General Economics
Exam Review
Course Introduction
General Economics provides a comprehensive overview of fundamental economic principles, including both microeconomics and macroeconomics. The course introduces students to concepts such as supply and demand, market equilibrium, consumer behavior, production costs, and the various market structures. It also explores broader topics like national income, economic growth, inflation, unemployment, fiscal and monetary policies, and international trade. Through theoretical analysis and real-world examples, students develop a solid understanding of how economic systems operate and the factors that influence economic decision-making by individuals, businesses, and governments. This foundation prepares students for further studies in economics and related fields.
Recommended Textbook
Economics Principles and Policy 13th Edition by William
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Page 2
J. Baumol
Chapter 1: What Is Economics
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232 Verified Questions
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Sample Questions
Q1) If a voluntary trade takes place,
A)both parties will benefit from the transaction.
B)only one party will benefit from the transaction.
C)neither party will benefit from the transaction.
D)both parties will benefit only if the government regulates the transaction.
Answer: A
Q2) The government uses fiscal and monetary policy to mitigate the effects of economic fluctuations.
A)True
B)False
Answer: True
Q3) The word "theory" means the same to the scientist as it does to the man on the street.
A)True
B)False
Answer: False
Q4) Economists probably agree more often than they disagree.
A)True
B)False
Answer: True
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Chapter 2: The Economy: Myth and Reality
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Sample Questions
Q1) Population density varies little between the fifty states.
A)True
B)False
Answer: False
Q2) How do the wages in the United States compare to those in northern Europe?
A)U.S.wage rates are higher than those of all northern European nations.
B)Northern Europe's average wage rates are higher.
C)U.S.wage rates are higher than those in Germany and the Netherlands.
D)they are similar.
Answer: D
Q3) Despite the monies spent by the federal and state governments, many observers believe which of the following?
A)public infrastructure such as bridges and roads is only adequate
B)our educational system is lacking
C)not enough monies are spent on homeland defense
D)all of these are correct
Answer: D
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Chapter 3: The Fundamental Economic Problem: Scarcity and Choice
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Sample Questions
Q1) Although all points on the PPF are efficient, that alone does not tell us which point is "best" for the society.
A)True
B)False
Answer: True
Q2) Efficient production can be carried out anywhere on or below the production possibilities frontier.
A)True
B)False
Answer: False
Q3) A large government faces a production possibilities frontier much like a business firm does.
A)True
B)False
Answer: True
Q4) If two persons trade, one must gain at the expense of the other.
A)True
B)False
Answer: False
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Chapter 4: Supply and Demand: an Initial Look
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Sample Questions
Q1) A demand schedule is a table showing how the ____ of some product during a specified period of time changes as ____ changes, holding all other determinants of quantity demanded constant.
A)demand; the price of its complement
B)demand; the quantity supplied
C)quantity demanded; the price of its substitute
D)quantity demanded; the price of that product
Q2) The price of gasoline has risen and the quantity sold has fallen.This was likely caused by
A)a rise in the price of crude oil.
B)a seasonal rise in the demand for gasoline.
C)use of a new public transit system.
D)the discovery of crude oil in New Jersey.
Q3) Lines, ration coupons, and black markets are symptoms of a A)price floor.
B)price ceiling.
C)free market.
D)barter economy.
Q4) Distinguish the terms price ceiling and price floor.
Q5) Why are sellers willing to sell more at a higher price?
Page 6
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Chapter 5: Consumer Choice: Individual and Market Demand
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Sample Questions
Q1) Indifference curves show all combinations of commodities that are equally desirable to the consumer.
A)True
B)False
Q2) Net utility is
A)equal to total utility from the quantity acquired of a good minus the utility lost by having to pay for it.
B)equal to the sum of the marginal utilities.
C)equal to an optimal number easily calculated by the consumer.
D)always greater than total utility.
Q3) Which of the following scenarios could be an example of increasing marginal utility?
A)A father buying three game CDs for his son.
B)A shopkeeper selling the tenth unit of hamburger.
C)A philatelist buying an additional stamp for collection.
D)A consumer buying an additional unit of apple.
Q4) The real cost of a decision is the opportunity cost measured in the commodities forgone.
A)True
B)False
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Chapter 6: Demand and Elasticity
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Sample Questions
Q1) Elasticity provides a guide to both
A)market stability and change in revenue as price changes.
B)responsiveness of quantity demanded to a change in price and market stability.
C)responsiveness of quantity demanded to a change in price and change in revenue as price changes.
D)technological change and change in revenue as price changes.
Q2) Elasticity computations related to demand carry a minus sign to show that the demand curve is negatively sloped.
A)True
B)False
Q3) In the DuPont cellophane case, rivals accused DuPont of monopolizing cellophane.DuPont claimed that the relevant market was flexible wrapping material, such as wax paper and aluminum foil, rather than just cellophane.DuPont won the case.What type of evidence constituted DuPont's defense?
Q4) If demand is unit elastic, then a 10 percent increase in the price will lead to a 10 percent increase in quantity demanded.
A)True
B)False
Q5) A unit-elastic demand curve never touches or crosses either of the axes.Why?
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Chapter 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis
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Sample Questions
Q1) If in some production range average cost is rising, the firm is experiencing
A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)increasing costs per unit of output.
Q2) Where marginal cost is less than average cost,
A)opportunity cost must have been excluded from the calculation of marginal cost.
B)marginal cost must be falling.
C)marginal cost must be rising.
D)marginal cost may be rising, falling, or constant.
Q3) The "law" of diminishing returns is also referred to as
A)the "law" of diminishing returns to scale.
B)the "law" of variable input proportions.
C)diminishing average physical product.
D)the "law" of decreasing cost.
Q4) Explain why the average cost curve for the long run differs from that for the short run.
Q5) What is the shape of average cost curve? Provide the reason for that particular shape.
Page 9
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Chapter 8: Output, Price, and Profit: the Importance of Marginal Analysis
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Sample Questions
Q1) Total profit is represented by the vertical distance between a total revenue curve and a total cost curve.
A)True
B)False
Q2) Economists and accountants use the same definition of profit.
A)True
B)False
Q3) If marginal revenue and marginal cost are not equal, profit can be maximized by
A)increasing output if MR > MC.
B)decreasing output if MC > MR.
C)moving to the output where the slopes of TR and TC are equal.
D)All of the above are correct.
Q4) Company A manufactures a single automotive component.It had total revenue of $100,000 and an economic profit of $20,000.What is the price of the component it manufactures?
A)($100,000/quantity sold).
B)($100,000/quantity produced).
C)($100,000/quantity sold) average cost of the product
D)($100,000/quantity produced) average cost of the product
Q5) What is the value of marginal profit at the profit-maximizing output?
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Chapter 9: Securities: Business Finance and the Economy:
the Tail That Wags the
Dog
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Sample Questions
Q1) Random walk theory says
A)throwing darts will pick winners.
B)random selection of stocks will do as well as other methods of stock choice.
C)speculation can't lose if you wait long enough.
D)investment in stocks can't be profitable.
Q2) A corporate bond sold in 2000 with a face value of $10,000, a $100 coupon, and a maturity date in 2010
A)will pay the bondholder $100 a year every year from 2000 to 2010 and will also pay him $9,000 in 2010.
B)will pay the bondholder $100 a year every year from 2000 to 2010 and will also pay him $10,000 in 2010.
C)requires the bondholder to pay $100 a year every year from 2000 to 2010 and will pay him $10,000 in 2010.
D)requires the bondholder to pay $100 in 2000 only and will pay him $10,000 in 2010.
Q3) Investing in risky assets in the hope of earning profits is called speculation.
A)True
B)False
Q4) Explain how mutual funds are advantageous to small investors.
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Chapter 10: The Firm and the Industry Under Perfect Competition
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Sample Questions
Q1) Draw a graph showing the typical competitive firm losing money but continuing to operate.Explain why the firm continues to operate rather than shut down.
Q2) Which of the following statements is not true in a perfectly competitive industry in long-run equilibrium?
A)A profit-maximizing firm may produce any output level at which P < LRAC.
B)Every firm produces at an output level at which MC = LRAC.
C)There is no entry or exit from the industry.
D)No firm earns an economic profit.
Q3) When a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and entry forces the price down
A)until all loss making firms leave the industry.
B)until each firm can earn acceptable level of economic profit.
C)until price becomes tangent to the long run average cost curve.
D)until the long average cost curve rises above the demand curve.
Q4) Which of the following is not a characteristic of perfect competition?
A)Firms and consumers all have perfect information about the good and market.
B)Sellers can enter the market easily.
C)All goods sold are identical.
D)All consumers have identical individual demand curves.
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Chapter 11: Monopoly
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Sample Questions
Q1) Give a complete and concise definition of each of the following terms.
a.deliberately erected entry barriers
b.inefficiency of monopoly
c.price discrimination
d.profit-maximizing equilibrium for a monopolist
Q2) The marginal revenue curve for a monopolist is the same as its demand curve.
A)True
B)False
Q3) In Figure 11-2, at what quantity would the monopolist maximize profit?
A)E
B)F
C)G
D)H
Q4) A profit-maximizing monopolist
A)is just as socially efficient as a perfectly competitive firm in allocating resources to production since she, too, seeks the largest return on his investment.
B)produces an output level at which marginal utility exceeds marginal cost.
C)produces more output than a perfectly competitive industry.
D)always produces in the inelastic region of his demand curve.
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Chapter 12: Between Competition and Monopoly
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Sample Questions
Q1) When an airline reduces its fares, other airlines typically match the action.But when an airline increases its fare, other airlines do not follow suit.Which oligopoly model cartel, price leadership, or kinked demand best fits the airline industry as described?
Justify your choice and explain why the other models are less appropriate.
Q2) The most widely used approach for the analysis of oligopoly behavior is A)game theory.
B)role playing.
C)strategic engineering.
D)input-output analysis.
Q3) The monopolistically competitive firm in short-run equilibrium
A)faces a downward-sloping demand curve.
B)has a marginal revenue curve which lies below its demand curve.
C)maximizes profit where MR = MC.
D)All of the above are correct.
Q4) How will price, output, and profit compare if firms maximize sales rather than profit?
Q5) For the monopolistic competitor, MR = P.
A)True
B)False
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Chapter 13: Limiting Market Power: Regulation and Antitrust
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Sample Questions
Q1) "Rate averaging" is only possible if
A)the firm is protected from price competition and new entry.
B)the firm is protected from losses resulting from unsuccessful innovation.
C)the firm can choose the level of service it wishes to provide.
D)"cream skimming" is permitted.
Q2) An economist is told that concentration in the cement industry has increased.He can safely conclude that
A)cement production must have fallen in the industry.
B)competition in the cement industry has decreased.
C)there are fewer cement producers than before.
D)All of the above are correct.
Q3) Economists believe mergers can sometimes achieve greater efficiency than two companies that do not merge.
A)True
B)False
Q4) It is easy to discern the difference between vigorous competition and the exercise of monopoly power.
A)True
B)False
Q5) Briefly review the history of antitrust legislation in the United States.
Page 15
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Chapter 14: The Case for Free Markets: the Price System
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Sample Questions
Q1) Input-output analysis is a technique used to solve complicated market equations. A)True
B)False
Q2) Under a system of laissez faire, output selection is determined by consumers' wants.
A)True
B)False
Q3) With a monopoly, the total surplus is lower than it would be with a perfectly competitive industry.
A)True
B)False
Q4) In a market system, the primary instruments used to coordinate economic activity are A)plans. B)prices.
C)input-output analyses. D)quantities.
Q5) Prices set too low can actually be against the public interest. A)True B)False
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Chapter 15: The Shortcomings of Free Markets
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Sample Questions
Q1) Examples of public goods include national defense, police, and the U.S.Postal Service.
A)True
B)False
Q2) A free rider is one who enjoys the benefits of a public good without paying for it.
A)True
B)False
Q3) Rent seeking is a way of earning profit without adding to the product's value.
A)True
B)False
Q4) Public goods are
A)valuable socially.
B)not depletable and not excludable.
C)subject to the "free rider" problem.
D)All of the above are correct.
Q5) An unregulated market economy provides material wealth, but does not generate effective control of environmental damage.
A)True
B)False
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Chapter 16: Externalities, the Environment, and Natural Resources
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Sample Questions
Q1) During the second Bush administration, environmental fines and prosecutions
A)increased rapidly.
B)declined significantly.
C)grew with the rate of inflation.
D)declined slightly from earlier levels.
Q2) Pollution taxes are more efficient in cleaning up the environment than direct controls.What role is there for direct controls?
A)They are useful standby mechanisms.
B)They are useful if it is decided to prohibit the substance altogether.
C)They are useful where dependable metering devices are not available or prohibitively costly to install.
D)All of the above are true.
Q3) Economists believe it is feasible and desirable to reduce environmental damage to zero.
A)True
B)False
Q4) Individuals and government have been contributors in harming the environment. A)True
B)False
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Q5) Why is it misleading to argue that emissions permits are a "license to pollute"?
Chapter 17: Taxation and Resource Allocation
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Sample Questions
Q1) Explain the purpose of payroll taxes.Is it a proportional form of tax?
Q2) Explain the excess burden of a tax on luxury yachts.
Q3) Many Americans believe that taxes have been gobbling up an ever-increasing share of the U.S.economy.Is this observation correct? Explain.
Q4) Explain the concept of efficiency as it relates to taxation.
Q5) The federal income tax is a good example of a
A)regressive tax.
B)proportional tax.
C)digressive tax.
D)progressive tax.
Q6) A tax has an excess burden whenever
A)people are unable to alter their behavior to avoid paying it.
B)government seeks to raise it.
C)it raises a great deal of revenue.
D)it induces people to change their behavior.
Q7) Homeowners receive tax benefits that are not available to renters.
A)True
B)False
Q8) Explain why some argue that income tax loopholes primarily benefit the rich.
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Chapter 18: Pricing the Factors of Production
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Sample Questions
Q1) Rent-seeking activity by firms
A)often wastes economic resources.
B)increases economic efficiency.
C)continues even when an industry is in long-run competitive equilibrium.
D)increases the total amount of economic rent available.
Q2) California passed a law called "Proposition 2 1/2" that limited property taxes to 2.5 percent of property value.Naturally this reduced taxes on many properties, and apartment landlords had more money at the end of the year at given rents.This windfall could be called an economic rent only if
A)we push the definition of economic rent too far.
B)the supply of rental units can be expanded.
C)the supply of rental units is fixed.
D)competitors can build housing at costs that yield the return that was earned before the tax cut.
Q3) The interest rate is the
A)rate of investment.
B)price of credit.
C)rate of return on investment in capital goods.
D)expected rate of inflation.
Q4) Contrast the shapes of the supply curves for financial capital and land.
Page 20
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Chapter 19: Labor and Entrepreneurship: the Human Inputs
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Sample Questions
Q1) The steam engine was first invented by A)Heron of Alexandria
B)James Wyatt
C)Robert Fulton
D)Denis Papin
Q2) Most innovation comes from universities and governments, which are inherently market driven.
A)True
B)False
Q3) As hourly wages have risen in the United States in the twentieth century, the number of hours of labor supplied by most wage workers has A)fallen.
B)stayed roughly constant. C)risen.
D)generally risen, but has fallen during periods of recession.
Q4) After Hurricane Katrina, construction wages in New Orleans rose partly because of the loss of a working population.
A)True B)False
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Chapter 20: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) Compared to a negative income tax, the federal personal income tax is thought of as a way to promote greater equality.Why?
Q2) About what percentage of the poor are children?
A)13
B)24
C)36
D)60
Q3) Economists generally agree that in reducing poverty, policies should be sought that do the
A)greatest good for total production.
B)least harm to work incentives.
C)most good for the poor.
D)least harm to equality of income.
Q4) Official data may overstate the extent of poverty because
A)poverty is a relative as opposed to an absolute concept.
B)it does not add "in-kind" transfers to the incomes of the poor.
C)it overstates the taxes paid by the poor.
D)it overestimates the amount the poor earn in the "underground economy."
Q5) How does the idea of a leaky bucket relate to the study of income distribution?
Page 22
Q6) How do income redistribution programs affect equality and efficiency?
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Chapter 21: Is Useconomic Leadership Threatened
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Sample Questions
Q1) The U.S.spends more on education, and achieves far worse results.The underling cause of this disparity may have to do with:
A)the cost per student spent
B)the high degree of inequality in the U.S.
C)the difference in property tax rates
D)both the high degree of inequality in the U.S.and the difference in property tax rates
Q2) As a share of GDP, U.S.spending on education is:
A)comparable to that of other wealthy nations in the OECD
B)about 26% higher than the average of wealthy nations in the OECD
C)about 26% lower than the average of wealthy nations in the OECD
D)rising slowly, but steadily
Q3) If a poor country can "catch up" to a rich country, its productivity rises more rapidly than the productivity of the rich country.
A)True
B)False
Q4) Poverty and inequality in the U.S.are well below the OECD average.
A)True
B)False
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Chapter 22: An Introduction to Macroeconomics
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Q1) In contrast to the post-World War II period, before 1940 the government
A)actively intervened in the economy for stabilization purposes.
B)used aggregate demand management to avoid recessions.
C)rarely intervened in the economy to influence inflation or unemployment rates.
D)used government ownership to guarantee full employment.
Q2) If hot dogs cost $2 this year and $3 next year, then 100 hotdogs will contribute
A)$200 to this year's nominal GDP and $166 to next year's nominal GDP.
B)$200 to this year's real GDP and $300 to next year's real GDP.
C)the same dollar amount to each year's nominal GDP because hotdogs are intermediate goods.
D)$200 to this year's nominal GDP and $300 to next year's nominal GDP.
Q3) The Great Depression of the 1930s led to a revolution in macroeconomic thinking, following the work of
A)Arthur Laffer.
B)Milton Friedman.
C)Adam Smith.
D)John Maynard Keynes.
E)David Ricardo.
Q4) Describe some of the steps used to combat inflation.What are their side-effects?
Q5) What are the two basic principles of aggregation?
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Chapter 23: The Goals of Macroeconomic Policy
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Sample Questions
Q1) People who failed to look for a job are classified as A)unemployed.
B)underemployed.
C)out of the labor force.
D)part time employed.
Q2) Discouraged workers are included in the
A)labor force category.
B)unemployed category.
C)not in the labor force category.
D)employed category.
Q3) If expected inflation is 12 percent and the publicly regulated electric utility company is legally limited to a 10 percent rate of return, then we should expect
A)increased investment by the utility.
B)expansion of electric power generating capacity.
C)future power shortages.
D)excess investment by the electric utility.
Q4) Taxes on capital gains and interest decline as inflation rates increase.
A)True
B)False
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Chapter 24: Economic Growth: Theory and Policy
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Sample Questions
Q1) Investment spending, capital formation, and rapid technological progress are directly related.
A)True
B)False
Q2) To promote rapid economic growth, the new growth theory would argue for increased scholarships in
A)women's studies.
B)deconstructionist literature.
C)post-modern sociology.
D)biology.
Q3) Because it is a market economy, in the United States all research and development is done by private business firms.
A)True
B)False
Q4) Compared with the U.S., developing countries
A)face geographic conditions that limit productivity.
B)have universal health care that prevent the spread of diseases.
C)more political stability.
D)higher levels of educational attainment.
Q5) Describe the three pillars of productivity growth.
Page 26
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Chapter 25: Aggregate Demand and the Powerful Consumer
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Sample Questions
Q1) Given the scatter diagram in Figure 8-1, what is the MPC (your best estimate)?
A)1/2
B)1/3
C)2/3
D)1
Q2) Assume that consumption in the United States is $9,000 billion in 2009.If the MPC is 0.8 and disposable income increases by $1,000 billion in 2010, then the level of consumption in 2010 will be
A)$10,000 billion.
B)$9,800 billion.
C)$9,000 billion.
D)$7,200 billion.
Q3) Consumer spending is an injection in the circular flow of income and spending.
A)True
B)False
Q4) Which of the following methods could be used to calculate GDP?
A)the sum of all spending on final goods and services
B)the sum of all factor payments plus depreciation and indirect business taxes
C)the sum of all values added at each stage of production
D)All of the above could be used.
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Chapter 26: Demand-Side Equilibrium: Unemployment or Inflation
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Sample Questions
Q1) A higher price level leads to:
A)lower real wealth
B)lower real income
C)a lower consumption function
D)All of the above.
E) All of the above except b.
Q2) The recessionary gap is the
A)amount of unemployment compensation required during a recession.
B)budget deficit encountered during a recession.
C)amount of government spending needed to end a recession.
D)distance between the equilibrium level of output and the full employment level of output.
Q3) When spending falls short of output, additional inventories are created.
A)True
B)False
Q4) Equilibrium GDP occurs when total spending equals total output.
A)True
B)False
Page 28
Q5) Why does the aggregate demand curve slope downward?
Q6) Why do booms and recessions tend to be transmitted across national borders?
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Chapter 27: Bringing in the Supply Side: Unemployment and Inflation
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Sample Questions
Q1) Self correcting mechanism reveals that
A)real wages will increase if there is an increase in price.
B)nominal wages will fall if there is inflationary gap.
C)nominal wages will increase if there is recessionary gap.
D)in the long run economy will be in equilibrium at potential GDP.
Q2) Economists believed that the U.S.economy had a (n) ____ in 2006 and 2007.
A)mild recession
B)small recessionary gap
C)small inflationary gap
D)deflationary gap
Q3) Many economists describe the 2007-2009 period in the United States as being a condition of a(n)
A)deflationary gap.
B)recessionary gap.
C)inflationary gap.
D)reflationary gap.
Q4) Economists do not agree on why wages are more rigid now than they were before World War II.
A)True
B)False
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Chapter 28: Managing Aggregate Demand: Fiscal Policy
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Q1) Critics of supply-side economics argue that a major flaw is
A)the small magnitude of supply-side effects.
B)the large size of demand-side effects.
C)increased income inequality.
D)All of the above.
Q2) Government transfer payments
A)are subtracted from national income to obtain disposable income.
B)can be considered as negative taxes.
C)intervene between national product and disposable income in the same way as taxes.
D)are counted the same as taxes in computing national income.
Q3) Liberals tend to favor increasing taxes as the method of counteracting inflation.
A)True
B)False
Q4) When the government taxes and spends, each activity affects GDP in the same proportion.
A)True
B)False
Q5) How do transfer payments function as negative taxes?
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Chapter 29: Money and the Banking System
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Q1) Paper money in the United States is
A)backed by gold in Fort Knox.
B)partially backed by gold and silver.
C)entirely fiat money.
D)fully convertible into gold at fixed prices.
Q2) The major contribution of goldsmiths to the development of modern banking was
A)local banking.
B)market banking.
C)fractional reserve banking.
D)gold standard banking.
Q3) The money multiplier yielded by the deposit creation formula assumes that A)banks hold no excess reserves.
B)banks hold excess reserves.
C)recipients of loans take some of the proceeds in cash.
D)recipients of loans do not redeposit their funds in other banks.
Q4) The type of currency in circulation in the modern U.S.economy is almost entirely A)commodity money.
B)metallic money.
C)fiat money.
D)silver certificates.
Page 32
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Chapter 30: Monetary Policy: Conventional and
Unconventional
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Q1) Which one of the following policies might the Fed initiate if it wanted to increase the money supply?
A)sell government securities
B)increase the reserve requirement
C)increase the discount rate
D)decrease the reserve requirement
Q2) The money supply contracts when the Fed
A)replaces old worn-out notes and bills.
B)borrows from the Treasury.
C)sells government securities.
D)purchases stocks from corporate businesses.
Q3) The principal difference between income and money is that income is a ____ and money is a ____.
A)schedule, curve
B)point, line
C)stock, flow
D)flow, stock
Q4) Open market operations affect the supply of reserves.
A)True
B)False
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Chapter 31: He Financial Crisis and the Great Recession
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Q1) Because the U.S.economy failed to snap back from a mild recession in 2001, the Fed pushed the federal funds rate down to 1%.What effect did this have on the economy?
Q2) A bubble is best defined as
A)an increase in the price of an asset resulting from fundamentals causes.
B)an increase in the price of an asset resulting from factors other than fundamentals causes.
C)a decrease in the price of an asset resulting from fundamentals causes.
D)a decrease in the price of an asset resulting from factors other than fundamentals causes.
Q3) Despite both monetary and fiscal policy actions, real GDP declined at an annualized rate of 6% during the last quarter of 2008 and the first quarter of 2009. A)True B)False
Q4) Expansionary monetary policy is essentially finished once the Fed reduces the federal funds rate to zero.
A)True
B)False
Q5) Name some important lessons learned from the financial crisis.
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Chapter 32: The Debate Over Monetary and Fiscal Policy
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Q1) Monetarists maintain that
A)the best way to study the economy is with the expenditure schedule.
B)control over the money supply implies control over real GDP.
C)velocity is not constant, but is fairly predictable.
D)All of the above are correct.
Q2) Is the equation of exchange an economic model?
A)Yes, it is a simple but powerful model.
B)No, economic models cannot be equations.
C)No, it is merely an arithmetic statement.
D)Yes, it is a cause-and-effect model.
Q3) Velocity is commonly calculated by which of the following formulas?
A)(Value of money stock)/(Value of nominal GDP)
B)(Value of transactions)/(money stock)
C)(Value of financial transactions)/(GDP)
D)(Value of output)/(Value of input)
Q4) Both approaches-Keynesian and monetarist-are ways of analyzing
A)aggregate supply.
B)aggregate demand.
C)the average price level.
D)government spending and expenditures.
Page 35
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Chapter 33: Budget Deficits in the Short and Long Run
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Q1) The Troubled Asset Relief Program (TARP) totaled ____ and the fiscal stimulus package of 2009 totaled ____.
A)$1.4 trillion; $800 billion
B)$1.4 trillion; $700 billion
C)$700 billion; $800 billion
D)$700 billion; $1.4 trillion
Q2) If the economy suffers a recession for reasons unrelated to fiscal policy, the deficit should rise and
A)inflation should fall.
B)interest rates should fall.
C)real GDP should fall.
D)All of the above are correct.
Q3) The government should not attempt to balance the budget if
A)the economy is in a recessionary gap.
B)actual GDP is below full-employment GDP.
C)unemployment is rising.
D)All of the above are correct.
Q4) List three bogus arguments about the "burden of the debt," and point out the errors in each of the arguments.
Q5) Differentiate between "off-budget" deficit and the "on-budget" deficit.
Page 36
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Chapter 34: The Trade-Off Between Inflation and Unemployment
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Q1) Most economists today believe that the Phillips curve is
A)vertical in the short run but downward sloping in the long run.
B)upward sloping in the short run but vertical in the long run.
C)downward sloping in the short run but vertical in the long run.
D)vertical in the short run but upward sloping in the long run.
Q2) Inflation targeting requires monetary policy makers to rely heavily on the Phillips curve.
A)True
B)False
Q3) In December of 2007, with an unemployment rate of 5.0 percent, most economists believed this was above the natural rate.
A)True
B)False
Q4) If workers expect inflation, and negotiate wage increases that exactly match price increases, the result is a
A)horizontal aggregate supply curve at the level of potential GDP.
B)vertical aggregate supply curve at the level of potential GDP.
C)horizontal aggregate demand curve at the level of potential GDP.
D)vertical aggregate demand curve at the level of potential GDP.
Q5) What is the effect of supply-side inflation on the short-run Phillips curve?
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Chapter 35: International Trade and Comparative Advantage
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Q1) The quantity supplied by domestic producers in an importing country must be less than the quantity demanded by its population.
A)True
B)False
Q2) "Dumping" means destroying goods to prevent driving down the price.
A)True
B)False
Q3) Using graphs to illustrate the concepts, absolute advantage
A)is shown with differences in slope of a production possibilities curve; comparative advantage is shown with a lower curve.
B)requires a very steep curve; comparative advantage requires a curve with a shallow slope.
C)on one good requires that the slope of the production possibilities curve be steeper for that good.
D)is shown with a higher production possibilities curve; comparative advantage is shown with differences in slope of the curves.
Q4) "Free trade benefits one country at another country's expense." Evaluate this statement using economic analysis.
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Chapter 36: The International Monetary System: Order or Disorder
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Q1) Which of the following countries has gone so far as to adopt the U.S.dollar as its domestic currency?
A)Panama
B)Ecuador
C)Zimbabwe
D)all of the above
Q2) An important effect of foreign currency speculators is that
A)they have consistently lost money and have left the market.
B)they have pushed exchange rates to wider extremes than most economists predicted. C)they actually limit the volatility of exchange rate movements.
D)they have had no effect at all on exchange rate volatility.
Q3) Explain three factors that would cause the dollar to appreciate.
Q4) An economic recession in the United States would shift the demand for foreign currencies outward, that is, increase demand.
A)True
B)False
Q5) When one currency appreciates, another currency must depreciate.
A)True
B)False
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Chapter 37: Exchange Rates and the Macroeconomy
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Q1) Suppose that the Fed decides to increase the growth rate of the money supply in the United States.What is most likely to happen to the U.S.trade deficit and to GDP?
A)The trade deficit will fall; GDP will fall.
B)The trade deficit will rise; GDP will rise.
C)The trade deficit will fall; GDP will rise.
D)The trade deficit will rise; GDP will fall.
Q2) What is the impact of expansionary fiscal policy on the exchange rate?
Explain the process through which expansionary fiscal policy affects the exchange rate
Q3) The anticipated effect of contractionary monetary policy is
A)increase in aggregate demand.
B)fall in interest rates.
C)increased capital outflow.
D)appreciation of the currency.
Q4) A currency depreciation
A)reduces aggregate demand and increases aggregate supply.
B)reduces aggregate demand and aggregate supply.
C)increases aggregate demand and reduces aggregate supply.
D)increases aggregate demand and aggregate supply.
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