Introduction to Economics
Exam Answer Key
Course Introduction
Introduction to Economics provides students with a foundational understanding of economic principles and how they apply to everyday life. This course explores fundamental concepts such as supply and demand, market structures, opportunity cost, and the role of government in the economy. Students will analyze both microeconomic and macroeconomic perspectives, including consumer behavior, production decisions, inflation, unemployment, and economic growth. Emphasis is placed on developing critical thinking skills to interpret economic data and evaluate current economic issues at local, national, and global levels.
Recommended Textbook
Economics Principles and Applications 6th Edition by Robert E. Hall
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35 Chapters
4566 Verified Questions
4566 Flashcards
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Page 2
Chapter 1: What Is Economics
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) If the president of Chile commented that "the crime rate in Chile is currently too high," this would be an example of a normative statement.
A)True
B)False
Answer: True
Q2) After graduating from high school,Steve had the following three choices for his immediate future,listed in order of preference: (1)attend our campus, (2)work in a printed circuit board factory,or (3)attend a rival college.His opportunity cost of going to college here includes which of the following?
A) The cost of books and supplies at the rival college
B) The income he could have earned at the printed circuit board factory plus the direct cost of attending college here (tuition,textbooks,etc. )
C) The benefits he could have received from going to the rival college
D) Only the tuition and fees paid for taking classes here
E) Cannot be determined from the information given
Answer: B
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3
Chapter 2: Scarcity,choice,and Economic Systems
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Sample Questions
Q1) If Arthur has a comparative advantage in sewing and Susan has a comparative advantage in accounting,then
A) Arthur must have an absolute advantage in sewing
B) Arthur must have an absolute advantage in accounting
C) Susan must have an absolute advantage in sewing
D) we cannot conclude anything about absolute advantage
E) Susan must have an absolute advantage in accounting
Answer: D
Q2) We say there is productive inefficiency in saving lives if
A) there is some way to save more lives
B) there is some way to save more lives without sacrificing any other goods or services
C) all resources are devoted to saving lives
D) no resources are devoted to saving lives
E) anyone dies before reaching his or her life expectancy
Answer: B
Q3) Every economic system requires a means for determining resource allocation.
A)True
B)False
Answer: True
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Page 4
Chapter 2: Scarcity, choice, and Economic Systems: Part A
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184 Flashcards
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Sample Questions
Q1) An increase in the price of gasoline will lead to a(n)
A) increase in the supply of gasoline
B) decrease in the supply of gasoline
C) no change in the supply of gasoline
D) decrease in the quantity of gasoline supplied
E) increase in the quantity of gasoline supplied
Answer: D
Q2) An increase in the price of a particular good,with all other variables constant,causes
A) a movement along a given supply curve to a lower quantity supplied
B) a shift to a different supply curve with lower quantities supplied
C) a movement along a given supply curve to a higher quantity supplied
D) a shift to a different supply curve with higher quantities supplied
E) no movement along a given supply curve unless demand also changes
Answer: C
Q3) Both the supply and demand curves can shift due to changes in income.
A)True
B)False
Answer: False
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Chapter 4: Working With Supply and Demand
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58 Flashcards
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Sample Questions
Q1) A government-imposed price ceiling set below the market's equilibrium price for a good will produce an excess supply of the good.
A)True
B)False
Q2) Figure 4-3 shows the supply and demand for socks.If a price floor of $10 is imposed,the quantity of socks actually purchased will be
A) 6 pairs
B) 10 pairs
C) 2 pairs
D) 8 pairs
E) 1 pair
Q3) If an excise tax is imposed on shirts,
A) the number of shirts produced will exceed the number demanded
B) the number of shirts demanded will exceed the number supplied
C) the equilibrium market price will decrease
D) the amount consumers pay for each shirt will decrease
E) the net revenue producers receive from each shirt will decrease
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6
Chapter 5: Elasticity
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Sample Questions
Q1) If the percentage change in quantity demanded is greater (in absolute value)than the percentage change in price,then demand
A) determines supply
B) is indeterminate
C) is elastic
D) is inelastic
E) is unit elastic
Q2) The price elasticity of demand is usually equal to the slope of the demand curve.
A)True
B)False
Q3) If a decrease in the price of one good causes the demand curve for another good to shift to the left,the two goods must be
A) inferior
B) normal goods
C) inferior goods
D) substitutes
E) complements
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Chapter 6: Consumer Choice
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Sample Questions
Q1) As Reba consumes four slices of pizza,her total utility rises from 0 to 18,to 24,to 28,and to 30,respectively.What is her marginal utility of the fourth slice of pizza?
A) 28
B) 24
C) 2
D) 7
E) 8
Q2) If a consumer's budget line between meat and potatoes has a vertical axis intercept at 100 pounds of meat and a horizontal axis intercept at 100 pounds of potatoes
A) demand must be inelastic
B) the consumer's budget must equal $100
C) both meat and potatoes must be priced at $1 per pound
D) the price of a pound of meat must equal the price of a pound of potatoes
E) the opportunity cost of meat in terms of potatoes cannot be determined
Q3) The substitution effect will never induce a consumer to buy more of a good when its price increases.
A)True
B)False
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8
Chapter 7: Production and Cost
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Sample Questions
Q1) For a given level of output,the short-run total cost of production
A) always falls below the long-run total cost of production
B) always exceeds the long-run total cost of production
C) always equals the long-run total cost of production
D) may exceed or equal the long-run total cost of production
E) may exceed or fall below the long-run total cost of production
Q2) Figure 7-9 shows three different cost curves,labeled A,B,and C,for a firm.Which of these curves is most likely to represent average fixed cost?
A) curve A
B) curve B
C) curve C
D) neither A,B,nor C
E) cannot be determined without more information
Q3) For the total product curve shown in Figure 7-3,diminishing marginal returns to labor
A) do not occur over this range
B) begin with the third unit of labor
C) exist for every unit of labor
D) begin with the fourth unit of labor
E) begin with the first unit of labor
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Page 9
Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) The return to owners for innovation and risk taking is a firm's
A) economic profit after taxes
B) total revenue
C) total opportunity cost
D) total implicit cost
E) money profit after taxes
Q2) When a firm faces a downward-sloping demand curve,marginal revenue
A) is constant regardless of how much output the firm produces B) is less than price
C) increases as the firm produces more output
D) decreases if the firm produces less output
E) is equal to the price per unit of output
Q3) Under the total revenue and total cost approach to profit maximization,
A) firms equate total cost and total revenue in order to maximize profit
B) the profit-maximizing output level is equivalent to the total revenue-maximizing output level
C) when total costs are minimized,profits are maximized
D) firms choose the output level where TR - TC is greatest
E) total cost must always exceed total revenue in the long run
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Page 10
Chapter 9: Perfect Competition
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Sample Questions
Q1) For market prices that are below the shut-down point of every firm in the market,the short-run market supply curve
A) slopes upward
B) slope downward
C) follows the horizontal axis
D) rises at a 45-degree angle
E) follows the vertical axis
Q2) In a perfectly competitive market,the number of sellers must be large enough that
A) none of them ever earns positive economic profits.
B) none of them can significantly alter the price of the product.
C) they each end up selling a slightly different product.
D) it is easy for a particular firm to leave the market.
Q3) Which of the following is a barrier to entry?
A) Zoning laws preventing the establishment of new businesses in a certain area.
B) The cost of buying a building in which to establish a new business.
C) A sales-tax law.
D) Inspection requirements for agricultural products.
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Chapter 9: Perfect Competition: Part A
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Sample Questions
Q1) One of the defining characteristics of a perfectly competitive market is
A) both buyers and sellers are well informed about the market
B) a small number of buyers
C) high barriers to entry
D) a small number of buyers but a large number of sellers
E) buyers are better informed about the market than sellers
Q2) Which of the following is not a characteristic of a perfectly competitive market
A) buyers and sellers are well informed about the market
B) standardized product
C) many buyers and few sellers
D) easy exit out of the industry
E) easy entry into the industry
Q3) In perfect competition,technological advances will allow economic profits for A) all firms.
B) only the firm developing the new technology.
C) early adopters.
D) none of the firms,as the advance will be immediately adopted by all of them.
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Chapter 10: Monopoly
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Sample Questions
Q1) The non-price-discriminating firm depicted in Figure 10-8 will produce
A) approximately 100 units of output
B) approximately 150 units of output
C) approximately 175 units of output
D) more than 200 units of output
E) nothing since it should close
Q2) Assuming no price discrimination,the firm represented by Figure 10-16 will have a(n)
A) economic profit of approximately $7,500
B) economic profit of approximately $4,375
C) economic profit of approximately $2,500
D) economic loss of approximately $15,625
E) break-even situation with neither economic profit nor economic loss
Q3) The demand curve for a monopolist's output is
A) horizontal.
B) shallower than the market demand curve.
C) steeper than the market demand curve.
D) identical to the market demand curve.
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13
Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Figure 11-16 illustrates the market for bananas.If the market consisted of two competitors and they formed a cartel,the market price and quantity would be
A) $.50 and 100 lbs of bananas
B) $.50 and 130 lbs.of bananas
C) $.75 and 100 lbs.of bananas
D) $.75 and 130 lbs.of bananas
E) indeterminate
Q2) An oligopolistic industry in which one firm sets the price is
A) a cartel
B) a duopoly
C) a monopoly
D) price leadership
E) a price-discriminating duopolist
Q3) Price leadership
A) is a form of explicit collusion
B) works only when firms have dominant strategies
C) is a form of tacit collusion
D) reduces long-run economic profit for individual firms
E) rarely is effective in setting prices in oligopolistic markets
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Page 14
Chapter 12: Labor Markets
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95 Flashcards
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Sample Questions
Q1) Gerhardt is a bicycle mechanic,and he can repair 6 bikes a day at a market price of $25.00.If he can't find any bike shop to hire him,
A) the wage rate must be more than $150 per day.
B) the wage rate must be less than $25 per day.
C) then Gerhardt's marginal revenue product must be negative.
D) the wage rate must be less than $150 per day.
E) then Gerhardt's marginal product must be negative.
Q2) Which of the following statements about a firm's demand curve for labor is true?
A) It shows the relationship between the price of output and the quantity of output demanded.
B) It usually has a negative slope.
C) It is perfectly inelastic.
D) It is derived from the labor supply curve.
E) It is parallel to the demand curve for the firm's product.
Q3) Which of the following is an assumption made about a competitive labor market?
A) A firm must offer a higher wage rate to attract more labor.
B) A firm must offer a lower wage rate to attract more labor.
C) A firm cannot influence the market wage rate.
D) The labor supply curve facing each firm is inelastic.
E) Workers compete for jobs and firms pay a variety of wage rates.
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Chapter 12: labor Markets: Part A
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86 Verified Questions
86 Flashcards
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Sample Questions
Q1) Wage differentials are due exclusively to differences in market structure.
A)True
B)False
Q2) Even if employers are not prejudiced,employee or customer discrimination will tend to be reinforced by market forces and may lead to permanent wage differences between the favored and unfavored groups.
A)True
B)False
Q3) Figure 12-2 depicts labor demand and supply in a nonunionized labor market.The original equilibrium is at point A.If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20,then
A) the labor supply curve and the labor demand curve will shift leftward by equivalent amounts
B) there will be an excess supply of 3,000 workers
C) there will be an excess demand of 7,000 workers
D) there will be an excess supply of 4,000 workers
E) there will be an excess supply of 7,000 workers
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16
Chapter 13: Capital and Financial Markets
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Sample Questions
Q1) Consider the following three bonds,Bond F,Bond J and Bond P.Bonds F and P mature in 1 year while Bond J matures in 2 years.Bond F and J have a face value of $10,000 while Bond P has a face value of $12,000.If the interest rate is 15%,rank the three bonds from highest present value to lowest present value.
A) Bond F,Bond P,Bond J
B) Bond P,Bond F,Bond J
C) Bond J,Bond F,Bond P
D) Bond P,Bond J,Bond F
E) Bond F,Bond J,Bond P
Q2) A firm's choice about how much physical capital to employ differs from its choice of how much labor to employ because
A) the firm has to pay for its capital
B) the productivity of labor depends on the firm's production function
C) firm must compare the marginal costs and benefits of acquiring more capital
D) firms do not own the labor they employ,but they frequently purchase capital outright E) labor is productive but capital is not
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Chapter 14: Economic Efficiency and the Competitive Ideal
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80 Flashcards
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Sample Questions
Q1) The market demand curve indicates
A) the minimum price someone would be willing to pay for each unit of a good
B) the cost of producing each unit of a good
C) the price someone pays for each unit of a good
D) how many people will purchase a good at each possible price
E) the maximum price someone would be willing to pay for each unit of a good
Q2) Tom carries on loud cellphone conversations in public places.He values such conversations at $1 per minute.Steve prefers piece and quiet.He would pay $2 per minute to avoid overhearing Tom's conversations.In this situation
A) Tom should quit using his cellphone because that would be a Pareto improvement
B) Tom should quit using his cellphone because that would be efficient
C) If Steve made a side payment of $3 to Tom,that would be a Pareto improvement
D) If Steve paid Tom 50 cents per minute to quit talking,that would be a Pareto improvement
E) If Steve paid Tom $1.50 per minute to quit talking,that would be a Pareto improvement
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Chapter 15: Governments Role in Economic Efficiency
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Sample Questions
Q1) An externality is defined as
A) the revenue generated by a firm in the external market
B) a byproduct of a good or activity that affects someone not immediately involved in the transaction
C) an additional cost of consumption that is borne by a third party
D) a cost or benefit arising from price changes
E) the value of a good or service to a consumer
Q2) A pure private good is one
A) that is nonrival and nonexcludable
B) that is rival but excludable
C) that is rival and excludable
D) that is nonrival but excludable
E) one whose production imposes a cost on third parties
Q3) If production creates a negative externality,social welfare can be increased through A) antitrust law
B) subsidization
C) taxation
D) free market policies
E) allocative efficiency
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Page 19
Chapter 16: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Both tariffs and quotas
A) benefit domestic consumers by lowering prices
B) benefit domestic consumers by expanding consumption choices
C) are illegal in the United States
D) benefit domestic producers
E) are policy tools that help bring about free trade
Q2) The terms of trade
A) equal the equilibrium price in a competitive market
B) equal a nation's imports minus its exports
C) determine whether specialization according to comparative advantage is economically rational
D) are equal to 1.0 in market equilibrium
E) determine how the gains from international trade are distributed among countries
Q3) If a country begins to import a good,
A) it has a comparative advantage in producing that good
B) it has a comparative advantage in consuming that good
C) domestic consumers are made better off
D) domestic producers are made better off
E) both domestic consumers and domestic producers are harmed
Page 20
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Chapter 17: What Macroeconomics Tries to Explain
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Sample Questions
Q1) The occurrence of the Great Depression offered evidence that supported A) the classical theory of economics
B) the need for the government to practice the policy of laissez faire
C) the need for the government to control prices
D) Congress to take action to stop rising prices
E) the Keynesian idea that the government needed to guide the economy
Q2) In macroeconomics,
A) we study one market at a time
B) we try to understand how the entire economy behaves
C) we focus on large,important products and ignore the rest
D) we study one nation's economy only
E) we aggregate all national economies into a world economy
Q3) From 1929 to 1993,the first four years of the Great Depression,U.S.output dropped by more than
A) 10 percent
B) 80 percent
C) 5 percent
D) 50 percent
E) 25 percent
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Page 21
Chapter 18: Production, income, and Employment
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Sample Questions
Q1) If an economy has been operating below its potential output level,
A) frictional unemployment is too high
B) more individuals should begin entering the labor force
C) the government should create more jobs
D) unemployment is likely rising.
E) the production possibilities frontier will shift
Q2) Which of the following describes the relationship between net investment and total investment?
A) Net investment = total investment - depreciation
B) Total investment = net investment + private investment - depreciation
C) Net investment = government investment - private investment - depreciation
D) Total investment = net investment - depreciation
E) Net investment = government investment - depreciation
Q3) Which of the following units is used to measure nominal GDP in the United States?
A) U.S.dollars
B) gold
C) percentages
D) international monetary units
E) units of physical goods and services
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Page 22
Chapter 19: The Price Level and Inflation
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Sample Questions
Q1) In which of the following situations would a person be best off in real terms?
A) Receiving a 10 percent increase in a nominal wage,with an 8 percent rate of inflation in the economy
B) Receiving a 3 percent increase in a nominal wage,with a 0 percent rate of inflation in the economy
C) Receiving a 4 percent increase in a nominal wage,with a 5 percent rate of inflation in the economy
D) Receiving no increase in a nominal wage,with a 5 percent rate of deflation in the economy
E) Receiving a 2 percent decrease in a nominal wage,with a 6 percent rate of deflation in the economy
Q2) If the Consumer Price Index was 102.2 in 2007 and 104.9 in 2008,we can conclude that
A) the prices of all consumer goods were higher in 2008 than in 2007
B) the prices of all consumer goods were lower in 2008 than in 2007
C) the price level fell from 2007 to 2008
D) the price level rose from 2007 to 2008
E) the base year was 2001
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Chapter 20: The Classical Long-Run Model
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Sample Questions
Q1) What is the full-employment output level?
A) The output level that results when the loanable funds market clears
B) The output level that results when the returns to labor are zero
C) The output level that results when factories are completely full
D) The output level that results when the labor market clears
E) The output level that would occur if the output level was positive.
Q2) After examining Figure 8-3,it is possible to conclude that
A) people do not save money nor pay taxes in this model
B) firms purchase resources from households and other firms in this model
C) households are the only ones who purchase and firms the only ones who sell in this model
D) completion of a sale represents a break in the flow of goods and services,and inputs in this model
E) all households and firms individually receive the same amount of money in this model
Q3) In the classical model,taxes and spending are treated as two separate variables.
A)True
B)False
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Page 24
Chapter 20: Part A: The Classical Model in an Open Economy
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Sample Questions
Q1) In the classical model,even when a country runs a trade deficit,Say's law holds.
A)True
B)False
Q2) When a country runs a trade deficit,
A) it must be running a budget surplus.
B) its imports will become injections instead of leakages.
C) its exports will become leakages instead of injections.
D) foreigners will demand loanable funds from the country.
E) foreigners will supply loanable funds to the country equal to its trade deficit
Q3) In the classical model with an open economy,an increase in government purchases always causes complete crowding out.
A)True
B)False
Q4) In the classical model with an open economy,an increase in government purchases may not cause complete crowding out,but crowding out will be complete worldwide.
A)True
B)False
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Chapter 21: Economic Growth and Rising Living Standards
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Sample Questions
Q1) A less developed country can increase its capital stock by
A) raising taxes on purchases of capital goods
B) temporarily accepting unusually high unemployment rates
C) reducing government spending
D) shifting resources away from production of consumer goods and toward production of capital goods
E) providing more opportunities for individuals to spend their accumulated savings
Q2) Government budget deficits
A) discourage household saving,which increases interest rates and reduces planned investment spending
B) encourage household saving,which increases the funds available for planned investment spending
C) reduce the demand for funds,lower interest rates,and increase planned investment spending
D) discourage planned investment spending by putting upward pressure on interest rates
E) stimulate economic growth by encouraging capital investment
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Chapter 22: Economic Fluctuations
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Sample Questions
Q1) Since a long run consists of many short runs,the classical model is
A) incorrect every time we look at output data
B) accurate during the short run
C) paradoxically quite accurate in the long run;however,it is not very accurate in the short run
D) our best guide to fluctuations in the economy
E) paradoxically quite accurate in the short run;however,it is not very accurate in the long run
Q2) The economic expansion that began in 1991
A) lasted approximately five years.
B) lasted approximately twelve years.
C) lasted approximately nine years.
D) was the longest expansion in U.S.history.
E) was the second longest expansion in U.S.history.
Q3) Which of the following shocks is most likely to cause an expansion?
A) Defense spending falls
B) Defense spending rises
C) Defense spending rises and then falls
D) Oil prices surge upward
E) Oil prices rise slowly
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Chapter 23: The Short-Run Macro Model
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Sample Questions
Q1) If the expenditure multiplier is 3.5 and investment spending increases by $2,000 billion,what will be the change in GDP?
A) $2,000 billion
B) $5,000 billion
C) $571.4 billion
D) $3,500 billion
E) $7,000 billion
Q2) Refer to Figure 11-6.Which point represents the level of autonomous consumption? A) A
B) B
C) C
D) D
E) E or F
Q3) Suppose a $30 billion increase in government purchases increased GDP by $120 billion,what is the value of the MPC?
A) 4.00
B) 0.75
C) 0.25
D) 0.50
E) 0.33
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Chapter 24: Fiscal Policy
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Sample Questions
Q1) In the long run,
A) large government budget deficits cause productivity to increase,thereby leading to inflation
B) large government budget deficits drive down interest rates and reduce investment spending
C) large government budget surpluses mean reductions in the money supply
D) changes in the government budget deficit have no effect on the capital stock
E) large government budget deficits drive up interest rates and reduce investment spending
Q2) At the end of 2009,the national debt stood at 60 percent of GDP,substantially higher than its World War II level.
A)True
B)False
Q3) Which of the following is a government purchase?
A) The income tax
B) The property tax
C) Social Security benefits paid to a retired government worker
D) Food stamps
E) The salary of a federal judge
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Page 29
Chapter 25: Money,banks,and the Federal Reserve
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Q1) If the Federal Reserve sells $1,000 in bonds and the required reserve ratio is 0.1 (assume banks hold no excess reserves)what will be the total change in reserves at all banks?
A) $10,000
B) $1,000
C) -$10,000
D) -$1,000
E) -$1,100
Q2) Why were banking panics and failures largely eliminated after 1933?
A) There were fewer recessions.
B) There was more government spending.
C) All U.S.currency began to be backed by gold.
D) Congress created deposit insurance.
E) The banking sector became less important as the US became a more trade-oriented economy.
Q3) When the Federal Reserve buys new government bonds,it is borrowing from the government.
A)True
B)False
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Page 30
Chapter 26: The Money Market and Monetary Policy
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Q1) The federal funds rate is
A) determined in a market but targeted by the Fed.
B) chosen by the Fed and enforced on the banks.
C) chosen by Congress and enforced on the Fed.
D) chosen by Congress and enforced on the banks.
E) determined in the market and beyond the control of the Fed.
Q2) An increase in the money supply will increase both the amount of money demanded and output.
A)True
B)False
Q3) An individual's quantity of money demanded
A) refers to how much money the individual would like to have
B) refers to the amount of money an individual needs to maintain her desired standard of living
C) refers to her wealth constraint
D) refers to the amount of her wealth that an individual chooses to hold in the form of money
E) is virtually unlimited
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Chapter 26: Feedback Effects From GDP to the Money
Market
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Q1) An increase in government spending leads to a(n)
A) downward shift of the aggregate expenditure line and a leftward shift of the money demand curve
B) upward shift of the aggregate expenditure line and a rightward shift of the money demand curve
C) downward shift of the aggregate expenditure line and a rightward shift of the money demand curve
D) upward shift of the aggregate expenditure line and a leftward shift of the money demand curve
E) upward shift of the aggregate expenditure line but no shift of the money demand curve
Q2) In the short-run macro model,an increase in government spending
A) may reduce real GDP
B) partially crowds out private investment spending
C) usually crowds out exports
D) usually crowds out spending on services
E) requires an increase in taxes
Q3) The rise in equilibrium GDP shifts the money demand curve to the left.
A)True
B)False
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Chapter 27: Aggregate Demand and Aggregate Supply
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Q1) If a change in investment spending is due to a change in the price level,then the aggregate demand curve will shift.
A)True
B)False
Q2) Which of the following most accurately describes the aggregate supply curve?
A) It shows the price level associated with firms' unit costs and markups for any level of GDP.
B) It is the sum of all individual firms' supply curves.
C) It is determined by the federal government.
D) It shows firms' unit costs for each level of GDP.
E) It shows the equilibrium level of GDP corresponding to each price level.
Q3) Why does a change in GDP affect unit costs and the price level?
A) as GDP increases,productivity increases.
B) as GDP increases the price of non-labor inputs increases and the nominal wage tends to increase.
C) as GDP decreases,there are efficient gains
D) as GDP increases,economies of scale allow for lower unit costs.
E) as GDP increases the price of non-labor inputs decreases and the nominal wage tends to increase.
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Page 33
Chapter 28: Inflation and Monetary Policy
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Q1) If the actual inflation rate is equal to the expected rate,which of the following will happen?
A) inflationary expectations will increase and the Phillips curve will shift downward in the short run.
B) inflationary expectations will not change and the Phillips curve will remain in its current position in the short run.
C) inflationary expectations will decrease and the Phillips curve will shift downward in the short run.
D) inflationary expectations will stay constant and the Phillips curve will shift downward in the short run.
E) inflationary expectations will not change and the Phillips curve will become horizontal in the short run.
Q2) There is uncertainty about the precise level of the natural rate of unemployment. A)True B)False
Q3) In the long run,there is a no tradeoff between inflation and unemployment. A)True
B)False
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Chapter 29: Exchange Rates and Macroeconomic Policy
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Q1) Which of the following would cause the demand curve for yen to shift as indicated in Figure 17-5 above?
A) A decrease in the U.S.price level.
B) An increase in the U.S.interest rate.
C) An increase in Japanese real GDP.
D) An increase in U.S.real GDP.
E) A decrease in U.S.real GDP.
Q2) If the demand for British pounds decreases,
A) the equilibrium price of the pound will increase
B) the equilibrium price of the pound will decrease
C) the equilibrium price of the pound will not change
D) the equilibrium price of the pound will change,but we need additional information to predict the direction of the change
E) no one can predict what will happen
Q3) If the U.S.interest rate falls relative to the British interest rate,
A) the U.S.demand for pounds will not change
B) the U.S.demand for pounds will decrease
C) the U.S.demand for pounds will increase
D) there will be a rightward movement along the U.S.demand curve for pounds
E) there will be a leftward movement along the U.S.demand curve for pounds
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Chapter 30: Appendix-finding Equilibrium GDP
Algebraically
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Q1) If autonomous consumption is $1,000,the MPC is 0.75,net taxes are $500,investment spending is $800,and government purchases equals $500,and NX = $0,what is equilibrium GDP?
A) $1,800
B) $1,925
C) $2,566.7
D) $7,200
E) $7,700
Q2) If net taxes are included in the model,the equation that shows consumption at each level of income is: C = a + b(Y - T)or C = a + bY - bT.
A)True
B)False
Q3) If I = $2,000,G = $4,000,T = $1,000,NX = $0,autonomous consumption = $1,000 and the marginal propensity to consume is 0.6,what is the equilibrium value of output?
A) $16,000
B) $7,000
C) $6,400
D) $3,840
E) $8,000
Page 36
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Chapter 31: Appendix: Capital and Leverage
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Q1) A financial institution's leverage ratio is defined as:
A) Profit / Revenue.
B) Total Assets / Shareholders' Equity.
C) Shareholders' Equity / Total Assets.
D) Value of Delinquent Loans / Value of All Loans.
E) Total Debt / Total Revenue.
Q2) It was the rapid and system-wide deleveraging that contributed to the downward spiral of the 2008 financial crisis.
A)True
B)False
Q3) It is easy for one financial institution to reduce its leverage by acting alone,but when many financial institutions try to do the same thing at once,asset prices fall rapidly and bank capital declines for all such institutions.
A)True
B)False
Q4) Just as greater leverage multiplies a bank's potential profits,it also multiplies a bank's potential losses.
A)True
B)False
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