Fundamentals of Macroeconomics
Final Exam
Course Introduction
Fundamentals of Macroeconomics introduces students to the core principles and concepts that govern the larger economy. The course covers topics such as aggregate supply and demand, national income determination, unemployment, inflation, economic growth, and fiscal and monetary policies. It emphasizes the interplay between different sectors of the economy and explores how government policies can influence economic performance and stability. Through analytical frameworks and real-world examples, students will develop a solid understanding of how macroeconomic variables impact everyday life, business cycles, and long-term economic development.
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) The phenomenon of scarcity stems from the fact that
A)most economies' production methods are not very good.
B)in most economies,wealthy people consume disproportionate quantities of goods and services.
C)governments restrict production of too many goods and services.
D)resources are limited.
Answer: D
Q2) 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
Q3) 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
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Chapter 1: Ten Principles of Economics: How People Make Decisions
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Q1) Suppose your management professor has been offered a corporate job with a 30 percent pay increase.He has decided to take the job.For him,the marginal
A)cost of leaving was greater than the marginal benefit.
B)benefit of leaving was greater than the marginal cost.
C)benefit of teaching was greater than the marginal cost.
D)All of the above are correct.
Answer: B
Q2) When you calculate your true costs of going to college,what portion of your room-and-board expenses should be included?
A)Your full room-and-board expenses should always be included.
B)None of your room-and-board expenses should ever be included.
C)You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college.
D)You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college.
Answer: D
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Chapter 1: Ten Principles of Economics: How People Interact
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Q1) When the "invisible hand" guides economic activity,prices of products reflect
A)only the values that society places on those products.
B)only the costs to society of producing those products.
C)both the values that society places on those products and the costs to society of producing those products.
D)none of the above;when the "invisible hand" guides economic activity,prices of products are set by the government in a manner that is thought to be "fair."
Answer: C
Q2) A rationale for government involvement in a market economy is
A)markets sometimes fail to produce a fair distribution of economic well-being.
B)markets sometimes fail to produce an efficient allocation of resources.
C)property rights have to be enforced.
D)All of the above are correct.
Answer: D
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Chapter 1: Ten Principles of Economics: How the Economy
As a Whole Works
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Q1) Suppose the Federal Reserve announces that it will be making a change to a key interest rate to decrease the money supply.This is likely because the Federal Reserve is
A)worried about inflation.
B)worried about unemployment.
C)hoping to increase the demand for goods and services.
D)worried that the economy is growing too slowly.
Q2) During the 1990s,the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation.A likely explanation of these facts is that
A)the United Kingdom has a better education system than Turkey.
B)the rate of growth of the quantity of money was slower in the United Kingdom than in Turkey.
C)workers in Turkey are more productive than workers in the United Kingdom.
D)there are more instances of market power in Turkey than in the United Kingdom.
Q3) During the early 1920s in Germany,prices
A)doubled annually.
B)doubled monthly.
C)tripled monthly.
D)tripled annually.
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Chapter 1: Ten Principles of Economics: Part A
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Q1) Refer to Scenario 1-6.What is the company's average cost?
Q2) Give an example of government intervention that is intended to improve equality.
Q3) Refer to Scenario 1-2.What is your opportunity cost of working?
Q4) Economists use the term ------ to refer to fluctuations in economic activity,such as employment and production.
Q5) What do prices reflect in a market economy?
Q6) Refer to Scenario 1-3.What is the company's average cost?
Q7) Refer to Scenario 1-6.What is the minimum price that would induce this company to produce the 601<sup>st</sup> heart rate monitor?
Q8) Refer to Scenario 1-3.What is the company's marginal cost?
Q9) Refer to Scenario 1-3.What is the minimum price the company will charge for the 701<sup>th</sup> calculator?
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) Economics is the study of ------ .
Q12) Refer to Scenario 1-6.What is the company's marginal cost?
Q13) Invisible hand is a term used by the economist ------ to describe how the decisions of households and firms lead to desirable market outcomes. Page 7
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Chapter 1: Ten Principles of Economics: Part B
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Q1) Trade with any nation can be mutually beneficial.
A)True
B)False
Q2) A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars.
A)True
B)False
Q3) Market failure refers to a situation in which the market does not allocate resources efficiently.
A)True
B)False
Q4) The government can potentially improve market outcomes if market inequalities or market failure exists.
A)True
B)False
Q5) Market failure occurs when no individual has the ability to substantially influence market prices.
A)True
B)False
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Chapter 2: Thinking Like an Economist
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Q1) Studying which of the following is helpful in learning to think like an economist?
A)theory.
B)case studies.
C)examples of economics in the news.
D)all of the above.
Q2) The language of economics is
A)needlessly arcane.
B)valuable because it provides a new and useful way of learning about the world.
C)easy to learn within a day.
D)unnecessary to learn for a thorough understanding of economics.
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Chapter 2: Thinking Like an Economist: The Economist As Scientist
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Sample Questions
Q1) In the circular-flow diagram,
A)factors of production flow from government to firms.
B)goods and services flow from households to firms.
C)income paid to the factors of production flows from firms to households.
D)spending on goods and services flows from firms to households.
Q2) Which of the following statements is correct?
A)Few economic models incorporate assumptions.
B)Different economic models employ different sets of assumptions.
C)Good economic models attempt to mimic reality as closely as possible.
D)Economic models,to be accepted,must be tested by conducting experiments.
Q3) Economic models
A)are not useful because they omit many real-world details.
B)are usually composed of diagrams and equations.
C)are useful because they do not omit any real-world details.
D)are usually plastic representations of the economy.
Q4) In the markets for goods and services in the circular-flow diagram,
A)households and firms are both buyers.
B)households and firms are both sellers.
C)households are buyers and firms are sellers.
D)households are sellers and firms are buyers.
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Chapter 2: Thinking Like an Economist: The Economist As Policy Adviser
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Q1) When economists make
A)positive statements,they are speaking not as policy advisers but as scientists.
B)positive statements,they are speaking not as scientists but as forecasters.
C)normative statements,they are speaking not as policy advisers but as scientists.
D)normative statements,they are speaking not as policy advisers but as model-builders.
Q2) Normative statements are
A)not usually made by economists.
B)claims about how the world should be.
C)claims about how variables in the economy normally behave.
D)pessimistic interpretations of the economy.
Q3) Which of the following is not an example of a positive,as opposed to normative,statement?
A)Higher gasoline prices will reduce gasoline consumption.
B)Equality is more important than efficiency.
C)Trade restrictions lower our standard of living.
D)If a nation wants to avoid inflation,it will restrict the growth rate of the quantity of money.
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Chapter 2: Thinking Like an Economist: Why Economists
Disagree
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Q1) Sometimes economists disagree because their scientific judgments differ.Which of the following instances best reflects this source of disagreement?
A)One economist believes everyone should pay the same percentage of their income in taxes;another economist believes that wealthier citizens should pay a higher percentage of their income in taxes.
B)One economist believes that manufacturing firms should face greater regulation to preserve the environment;another economist believes the government should not intervene in free markets.
C)One economist believes that equality should be valued over efficiency in policy decisions;another economist believes that efficiency should be valued over equality in policy decisions.
D)One economist believes the government should tax a household's income;another economist believes the government should tax a household's consumption.
Q2) Almost all economists agree that tariffs and import quotas
A)reduces general economic welfare.
B)increases general economic welfare.
C)have no effect on general economic welfare.
D)stimulate a less than fully employed economy.
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Q1) John Maynard Keynes referred to economics as an easy subject,
A)at which very few excel.
B)but not as easy as philosophy or the pure sciences.
C)which very few can enjoy.
D)which deals primarily with common sense.
Q2) 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."
Q3) 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.
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Chapter 2: Thinking Like an Economist: Graphing a Brief Review
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Sample Questions
Q1) The slope of a line passing through the points (15,3)and (10,6)is A)-3/5.
B)3/5.
C)-5/3.
D)5/3.
Q2) The slope of a line that passes through the points (20,30)and (40,14)is A)-5/4.
B)-4/5.
C)4/5.
D)5/4.
Q3) The second number in any ordered pair is A)the x-coordinate.
B)the y-coordinate.
C)the horizontal location of the point. D)the slope.
Q4) Refer to Figure 2-16.The graph shown is known as a A)time-series graph. B)bar graph.
C)scatterplot. D)pie chart.
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Chapter 2: Thinking Like an Economist: Part A
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Q1) Like biologists and physicists,economists use the dispassionate development and testing of how the world works known as the
Q2) Refer to Figure 2-3.What do the rectangles represent in the figure?
Q3) Since 1946,the president of the United States has received guidance from a group comprised of three members and a staff of a few dozen economists known as the
Q4) The institution that sets the nation's monetary policy is called the
Q5) Refer to Figure 2-22.Is a move from point A to point B considered a shift of the curve or a movement along the curve?
Q6) Refer to Figure 2-3.What is the name of the model depicted in the figure?
Q7) Refer to Figure 2-22.What is the slope of the line with points A,B,and C?
Q8) Refer to Figure 2-3.What does the arrow going from oval A to rectangle 2 represent in the figure?
Q9) Just like other scientific models,economic models simplify reality using Q10) Economists at which administrative department help design tax policy?
Q11) Refer to Figure 2-15.Consider the production possibilities frontier for an economy that produces only sofas and cars.As the economy moves from point A to point D,is the opportunity cost of cars increasing,constant,or decreasing?
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Chapter 2: Thinking Like an Economist: Part B
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Sample Questions
Q1) Two variables that have a positive correlation move in the same direction.
A)True
B)False
Q2) In the markets for the factors of production in the circular-flow diagram,households are buyers and firms are sellers.
A)True
B)False
Q3) Examples of graphs of a single variable include pie charts,bar graphs,and time-series graphs.
A)True
B)False
Q4) In the circular-flow diagram,factors of production are the goods and services produced by firms.
A)True
B)False
Q5) Points on the production possibilities frontier represent efficient levels of production.
A)True
B)False
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) People who provide you with goods and services
A)are acting out of generosity.
B)do so because they get something in return.
C)have chosen not to become interdependent.
D)are required to do so by the government.
Q2) When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all
A)rely upon the government to provide us with the basic necessities of life.
B)rely upon one another for the goods and services we consume.
C)have similar tastes and abilities.
D)are concerned about one another's well-being.
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Chapter 3: Interdependence and the Gains From Trade: A Parable for the Modern Economy
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Q1) Refer to Figure 3-10.Both Alice and Betty
A)face a constant trade-off between producing pitchers of lemonade and pizzas.
B)can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production.
C)would benefit from specializing in lemonade production.
D)would benefit from specializing in pizza production.
Q2) Refer to Figure 3-5.If the production possibilities frontier shown for Merve is for 8 hours of work,then how long does it take Merve to make one purse?
A)1/2 hour
B)2 hours
C)4 hours
D)8 hours
Q3) Refer to Figure 3-3.If the production possibilities frontiers shown are each for one day of production,then which of the following combinations of tacos and burritos could Arturo and Dina together produce in a given day?
A)400 tacos and 350 burritos
B)500 tacos and 250 burritos
C)600 tacos and 150 burritos
D)700 tacos and 100 burritos
Page 19
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Refer to Figure 3-18.The opportunity cost of 1 cup for Juba is A)1/6 bowl.
B)2/3 bowl.
C)3/2 bowls.
D)6 bowls.
Q2) Refer to Figure 3-14.If Arturo and Dina switch from each person dividing their time equally between the production of tacos and burritos to each person spending all of their time producing the good in which they have a comparative advantage,then total production of burritos will increase by A)50.
B)100.
C)150.
D)300.
Q3) Refer to Figure 3-18.The opportunity cost of 1 bowl for Bintu is A)1/4 cup.
B)1/2 cup.
C)2 cups. D)4 cups.
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Chapter 3: Interdependence and the Gains From Trade:
Applications of Comparative Advantage
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Q1) Suppose the United States has a comparative advantage over Mexico in producing pork.The principle of comparative advantage asserts that
A)the United States should produce more pork than what it requires and export some of it to Mexico.
B)the United States should produce a moderate quantity of pork and import the remainder of what it requires from Mexico.
C)the United States should refrain altogether from producing pork and import all of what it requires from Mexico.
D)Mexico has nothing to gain from importing United States pork.
Q2) 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.
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Which of the following is not an example of the principle that trade can make everyone better off?
A)Americans buy tube socks from China.
B)Residents of Maine drink orange juice from Florida.
C)A homeowner hires the kid next door to mow the lawn.
D)All of the above are examples of the principle that trade can make everyone better off.
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Refer to Figure 3-26.Who has a comparative advantage in making muffins?
Q2) Refer to Scenario 3-2.Which country,if either,has an absolute advantage producing rice? Defend your answer.
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) What does a production possibilities frontier represent?
Q5) Refer to Scenario 3-2.Which country,if either,has a comparative advantage producing broccoli? Defend your answer using the numbers given.
Q6) 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?
Q7) What does a consumption possibilities frontier represent?
Q8) Refer to Figure 3-26.What is Mary's opportunity cost of one muffin?
Q9) Refer to Figure 3-26.If Mary and Kate trade foods with each other,who will trade away muffins in exchange for cookies?
Q10) Refer to Figure 3-26.What is Kate's opportunity cost of one muffin? Page 23
Define comparative advantage.
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Chapter 3: Interdependence and the Gains From Trade:
Part B
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Q1) Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.
A)True
B)False
Q2) Specialization and trade can make everyone better off if a person can obtain goods at prices that are less than that person's opportunity cost.
A)True
B)False
Q3) 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
Q4) In one month,Moira can knit 2 sweaters or 4 scarves.In one month,Tori can knit 1 sweater or 3 scarves.Together,they could produce more output in total if Moira knits only sweaters and Tori knits only scarves.
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 most often used by economists are
A)prices and quantities.
B)resources and allocation.
C)supply and demand.
D)efficiency and equity.
Q2) The two words economists use most often are
A)inflation and trade.
B)supply and demand.
C)competition and prices.
D)markets and equilibrium.
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) Most markets in the economy are
A)markets in which sellers,rather than buyers,control the price of the product.
B)markets in which buyers,rather than sellers,control the price of the product.
C)perfectly competitive.
D)highly competitive.
Q2) Which of the following is the least likely to be a competitive market?
A)ice cream
B)soybeans
C)cable television
D)new houses
Q3) In a competitive market,each seller has limited control over the price of his product because
A)other sellers are offering similar products.
B)buyers exert more control over the price than do sellers.
C)these markets are highly regulated by the government.
D)sellers usually agree to set a common price that will allow each seller to earn a comfortable profit.
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Chapter 4: The Market Forces of Supply and Demand: Demand
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Q1) When the price of a good or service changes,
A)the supply curve shifts in the opposite direction.
B)the demand curve shifts in the opposite direction.
C)the demand curve shifts in the same direction.
D)there is a movement along a given demand curve.
Q2) The belief that tobacco is a "gateway drug" is consistent with A)the idea that tobacco and marijuana are substitutes.
B)the idea that an increase in income causes a decrease in the demand for tobacco and an increase in the demand for marijuana.
C)the idea that lower cigarette prices are associated with less use of marijuana.
D)most of the available evidence.
Q3) Suppose that Amanda receives a pay increase.We would expect
A)to observe Amanda moving down and to the right along her given demand curve.
B)Amanda's demand for inferior goods to decrease.
C)Amanda's demand for each of two goods that are complements to increase.
D)Amanda's demand for normal goods to decrease.
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Chapter 4: The Market Forces of Supply and Demand: Supply
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Q1) The supply curve for a good is a line that relates
A)profit and quantity supplied.
B)quantity supplied and quantity demanded.
C)price and quantity supplied.
D)price and profit.
Q2) Which of the following events would cause a movement upward and to the right along the supply curve for mangos?
A)The number of sellers of mangos increases.
B)There is an advance in technology that reduces the cost of producing mangos.
C)The price of fertilizer decreases,and fertilizer is an input in the production of mangos.
D)The price of mangos rises.
Q3) A decrease 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.
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Chapter 4: The Market Forces of Supply and Demand:
Supply and Demand Together
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Q1) What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
A)Price would fall,and the effect on quantity would be ambiguous.
B)Price would rise,and the effect on quantity would be ambiguous.
C)Quantity would fall,and the effect on price would be ambiguous.
D)Quantity would rise,and the effect on price would be ambiguous.
Q2) Refer to Figure 4-18.At a price of $15,there would be a
A)surplus of 400 units.
B)shortage of 200 units.
C)shortage of 400 units.
D)shortage of 600 units.
Q3) Consider the market for portable air conditioners in equilibrium.A summer of unseasonably cool weather would cause
A)both the equilibrium price and quantity to decrease.
B)both the equilibrium price and quantity to increase.
C)the equilibrium price to increase and the equilibrium quantity to decrease.
D)the equilibrium price to decrease and the equilibrium quantity to increase.
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Chapter 4: The Market Forces of Supply and
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Q1) In any economic system,scarce resources have to be allocated among competing uses.Market economies harness the forces of
A)government to allocate scarce resources.
B)supply and demand to allocate scarce resources.
C)credit cards to allocate scarce resources.
D)nature to allocate scarce resources.
Q2) 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) The signals that guide the allocation of resources in a market economy are
A)surpluses and shortages.
B)quantities.
C)government policies.
D)prices.
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Chapter 4: The Market Forces of Supply and Demand: Part
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38 Verified Questions
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Sample Questions
Q1) Refer to Figure 4-30.In this market for tablet computers,more suppliers enter the market and the price of laptops,a substitute good,increases,while all other factors remain constant.Explain the change(s)in the equilibrium price and quantity.
Q2) If the demand for a good increases at the same time as the supply of the same good decreases,what will happen to the equilibrium price and quantity of the good?
Q3) Refer to Figure 4-29.If the price increases from $5 to $6,how does the quantity demanded change?
Q4) If corn is an input into the production of ethanol,will a decrease in the price of corn increase the supply of ethanol or decrease the supply of ethanol?
Q5) Refer to Figure 4-30.In this market for tablet computers,more suppliers enter the market and the price of laptops,a substitute good,increases,while all other factors remain constant.Which curve(s)shift(s)and in which direction?
Q6) According to the law of demand,when price increases the quantity demanded of a good
Q7) Suppose the number of buyers in a market decreases.As a result,would the demand curve in this market shift to the right or to the left?
Page 32
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Chapter 4: The Market Forces of Supply and Demand: Part
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108 Verified Questions
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Sample Questions
Q1) A decrease in the price of a complement will shift the demand curve for a good to the left.
A)True
B)False
Q2) If the demand for a good falls when income falls,then the good is called an inferior good.
A)True
B)False
Q3) If the demand for movies increases at the same time as the movie industry adopts labor-saving technology for producing movies,the equilibrium price for movies will increase,but the effect on the equilibrium quantity of movies is ambiguous.
A)True
B)False
Q4) A decrease in demand will cause a decrease in price,which will cause a decrease in supply.
A)True B)False
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Chapter 5: Elasticity and Its Applications
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Sample Questions
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) When studying how some event or policy affects a market,elasticity provides information on the
A)change in the costs of production.
B)tradeoff between equality and efficiency.
C)effect on the budget deficit or surplus.
D)direction and magnitude of the effect.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Demand
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303 Verified Questions
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Sample Questions
Q1) Total revenue
A)always increases as price increases.
B)increases as price increases,as long as demand is elastic.
C)decreases as price increases,as long as demand is inelastic.
D)remains unchanged as price increases when demand is unit elastic.
Q2) Refer to Figure 5-3.The demand curve representing the demand for a luxury good with several close substitutes is
A)A.
B)B.
C)C.
D)D.
Q3) In which of the following situations will total revenue increase?
A)Price elasticity of demand is 1.2,and the price of the good decreases.
B)Price elasticity of demand is 0.5,and the price of the good increases.
C)Price elasticity of demand is 3.0,and the price of the good decreases.
D)All of the above are correct.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Supply
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Sample Questions
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) Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run.If an increase in the demand for cheese causes the price of cheese to increase by 15%,then the quantity supplied of cheese will increase by
A)0.4% in the short run and 4.6% in the long run.
B)1.7% in the short run and 0.7% in the long run.
C)9% in the short run and 21% in the long run.
D)25% in the short run and 10.7% in the long run.
Q3) 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.
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Chapter
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Sample Questions
Q1) In the market for oil in the short run,demand
A)and supply are both elastic.
B)and supply are both inelastic.
C)is elastic and supply is inelastic.
D)is inelastic and supply is elastic.
Q2) Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows.If the demand for milk is relatively inelastic,the discovery will
A)raise both price and total revenues.
B)lower both price and total revenues.
C)raise price and lower total revenues.
D)lower price and raise total revenues.
Q3) Knowing that the demand for wheat is inelastic,if all farmers voluntarily did not plant wheat on 10 percent of their land,then
A)consumers of wheat would buy more wheat.
B)wheat farmers would suffer a reduction in their total revenue.
C)wheat farmers would experience an increase in their total revenue.
D)the demand for wheat would decrease.
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Chapter 5: Elasticity and Its Applications: Part A
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Sample Questions
Q1) Refer to Scenario 5-2.Good X and Good Y are related as
Q2) Refer to Figure 5-21.Using the midpoint method,what is the price elasticity of supply between $5 and $15?
Q3) Suppose a market has the demand function Q<sup>d</sup>=20-0.5P.At what price will total revenue be maximized?
Q4) 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?
Q5) When the Shaffers had a monthly income of $4,000,they usually ate out 8 times a month.Now that the couple makes $4,500 a month,they eat out 10 times a month.Compute the couple's income elasticity of demand using the midpoint method.Explain your answer.Is a restaurant meal a normal or inferior good to the couple?
Q6) Refer to Scenario 5-6.Using the midpoint method,what is the income elasticity of demand for mobile service?
Q7) In the short run,as compared to the long run,both the price elasticity of demand and the price elasticity of supply tend to be more
Q8) With regard to elasticity,as a firm nears its production capacity,supply becomes more
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Chapter 5: Elasticity and Its Applications: Part B
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Q1) If a firm is facing elastic demand,then the firm should decrease price to increase revenue.
A)True B)False
Q2) If a firm is facing inelastic demand,then the firm should decrease price to increase revenue.
A)True B)False
Q3) The demand for Rice Krispies is more elastic than the demand for cereal in general. A)True B)False
Q4) The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change. A)True B)False
Q5) If the price elasticity of demand is equal to 1,then demand is unit elastic. A)True B)False
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Chapter 6: Supply Demand and Government Policies
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Q1) Policymakers use taxes
A)to raise revenue for public purposes but not to influence market outcomes.
B)both to raise revenue for public purposes and to influence market outcomes.
C)when they realize that price controls alone are insufficient to correct market inequities.
D)only in those markets in which the burden of the tax falls clearly on the sellers.
Q2) 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.
Q3) Which of the following is not an example of a public policy?
A)rent-control laws
B)minimum-wage laws
C)taxes
D)equilibrium laws
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Chapter 6: Supply Demand and Government Policies:
Controls on Prices
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Sample Questions
Q1) If a binding price ceiling is imposed on the baby formula market,then
A)the quantity of baby formula demanded will increase.
B)the quantity of baby formula supplied will decrease.
C)a shortage of baby formula will develop.
D)All of the above are correct.
Q2) If the government removes a binding price floor from a market,then the price paid by buyers will
A)increase,and the quantity sold in the market will increase.
B)increase,and the quantity sold in the market will decrease.
C)decrease,and the quantity sold in the market will increase.
D)decrease,and the quantity sold in the market will decrease.
Q3) Refer to Figure 6-3.In panel (b),there will be A)a shortage.
B)equilibrium in the market.
C)a surplus.
D)lines of people waiting to buy the good.
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Chapter 6: Supply Demand and Government Policies: Taxes
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Sample Questions
Q1) Refer to Figure 6-28.Suppose a tax of $4 per unit is imposed on this market.Which of the following is correct?
A)Buyers and sellers will share the burden of the tax equally.
B)Buyers will bear more of the burden of the tax than sellers.
C)Sellers will bear more of the burden of the tax than buyers.
D)Any of the above is possible in this market.
Q2) The price paid by buyers in a market will decrease if the government
A)increases a binding price floor in that market.
B)increases a binding price ceiling in that market.
C)decreases a tax on the good sold in that market.
D)All of the above are correct.
Q3) Refer to Figure 6-29.The buyers will bear a higher share of the tax burden than sellers if the demand is
A)D1,and the supply is S1.
B)D2,and the supply is S1.
C)D1,and the supply is S2.
D)D2,and the supply is S2.
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42
Chapter 6: Supply Demand and Government Policies: Part
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Sample Questions
Q1) Refer to Figure 6-32.If the government set a price ceiling at $50,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q2) Refer to Scenario 6-2.Suppose the government sets a price ceiling at $17 for this product.Is this price ceiling binding,and what will be the size of the shortage/surplus in this market?
Q3) 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.
Q4) When a price ceiling is binding,is the price ceiling set above or below the market equilibrium price?
Q5) Refer to Scenario 6-1.If the government set a price floor at $13,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q6) Refer to Figure 6-32.If the government set a price floor at $70,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q7) Will a binding price floor result in a shortage or a surplus in the market?
Q8) Refer to Figure 6-34.If the government imposes a tax of $6 per unit in this market,what price will buyers pay per unit after the tax is imposed?
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Chapter 6: Supply Demand and Government Policies: Part B
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Sample Questions
Q1) Studies by economists have found that a 10 percent increase in the minimum wage decreases teenage employment 10 percent.
A)True
B)False
Q2) Refer to Figure 6-36.If the government places a $2 tax in the market,the buyer bears $1 of the tax burden.
A)True
B)False
Q3) A large majority of economists favor eliminating the minimum wage.
A)True
B)False
Q4) Whether a tax is levied on sellers or buyers,buyers and sellers usually share the burden of taxes.
A)True
B)False
Q5) A binding price ceiling causes a shortage in the 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 how
A)the allocation of resources affects economic well-being.
B)a price ceiling compares to a price floor.
C)the government helps poor people.
D)a consumer's optimal choice affects her demand curve.
Q2) An example of positive analysis is studying
A)how market forces produce equilibrium.
B)whether equilibrium outcomes are fair.
C)whether equilibrium outcomes are socially desirable.
D)if income distributions are fair.
Q3) Which of the following statements is correct?
A)Buyers always want to pay less and sellers always want to be paid more.
B)Buyers always want to pay less and sellers always want to be paid less.
C)Buyers always want to pay more and sellers always want to be paid more.
D)Buyers always want to pay more and sellers always want to be paid less.
Q4) An example of normative analysis is studying
A)how market forces produce equilibrium.
B)surpluses and shortages.
C)whether equilibrium outcomes are socially desirable.
D)income distributions.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Consumer Surplus
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Sample Questions
Q1) Chuck would be willing to pay $20 to attend a dog show,but he buys a ticket for $15.Chuck values the dog show at A)$5.
B)$15.
C)$20.
D)$35.
Q2) Refer to Figure 7-2.If the price of the good is $80,then consumer surplus amounts to A)$110.
B)$135.
C)$160.
D)$185.
Q3) Suppose televisions are a normal good and buyers of televisions experience a decrease in income.As a result,consumer surplus in the television market A)decreases.
B)is unchanged.
C)increases.
D)may increase,decrease,or remain unchanged.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Producer Surplus
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Sample Questions
Q1) Which of the following statements is not correct?
A)A seller would be eager to sell her product at a price higher than her cost.
B)A seller would refuse to sell her product at a price lower than her cost.
C)A seller would be indifferent about selling her product at a price equal to her cost.
D)Since sellers cannot set the price for their product,they must be willing to sell their product at any price.
Q2) Refer to Figure 7-15.When the price falls from P2 to P1,producer surplus
A)decreases by an amount equal to C.
B)decreases by an amount equal to A+B.
C)decreases by an amount equal to A+C.
D)increases by an amount equal to A+B.
Q3) If the demand for light bulbs increases,producer surplus in the market for light bulbs
A)increases.
B)decreases.
C)remains the same.
D)may increase,decrease,or remain the same.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Market Efficiency
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Sample Questions
Q1) Suppose that Firms A and B each produce high-resolution computer monitors,but Firm A can do so at a lower cost.Cassie and David each want to purchase a high-resolution computer monitor,but David is willing to pay more than Cassie.If Firm A produces a monitor that Cassie buys but David does not,then the market outcome illustrates which of the following principles?
(i)
Free markets allocate the supply of goods to the buyers who value them most highly,as measured by their willingness to pay. (ii)
Free markets allocate the demand for goods to the sellers who can produce them at the least cost.
A)(i)only
B)(ii)only
C)both (i)and (ii)
D)neither (i)nor (ii)
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Conclusion Market Efficiency and Market Failure
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Q1) Externalities are
A)side effects passed on to a party other than the buyers and sellers in the market.
B)side effects of government intervention in markets.
C)external forces that cause the price of a good to be higher than it otherwise would be.
D)external forces that help establish equilibrium price.
Q2) Market power and externalities are examples of
A)laissez-faire economics.
B)public policy.
C)market failure.
D)welfare economics.
Q3) The decisions of buyers and sellers that affect people who are not participants in the market create
A)market power.
B)externalities.
C)profiteering.
D)market equilibrium.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part A
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Q1) Refer to Figure 7-30.If the market equilibrium price falls from $120 to $80,how much is the increase in consumer surplus to the consumers who were initially in the market at the $120 price?
Q2) Refer to Figure 7-33.How much is total producer surplus in this market at the equilibrium price?
Q3) Refer to Figure 7-34.Suppose there is initially a price floor set at $10 in this market.If the government removed the price floor,by how much would total consumer surplus increase?
Q4) Refer to Figure 7-32.If the government imposed a price ceiling at $20 in this market,how much are consumer surplus,producer surplus,and total surplus?
Q5) Refer to Figure 7-34.Suppose the government imposes a price floor at $10 per unit in this market.With the price floor,how much is total producer surplus assuming those producers with the lowest cost are the ones who supply the market?
Q6) Refer to Figure 7-34.Suppose there is initially a price ceiling set at $4 in this market.If the government removed the price ceiling,by how much would total producer surplus change?
Q7) Refer to Figure 7-33.How much is total surplus in this market at the equilibrium price?
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part B
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Sample Questions
Q1) Markets will always allocate resources efficiently.
A)True
B)False
Q2) Unless markets are perfectly competitive,they may fail to maximize the total benefits to buyers and sellers.
A)True
B)False
Q3) Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually has to pay for it.
A)True
B)False
Q4) Free markets allocate (a)the supply of goods to the buyers who value them most highly and (b)the demand for goods to the sellers who can produce them at least cost.
A)True
B)False
Q5) Total surplus = Value to buyers - Costs to sellers. A)True
B)False
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Chapter 8: Application the Cost of Taxation
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Sample Questions
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) Which of the following tools help us evaluate how taxes affect economic well-being?
(i)Consumer surplus
(ii)Producer surplus
(iii)Tax revenue
(iv)Deadweight loss
A)(i)and (ii)only
B)(i), (ii),and (iii)only
C)(iii)and (iv)only
D)(i), (ii), (iii),and (iv)
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Chapter 8: Application the Cost of Taxation: The
Deadweight Loss of Taxation
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Sample Questions
Q1) Refer to Figure 8-13.Suppose the government places a $5 per-unit tax on this good.The producer surplus after this tax is
A)$60.
B)$45.
C)$30.
D)$15.
Q2) Refer to Figure 8-3.The amount of the tax on each unit of the good is
A)P3 - P1.
B)P3 - P2.
C)P2 - P1.
D)P4 - P3.
Q3) Refer to Figure 8-12.Suppose a $3 per-unit tax is placed on this good.The amount of deadweight loss resulting from this tax is A)$7.50.
B)$15.00.
C)$22.50.
D)$45.00.
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Page 53
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) The Social Security tax is a tax on A)capital. B)labor.
C)land. D)savings.
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Chapter 8: Application the Cost of Taxation: Deadweight
Loss and Tax Revenue As Taxes Vary
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Sample Questions
Q1) Suppose that the market for large,64-ounce soft drinks in the town of Pudgyville is characterized by a typical,downward-sloping,linear demand curve and a typical,upward-sloping,linear supply curve.The market is initially in equilibrium with 1,000 soft drinks sold per day.The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks.She is considering either a $0.10 tax or a $0.30 tax.Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500.Which tax is better?
A)The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax.
B)The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax.
C)It is not clear which tax is better because although the $0.30 tax raises more tax revenues,it creates a larger deadweight loss than the $0.10 tax.
D)It is not clear which tax is better because although the $0.10 tax raises more tax revenues,it creates a larger deadweight loss than the $0.30 tax.
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Chapter 8: Application the Cost of Taxation: Conclusion
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Q1) Taxes are costly to market participants because they A)transfer resources from market participants to the government.
B)alter incentives.
C)distort market outcomes.
D)All of the above are correct.
Q2) Taxes are of interest to
A)microeconomists because they consider how to balance equality and efficiency.
B)microeconomists because they consider how best to design a tax system.
C)macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity.
D)All of the above are correct.
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Chapter 8: Application the Cost of Taxation: Part A
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Q1) Refer to Figure 8-25.How much is consumer surplus at the market equilibrium?
Q2) Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.How much is total surplus after the tax is imposed?
Q3) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How many units of this good will be bought and sold after the tax is imposed?
Q4) Refer to Figure 8-26.Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit.Will the tax revenue collected from the tax increase,decrease,or stay the same?
Q5) Refer to Figure 8-25.What are the equilibrium price and equilibrium quantity in this market?
Q6) Suppose the demand curve and the supply curve in a market are both linear.To begin,there was a $5 tax per unit,and the $5 tax resulted in a deadweight loss of $1,500.Now,the tax per unit is higher,with the higher tax resulting in a deadweight loss of $6,000.What is the amount of the new tax per unit?
Q7) Illustrate on three demand-and-supply graphs how the size of a tax (small,medium and large)can alter total revenue and deadweight loss.
Q8) In terms of gains from trade,why is it true that taxes cause deadweight losses?
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Chapter 8: Application the Cost of Taxation: Part B
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Q1) Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.
A)True
B)False
Q2) The Social Security tax is a labor tax.
A)True
B)False
Q3) If the size of a tax triples,the deadweight loss increases by a factor of six.
A)True
B)False
Q4) The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.
A)True
B)False
Q5) A tax raises the price received by sellers and lowers the price paid by buyers.
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) Assume,for England,that the domestic price of wine without international trade is lower than the world price of wine.This suggests that,in the production of wine,
A)England has a comparative advantage over other countries and England will export wine.
B)England has a comparative advantage over other countries and England will import wine.
C)other countries have a comparative advantage over England and England will export wine.
D)other countries have a comparative advantage over England and England will import wine.
Q2) Suppose Brazil has an absolute advantage over other countries in producing almonds,but other countries have a comparative advantage over Brazil in producing almonds.If trade in almonds is allowed,Brazil
A)will import almonds.
B)will export almonds.
C)will either import almonds or export almonds,but it is not clear from the given information.
D)would have nothing to gain either from exporting or importing almonds.
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Chapter 9: Application International Trade: The Winners
and Losers From Trade
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Q1) Refer to Scenario 9-1.If trade in peaches is allowed,the price of peaches in the United States
A)will increase,and this will cause consumer surplus to decrease.
B)will decrease,and this will cause consumer surplus to increase.
C)will be unaffected,and consumer surplus will be unaffected as well.
D)could increase or decrease or be unaffected;this cannot be determined.
Q2) Refer to Figure 9-15.With trade and without a tariff,the price and domestic quantity demanded are
A)P<sub>1</sub> and Q<sub>1</sub>.
B)P<sub>1</sub> and Q<sub>4</sub>.
C)P<sub>2</sub> and Q<sub>2</sub>.
D)P<sub>2</sub> and Q<sub>3</sub>.
Q3) Suppose Iceland goes from being an isolated country to being an importer of coats.As a result,
A)consumer surplus increases for consumers of coats in Iceland.
B)producer surplus increases for producers of coats in Iceland.
C)total surplus remains unchanged in the coat market in Iceland.
D)it is reasonable to infer that Iceland has a comparative advantage over other countries in coat production.
Page 61
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Chapter 9: Application International Trade: The Arguments for Restricting Trade
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Q1) In a December 2007 New York Times column Paul Krugman argued in favor of
A)protectionism based on the national-security argument.
B)protectionism based on the infant-industry argument.
C)protectionism based on the unfair-competition argument.
D)keeping world markets relatively open.
Q2) Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade;he argues that everything can be produced at lower cost in other countries.The likely flaw in Congressman Smith's reasoning is that he ignores the fact that
A)there is no evidence that any worker ever lost his or her job because of free trade.
B)unemployment of labor is not a serious problem relative to other economic problems.
C)the gains from trade are based on comparative advantage.
D)the gains from trade are based on absolute advantage.
Q3) 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.
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Chapter 9: Application International Trade: Conclusion
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Q1) 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.
Q2) 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.
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Chapter 9: Application International Trade: Part A
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Q1) Refer to Figure 9-27.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus?
Q2) Refer to Figure 9-26.Suppose the world price in this market is $7.If the country allows free trade,how many units will domestic consumers demand,and how many units will domestic producers produce?
Q3) List four benefits of international trade.
Q4) Refer to Scenario 9-3.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus in this market?
Q5) Refer to Figure 9-26.Suppose the world price in this market is $7.If the country allows free trade,how much are consumer surplus,producer surplus,and total surplus with trade?
Q6) Refer to Figure 9-29.If the country allows free trade,how many units will domestic consumers demand and how many units will domestic producers supply?
Q7) Refer to Figure 9-28.Suppose the world price in this market is $6.If the country allows free trade,how many units will domestic consumers demand,and how many units will domestic producers supply?
Q8) A tax on an imported good is called a ------ .
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Q9) List five arguments given to support trade restrictions. To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Application International Trade: Part B
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Q1) For Country A,the world price of textiles exceeds the domestic equilibrium price of textiles.As a result,international trade allows sellers of textiles in Country A to experience greater producer surplus than they otherwise would experience.
A)True
B)False
Q2) The results of a 2008 Los Angeles Times poll suggest that the percentage of Americans who believe trade is harmful to the economy exceeds the percentage of Americans who believe trade is beneficial to the economy.
A)True
B)False
Q3) Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium without trade,thus reducing the gains from trade.
A)True
B)False
Q4) Since a tariff can increase employment in an industry,the result is a net increase in total surplus.
A)True
B)False
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Chapter 10: Measuring a Nations Income
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Q1) 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?
Q2) Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?
A)the unemployment rate
B)the inflation rate
C)gross domestic product
D)the trade deficit
Q3) 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.
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Chapter 10: Measuring a Nations Income: The Economy's
Income and Expenditure
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Q1) If an economy's GDP falls,then it must be the case that the economy's
A)income and saving fall.
B)income and market value of all production both fall.
C)income falls and market value of all production rises.
D)income rises and market value of all production falls.
Q2) In the simple circular-flow diagram,with households and firms,GDP can be computed
A)as the total payments for factors of production made by households.
B)as the total expenditures by households on goods but not services,since services are intangible.
C)as the total expenditures by households on goods and services.
D)as the total expenditures by households on goods and services,less taxes paid.
Q3) In a simple circular-flow diagram,
A)households spend all of their income.
B)all goods and services are bought by households.
C)expenditures flow through the markets for goods and services,while income flows through the markets for the factors of production.
D)All of the above are correct.
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Chapter 10: Measuring a Nations Income: The Measurement
of GDP
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Q1) Which of the following values would be included in U.S.GDP for 2015?
A)the rent that Sam,an American citizen,would have paid on his home in Houston in 2015 had he not owned that home.
B)the rent that Jim,an American citizen,paid on his apartment in San Francisco in 2015.
C)the value of the legal services provided by Juan,an attorney and a Mexican citizen,who lived in San Antonio and practiced law there in 2015
D)All of the above would be included in U.S.GDP for 2015.
Q2) Jackie,a Canadian citizen,works only in the United States.The value of the output she produces is
A)included in both U.S.GDP and U.S.GNP.
B)included in U.S.GDP,but it is not included in U.S.GNP.
C)included in U.S.GNP,but it is not included in U.S.GDP.
D)included in neither U.S.GDP nor U.S.GNP.
Q3) In the national income accounts,depreciation is called
A)"consumption of fixed capital."
B)"negative investment."
C)"diminished value."
D)"loss due to wear."
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Chapter 10: Measuring a Nations Income: The Components of GDP
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Q1) If a U.S.company buys an electrical generator made in Japan by a Japanese firm,and the Japanese firm uses the payment to buy stocks issued by a U.S.company then
A)U.S.exports and U.S imports increase.
B)U.S.exports but not U.S.imports increase.
C)U.S.imports but not U.S.exports increase.
D)neither U.S.exports nor U.S.imports increase.
Q2) When economists refer to intangible items,they are referring to such things as
A)illegal goods,and the value of such items is included in GDP.
B)illegal goods,and the value of such items is excluded from GDP.
C)hair styling and dental care,and the value of such items is included in GDP.
D)hair styling and dental care,and the value of such items is excluded from GDP.
Q3) The Carters' oldest son attends Big State University.He and his parents pay all his fees and tuition.These payments count in GDP as
A)investment.
B)government spending.
C)consumption of services.
D)consumption of durable goods.
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Chapter 10: Measuring a Nations Income: Real Versus Nominal GDP
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Q1) If in some year nominal GDP was $28 trillion and real GDP was $32 trillion,what was the GDP deflator?
A)87.5.
B)114.3.
C)400.
D)896.
Q2) Which of the following statements about recessions is true?
A)An old rule of thumb defining recession is two consecutive quarters of falling nominal GDP.
B)Recessions occur at regular intervals and last standard amounts of time.
C)There is no ironclad rule for the declaration of recessions.
D)Recessions are associated with low unemployment and high income.
Q3) If real GDP is 5,100 and nominal GDP is 4,900,then the GDP deflator is
A)104.1 so prices are higher than in the base year.
B)104.1 so prices are lower than in the base year.
C)96.1 so prices are higher than in the base year.
D)96.1 so prices are lower than in the base year.
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Chapter 10: Measuring a Nations Income: Is GDP a Good Measure of Economic Well-Being
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Q1) Suppose the government eliminates all environmental regulations and,as a result,the production of goods and services increases,but there is considerably more pollution.Based on this scenario,which of the following statements is correct?
A)GDP would definitely increase,despite the fact that GDP includes environmental quality.
B)GDP would definitely decrease because GDP includes environmental quality.
C)GDP would definitely increase because GDP excludes environmental quality.
D)GDP could either increase or decrease because GDP excludes environmental quality.
Q2) 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.
Q3) GDP per person tells us the income and expenditure of the
A)richest person in the economy.
B)poorest person in the economy.
C)average person in the economy.
D)entire economy.
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Chapter 10: Measuring a Nations Income: Part A
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Q1) Refer to Figure 23-2.Identify the location of firms and households.
Q2) Define gross domestic product.
Q3) Java Hut,a U.S.coffee retailer,buys $10 million worth of coffee beans from Colombia.It also pays $5 million for paper cups and utilities,all produced in the U.S.It sells the coffee it produces using the above inputs to U.S.consumers for $50 million.Overall how do these expenditure affect net exports? How do these expenditures effect U.S.consumption?
Q4) 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.
Q5) Explain how real GDP differs from nominal GDP.
Q6) What are transfer payments,and how do they affect the calculation of GDP?
Q7) You find that your paycheck for the year is higher this year than last.Does that mean that your real income has increased? Explain carefully.
Q8) A farmer sells sugar to a candy producer for $150.If the producer uses this sugar to make candy that sells for $200,what is the total contribution to GDP from these transactions?
Q9) How frequently is U.S.GDP reported? Is GDP adjusted for seasonality?
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Chapter 10: Measuring a Nations Income: Part B
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Q1) If someone in the United States buys a surfboard produced in Australia,then that purchase is included in both the consumption component of U.S.GDP and the net exports component of U.S.GDP.
A)True
B)False
Q2) When the U.S.government purchases capital equipment,such as a computer,these expenditures are part of investment in GDP.
A)True
B)False
Q3) If a good produced this quarter goes into inventory,then it is included in this period's GDP.If it is sold in the next quarter,it will have no effect on GDP.
A)True
B)False
Q4) An economy's income is the same as its expenditure because every transaction has a buyer and a seller.
A)True
B)False
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Chapter 11: Measuring the Cost of Living
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Q1) Which of the following statements is correct?
A)The CPI can be used to compare dollar figures from different points in time.
B)The percentage change in the CPI is a measure of the inflation rate,but the percentage change in the GDP deflator is not a measure of the inflation rate.
C)Compared to the consumer price index (CPI),the GDP deflator is the more common gauge of inflation.
D)The GDP deflator better reflects the goods and services bought by consumers than does the CPI.
Q2) Economists use the term inflation to describe a situation in which
A)some prices are rising faster than others.
B)the economy's overall price level is rising.
C)the economy's overall price level is high,but not necessarily rising.
D)the economy's overall output of goods and services is rising faster than the economy's overall price level.
Q3) The inflation rate is defined as the
A)price level in an economy.
B)change in the price level from one period to the next.
C)percentage change in the price level from the previous period.
D)price level minus the price level from the previous period.
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Chapter 11: Measuring the Cost of Living: The Consumer Price Index
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Q1) In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?
A)The base year is always the first year among the years for which computations are being made.
B)It is necessary to designate a base year only in the simplest case of two goods;in more realistic cases,it is not necessary to designate a base year.
C)The value of the consumer price index is always 100 in the base year.
D)The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.
Q2) The consumer price index is
A)not very useful as a measure of the cost of living.
B)a perfect measure of the cost of living.
C)a useful measure,but not a perfect measure,of the cost of living.
D)not used as a measure of the cost of living.
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Chapter 11: Measuring the Cost of Living: Correcting
Economic Variables for the Effects of Inflation
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Q1) Which of the following is not correct?
A)If the inflation rate exceeds the nominal interest rate,then the purchasing power of an interest-earning deposit falls over time.
B)If there is deflation,then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time.
C)The higher the rate of inflation,the smaller the increase in the purchasing power of an interest-earning deposit.
D)The purchasing power of an interest-earning deposit can increase or decrease over time,but it cannot stay the same.
Q2) If the nominal interest rate is 5 percent,and the rate of inflation is 3 percent,then the real interest rate is equal to A)2 percent.
B)0.6 percent.
C)1.7 percent.
D)15 percent.
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Chapter 11: Measuring the Cost of Living: Part A
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Q1) Refer to Scenario 24-5.Using 2010 as the base year,what is the CPI in each year?
Q2) Refer to Scenario 24-5.Using 2009 as the base year,what is the CPI in each year?
Q3) List the five steps for calculating the consumer price index and inflation rate.
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) Suppose Stan Musial earned $115,000 in 1947.If the CPI was 82 in 1947,and was 246 in 1990,what is Stan Musial's 1947 salary in 1990 dollars?
Q6) In 1954,Mickey Mantle earned $21,000 playing for the New York Yankees.The CPI in 1954 was 26.9,and the CPI in 2010 was 218.06.What is Mickey Mantle's 1954 salary in 2010 dollars?
Q7) Suppose the typical basket for the calculation of the CPI includes one computer.Since computers have gotten better over time as a result of technological change,what problem does this create for calculating the CPI?
Q8) If the real value of an item bought ten years ago is less than it's nominal value at that time,what can one infer about the change in the overall price level during this ten year period?
Q9) 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) The group of goods and services used to compute the GDP deflator changes automatically over time,but the group of goods and services used to compute the CPI does not.
A)True
B)False
Q2) The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.
A)True
B)False
Q3) When the consumer price index falls,the typical family has to spend fewer dollars to maintain the same standard of living.
A)True
B)False
Q4) The U.S.economy has never experienced deflation.
A)True
B)False
Q5) The CPI is always 1 in the base year.
A)True
B)False
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Chapter 12: Production and Growth
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Q1) Over the last century,U.S.real GDP per person grew at a rate of about
A)2 percent per year,so that it is now 2 times as high as it was a century ago.
B)2 percent per year,so that it is now 8 times as high as it was a century ago.
C)4 percent per year,so that it is now 2 times as high as it was a century ago.
D)4 percent per year,so that it is now 8 times as high as it was a century ago.
Q2) Over the past century in the United States,real GDP per person has grown,on average,by about
A)1 percent per year.
B)2 percent per year.
C)3 percent per year.
D)5 percent per year.
Q3) In which of the following countries has economic growth been sufficiently high that income would double every ten years?
A)India
B)Mexico
C)South Korea
D)Zimbabwe
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Chapter 12: Production and Growth: Economic Growth
Around the World
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Q1) In 2014,real GDP per person in Bangladesh was
A)about 3 times as high as it was in the U.S.in 1870.
B)about twice as high as it was in the U.S.in 1870.
C)about the same as it was in the U.S.in 1870.
D)less than it was in the U.S.in 1870.
Q2) Country A experienced a growth rate of real GDP per person of 2.5 percent per year throughout the 1900's.In view of other countries' experiences during this time country A's growth was
A)exceptionally high.
B)moderately high.
C)moderately low.
D)exceptionally low.
Q3) Which of the following statements is correct? In 2014,
A)real income per person in the U.S.was about 4 times that in China.
B)real income per person in China was more than 2 times that in India.
C)the typical resident of India had less real income than the typical resident of England in 1870.
D)All of the above are correct.
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Chapter 12: Production and Growth: Productivity Its Role and Determinants
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Q1) In the equation for the production function Y/L represents A)productivity.
B)output.
C)the availability of natural resources.
D)the amount of human capital.
Q2) Hit-It produces 320 baseball bats per day using 2 workers who each work 8 hours per day.What is Hit-It's productivity?
A)320 baseball bats
B)160 baseball bats per hour
C)20 baseball bats per hour
D)None of the above is correct.
Q3) The equipment and structures available to produce goods and services are called A)physical capital.
B)human capital.
C)the production function.
D)technology.
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Chapter 12: Production and Growth: Economic Growth and Public Policy
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Q1) Other things the same,if a country raises its saving rate,when is growth of real GDP per person higher?
A)as the economy moves toward the long run and in the long run.
B)as the economy moves toward the long run,but not in the long run.
C)in the long run,but not as the economy moves toward the long run.
D)neither as the economy moves toward the long run,nor in the long run.
Q2) Refer to Figure 25-1.The curve becomes flatter as the amount of capital per worker increases because of
A)increasing returns to capital.
B)increasing returns to labor.
C)diminishing returns to capital.
D)diminishing returns to labor.
Q3) Refer to Figure 25-1.The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?
A)In the long run,a higher saving rate leads to a higher level of productivity.
B)In the long run,a higher saving rate leads to a higher level of income.
C)In the long run,a higher saving rate leads to neither a higher growth rate of productivity nor a higher growth rate of income.
D)All of the above are correct.
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Chapter 12: Production and Growth: Conclusion the
Importance of Long-Run Growth
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Q1) In order to promote growth in living standards,policymakers must A)protect property rights.
B)maintain political stability.
C)encourage the accumulation of factors of production.
D)All of the above
Q2) Economists differ in their views of the role of the government in promoting economic growth.A controversial idea is that government should A)lend support to the invisible hand by maintaining property rights and political stability. B)lower barriers and impediments to free trade.
C)encourage capital formation.
D)target and subsidize specific industries important for technological progress.
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Chapter 12: Production and Growth: Part A
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Q1) Why do we refer to physical capital as a produced factor of production?
Q2) Does a country have to be blessed with large quantities of natural resources in order to enjoy a high standard of living? Briefly explain.
Q3) "When workers acquire tools,they become more productive." This statement reflects the general fact that ---------- is a determinant of productivity.
Q4) John and Miguel are fishermen.When they go fishing,John consistently catches 2 or 3 fish per hour,while Miguel consistently catches 5 or 6 fish per hour.Miguel's ---------exceeds that of John.
Q5) Some data that at first might seem puzzling: The share of GDP devoted to investment was similar for the United States and South Korea from 1960-1991.However,during these same years South Korea had a 6 percent growth rate of average annual income per person,while the United States had only a 2 percent growth rate.If the saving rates were the same,why were the growth rates so different?
Q6) "Market prices give no reason to believe that natural resources are a limit to economic growth." Explain this statement.
Q7) What is a production function? Write an equation for a typical production function,and explain what each of the terms represents.
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Chapter 12: Production and Growth: Part B
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Q1) Foreign direct investment and domestic investment have the same effect on all measures of economic prosperity.
A)True
B)False
Q2) An increase in capital increases productivity only if it is purchased and operated by domestic residents.
A)True
B)False
Q3) If a rich country reduced subsidies to domestic producers of goods that poor countries have a comparative advantage producing,the standard of living in these poor countries would likely rise.
A)True
B)False
Q4) A country's standard of living depends on its ability to produce goods and services.
A)True
B)False
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Chapter 13: Saving Investment and the Financial System
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Q1) Institutions that help to match one person's saving with another person's investment are collectively called the
A)Federal Reserve system.
B)banking system.
C)monetary system.
D)financial system.
Q2) If you were to start a business delivering documents,you might need to purchase cell phones,bicycles,desks,and chairs.
A)These purchases are called capital investment.If you raise the funds to purchase them from others you are a saver.
B)These purchases are called capital investment.If you raise the funds to purchase them from others you are a borrower.
C)These purchases are called consumption.If you raise the funds to purchase them from others you are a saver.
D)These purchases are called consumption.If you raise the funds to purchase them from others you are a borrower.
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Chapter 13: Saving Investment and the Financial System: Financial Institutions in the US economy
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Sample Questions
Q1) Stocks and bonds
A)and checking accounts are all stores of value and commonly function as mediums of exchange.
B)and checking accounts are all stores of value,but only stocks and bonds commonly function as mediums of exchange.
C)and checking accounts are all stores of value,but only checking accounts commonly function as mediums of exchange.
D)and checking accounts all commonly function as mediums of exchange,but only stocks and bonds are a store of value.
Q2) After a corporation issues stock,the stock
A)cannot be resold.
B)can be resold only if the corporation wants to buy it back.
C)can be resold on exchanges;the resale will raise additional funds for the corporation.
D)None of the above are correct.
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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) The country of Growpaw does not trade with any other country.Its GDP is $20 billion.Its government purchases $3 billion worth of goods and services each year,collects $4 billion in taxes,and provides $2 billion in transfer payments to households.Private saving in Growpaw is $4 billion.What is investment in Growpaw?
A)$5 billion
B)$4 billion
C)$3 billion
D)$11 billion
Q2) In a closed economy,if Y and T remained the same,but G rose and C fell but by less than the rise in G,what would happen to public and national saving?
A)public and national saving would rise
B)public and national saving would fall
C)public saving would rise and national saving would fall
D)public saving would fall and national saving would rise
Q3) Refer to Scenario 26-3.For this economy,government purchases amount to A)$330.
B)$280.
C)$305.
D)$310.
Page 88
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Chapter 13: Saving Investment and the Financial System:
The Market for Loanable Funds
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Q1) If there is a shortage in the market for loanable funds,what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?
A)desired saving and desired investment both fall
B)desired saving and desired investment both rise
C)desired saving falls and desired investment rises
D)desired saving rises and desired investment falls
Q2) Suppose in some country that the first $5,000 of interest income is exempt from income tax.If the government then removed this exemption
A)the interest rate and investment would rise.
B)the interest rate would rise and investment would fall.
C)the interest rate would fall and investment would rise.
D)the interest rate and investment would fall.
Q3) 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?
Q4) What is a bond buyer promised when she buys a bond?
Q5) What variable adjusts to balance demand and supply in the market for loanable funds?
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Chapter 13: Saving Investment and the Financial System:
Part A
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Q1) Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.
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) Robert buys bonds.Rachel buys a new truck for her landscaping business.Identify both as savers,investors,both,or neither.
Q4) In a closed economy private saving is $500 billion and the government budget deficit is $100 billion.What is investment?
Q5) In the terminology of macroeconomics,what's the difference between a saver and an investor?
Q6) Stock in Frozen Dreams,an ice cream manufacturer,has a price to earnings ratio of 24.Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?
Q7) In macroeconomics, _____ refers to the purchase of new capital.
Q8) If consumers reduced their spending,what would happen to the interest rate and investment?
Q9) What is a bond buyer promised when she buys a bond? Page 90
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Chapter 13: Saving Investment and the Financial System:
Part B
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Q1) Lenders sell bonds and borrowers buy them.
A)True
B)False
Q2) Alberta buys a paint sprayer and a lift for her car customizing shop.A macroeconomist would refer to these purchases as investment.
A)True
B)False
Q3) Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.
A)True
B)False
Q4) National saving is equal to Y - T - C.
A)True
B)False
Q5) If a share of stock in Dell sells for $70,the retained earnings per share are $5,and the dividend per share is $2,then the price-earnings ratio is 10.
A)True
B)False
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Chapter 14: The Basic Tools of Finance
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Q1) The financial system
A)involves bank accounts,mortgages,stock prices,and many other items.
B)involves decisions and actions undertaken by people at a point in time that affect their lives in the future.
C)coordinates the economy's saving and investment.
D)All of the above are correct.
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Chapter 14: The Basic Tools of Finance: Present Value
Measuring the Time Value of Money
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Q1) On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?
A)an interest rate of 5 percent,with the bank charging you a $15 processing fee at the time you open your account
B)an interest rate of 3.5 percent,with the bank giving you a $35 bonus to open your account
C)an interest rate of 4 percent,with the bank giving you a $20 bonus at the time you open your account
D)an interest rate of 4.5 percent,with no processing fee and no bonus
Q2) When you were 10 years old,your grandparents put $500 into an account for you paying 7 percent interest.Now that you are 18 years old,your grandparents tell you that you can take the money out of the account.What is the balance to the nearest cent?
A)$1,200.00
B)$1,111.77
C)$983.58
D)$859.09
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Page 94
Chapter 14: The Basic Tools of Finance: Managing Risk
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Q1) Tami knows that people in her family die young,and so she buys life insurance.Preston knows he is a reckless driver and so he applies for automobile insurance.
A)These are both examples of adverse selection.
B)These are both examples of moral hazard.
C)The first example illustrates adverse selection,and the second illustrates moral hazard.
D)The first example illustrates moral hazard,and the second illustrates adverse selection.
Q2) An increase in the number of corporations in a portfolio from 1 to 10 reduces
A)market risk by more than an increase from 110 to 120.
B)market risk by less than an increase from 110 to 120.
C)firm-specific risk by more than an increase from 110 to 120.
D)firm-specific risk by less than an increase from 110 to 120.
Q3) Other things the same,as the stocks of a greater number of corporations are held in a portfolio,
A)risk increases at an increasing rate.
B)risk increases at a decreasing rate.
C)risk decreases at an increasing rate.
D)risk decreases at a decreasing rate.
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95
Chapter 14: The Basic Tools of Finance: Asset Valuation
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Sample Questions
Q1) Suppose that fundamental analysis indicates a particular company's stock is overvalued.
A)This means its present value is less than its price.You should consider adding the stock to your portfolio.
B)This means its present value is less than its price.You shouldn't consider adding the stock to your portfolio.
C)This means its present value is more than its price.You should consider adding the stock to your portfolio.
D)This means its present value is more than its price.You shouldn't consider adding the stock to your portfolio.
Q2) Ron decides which stocks to purchase by throwing darts at the stock pages of The Wall Street Journal.Ron probably believes that
A)stock prices follow a random walk.
B)the stock market is informationally efficient.
C)it is better to own stock in 20 companies than it is to own stock in 2 companies.
D)All of the above are correct.
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Chapter 14: The Basic Tools of Finance: Conclusion
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Q1) Economists disagree as to whether
A)the stock price of a company should reflect the company's expected profitability.
B)the basic tools of finance reflect valid ideas.
C)stock prices reflect rational estimates of a company's true worth.
D)there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.
Q2) Stock market fluctuations
A)often go hand in hand with fluctuations in the economy more broadly.
B)rarely have anything to do with fluctuations in the economy more broadly.
C)have few,if any,macroeconomic implications.
D)are attributable to the widespread belief that the efficient markets hypothesis is correct.
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Chapter 14: The Basic Tools of Finance: Part A
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Sample Questions
Q1) Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.
Q2) Until recently,shares of stock accounted for 40 percent of Jimmy's savings.A few days ago,Jimmy sold some bonds and bought some additional shares of stock.Now shares of stock account for 70 percent of Jimmy's savings.How did this change affect Jimmy's expected retun on his savings? How did it affect the risks he faces?
Q3) Suppose you place $500 into a savings account that will pay you 6% interest per year.What will be the future value of the savings account in 15 years?
Q4) What does "random walk" mean? According to the efficient markets hypothesis,should stock prices follow a random walk?
Q5) A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years.What interest rate represents the cutoff between profitability and nonprofitability for this project?
Q6) A payment of $10,000 is to be made in the future.The interest rate 3%.Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?
Q7) Write the formula to find the present value of $x to be paid in n years.
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Chapter 14: The Basic Tools of Finance: Part B
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Q1) Actively managed mutual funds usually fail to outperform index funds,and this fact provides evidence in favor of the efficient markets hypothesis.
A)True
B)False
Q2) A person's subjective measure of well-being or satisfaction is called aversion.
A)True
B)False
Q3) According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.
A)True
B)False
Q4) Historically,stocks have offered higher rates of return than bonds.
A)True
B)False
Q5) A person with diminishing marginal utility of wealth is risk averse.
A)True B)False
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Chapter 15: Unemployment
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Q1) Cyclical unemployment is closely associated with
A)long-term economic growth.
B)short-run ups and downs of the economy.
C)fluctuations in the natural rate of unemployment.
D)changes in the minimum wage.
Q2) To maintain their standard of living,most people rely on
A)government assistance.
B)their personal savings.
C)their labor earnings.
D)rental income.
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.
Q4) The natural rate of unemployment
A)varies less than the measured unemployment rate.
B)cannot be changed by government policy.
C)is closely associated with the ups and downs in economic activity.
D)is set by the Federal Reserve.
100
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Chapter 15: Unemployment: Identifying Unemployment
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Sample Questions
Q1) Data on the unemployment rate in the U.S.since 1960 show that the unemployment rate is
A)always zero.
B)sometimes zero.
C)rarely zero.
D)never zero.
Q2) In 2014,the Italian adult non-institutionalized population was 38.8 million,the labor force was 25.4 million,and the number of people employed was 22 million.According to these numbers,the Italian labor-force participation rate and unemployment rate were about
A)65.5% and 13.4%
B)65.5% and 8.8%
C)56.7% and 13.4%
D)56.7% and 8.8%
Q3) The Bureau of Labor Statistics produces data on unemployment
A)weekly.
B)monthly.
C)quarterly.
D)yearly.
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Chapter 15: Unemployment: Job Search
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Q1) Which of the following helps to reduce frictional unemployment?
A)government-run employment agencies
B)public training programs
C)the Internet
D)All of the above are correct.
Q2) Which of the following is not correct?
A)Frictional unemployment is inevitable in a dynamic economy.
B)Although the unemployment created by sectoral shifts is unfortunate,in the long run such changes lead to higher productivity and higher living standards.
C)Workers tend to move to jobs where they are most valued.
D)Churning of the labor force signals that the economy is functioning poorly.
Q3) Which of the following is a source of frictional unemployment?
A)changes in the composition of demand among industries or regions
B)minimum wages
C)labor unions
D)None of the above is correct.
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102
Chapter 15: Unemployment: Minimum-Wage Laws
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Q1) 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.
Q2) Refer to Figure 28-4.If the government imposes a minimum wage of $4,how many workers will be unemployed?
A)0
B)4,000
C)6,000
D)12,000
Q3) Minimum-wage laws are least likely to affect the wages paid to A)teenagers.
B)low-skill workers.
C)inexperienced workers.
D)highly-educated workers.
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Chapter 15: Unemployment: Unions and Collective Bargaining
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Q1) If unions were formed in more industries,the supply of labor in other industries would
A)increase,causing employment in other industries to rise.
B)increase,causing employment in other industries to fall.
C)decrease,causing employment in other industries to rise.
D)decrease,causing employment in other industries to fall.
Q2) If outsiders had more say in union contracts then it is likely that union wages would be
A)higher so unemployment would be higher.
B)higher so unemployment would be lower.
C)lower so unemployment would be higher.
D)lower so unemployment would be lower.
Q3) Labor unions
A)raise wages in unionized industries.
B)create labor shortages in non-unionized industries.
C)play a larger role in the current U.S.economy than in European countries such as Norway and Sweden.
D)prefer to operate in states with right-to-work laws.
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Page 104
Chapter 15: Unemployment: The Theory of Efficiency Wages
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Q1) Minimum-wage laws
A)create frictional unemployment,while firms paying wages above equilibrium to reduce worker turnover creates structural unemployment.
B)create structural unemployment,while firms paying wages above equilibrium to reduce worker turnover creates frictional unemployment.
C)and firms paying wages above equilibrium to reduce worker turnover both create structural unemployment.
D)and firms paying wages above equilibrium to reduce worker turnover both create frictional unemployment.
Q2) The theory of efficiency wages explains why
A)setting wages at the equilibrium level may increase unemployment.
B)it may be in the best interest of firms to offer wages that are above the equilibrium level.
C)the most efficient way to pay workers is to pay them according to their skills.
D)it is efficient for firms to set wages at the equilibrium level.
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Chapter 15: Unemployment: Part A
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Sample Questions
Q1) Write the formula for calculating the unemployment rate.
Q2) A labor union is similar to a ----------.
Q3) Unemployment insurance __________ the amount of unemployment.
Q4) Briefly describe how labor unions can affect wages in non-unionized industries.
Q5) Define efficiency wages.
Q6) Briefly compare the structural unemployment that arises from minimum-wage laws to the frictional unemployment that arises from the process of job search.
Q7) Explain the effect of right-to-work laws on the collective bargaining power of labor unions.
Q8) 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?
Q9) 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?
Q10) Briefly explain the four rationales for efficiency wages.
Q11) In the town of Gotham the adult population is 560 thousand,the number unemployed is 25 thousand,and 185 thousand are not in the labor force.Calculate the unemployment rate.
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Chapter 15: Unemployment: Part B
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Q1) Within the U.S.population,women of prime working age (ages 25-54)have higher rates of unemployment than men of prime working age (ages 25-54),regardless of race.
A)True
B)False
Q2) Most people rely primarily on income other than their labor earnings to maintain their standard of living.
A)True
B)False
Q3) Most spells of unemployment are short.About half of unemployment spells end with an exit from the labor force.
A)True
B)False
Q4) When a union raises the wage above the equilibrium level,it reduces the quantity of labor supplied and raises the quantity of labor demanded,resulting in unemployment.
A)True
B)False
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Chapter 16: The Monetary System
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Q1) 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.
Q2) Which of the following is an example of barter?
A)A parent gives a teenager a $10 bill in exchange for her babysitting services.
B)A homeowner gives an exterminator a check for $50 in exchange for extermination services.
C)A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.
D)All of the above are examples of barter.
Q3) The existence of money
A)reduces specialization.
B)makes trade easier.
C)allows for barter.
D)hinders production.
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Chapter 16: The Monetary System: The Meaning of Money
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Q1) The money stock in the economy is
A)the amount of wealth accumulating in the economy,such as currency and demand deposits.
B)the amount of wealth accumulating in the economy,such as money market mutual funds and stocks.
C)the quantity of money circulating in the economy,such as currency and demand deposits.
D)the quantity of money circulating in the economy,such as money market mutual funds and stocks.
Q2) The primary difference between commodity money and fiat money is that
A)commodity money is a medium of exchange but fiat money is not.
B)fiat money is a medium of exchange but commodity money is not.
C)commodity money has intrinsic value but fiat money does not.
D)fiat money has intrinsic value but commodity money does not.
Q3) When colonists in Virginia used tobacco as money,their money
A)was commodity money.
B)had no intrinsic value.
C)was fiat money.
D)had no store of value.
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Page 109
Chapter 16: The Monetary System: The Federal Reserve System
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Q1) Which of the following entities actually executes open-market operations?
A)the Board of Governors
B)the New York Federal Reserve Bank
C)the Federal Open Market Committee
D)the Open Market Committees of the regional Federal Reserve Banks
Q2) The agency responsible for regulating the U.S.monetary system is the
A)U.S.Treasury
B)Federal Reserve
C)Department of Justice
D)Federal Trade Commission
Q3) The regional Federal Reserve Banks
A)are not allowed to make loans to banks in their region.
B)regulate banks in their regions.
C)have more voting members on the FOMC than does the Board of Governors.
D)are each headed by a member of the Board of Governors.
Q4) Which of the following individuals serve a four-year term?
A)the members of the Board of Governors
B)the Chair of the Board of Governors
C)the members of the FOMC
D)All of the above are correct.
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Chapter 16: The Monetary System: Banks and the Money Supply
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Q1) On a bank's T-account,which are part of the bank's assets?
A)both deposits made by its customers and reserves
B)deposits made by its customers but not reserves
C)reserves but not deposits made by its customers
D)neither deposits made by its customers nor reserves
Q2) Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves,but at some point banks still have $5 million more they wish to lend out.If the reserve requirement is 10 percent,how much more money can banks create if they lend out the remaining amount?
A)$55 million
B)$50 million
C)$45 million
D)$40 million
Q3) If you deposit $100 of currency into a demand deposit at a bank,this action by itself
A)does not change the money supply.
B)increases the money supply.
C)decreases the money supply.
D)has an indeterminate effect on the money supply.
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Chapter 16: The Monetary System: The Feds Tools of Monetary Control
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Q1) The Fed's primary tool to change the money supply is
A)changing the interest rate on reserves.
B)changing the reserve requirement.
C)conducting open market operations.
D)redeeming Federal Reserve notes.
Q2) Refer to Scenario 29-2.Suppose the Bank of Tazi loaned the banks of Tazi 10 million tazes.Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same.By how much would the money supply change?
A)250 million tazes
B)200 million tazes
C)125 million tazes
D)None of the above is correct.
Q3) Reserve requirements are regulations concerning
A)the amount banks are allowed to borrow from the Fed.
B)the amount of reserves banks must hold against deposits.
C)reserves banks must hold based on the number and type of loans they make.
D)the interest rate at which banks can borrow from the Fed.
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Page 112
Chapter 16: The Monetary System: Part A
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Sample Questions
Q1) The existence of money makes trade easier.How is it that money can also increase the standard of living?
Q2) 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.
Q3) The money multiplier is _____ when the reserve ratio is 12.5 percent.
Q4) What is bank insolvancy?
Q5) A bank operates with reserves of $100,loans of $300 and securities of $100.The bank's only liability is deposits of $400 since it has zero debt.Calculate the bank's leverage ratio.
Q6) How are Federal Reserve Board Governors selected?
Q7) What does the "double coincidence of wants" refer to?
Q8) Name three actions the Fed can take to increase the money supply.
Q9) Draw a simple T-account for First National Bank which has $5,000 of deposits,a required reserve ratio of 10 percent,and excess reserves of $300.Make sure your balance sheet balances.
Q10) Describe the role of the Federal Deposit Insurance Corporation (FDIC).
Q11) If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.
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Chapter 16: The Monetary System: Part B
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57 Verified Questions
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Source URL: https://quizplus.com/quiz/79633
Sample Questions
Q1) If the Fed decreases reserve requirements,the money supply will increase.
A)True
B)False
Q2) Assume that when $100 of new reserves enter the banking system,the money supply ultimately increases by $625.Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits.If,at a point in time,reserves for all banks amount to $500,then at that same point in time,loans for all banks amount to $2,625.
A)True
B)False
Q3) A debit card is more similar to a credit card than to a check.
A)True
B)False
Q4) Currently,bank runs are a major problem for the U.S.banking system and the Fed.
A)True
B)False
Q5) Bank runs are only a concern under a fractional-reserve banking system.
A)True
B)False
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Chapter 17: Money Growth and Inflation
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22 Verified Questions
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Source URL: https://quizplus.com/quiz/79726
Sample Questions
Q1) The term hyperinflation refers to
A)the spread of inflation from one country to others.
B)a decrease in the inflation rate.
C)a period of very high inflation.
D)inflation accompanied by a recession.
Q2) Deflation
A)increases incomes and enhances the ability of debtors to pay off their debts.
B)increases incomes and reduces the ability of debtors to pay off their debts.
C)decreases incomes and enhances the ability of debtors to pay off their debts.
D)decreases incomes and reduces the ability of debtors to pay off their debts.
Q3) Between 1880 and 1896 the average level of prices in the U.S.economy
A)fell 23 percent.
B)fell 4 percent.
C)rose 23 percent.
D)rose 50 percent.
Q4) Over the past 80 years,the overall price level in the U.S.has experienced a(n)
A)4-fold increase.
B)10-fold increase.
C)13-fold increase.
D)17-fold increase.
Page 115
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Chapter 17: Money Growth and Inflation: The Classical
Theory of Inflation
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245 Verified Questions
245 Flashcards
Source URL: https://quizplus.com/quiz/79725
Sample Questions
Q1) Printing money to finance government expenditures
A)causes the value of money to rise.
B)imposes a tax on everyone who holds money.
C)is the principal method by which the U.S.government finances its expenditures.
D)causes prices to fall.
Q2) When the money market is drawn with the value of money on the vertical axis,as the price level increases,the value of money
A)increases,so the quantity of money demanded increases.
B)increases,so the quantity of money demanded decreases.
C)decreases,so the quantity of money demanded decreases.
D)decreases,so the quantity of money demanded increases.
Q3) According to the classical dichotomy,which of the following is affected by monetary factors?
A)nominal wages
B)the price level
C)nominal GDP
D)All of the above are correct.
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Page 116
Chapter 17: Money Growth and Inflation: The Costs of Inflation
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Source URL: https://quizplus.com/quiz/79724
Sample Questions
Q1) Jennifer took out a fixed-interest-rate loan when the CPI was 100.She expected the CPI to increase to 103 but it actually increased to 105.The real interest rate she paid is A)higher than she had expected,and the real value of the loan is higher than she had expected.
B)higher than she had expected,and the real value of the loan is lower than she had expected.
C)lower than she had expected,and the real value of the loan is higher than she had expected.
D)lower then she had expected,and the real value of the loan is lower than she had expected.
Q2) High and unexpected inflation has a greater cost
A)for those who borrow than for those who save.
B)for those who hold a little money than for those who hold a lot of money.
C)for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation.
D)All of the above are correct.
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Chapter 17: Money Growth and Inflation: Conclusion
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Source URL: https://quizplus.com/quiz/79723
Sample Questions
Q1) 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.
Q2) Inflation costs are minimized under which inflation rate?
A)-20 percent
B)5 percent
C)15 percent
D)575 percent
Q3) Inflation costs are minimized during periods of A)hyperinflation.
B)large,unexpected deflation.
C)moderate inflation.
D)rapid money growth.
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118
Chapter 17: Money Growth and Inflation: Part A
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Sample Questions
Q1) A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.
Q2) When the consumer price index increases,the value of your money has _____.According to the quantity theory of money this is caused by an increase in the _____.
Q3) In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?
Q4) A decrease in the value of money ________the quantity of money demanded.On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ________.
Q5) Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime.He complains,however,that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero.You respectfully tell your grandfather that he is committing the_________,because his annual income would have increased at an average rate of only five percent if inflation had been zero.
Q6) 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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60 Verified Questions
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Source URL: https://quizplus.com/quiz/79631
Sample Questions
Q1) Suppose the nominal interest rate is 5 percent,the tax rate on interest income is 30 percent,and the after-tax real interest rate is 0.8 percent.Then the inflation rate is 2.7 percent.
A)True
B)False
Q2) The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.
A)True
B)False
Q3) For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.
A)True
B)False
Q4) An increase in money demand would create a surplus of money at the original value of money.
A)True
B)False
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Chapter 18: Open Economy Macroeconomics Basic Concepts
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Sample Questions
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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Chapter 18: Open Economy Macroeconomics Basic
Concepts: The International Flows of Goods and Capital
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227 Verified Questions
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Source URL: https://quizplus.com/quiz/79721
Sample Questions
Q1) All saving in the U.S.economy shows up as A)investment in the U.S.economy.
B)U.S.net capital outflow.
C)either investment in the U.S.economy or U.S.net capital outflow.
D)None of the above is correct.
Q2) If a country's government reduced corruption and reformed its tax system so that businesses found operating there less risky,it's likely that this country's
A)net exports and net capital outflows would increase.
B)net exports would increase and its net capital outflows would decrease.
C)net exports and net capital outflow would decrease.
D)net exports would decrease and its net capital outflow would increase.
Q3) If Chileans buy more U.S.stocks and bonds and U.S.residents buy more Chilean wine,then
A)both U.S.net exports and U.S.net capital outflows rise.
B)U.S.net exports rise and U.S.net capital outflows fall.
C)U.S.net exports fall and U.S.net capital outflows rise.
D)both U.S.net exports and U.S.net capital outflows fall.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: The Prices for International Transactions Real and Nominal Exchange Rates
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76 Verified Questions
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Source URL: https://quizplus.com/quiz/79720
Sample Questions
Q1) In France a loaf of bread costs 3 euros.In Great Britain a loaf of bread costs 4 pounds.If the exchange rate is .9 pounds per euro,what is the real exchange rate?
A)4/2.7 loaves of British bread per loaf of French bread
B)3.6/3 loaves of British bread per loaf of French bread
C)3/3.6 loaves of British bread per loaf of French bread
D)2.7/4 loaves of British bread per loaf of French bread
Q2) If the real exchange rate for coal is 1.5,the price of coal in the U.S.is $50 per ton,and the price of coal in Britain is 20 British pounds per ton,what is the nominal exchange rate?
A)15/4
B)5/3
C)3/5
D)4/15
Q3) If the U.S.real exchange rate appreciates,U.S.exports to Europe
A)and European exports to the U.S.both rise.
B)and European exports to the U.S.both fall.
C)rise,and European exports to the U.S.fall.
D)fall,and European exports to the U.S.rise.
Page 123
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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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87 Verified Questions
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Source URL: https://quizplus.com/quiz/79719
Sample Questions
Q1) Which of the following does purchasing-power parity conclude should equal 1?
A)both the nominal and the real exchange rate.
B)the nominal exchange rate but not the real exchange rate
C)the real exchange rate but not the nominal exchange rate
D)neither the nominal exchange rate nor the real exchange rate
Q2) A basket of goods costs $800 in the U.S.In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S.dollar.In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar.Which country has purchasing-power parity with the U.S.?
A)both Belgium and Japan
B)Belgium but not Japan
C)Japan but not Belgium
D)neither Belgium nor Japan
Q3) If purchasing-power parity holds,a dollar will buy
A)more goods in foreign countries than in the United States.
B)as many goods in foreign countries as it does in the United States.
C)fewer goods in foreign countries than it does in the United States.
Page 124
D)None of the above is implied by purchasing-power parity.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part A
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67 Verified Questions
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Source URL: https://quizplus.com/quiz/79653
Sample Questions
Q1) The price level in Country A is 250.The price level in Country B is 300.If purchasing-power parity holds,what is the nominal value of Country A's currency in the market for foreign exchange with Country B? Show your work.
Q2) If a nation produces less than it spends what do we know about:
A.its net exports?
B.its net capital outflow?
C.its saving in relation to its domestic investment?
Q3) List the factors that might influence a country's exports,imports,and trade balance.
Q4) Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.
Q5) A dozen eggs cost $2 in the U.S.and 12 pesos in Argentina.If the real exchange rate is 5/6,what is the nominal exchange rate? Show your work.
Q6) As measured by the amount of trade it does,has the U.S.economy become more internationalized? Provide two reasons for this change.
Q7) A country recently had saving of 250 billion euro and domestic investment of 400 billion euro.What was the value of this country's net exports? Show your work.
Page 125
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part B
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63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/79630
Sample Questions
Q1) A country with negative net exports has a trade surplus.
A)True
B)False
Q2) Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.
A)True
B)False
Q3) Other things the same,an increase in the U.S.real exchange rate makes U.S.goods more expensive relative to foreign goods.
A)True
B)False
Q4) Jason plans to buy shrimp in Florida and sell them in Manhattan,Kansas where the price is higher.Jason plans to engage in arbitrage.
A)True
B)False
Q5) Other things the same,an increase in domestic prices raises the real exchange rate. A)True
B)False
Page 126
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Chapter 19: A Macroeconomic Theory of the Open Economy
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Source URL: https://quizplus.com/quiz/79718
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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Chapter 19: A Macroeconomic Theory of the Open
Economy: Supply and Demand for Loanable Funds and for
Foreign-Currency Exchange
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141 Verified Questions
141 Flashcards
Source URL: https://quizplus.com/quiz/79717
Sample Questions
Q1) In the open-economy macroeconomic model,as the exchange rate rises,
A)desired net exports fall,so the quantity of dollars supplied rise.
B)desired net exports fall,so the quantity of dollars demanded falls.
C)desired net exports rise ,so the quantity of dollars supplied falls.
D)desired net exports rise,so the quantity of dollars demanded rises.
Q2) A country has domestic investment of $200 billion.Its citizens purchase $600 of foreign assets and foreign citizens purchase $300 of its assets.What is national saving?
A)$400 billion
B)$500 billion
C)$600 billion
D)$800 billion
Q3) A country has national saving of $50 billion,government expenditures of $30 billion,domestic investment of $10 billion,and net capital outflow of $40 billion.What is its supply of loanable funds?
A)$20 billion
B)$30 billion
C)$50 billion
D)$60 billion
Page 128
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Equilibrium in the Open Economy
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45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/79716
Sample Questions
Q1) In the open-economy macroeconomic model,if the supply of loanable funds shifts right,then
A)net capital outflow increases so the demand for dollars in the market for foreign-currency exchange shifts right.
B)net capital outflow increases so the supply of dollars in the market for foreign-currency exchange shifts right.
C)net capital outflow decreases so the demand for dollars in the market for foreign-currency exchange shifts left.
D)net capital outflow decreases so the supply of dollars in the market for foreign-currency exchange shifts right.
Q2) In the open-economy macroeconomic model,if investment demand increases,then
A)net exports and the real exchange rate rise.
B)net exports rise and the real exchange rate falls.
C)net exports fall and the real exchange rate rises.
D)net exports and the real exchange rate fall.
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129
Chapter 19: A Macroeconomic Theory of the Open
Economy: How Policies and Events Affect an Open Economy
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172 Verified Questions
172 Flashcards
Source URL: https://quizplus.com/quiz/79715
Sample Questions
Q1) If a country raises its budget deficit,then its
A)net capital outflow and net exports rise.
B)net capital outflow rises and net exports fall.
C)net capital outflow falls and net exports rise.
D)net capital outflow and net exports fall.
Q2) Refer to Figure 32-5.Starting from 3% and .75,an increase in the government budget surplus can be illustrated as a move to
A)4% and 1
B)4% and .5
C)2% and 1
D)2% and .5
Q3) If China experienced capital flight,the supply of Chinese yuan in the market for foreign-currency exchange would shift
A)left,which would make the real exchange rate of the Chinese yuan appreciate.
B)left,which would make the real exchange rate of the Chinese yuan depreciate.
C)right,which would make the real exchange rate of the Chinese yuan appreciate.
D)right,which would make the real exchange rate of the Chinese yuan depreciate.
Page 130
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part A
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47 Verified Questions
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Source URL: https://quizplus.com/quiz/79652
Sample Questions
Q1) 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?
Q2) 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?
Q3) What is the source of the demand for loanable funds in the open-economy macroeconomic model ?
Q4) What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.
Q5) What are the sources of the demand for loanable funds? What happens to the quantity of loanable funds demanded when the interest rate rises?
Q6) What happens to each of the following if investment becomes more desirable at each interest rate?
A.the interest rate
B.net capital outflow
C.the exchange rate
Page 131
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part B
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56 Verified Questions
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Source URL: https://quizplus.com/quiz/79629
Sample Questions
Q1) Other things the same,when a Canadian company imports bicycles from the U.S. ,the open-economy macroeconomic model treats this transaction as part of the demand for dollars in the U.S.foreign-currency exchange market.
A)True
B)False
Q2) The key determinant of net capital outflow is the real interest rate.
A)True
B)False
Q3) Over the past two decades,the U.S.has persistently exported more goods and services than it has imported.
A)True
B)False
Q4) In an open economy,the demand for loanable funds comes from both domestic investment and net capital outflow.
A)True
B)False
Q5) Capital flight raises both a country's exchange rate and its interest rate.
A)True
B)False
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Chapter 20: Aggregate Demand and Aggregate Supply
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6 Verified Questions
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Sample Questions
Q1) In October 2009,the official unemployment rate rose to A)10%.
B)8%.
C)6%
D)4%.
Q2) 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.
Q3) 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.
Q4) During recessions
A)workers are laid off.
B)factories are idle.
C)firms may find they are unable to sell all they produce.
D)All of the above are correct.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Three Key Facts About Economic Fluctuations
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Sample Questions
Q1) Which of the following is correct?
A)Economic fluctuations are easily predicted by competent economists.
B)Recessions have never occurred very close together.
C)Spending,income,and production do not fluctuate closely with real GDP.
D)None of the above is correct.
Q2) Which of the following rises during recessions?
A)layoffs and consumer spending
B)layoffs but not consumer spending
C)consumer spending but not layoffs
D)neither layoffs nor consumer spending
Q3) Refer to Figure 33-2.Line X is
A)investment spending.
B)real GDP.
C)unemployment rate.
D)CPI.
Q4) During recessions declines in investment account for about
A)1/6 of the decline in real GDP.
B)1/7 of the decline in real GDP.
C)1/3 of the decline in real GDP.
D)2/3 of the decline in real GDP.
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Explaining Short-Run Economic Fluctuations
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Sample Questions
Q1) According to the classical model,which of the following would double if the quantity of money doubled?
A)prices but not nominal income
B)nominal income but not prices
C)both prices and nominal income
D)neither prices nor nominal income
Q2) The model of aggregate demand and aggregate supply
A)is different from the model of supply and demand for a particular market,in that we cannot focus on the substitution of resources between markets to explain aggregate relationships.
B)is different from the model of supply and demand for a particular market,in that we have to separate real and nominal variables in the aggregate model.
C)is a straightforward extension of the model of supply and demand for a particular market,in which substitution of resources between markets is highlighted.
D)is a straightforward extension of the model of supply and demand for a particular market,in which the interaction between real and nominal variables is highlighted.
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Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Demand Curve
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141 Verified Questions
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Sample Questions
Q1) As the price level falls,
A)the exchange rate falls,so net exports fall.
B)the exchange rate falls,so net exports rise.
C)the exchange rate rises,so net exports fall.
D)the exchange rate rises,so net exports rise.
Q2) Other things the same,an increase in the price level induces less spending on
A)household consumption and investment.
B)household consumption,but not investment.
C)investment,but not household consumption.
D)neither investment nor household consumption.
Q3) When the price level falls
A)households want to lend more,so the interest rate rises making the quantity of goods and services demanded rise.
B)households want to lend more,so the interest rate falls,making the quantity of goods and services demanded rise.
C)households want to lend more,so the interest rate rises,making the quantity of goods and services demanded fall.
D)None of the above are correct.
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Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Supply Curve
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95 Verified Questions
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Sample Questions
Q1) The long-run aggregate supply curve shifts left if
A)the capital stock increases.
B)there is a natural disaster.
C)the government removes some environmental regulations that limit production methods.
D)None of the above is correct.
Q2) The mathematical equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level),expresses
A)how the long run equilibrium adjusts to changes in money supply.
B)how output deviates in the short run from its long run natural rate.
C)how the short run aggregate supply curve shifts.
D)how adverse shifts in aggregate supply can cause stagflation.
Q3) Other things the same,if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent,then
A)employment and production rise.
B)employment rises and production falls.
C)employment falls and production rises.
D)employment and production fall.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Two Causes of Economic Fluctuations
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117 Verified Questions
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Source URL: https://quizplus.com/quiz/79709
Sample Questions
Q1) If output is above its natural rate,then according to sticky-wage theory
A)workers and firms will strike bargains for higher wages.This increase in wages shifts the short-run aggregate supply curve right.
B)workers and firms will strike bargains for higher wages.This increase in wages shifts the short-run aggregate supply curve left.
C)workers and firms will strike bargains for lower wages.This decrease in wages shifts the short-run aggregate supply curve right.
D)workers and firms will strike bargains for lower wages.This decrease in wages shifts the short-run aggregate supply curve left.
Q2) Refer to Figure 33-9.Suppose the economy starts where LRAS = AD1 = SRAS<sub>1</sub>.A decrease in short-run aggregate supply would be consistent with the movement to
A)P<sub>1</sub>,Y<sub>1</sub>.
B)P<sub>2</sub>,Y<sub>1</sub>.
C)P<sub>1</sub>,Y<sub>2</sub>.
D)P<sub>3</sub>,Y<sub>2</sub>.
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Page 138
Chapter 20: Aggregate Demand and Aggregate Supply:
Part A
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Q1) The exchange-rate effect helps explain what feature in the aggregate demand and aggregate supply model?
Q2) Use sticky-wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.
Q3) Refer to Figure 33-13.Identify the price and output levels consistent with long-run equilibrium.
Q4) Suppose the expected price level increases.Which curves in the aggregate demand and aggregate supply model would be affected,and which way would they shift?
Q5) Who wrote the 1936 book titled The General Theory of Employment, Interest, and Money?
Q6) Misperceptions theory helps explain what feature of the aggregate demand and aggregate supply model?
Q7) Using the aggregate demand and aggregate supply model,a decrease of what curve is by itself consistent with the changes in prices and output that occurred during the onset of the Great Depression?
Q8) Explain how an increase in the price level changes interest rates.How does this change in interest rates lead to changes in investment and net exports?
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part B
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Q1) Most macroeconomic variables that measure some type of income,spending,or production fluctuate closely together.
A)True
B)False
Q2) A decrease in the price level makes consumers feel wealthier,so they purchase more.This logic helps explain why the aggregate demand curve slopes downward.
A)True
B)False
Q3) Policymakers who influence aggregate demand can potentially mitigate the severity of economic fluctuations.
A)True
B)False
Q4) The aggregate-demand curve shows the quantity of domestic goods and services that households,firms,the government,and customers abroad want to buy at each price level.
A)True
B)False
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Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand
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Q1) 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) 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.
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) 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.
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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) Refer to Figure 34-4.Which of the following events could explain a shift of the money-demand curve from MD<sub>1</sub> to MD<sub>2</sub>?
A)a decrease in the price level
B)a decrease in the cost of borrowing
C)an increase in the price level
D)an increase in the cost of borrowing
Q2) According to liquidity preference theory,the slope of the money demand curve is explained as follows:
A)Interest rates rise as the Fed reduces the quantity of money demanded.
B)Interest rates fall as the Fed reduces the supply of money.
C)People will want to hold less money as the cost of holding it falls.
D)People will want to hold more money as the cost of holding it falls.
Q3) Refer to Figure 34-4.Suppose the current equilibrium interest rate is r<sub>3</sub>.Which of the following events would cause the equilibrium interest rate to decrease?
A)The Federal Reserve increases the money supply.
B)Money demand decreases.
C)The price level decreases.
D)All of the above are correct.
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Chapter
How Fiscal Policy Influences
Aggregate Demand
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Q1) An increase in government spending shifts aggregate demand
A)to the right.The larger the multiplier is,the farther it shifts.
B)to the right.The larger the multiplier is,the less it shifts.
C)to the left.The larger the multiplier is,the farther it shifts.
D)to the left.The larger the multiplier is,the less it shifts.
Q2) A decrease in government spending initially and primarily shifts
A)aggregate demand to the right.
B)aggregate demand to the left.
C)aggregate supply to the right.
D)neither aggregate demand nor aggregate supply.
Q3) If the multiplier is 5.25,then the MPC is
A)0.19.
B)0.68.
C)0.81.
D)0.84.
Q4) Refer to Scenario 34-2.The marginal propensity to consume for this economy is A)0.64.
Page 143
B)0.83.
C)0.56.
D)0.840.
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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) A 2009 article in The Economist noted that
A)recent research has allowed economists to estimate the values of fiscal multipliers with a great deal of precision.
B)research on multipliers indicates that multipliers for permanent tax cuts tend to be smaller than multipliers for temporary tax cuts.
C)most of the evidence on multipliers for government spending is based on changes in military expenditures.
D)All of the above are correct.
Q2) Which U.S.president,when asked why he had proposed a tax cut,responded by saying "To stimulate the economy.Don't you remember your Economics 101?"
A)Dwight D.Eisenhower
B)John F.Kennedy
C)Ronald Reagan
D)Bill Clinton
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part A
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Q1) The ease with which an asset can be converted into the medium of exchange is known as -----.
Q2) The ----- is the most important automatic stabilizer.
Q3) When the Federal Reserve conducts an open-market purchase,the money supply ----- and aggregate demand -----.
Q4) Refer to Figure 34-13.The economy is currently at point A.Given the current situation,the Federal Reserve will ----- bonds,which causes interest rates to -----.
Q5) The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as -----.
Q6) Suppose that the government spends more on a missile defense program.What does this do to aggregate demand? How is your answer affected by the presence of the multiplier,crowding-out,taxes,and investment-accelerator effects?
Q7) Suppose households attempt to increase money holdings.To stabilize output and employment,the Federal Reserve will -----.
Q8) What is the value of the multiplier if the marginal propensity to consume is 0.5?
Q9) Unemployment insurance benefits are an example of -----.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part B
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Q1) If the MPC is 4/5,the multiplier is 5/4.
A)True
B)False
Q2) A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy.A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.
A)True
B)False
Q3) The multiplier is computed as MPC / (1 - MPC).
A)True
B)False
Q4) In liquidity preference theory,an increase in the interest rate,other things the same,decreases the quantity of money demanded,but does not shift the money demand curve.
A)True
B)False
Q5) The theory of liquidity preference was developed by Irving Fisher.
A)True
B)False
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment
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Q1) In the long run,inflation
A)and unemployment are primarily determined by labor market factors.
B)and unemployment are primarily determined by the rate of money supply growth.
C)is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors.
D)is primarily determined by labor market factors while unemployment is primarily determined by the rate of money supply growth.
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.
Q3) The misery index is supposed to measure the
A)social cost of unemployment.
B)health of the economy.
C)lost output associated with a particular unemployment rate.
D)short-run tradeoff between inflation and unemployment.
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Chapter 22: The Short Run Trade Off Between Inflation and
Unemployment: The Phillips Curve
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Q1) Refer to Figure 35-4.Assume the figure charts possible outcomes for the year 2018.In 2018,the economy is at point B on the left-hand graph,which corresponds to point B on the right-hand graph.Also,point A on the left-hand graph corresponds to A on the right-hand graph.The price level in the year 2018 is A)117.25.
B)114.95.
C)113.12.
D)111.10.
Q2) Refer to Figure 35-4.What is measured along the horizontal axis of the left-hand graph?
A)the wage rate
B)the inflation rate
C)output
D)the interest rate
Q3) Samuelson and Solow believed that the Phillips curve
A)implied that low unemployment was associated with low inflation.
B)indicated that the aggregate supply and aggregate demand model was incorrect.
C)offered policymakers a menu of possible economic outcomes from which to choose.
D)All of the above are correct.
Page 149
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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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Q1) Which of the following would reduce the natural rate of unemployment?
A)both an increase in the rate of money growth and increased unemployment compensation
B)an increase in the rate of money growth but not increased unemployment compensation
C)an increase in unemployment compensation but not an increase in the rate of money growth.
D)neither an increase in unemployment compensation nor an increase in the rate of money growth.
Q2) In responding to the Phillips curve hypothesis,Friedman argued that the Fed can peg the
A)unemployment rate.
B)inflation rate.
C)growth rate of real national income.
D)All of the above are correct.
Q3) Refer to Figure 35-7.The economy would move from 3 to 5
A)in the short run if money supply growth increased unexpectedly.
B)in the short run if money supply growth decreased unexpectedly.
Page 150
C)in the long run if money supply growth increases.
D)in the long run if money supply growth decreases.
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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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Q1) In 1980,the U.S.misery index was
A)much higher than average.
B)slightly higher than average.
C)about average.
D)below average.
Q2) A favorable supply shock causes output to
A)rise.To counter this a central bank would increase the money supply.
B)rise.To counter this a central bank would decrease the money supply.
C)fall.To counter this a central bank would increase the money supply.
D)fall.To counter this a central bank would decrease the money supply.
Q3) Refer to Figure 35-9.A movement of the economy from point A to point B,and at the same time a movement from point C to point D,would be described as A)the outcome of a favorable supply shock.
B)falling inflation.
C)stagflation.
D)All of the above are correct.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Cost of Reducing Inflation
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Q1) In the late 1970s,proponents of rational expectations argued that A)the Fed should not attempt to aggressively fight inflation.
B)the sacrifice ratio was smaller than previously thought.
C)the short run was relatively long.
D)None of the above is correct.
Q2) If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year,the sacrifice ratio is A)5/2.
B)3/2.
C)2/3.
D)2/5.
Q3) Typical estimates of the sacrifice ratio suggest that about 10 percent of annual output has to be given up in order to reduce the inflation rate from A)8 percent to 4 percent.
B)8 percent to 5 percent.
C)7 percent to 5 percent.
D)7 percent to 6 percent.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part A
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Q1) What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?
Q2) 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.
Q3) A central bank raises the money supply growth rate and keeps it higher. As the economy moves from the short-run equilibrium created by the increase in the money supply growth back to long-run equilibrium what happens to the unemployment rate?
Q4) Suppose that a central bank reduces the money supply growth rate to disinflate. What does disinflation mean? If people do not alter their inflation expectations, what happens to output and unemployment?
Q5) If because they expect the central bank to disinflate, people reduce their inflation expectations, then is the sacrifice ratio larger or smaller the otherwise? Defend your answer by referring to the Phillips curve.
Q6) The Fed increases the money supply growth rate.Assuming inflation expectations remain constant,use a Phillips curve diagram to show the short-run effects of the Fed's policy.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part B
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Q1) If monetary policy moves unemployment below its natural rate,both expected and actual inflation will rise.
A)True
B)False
Q2) An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.
A)True
B)False
Q3) The sacrifice ratio of the Volcker disinflation was larger than previous estimates had predicted.
A)True
B)False
Q4) Other things the same,an increase in aggregate demand reduces unemployment and raises inflation in the short run.
A)True
B)False
Q5) The short-run Phillips curve is based on the classical dichotomy.
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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Q1) President Barrack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis.According to the aggregate supply and aggregate demand,model which of these policies would tend to reduce unemployment?
A)both the tax cut and the increase in government expenditures
B)the tax cut but not the increase in government expenditures
C)the increase in government expenditures but not the tax cut
D)neither the increase in government expenditures nor the tax cut
Q2) When aggregate demand is high,risking higher inflation,those in favor of using monetary and fiscal policy to stabilize the economy might recommend
A)increasing government spending.
B)expanding the money supply.
C)lowering taxes.
D)the Fed sell government bonds.
Q3) "Leaning against the wind" is exemplified by a(n)
A)tax increase when there is a recession.
B)increase in the money supply when there is a recession.
C)decrease in government expenditures when there is a recession.
D)All of the above are correct.
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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) Stimulus spending in 2009 was used for
A)building roads and bridges.
B)providing aid to local and state governments.
C)making payments to the unemployed.
D)All of the above are correct.
Q3) 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
Page 157
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary Policy Be Made by Rule Rather Than by Discretion
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Q1) According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might
A)buy bonds to raise interest rates.
B)buy bonds to reduce interest rates.
C)sell bonds to raise interest rates.
D)sell bonds to reduce interest rates.
Q2) The political business cycle refers to
A)the fact that about every four years some politician advocates greater government control of the Fed.
B)the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected.
C)the part of the business cycle caused by the reluctance of politicians to smooth the business cycle.
D)changes in output created by the monetary rule the Fed must follow.
Q3) Time inconsistency will cause the
A)short-run Phillips curve to be higher than otherwise.
B)short-run Phillips curve to be lower the otherwise.
C)long-run Phillips curve to be farther to the right than otherwise.
D)long-run Phillips curve to be farther left than otherwise.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Central Bank Aim for Zero Inflation
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Q1) Economists
A)agree that the costs of moderate inflation are small.The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
B)agree that the costs of moderate inflation are small.The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.
C)disagree about the costs of moderate inflation.The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
D)disagree about the costs of moderate inflation.The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.
Q2) Which costs of inflation could the government take action to reduce without reducing inflation?
A)shoeleather costs
B)unintended changes in tax liabilities
C)menu costs
D)none of the above is correct.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Balance Its Budget
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Q1) Which of the following are justifications for running a budget deficit?
A)stabilizing the economy during a recession
B)future generations will benefit from some current expenditures
C)both a and b
D)neither a nor b
Q2) Government deficits mean that
A)national saving is negative so public saving is negative.
B)national saving is negative so public saving is lower than otherwise.
C)public saving is negative so national saving is negative.
D)public saving is negative so national saving is lower than otherwise.
Q3) Last year a country's real GDP grew by 4%,it's inflation rate was 2.5%,and it's government budget deficit was about $250 billion.It's debt to GDP ratio was unchanged.About what was it's debt at the start of last year?
A)16.7 trillion
B)10.0 trillion
C)6.25 trillion
D)3.85 trillion
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Tax Laws Be Reformed to Encourage Saving
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Q1) Opponents of tax reforms intended to raise saving argue that such reforms
A)favor those with high income,and that saving may not rise because of the substitution effect.
B)favor those with high income,and that saving may not rise because of the income effect.
C)favor those with low income,and that saving may not rise because of the substitution effect.
D)favor those with low income,and that saving may not rise because of the income effect.
Q2) A reduction in the tax rate on interest income
A)would necessarily raise national saving.
B)would primarily benefit the wealthy.
C)both a and b are correct.
D)None of the above are correct.
Q3) Eliminating double-taxation would likely
A)raise saving and primarily benefit people with lower incomes.
B)raise saving but primarily benefit people with higher incomes.
C)reduce saving but primarily benefit people with lower incomes.
D)reduce saving and primarily benefit people with higher income.
Page 161
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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) 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?
Q2) Explain why policy lags could make stabilization policies counterproductive.
Q3) Suppose that the government goes into deficit in order to help local school districts build better schools.Does this burden future generations?
Q4) Explain the main arguments in favor of economic stabilization.
Q5) Suppose tax policies are changed to encourage saving.Explain how the income effect and substitution effect influence the amount saved.
Q6) If businesses become more pessimistic about the future,what fiscal policies could the government take to stabilize the economy?
Q7) According to a 1977 amendment to the Federal Reserve Act of 1913,what are the goals the Fed should promote?
Q8) According to traditional Keynesian analysis,which has a greater impact on aggregate demand,changing taxes or changing government expenditures? Why?
Q9) Describe three costs of inflation.
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Q1) The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.
A)True
B)False
Q2) Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.
A)True
B)False
Q3) If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.
A)True
B)False
Q4) A recession has no benefit to society-it represents a sheer waste of resources.
A)True
B)False
Q5) Tax cuts affect only aggregate demand not aggregate supply.
A)True B)False
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Q1) In 2015,the federal government collected $3.25 trillion dollars in tax revenues and spent $3.69 trillion dollars.This means:
A)The federal government had a budget deficit of $0.44 billion in 2015
B)The federal government had a budget surplus of $0.44 billion in 2015
C)The national debt is equal to $0.44 billion
D)Taxes should be increased
Q2) The largest budgetary expense for the federal government in 2011 was
A)interest on the national debt.
B)health.
C)highways.
D)income security.
Q3) State and local governments
A)use a mix of taxes and fees to generate revenue.
B)are required by federal mandate to levy income taxes.
C)are required to tax property at a standard rate set by the federal government.
D)must tax wages more heavily than interest and dividend income.
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