of this stream of payments?
Q4) You are a financial advisor and a client tells you he is concerned about the amount of risk in his portfolio.Assuming your client hasn't already done them,what two things can you suggest to reduce your client's risk? What additional information about reducing risk should you provide?
Q5) What does "random walk" mean? According to the efficient markets hypothesis,should stock prices follow a random walk?
Q6) Refer to Scenario 27-1.Is Lisa risk averse? Explain.
Q7) How does moral hazard matter in the market for insurance?
Q8) Describe the shape of the utility function of a risk averse person.
Q9) What is meant by an asset bubble?
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Chapter 14: The Basic Tools of Finance: Part B
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Q1) The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.
A)True
B)False
Q2) The future value of $1 saved today is $1/(1 + r).
A)True
B)False
Q3) A person's subjective measure of well-being or satisfaction is called aversion.
A)True
B)False
Q4) According to the Rule of 70,it takes 70 years for a sum of money to double in value when the interest rate is 5 percent.
A)True
B)False
Q5) If you are faced with the choice of receiving $500 today or $800 6 years from today,you will be indifferent between the two possibilities if the interest rate is 8.148 percent.
A)True B)False
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Chapter 15: Unemployment
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Sample Questions
Q1) 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.
Q2) Cyclical unemployment refers to
A)the relationship between the probability of unemployment and a worker's changing level of experience.
B)how often a worker is likely to be employed during her lifetime.
C)year-to-year fluctuations of unemployment around its natural rate.
D)long-term trends in unemployment.
Q3) An economy's natural rate of unemployment is the
A)economy's long-run target level of unemployment.
B)amount of unemployment that the economy normally experiences.
C)lowest rate of unemployment the economy can achieve.
D)All of the above are correct.
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99
Chapter 15: Unemployment: Identifying Unemployment
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Sample Questions
Q1) The reported unemployment rate should be viewed as A)a useful but imperfect measure of joblessness.
B)clearly smaller than the true unemployment rate.
C)clearly larger than the true unemployment rate.
D)being very close to the true unemployment rate.
Q2) Who would be included in the labor force?
A)Maggie,who plans to work at the newspaper next year when she turns 16 years old.
B)Lisa,who is unhappy with her current job.
C)Bart,who is a full-time student and uninterested in finding employment.
D)None of the above is correct.
Q3) For the Bureau of Labor Statistics to place someone in the "unemployed" category,that person must
A)be available for work.
B)have tried to find employment during the previous week.
C)have previously been employed.
D)All of the above are correct.
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Chapter 15: Unemployment: Job Search
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Q1) Policies that reduce the time it takes unemployed workers to find new jobs
A)can reduce both frictional unemployment and the natural rate of unemployment.
B)can reduce frictional unemployment,but they cannot reduce the natural rate of unemployment.
C)cannot reduce frictional unemployment,but they can reduce the natural rate of unemployment.
D)cannot reduce either frictional unemployment or the natural rate of unemployment.
Q2) Evidence from research studies by economists
A)shows that increased unemployment benefits decrease the job search efforts of the unemployed.
B)shows that increased unemployment benefits have virtually no effect on the job search efforts of the unemployed.
C)shows that increased unemployment benefits increase the job search efforts of the unemployed.
D)is conflicting on what increased unemployment benefits do to the job search efforts of the unemployed.
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Chapter 15: Unemployment: Minimum-Wage Laws
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Q1) Refer to Figure 28-3.If the government imposes a minimum wage of $4,then unemployment will increase by A)0 workers.
B)2,000 workers.
C)4,000 workers.
D)5,000 workers.
Q2) Refer to Figure 28-3.At the equilibrium wage,how many workers are unemployed? A)0
B)4,000
C)5,000
D)8,000
Q3) Refer to Figure 28-4.If 4,000 workers are unemployed,then the minimum wage must be
A)$6
B)$8.
C)$12.
D)$14.
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102
Chapter 15: Unemployment: Unions and Collective Bargaining
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Sample Questions
Q1) Which of the following is not correct?
A)When a union is present in a labor market,wages are determined by the equilibrium of supply and demand.
B)Like any cartel,a union is a group of sellers acting together in the hope of exerting their joint market power.
C)The process by which unions and firms agree on the terms of employment is called collective bargaining.
D)Most workers in the U.S.economy are not members of a union.
Q2) Collective bargaining refers to
A)the process by which the government sets exemptions from the minimum wage law.
B)setting the same wage for all employees to prevent conflict among workers.
C)firms colluding to set the wages of employees below equilibrium.
D)the process by which unions and firms agree on the terms of employment.
Q3) Unions contribute to
A)frictional but not structural unemployment.
B)structural but not frictional unemployment.
C)both frictional and structural unemployment.
D)neither frictional nor structural unemployment.
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Chapter 15: Unemployment: The Theory of Efficiency Wages
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Q1) Buddy is the owner of a firm that bottles beer in St.Louis,Missouri.There are many other such firms in the area.Buddy decides that if he pays his workers a wage higher than the going market wage,his profits will increase.Which of the following is a likely explanation for his decision?
A)The higher the wage,the less often his workers will choose to leave his firm.
B)The higher the wage,the lower will be the costs of obtaining needed supplies.
C)The higher the wage,the more he can charge for his beer
D)The higher the wage,the more he will have to monitor his workers for shirking.
Q2) Efficiency wages contribute to
A)frictional unemployment and the natural rate of unemployment.
B)frictional unemployment but not the natural rate of unemployment.
C)structural unemployment and the natural rate of unemployment.
D)structural unemployment but not the natural rate of unemployment.
Q3) Suppose that efficiency wages become more common in the economy.Imposing efficiency wages
A)increases the quantity demanded and decreases the quantity supplied of labor.
B)decreases the quantity demanded and increases the quantity supplied of labor.
C)increases the quantity demanded and decreases the quantity supplied of labor
D)decreases the quantity demanded and increases the quantity supplied of labor
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Page 104
Chapter 15: Unemployment: Part A
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Sample Questions
Q1) Briefly summarize the advantages and disadvantages of unemployment insurance.
Q2) Briefly describe how labor unions can affect wages in non-unionized industries.
Q3) Why might a favorable change in the economy,such as technological improvement or a decrease in the price of imported oil,be associated with an increase in frictional unemployment?
Q4) 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?
Q5) Refer to Figure 28-7.If the minimum wage is equal to $125,what is the quantity of labor supplied,the quantity of labor demanded,and number unemployed?
Q6) Explain how the following apparently contradictory statement can be true: Most spells of unemployment are short,and most unemployment observed at any given time is long-term.
Q7) Refer to Figure 28-7.If the minimum wage increases from $100 to $125,how many additional workers will be unemployed?
Q8) The Internet may reduce frictional unemployment because it __________.
Q9) Discuss the labor-force participation trends for men and women since 1950.
Q10) In terms of duration,how does cyclical unemployment differ from structural unemployment?
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Chapter 15: Unemployment: Part B
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Q1) In the U.S. ,it is illegal for employers to interfere when workers try to organize unions.
A)True
B)False
Q2) A union is a type of cartel.
A)True
B)False
Q3) A minimum wage that is below the equilibrium wage rate does not raise unemployment.
A)True
B)False
Q4) Long-run unemployment arises from a single problem that has a single solution.
A)True
B)False
Q5) In an ideal labor market,wages would adjust to balance the quantity of labor supplied and the quantity of labor demanded,ensuring that all workers are always fully employed.
A)True B)False
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Chapter 16: The Monetary System
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Q1) The existence of money
A)reduces specialization.
B)makes trade easier.
C)allows for barter.
D)hinders production.
Q2) A double coincidence of wants
A)is required when there is no item in an economy that is widely accepted in exchange for goods and services.
B)is required in an economy that relies on barter.
C)is a hindrance to the allocation of resources when it is required for trade.
D)All of the above are correct.
Q3) Money
A)is more efficient than barter.
B)makes trades easier.
C)allows greater specialization.
D)All of the above are correct.
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107
Chapter 16: The Monetary System: The Meaning of Money
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Q1) When we measure and record economic value,we use money as the
A)liquid asset.
B)medium of exchange.
C)unit of account.
D)store of value.
Q2) In the United States,currency holdings per person average about
A)$110;one explanation for this relatively small average is that many people use credit and debit cards to make transactions.
B)$110;one explanation for this relatively small average is that U.S.citizens hold a lot of foreign currency.
C)$4,490;one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange.
D)$4,490;one explanation for this relatively large average is that U.S.citizens hold a lot of foreign currency.
Q3) Which list ranks assets from most to least liquid?
A)currency,fine art,stocks
B)currency,stocks,fine art
C)fine art,currency,stocks
D)fine art,stocks,currency
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Page 108
Chapter 16: The Monetary System: The Federal Reserve System
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Q1) Which government body is primarily responsible for regulating banks and ensuring the health of the banking system?
A)The U.S.Treasury
B)Federal Deposit Insurance Corporation
C)The Federal Reserve Board
D)The regional Federal Reserve Banks
Q2) The Federal Reserve
A)was created in 1913.
B)is the U.S.'s central bank.
C)has other duties in addition to controlling the money supply.
D)All of the above are correct.
Q3) The agency responsible for regulating the money supply in the United States is
A)the Comptroller of the Currency.
B)the U.S.Treasury.
C)the Federal Reserve.
D)the U.S.Bank.
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Chapter 16: The Monetary System: Banks and the Money Supply
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Q1) Bank capital is
A)the machinery,structures,and equipment of the bank.
B)the resources that owners have put into the bank.
C)the reserves of the bank.
D)the bank's total assets.
Q2) In the special case of the 100 percent-reserve banking,the money multiplier is
A)1 and banks create money.
B)1 and banks do not create money.
C)2 and banks create money
D)2 and banks do not create money.
Q3) If the reserve ratio increased from 10 percent to 20 percent,the money multiplier would
A)rise from 10 to 20.
B)rise from 5 to 10.
C)fall from 10 to 5.
D)not change.
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Chapter 16: The Monetary System: The Feds Tools of Monetary Control
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Q1) An increase in the money supply might indicate that the Fed had
A)purchased bonds in an attempt to increase the federal funds rate.
B)purchased bonds in an attempt to reduce the federal funds rate.
C)sold bonds in an attempt to increase the federal funds rate.
D)sold bonds in an attempt to reduce the federal funds rate.
Q2) The interest rate the Fed charges on loans it makes to banks is called
A)the prime rate.
B)the federal funds rate.
C)the discount rate.
D)the LIBOR.
Q3) Other things the same,if reserve requirements are increased,the reserve ratio
A)increases,the money multiplier increases,and the money supply increases.
B)increases,the money multiplier decreases,and the money supply decreases.
C)decreases,the money multiplier increases,and the money supply increases.
D)decreases,the money multiplier decreases,and the money supply increases.
Q4) The Fed can directly protect a bank during a bank run by
A)increasing reserve requirements.
B)selling government bonds to the bank.
C)lending reserves to the bank.
D)doing any of the above.
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Chapter 16: The Monetary System: Part A
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Sample Questions
Q1) A bank has $30,000 in deposits and has $5,400 in reserves.What is its reserve ratio?
Q2) The ease with which an asset can be converted into the economys medium of exchange is known as _____.
Q3) In a fractional reserve economy where the required reserve ratio is 10%,must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.
Q4) Are credit cards and debit cards money? What's the difference between credit and debit cards?
Q5) What is the difference between money and wealth?
Q6) When the Fed purchases government bonds the money supply _____ and the federal funds rate _____.
Q7) One of the features of money is its store of value.However,most people do not hold their wealth as currency.Given that currency is the most liquid type of asset,why don't people hold all their wealth as currency?
Q8) Describe how the use of leverage affects the impact of bank investments.
Q9) Money, such as gold, with some intrinsic value is called _____. Money with no intrinsic value is called _____.
Q10) What is the Term Auction Facility?
Page 112
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Chapter 16: The Monetary System: Part B
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Sample Questions
Q1) In an economy that relies on barter,trade requires a double-coincidence of wants.
A)True
B)False
Q2) Federal Reserve governors are given long terms to insulate them from politics.
A)True
B)False
Q3) The federal funds rate is a long-term interest rate banks charge one another for loans.
A)True
B)False
Q4) The Federal Reserve is a privately operated commercial bank.
A)True
B)False
Q5) Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.
A)True B)False
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Chapter 17: Money Growth and Inflation
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Sample Questions
Q1) 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.
Q2) When prices are falling,economists say that there is A)disinflation.
B)deflation.
C)a contraction.
D)an inverted inflation.
Q3) Inflation can be measured by the
A)change in the consumer price index.Inflation in the U.S.has averaged about 2.5% over the last 80 years.
B)change in the consumer price index.Inflation in the U.S.has averaged about 4% over the last 80 years.
C)percentage change in the consumer price index.Inflation in the U.S.has averaged about 3.6% over the last 80 years.
D)percentage change in the consumer price index.Inflation in the U.S.has averaged about 4% over the last 80 years.
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Page 114
Chapter 17: Money Growth and Inflation: The Classical
Theory of Inflation
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Sample Questions
Q1) Suppose monetary neutrality holds and velocity is constant.A 4 percent increase in the money supply
A)increases the price level by more than 4 percent.
B)increases the price level by 4 percent.
C)increases the price level by less than 4 percent.
D)increases real GDP by 4 percent.
Q2) The Fisher effect says that
A)the nominal interest rate adjusts one for one with the inflation rate.
B)the growth rate of the money supply is negatively related to the velocity of money.
C)real variables are heavily influenced by the monetary system.
D)All of the above are correct.
Q3) Ashley puts money in a savings account at her bank earning 2 percent interest.One year later she takes her money out and notes that prices rose 3 percent.Ashley earned a
A)real interest rate of -1 percent due to inflation.
B)real interest rate of 1 percent due to inflation.
C)nominal interest rate of -1 percent due to inflation.
D)nominal interest rate of 1 percent due to inflation.
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Page 115
Chapter 17: Money Growth and Inflation: The Costs of Inflation
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Sample Questions
Q1) Menu costs refers to
A)resources used by people to maintain lower money holdings when inflation is high.
B)resources used to price shop during times of high inflation.
C)the distortion in incentives created by inflation when taxes do not adjust for inflation.
D)the cost of more frequent price changes induced by higher inflation.
Q2) If inflation is higher than what was expected,
A)creditors receive a lower real interest rate than they had anticipated.
B)creditors pay a lower real interest rate than they had anticipated.
C)debtors receive a higher real interest rate than they had anticipated.
D)debtors pay a higher real interest rate than they had anticipated.
Q3) You bought some shares of stock and sell them one year later.At the end of the year,the price per share was 5 percent higher and the price level was 3 percent
higher.Before taxes,you experienced
A)both a nominal gain and a real gain,and you paid taxes on the nominal gain.
B)both a nominal gain and a real gain,and you paid taxes only on the real gain.
C)a nominal gain and a real loss,and you paid taxes on the nominal gain.
D)a nominal gain and a real loss,and you paid no taxes on the transaction.
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Page 116
Chapter 17: Money Growth and Inflation: Conclusion
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Sample Questions
Q1) Inflation costs are minimized under which inflation rate?
A)-20 percent
B)5 percent
C)15 percent
D)575 percent
Q2) Inflation costs are minimized during periods of A)hyperinflation.
B)large,unexpected deflation.
C)moderate inflation.
D)rapid money growth.
Q3) In order to maintain stable prices,a central bank must
A)maintain low interest rates.
B)keep unemployment low.
C)tightly control the money supply.
D)sell indexed bonds.
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117
Chapter 17: Money Growth and Inflation: Part A
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Sample Questions
Q1) The theory that most economists rely on to explain inflation is called the __________.
Q2) 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.
Q3) The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.
Q4) If the price level this year was 140 and was 135 last year,what was the inflation rate to the nearest decimal?
Q5) One year ago Sam purchased bonds for $100,000.He just sold them for $120,000.During the year the price level rose by 5%.If the tax rate on capital gains is 20%,how much did Sam gain in real terms?
Q6) In the U.S., taxes are paid on ones _____ gains/returns. Therefore, a _____ inflation rate encourages more saving
Q7) A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.
Q8) The consumer price index increases from 200 to 208.What is the inflation rate?
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Chapter 17: Money Growth and Inflation: Part B
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Sample Questions
Q1) Inflation is costly only if it is unanticipated.
A)True
B)False
Q2) In the 1990s,U.S.prices rose at about the same rate as in the 1970s.
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) One study found that unemployment is the economic term mentioned most often in U.S.newspapers.
A)True
B)False
Q5) If the quantity of money demanded is greater than the quantity supplied,then the value of money rises.
A)True
B)False
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Chapter 18: Open Economy Macroeconomics Basic Concepts
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Q1) Which type(s)of economies interact with other economies?
A)only closed economies
B)only open economies
C)closed economies and open economies
D)neither closed nor open economies
Q2) International trade
A)raises the standard of living in all trading countries.
B)lowers the standard of living in all trading countries.
C)leaves the standard of living unchanged.
D)raises the standard of living for importing countries and lowers it for exporting countries.
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Page 120
Chapter 18: Open Economy Macroeconomics Basic
Concepts: The International Flows of Goods and Capital
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Sample Questions
Q1) Suppose a country's net capital outflow does not change,but its investment rises by $250 billion.
A)Its saving must have risen by $250 billion so its net exports have risen.
B)Its saving must have risen by $250 billion,but its net exports are unchanged.
C)Its saving must have fallen by $250 billion,so its net exports have fallen.
D)Its saving must have fallen by $250 billion,but its net exports are unchanged.
Q2) If U.S.consumers decrease their demand for cell phones from Finland,then other things the same Finland's
A)exports and net exports fall.
B)exports fall and net exports rise.
C)imports and net exports fall.
D)imports fall and net exports rise.
Q3) A Finnish corporation builds a factory the produces ceiling fans in the United States.This is an example of Finish
A)foreign direct investment that increases Finnish net capital outflow.
B)foreign direct investment that decreases Finnish net capital outflow.
C)foreign portfolio investment that increases Finnish net capital outflow.
D)foreign portfolio investment that decreases Finnish net capital outflow.
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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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Sample Questions
Q1) A good in the U.S.costs $20.The same good costs 150 pesos in Mexico.If the nominal exchange rate is 10 pesos per dollar,what is the real exchange rate?
A)4/3 so the good is more expensive in the U.S.
B)4/3 so the good is more expensive in Mexico
C)3/4 so the good is more expensive in the U.S.
D)3/4 so the good is more expensive in Mexico
Q2) If the exchange rate is 5 Egyptian pounds per U.S.dollar,a watch that costs $25 US dollars costs
A)125 Egyptian pounds
B)50 Egyptian pounds
C)5 Egyptian pounds
D)None of the above is correct.
Q3) A particular brand of shampoo costs 6 Canadian dollars in Toronto.The nominal exchange rate is about 1.2 and the real exchange rate is .90.These numbers imply that the U.S.dollar price of the same shampoo is about
A)$7.99
B)$6.49
C)$5.39
D)$4.49
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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) From 1970 to 1998 the U.S.dollar
A)gained value compared to the Italian lira because inflation was higher in the U.S.
B)gained value compared to the Italian lira because inflation was lower in the U.S.
C)lost value compared to the Italian lira because inflation was higher in the U.S.
D)lost value compared to the Italian lira because inflation was lower in the U.S.
Q2) According to purchasing-power parity,which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?
A)the real exchange rate,but not the nominal exchange rate
B)the nominal exchange rate,but not the real exchange rate
C)the real exchange rate and the nominal exchange rate
D)neither the real exchange rate nor the nominal exchange rate
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123
Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part A
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Sample Questions
Q1) If a country's exports were 500 billion pesos and its imports were 300 billion pesos,what would its trade balance be?
Q2) Last year a country purchased $1.5 trillion worth of goods and services from foreign countries,sold $2 trillion worth of goods and services to foreign countries and had national saving of $1.25 trillion.What was the value of its domestic investment? Show your work.
Q3) A certain cell phone sells for 2400 yuan in China and for $300 in the U.S.The nominal exchange rate is 6.5 yuan per dollar.
A.Find the real exchange rate.Show your work.
B.In terms of dollars where is the cell phone cheaper?
Q4) List the factors that might influence a country's exports,imports,and trade balance.
Q5) A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets.If foreigners purchased $100 billion of this country's assets,what was this country's saving? Explain how your found your answer.
Q6) Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X,what would explain the appreciation of the dollar?
Page 124
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part B
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Sample Questions
Q1) Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.
A)True
B)False
Q2) If a country's imports exceed its exports it has a trade surplus.
A)True
B)False
Q3) The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.
A)True
B)False
Q4) The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.
A)True
B)False
Q5) Reductions in transportation costs help explain the increase in U.S.trade flows.
A)True
B)False
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Chapter 19: A Macroeconomic Theory of the Open Economy
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Sample Questions
Q1) The open-economy macroeconomic model 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.
Q2) 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.
Q3) 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.
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126
Chapter 19: A Macroeconomic Theory of the Open
Economy: Supply and Demand for Loanable Funds and for
Foreign-Currency Exchange
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Sample Questions
Q1) At the equilibrium real interest rate in the open-economy macroeconomic model,the amount that people want to save equals the desired quantity of
A)net capital outflow.
B)domestic investment.
C)net capital outflow plus domestic investment.
D)foreign currency supplied.
Q2) The value of net exports equals the value of A)national saving.
B)public saving.
C)national saving - net capital outflow.
D)national saving - domestic investment.
Q3) If the supply of loanable funds shifts right,then
A)the real interest rate and the equilibrium quantity of loanable funds both fall.
B)the real interest rate falls and the equilibrium quantity of loanable funds rises.
C)the real interest rate and the equilibrium quantity of loanable funds both rise.
D)the real interest rate rises and the equilibrium quantity of loanable funds falls.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Equilibrium in the Open Economy
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Sample Questions
Q1) In the open-economy macroeconomic model,other things the same,which of the following both make the exchange rate fall?
A)U.S.investment demand falls and foreign demand for U.S.goods falls
B)U.S.investment demand falls and foreign demand for U.S.goods rises
C)U.S.investment demand rises and foreign demand for U.S.goods falls
D)U.S.investment demand rises and foreign demand for U.S.goods rises
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.
Q3) In the open-economy macroeconomic model,if the supply of loanable funds increases,then the interest rate
A)and the real exchange rate increase.
B)and the real exchange rate decrease.
C)increases and the real exchange rate decreases.
D)decreases and the real exchange rate increases.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: How Policies and Events Affect an Open Economy
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Sample Questions
Q1) A rise in the government budget deficit
A)increases the interest rate so in the market for foreign-currency exchange,supply shifts right.
B)increases the interest rate so in the market for foreign-currency exchange,supply shifts left.
C)decreases the interest rate so in the market for foreign-currency exchange,supply shifts left.
D)decreases the interest rate so in the market for foreign-currency exchange supply shifts right.
Q2) If U.S.citizens decide to save a larger fraction of their incomes,the real interest rate
A)decreases,the real exchange rate of the dollar depreciates,and U.S.net capital outflow increases.
B)decreases,the real exchange rate of the dollar appreciates,and U.S.net capital outflow decreases.
C)increases,the real exchange rate of the dollar appreciates,and U.S.net capital outflow decreases.
D)increases,the real exchange rate of the dollar depreciates,and U.S.net capital outflow increases.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part A
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Sample Questions
Q1) Political events convince people that the assets of country x are now riskier.As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?
Q2) Which curve in the market for foreign-currency exchange shifts and which direction does it shift if the government budget deficit increases? Explain why an increase in the budget deficit shifts this curve.
Q3) How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?
Q4) If the exchange rate rises, foreign residents want to purchase ______ domestic goods and domestic residents want to purchase _____ foreign goods. In the market for foreign-currency exchange, these changes are shown as a _______ in the quantity of dollars ______.
Q5) If for some reason U.S.residents increase their purchases of foreign assets,then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?
Q6) What is the source of the supply of loanable funds in the open-economy macroeconomic model?
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part B
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Sample Questions
Q1) In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save equals desired quantities of domestic investment and net capital outflow.
A)True
B)False
Q2) According to the open-economy macroeconomic model,a decrease in the U.S.government budget deficit increases U.S.net capital outflow,causes the real exchange rate of the dollar to depreciate,and increases U.S.net exports.
A)True
B)False
Q3) Over the past two decades the U.S.has persistently had trade deficits. A)True
B)False
Q4) Capital flight raises a country's real exchange rate. A)True
B)False
Q5) The key determinant of net capital outflow is the real interest rate.
A)True
B)False
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Chapter 20: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) During a recession the economy experiences
A)rising employment and income.
B)rising employment and falling income.
C)rising income and falling employment.
D)falling employment and income.
Q2) On average,over the last 50 years,real GDP has grown by about
A)3 percent per year.
B)2 percent per year.
C)1 percent per year.
D)4 percent per year.
Q3) Which of the following explains why production rises in most years?
A)increases in the labor force
B)increases in the capital stock
C)advances in technological knowledge
D)All of the above are correct.
Q4) In October 2009,the official unemployment rate rose to A)10%.
B)8%.
C)6%
D)4%.
Page 132
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Three Key Facts About Economic Fluctuations
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Q1) Which of the following is correct?
A)Short run fluctuations in economic activity happen only in developing countries.
B)During economic contractions most firms experience rising profits.
C)Recessions come at irregular intervals and are easy to predict.
D)When real GDP falls,the rate of unemployment generally rises.
Q2) Real GDP
A)is the current dollar value of all goods produced by the citizens of an economy within a given time.
B)measures economic activity and income.
C)is used primarily to measure long-run changes rather than short-run fluctuations.
D)All of the above are correct.
Q3) In 2008,the United States was in recession.Which of the following things would you not expect to have happened?
A)increased layoffs and firings.
B)a higher rate of bankruptcy.
C)increased claims for unemployment insurance.
D)increased real GDP.
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Page 133
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 aggregate demand and aggregate supply graph has
A)quantity of output on the horizontal axis.Output can be measured by the GDP deflator.
B)quantity of output on the horizontal axis.Output can be measured by real GDP.
C)quantity of output on the vertical axis.Output can be measured by the GDP deflator.
D)quantity of output on the vertical axis.Output can be measured by real GDP.
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134
Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Demand Curve
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Sample Questions
Q1) As the price level falls
A)people will want to hold more money,so the interest rate rises.
B)people will want to hold more money,so the interest rate falls.
C)people will want to hold less money,so the interest rate falls.
D)people will want to hold less money,so the interest rate rises.
Q2) If businesses in general decide that they have overbuilt and so now have too much capital,their response to this would initially shift
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.
Q3) When the dollar appreciates,U.S.
A)exports decrease,while imports increase.
B)exports and imports decrease.
C)exports and imports increase.
D)exports increase,while imports decrease.
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135
Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Supply Curve
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Sample Questions
Q1) If the actual price level is 165,but people had been expecting it to be 160,then
A)the quantity of output supplied rises,but only in the short run.
B)the quantity of output supplied rises in the short run and the long run.
C)the quantity of output supplied falls,but only in the short run.
D)the quantity of output supplied falls in the short run and the long run.
Q2) Other things the same,if workers and firms expected inflation to be 2%,but it is only 1% then
A)employment and production rise.
B)employment rises and production falls.
C)employment falls and production rises.
D)employment and production fall.
Q3) Other things the same,if the long-run aggregate supply curve shifts right,prices
A)and output both increase.
B)and output both decrease.
C)increase and output decreases.
D)decrease and output increases.
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Page 136
Chapter 20: Aggregate Demand and Aggregate Supply:
Two Causes of Economic Fluctuations
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Sample Questions
Q1) Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift
A)aggregate supply to the right.
B)aggregate supply to the left.
C)aggregate demand to the right.
D)aggregate demand to the left.
Q2) In the early 1930s in the United States,there was a
A)large increase in output.In the early 1940s there was also a large increase in output.
B)large increase in output.In the early 1940s there was a large decrease in output.
C)large decrease in output.In the early 1940s there was a large increase in output.
D)large decrease in output.In the early 1940s there was also a large decrease in output.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part A
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Sample Questions
Q1) Refer to Figure 33-12.Identify periods 1 and 2.
Q2) Identify the direction of the change during a recession in each of the following: consumption expenditures,investment expenditures,and unemployment.
Q3) Write the mathematical expression that summarizes the three alternative explanations for the upward slope of the short run aggregate supply curve.
Q4) What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.
Q5) What curve shows the quantity of goods and services that firms choose to produce and sell at each price level?
Q6) Using the aggregate demand and aggregate supply model,an increase in what curve is by itself consistent with the changes in prices and output that occurred during World War II?
Q7) Changes in what four variables will shift the long run aggregate supply curve?
Q8) Suppose a boom in stock market prices helps make people feel wealthier.Using the model of aggregate demand and aggregate supply,identify the curves that are affected,and which way these curves would shift.
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Q9) List the three reasons for why the aggregate-demand curve slopes downward.
Chapter 20: Aggregate Demand and Aggregate Supply:
Part B
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Sample Questions
Q1) Aggregate demand shifts to the left if the money supply increases.
A)True
B)False
Q2) Other things the same,technological progress raises the price level.
A)True
B)False
Q3) Because the price level does not affect the long-run determinants of real GDP,the long-run aggregate-supply is vertical.
A)True
B)False
Q4) Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.
A)True
B)False
Q5) Technological progress shifts the long-run aggregate supply curve to the right. A)True
B)False
Q6) A change in the money supply changes only nominal variables in the long run.
A)True
B)False Page 139
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Page 140
Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand
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Q1) 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.
Q2) Shifts in the aggregate-demand curve can cause fluctuations in
A)neither the level of output nor the level of prices.
B)the level of output,but not in the level of prices.
C)the level of prices,but not in the level of output.
D)the level of output and in the level of prices.
Q3) Fiscal policy affects the economy
A)only in the short run.
B)only in the long run.
C)in both the short and long run.
D)in neither the short nor the long run.
Q4) The Federal Open Market Committee is
A)the group at the Federal Reserve that sets monetary policy.
B)in charge of tax collection.
C)the group that sets the amount of government spending.
D)the group that reviews income assistance programs.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Monetary Policy Influences
Aggregate Demand
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Q1) If the interest rate decreases
A)or if the price level increases,then people will want to hold more money.
B)or if the price level increases,then people will want to hold less money.
C)or if the price level decreases,then people will want to hold more money.
D)or if the price level decreases,then people will want to hold less money.
Q2) When the Federal Reserve increases the Federal Funds target rate,it achieves this target by
A)purchasing government bonds.This action will reduce investment and shift aggregate demand to the right.
B)purchasing government bonds.This action will increase investment and shift aggregate demand to the right.
C)selling government bonds.This action will reduce investment and shift aggregate demand to the left.
D)selling government bonds.This action will increase investment and shift aggregate demand to the left.
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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) The multiplier for changes in government spending is calculated as A)1/(1+MPC).
B)(1 - MPC)/MPC.
C)1/MPC.
D)1/(1 - MPC).
Q2) Assume the multiplier is 5 and that the crowding-out effect is $30 billion.An increase in government purchases of $20 billion will shift the aggregate-demand curve to the A)right by $130 billion.
B)right by $70 billion.
C)right by $50 billion.
D)right by $10 billion.
Q3) Suppose the MPC is 0.9.There are no crowding out or investment accelerator effects.If the government increases its expenditures by $30 billion,then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion,then by how far does aggregate demand shift to the right?
A)$283 billion and $254.7 billion
B)$283 billion and $283 billion
C)$300 billion and $270 billion
D)$300 billion and $300 billion
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Using Policy to Stabilize the Economy
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Q1) Which of the following reduces the interest rate?
A)an increase in government expenditures and an increase in the money supply
B)an increase in government expenditures and a decrease in the money supply
C)a decrease in government expenditures and an increase in the money supply
D)a decrease in government expenditures and a decrease in the money supply
Q2) During periods of expansion,automatic stabilizers cause government expenditures
A)and taxes to fall.
B)and taxes to rise.
C)to rise and taxes to fall.
D)to fall and taxes to rise.
Q3) If it were not for the automatic stabilizers in the U.S.economy,
A)the Federal Reserve would have less reason than it has now to monitor stock prices.
B)it would be more desirable than it is now for the Federal Reserve to target an interest rate.
C)a strict balanced-budget rule would be more desirable than it is now.
D)output and employment would probably be more volatile than they are now.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part A
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60 Verified Questions
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Sample Questions
Q1) The goal of stabilization policy is to stabilize aggregate -----.As a result,stabilization policy will also stabilize ----- and -----.
Q2) Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.
Q3) Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.
Q4) Last year,total income increased $1,000 and consumption increased $800.An increase in government spending equal to $10 would cause output to increase by $----because the multiplier is ------.
Q5) Open-market purchases cause a(n)----- in interest rates and a(n)----- in real GDP in the short run.
Q6) Suppose households attempt to increase money holdings.To stabilize output and employment,the Federal Reserve will -----.
Q7) If the Federal Reserve's goal is to stabilize aggregate demand,then it will ----- the money supply in response to a stock market boom.This causes interest rates to -----.
Q8) A decrease in taxes ---- aggregate demand through larger ----- by households.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part B
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Q1) The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.
A)True
B)False
Q2) The theory of liquidity preference was developed by Irving Fisher.
A)True
B)False
Q3) A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that,while those policies obviously work well in practice,they are not well understood on a theoretical level.
A)True
B)False
Q4) According to the theory of liquidity preference,the interest rate adjusts to balance the supply of,and demand for,loanable funds.
A)True
B)False
Q5) If the MPC is 4/5,the multiplier is 5/4.
A)True
B)False
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment
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Q1) One determinant of the long-run average unemployment rate is the A)market power of unions,while the inflation rate depends primarily upon government spending.
B)minimum wage,while the inflation rate depends primarily upon the money supply growth rate.
C)rate of growth of the money supply,while the inflation rate depends primarily upon the market power of unions.
D)existence of efficiency wages,while the inflation rate depends primarily upon the extent to which firms are competitive.
Q2) When monetary and fiscal policymakers expand aggregate demand,which of the following costs is incurred in the short run?
A)Short-run aggregate supply decreases.
B)The natural rate of unemployment increases.
C)The price level increases more rapidly.
D)The money supply increases less rapidly.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Phillips Curve
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Q1) Other things constant,which of the following would reduce unemployment and raise inflation?
A)businesses become more optimistic about the future of the economy
B)because of high growth abroad,net exports rise
C)the government cuts taxes
D)All of the above are correct.
Q2) According to the Phillips curve,policymakers can reduce inflation by
A)contracting aggregate demand.This contraction results in a temporarily higher unemployment rate.
B)contracting aggregate demand.This contraction results in a temporarily lower unemployment rate.
C)expanding aggregate demand.This expansion results in a temporarily lower unemployment rate.
D)expanding aggregate demand.This expansion results in a temporarily higher unemployment rate.
Q3) Unemployment would decrease and prices would increase if
A)aggregate demand shifted right.
B)aggregate demand shifted left.
C)aggregate supply shifted right.
D)aggregate supply shifted left.
Page 148
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Shifts in the Phillips Curve the Role of Expectations
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161 Verified Questions
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Q1) Which of the following is correct concerning the long-run Phillips curve?
A)Its position is determined primarily by monetary factors.
B)If it shifts right,long-run aggregate supply shifts right.
C)It cannot be changed by any government policy.
D)Its position depends on the natural rate of unemployment.
Q2) Consider two countries: Eastland and Westland.Eastland's long-run Phillips curve sits further to the right than does Westland's long-run Phillips curve.Eastland and Westland are identical in all other ways.In particular,they have the same money supply growth rates.In the long run,compared to Westland,which of the following will we observe in Eastland?
A)higher unemployment and higher inflation.
B)higher unemployment and the same rate of inflation.
C)lower unemployment and higher inflation.
D)None of the above is correct.
Q3) By about 1973,U.S.policymakers had learned that
A)Friedman and Phelps's analysis of inflation and unemployment had been correct.
B)the short-run Phillips curve shifts when expectations of inflation change.
C)there is no long-run trade-off between inflation and unemployment.
D)All of the above are correct.
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Chapter 22: The Short Run Trade Off Between Inflation and
Shifts in the Phillips Curve the Role of Supply Shocks
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60 Verified Questions
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Sample Questions
Q1) An increase in the price of oil shifts the
A)short-run Phillips curve right and the unemployment rate rises.
B)short-run Phillips curve right and the unemployment rate falls.
C)short-run Phillips curve left and the unemployment rate rises.
D)short-run Phillips curve left and the unemployment rate falls.
Q2) Which of the following would not be associated with a favorable supply shock?
A)the short-run Phillips curve shifts left
B)unemployment falls
C)the price level rises
D)output rises.
Q3) A favorable supply shock will cause inflation to
A)rise and shift the short-run Phillips curve right.
B)rise and shift the short-run Phillips curve left.
C)fall and shift the short-run Phillips curve right.
D)fall and shift the short-run Phillips curve left.
Q4) In 1980,the U.S.misery index was
A)much higher than average.
B)slightly higher than average.
C)about average.
D)below average.
Page 150
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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) Soon after he became the chairman of the Federal Reserve System in 1979,Paul Volcker embarked on a course
A)of accommodative monetary policy.
B)of disinflation.
C)that was designed to reduce the unemployment rate.
D)that produced results that were clearly consistent with those predicted by rational-expectations theorists.
Q2) If a central bank reduced inflation by 2 percentage points and that made output fall by 1 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years,the sacrifice ratio is
A)1/2.
B)1.
C)2.
D)4.
Q3) In 1979,Fed chair Paul Volcker decided to pursue a policy
A)that would lead to disinflation.
B)that would create falling prices.
C)to accommodate continuing adverse supply shocks.
D)that maintained money growth at its current level.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part A
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62 Verified Questions
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Sample Questions
Q1) If the Fed raised the money supply growth by more than expected then the unemployment rate would ----- in the short run.Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.
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) Government expenditures increase.What happens to the price level and output? Explain how the change in the price level and output effect the inflation rate and the unemployment rate.
Q4) A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?
Q5) If expected inflation falls but actual inflation remains the same,what happens to the unemployment rate? Defend your answer.
Q6) If consumer confidence rises and inflation expectations remain unchanged,what happens to inflation and unemployment? Defend your answer.
Q7) List three things that shift the short-run Phillips curve to the right.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part B
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Sample Questions
Q1) 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
Q2) Other things the same,a decrease in aggregate demand decreases both inflation and unemployment.
A)True
B)False
Q3) The short-run Phillips curve is based on the classical dichotomy.
A)True
B)False
Q4) If expected inflation increases,the short-run Phillips curve will shift to the left so that inflation will be higher at any given unemployment rate.
A)True
B)False
Q5) In most of the 1970s,the Fed's policy created expectations of high inflation.
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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Source URL: https://quizplus.com/quiz/79699
Sample Questions
Q1) If firms were faced with greater uncertainty because of concern that oil prices might rise,they might decrease expenditures on capital.In response to this change,someone who advocated "lean against the wind" policies might advocate
A)decreasing the money supply.
B)increasing taxes.
C)increasing government expenditures.
D)All of the above
Q2) Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?
A)The economy responds very quickly to changes in the interest rate and changes in economic conditions are easy to predict.
B)The economy responds very quickly to changes in the interest rate and changes in economic conditions are nearly impossible to predict.
C)The economy responds to changes in the interest rate with a lag and changes in economic conditions are easy to predict.
D)The economy responds to changes in the interest rate with a lag and changes in economic conditions are nearly impossible to predict.
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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) Suppose a tax cut affects aggregate demand and aggregate supply.Which of the shifts raise the price level?
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
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
Q3) Which of the following can tax cuts influence?
A)Aggregate demand
B)Aggregate supply
C)Investment spending
D)All of the above
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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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Sample Questions
Q1) If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then
A)the long-run Phillips curve would shift right.
B)the long-run Phillips curve would shift left.
C)the short-run Phillips curve would shift up.
D)the short-run Phillips curve would shift down.
Q2) Suppose that the central bank is required to follow a monetary policy rule to stabilize prices.If the economy starts at long-run equilibrium and then aggregate supply shifts right,the central bank would have to
A)increase the money supply,which causes output to move closer to its long-run equilibrium.
B)increase the money supply,which causes output to move farther from long-run equilibrium.
C)decrease the money supply,which causes output to move closer to its long-run equilibrium.
D)decrease the money supply,which causes output to move farther from long-run equilibrium.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Central Bank Aim for Zero Inflation
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49 Verified Questions
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Sample Questions
Q1) Inflation reduction has the lowest cost when the efforts are
A)credible so that the sacrifice ratio is low.
B)credible so that the sacrifice ratio is high.
C)unexpected so that the sacrifice ratio is high.
D)unexpected so that the sacrifice ratio is low.
Q2) An added benefit of inflation is that it allows for the possibility of A)menu costs.
B)aggregate supply shocks.
C)negative real interest rates.
D)recessions.
Q3) Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?
A)Avoid unexpected changes in the inflation rate.
B)Rewrite the tax laws so that nominal gains were taxed instead of real gains.
C)Make policy that would discourage firms from issuing indexed bonds.
D)All of the above are correct.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Balance Its Budget
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Sample Questions
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) At the end of 2012,the government had a debt of about $11.3 trillion.If during 2013 real GDP rose 2% and inflation was 2.2%,what is the largest deficit the government could have run without raising the debt-to-GDP ratio?
A)about $226.0 billion
B)about $248.6 billion
C)about $474.6 billion
D)about $561.8 billion
Q3) Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year.Then the government can have a deficit of about
A)5 percent of GDP without raising the debt-to-income ratio.
B)4.5 percent of GDP without raising the debt-to-income ratio.
C)1.25 percent of GDP without raising the debt-to-income ratio.
D).5 percent of GDP without raising the debt-to-income ratio.
Page 159
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Chapter 23: Six Debates Over Macroeconomic Policy:
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Sample Questions
Q1) Which of the following two effects of a decrease in the tax rate on saving would raise savings?
A)the income effect and the substitution effect
B)the income effect but not the substitution effect
C)the substitution effect but not the income effect
D)neither the substitution effect nor the income effect
Q2) Policies that reduce the incentive for households to save include
A)means-testing.
B)College and university financial aid administration.
C)inheritance taxes.
D)All of the above.
Q3) Which of the following are taxed?
A)both corporate profits and dividends paid to stockholders
B)corporate profits but not dividends paid to stockholders
C)dividends paid to stockholders but not corporate profits
D)neither corporate profits nor dividends paid to stock holders
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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) What is the benefit of a high saving rate?
Q2) Explain the time inconsistency of monetary policy.
Q3) Suppose a country has a real growth rate of 3%.Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency.The current national debt is 300 billion units of currency.At what inflation rate will its debt-to-income ratio remain unchanged?
Q4) Proponents of requiring the government to balance its budget argue that debt burdens future generations.Explain one claim they make to support this argument.
Q5) Explain the main arguments in favor of economic stabilization.
Q6) Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?
Q7) Why do many economists advocate a consumption tax rather than an income tax?
Q8) Monetary policy affects aggregate demand with a lag.Approximately how long does it take for monetary policy actions to affect aggregate demand?
Q9) Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Q1) Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.
A)True
B)False
Q2) A nation's saving rate is not a primary determinant of its long-run economic prosperity.
A)True
B)False
Q3) Tax cuts affect only aggregate demand not aggregate supply.
A)True
B)False
Q4) There are ways that policymakers could reduce the costs of inflation without reducing inflation.
A)True
B)False
Q5) Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.
A)True
B)False
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Q1) Which of the following is an important reason for the projected increase in government spending as a percentage of GDP over the next several decades?
A)the increase in life expectancy resulting from advances in healthcare
B)an increase in the average number of children per family.
C)the increase in the number of jobs lost each year to foreign countries as a result of outsourcing
D)the reduction in the number of high-cost medical procedures
Q2) An estate tax is an example of a(n)
A)individual income tax.
B)social insurance tax.
C)corporate income tax.
D)None of the above is correct.
Q3) As the economy's income has grown,the government has
A)grown at about the same pace.
B)grown at a faster pace.
C)grown at a slower pace.
D)shrunk.
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164