Introduction to Economics Exam Solutions
Course Introduction
Introduction to Economics provides students with a foundational understanding of key economic principles, concepts, and theories. The course explores the basic problem of scarcity, the functioning of markets, and the interaction between consumers, firms, and governments. Topics include supply and demand analysis, opportunity cost, elasticity, market structures, and an overview of macroeconomic indicators such as GDP, inflation, and unemployment. Through case studies and real-world examples, students will learn how economic decisions are made and the impact of those decisions on individuals and societies.
Recommended Textbook
Principles of Macroeconomics 8th Edition by N. Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Q1) When a society cannot produce all the goods and services people wish to have,the economy is experiencing
A)scarcity.
B)surpluses.
C)inefficiencies.
D)inequalities.
Answer: A
Q2) Which of the following is not an example of scarcity?
A)Only some people can afford to buy a BMW automobile.
B)Every individual in society cannot attain the highest standard of living to which he or she might aspire.
C)Miranda has more oranges in her orchard than she will ever use.
D)Each member of a household cannot get everything he or she wants.
Answer: C
Q3) The word "economy" comes from the Greek word oikonomos,which means A)"environment."
B)"production."
C)"one who manages a household."
D)"one who makes decisions."
Answer: C
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Chapter 1: Ten Principles of Economics: How People Make Decisions
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Q1) College-age athletes who drop out of college to play professional sports
A)are not rational decision makers.
B)are well aware that their opportunity cost of attending college is very high.
C)are concerned more about present circumstances than their future.
D)underestimate the value of a college education.
Answer: B
Q2) Following the implementation of laws requiring automobiles to have seat belts,which of the following occurred?
A)An individual's probability of surviving an auto accident rose.
B)There was an increase in pedestrian deaths.
C)There was an increase in automobile accidents.
D)All of the above are correct.
Answer: D
Q3) The property of society getting the most it can from its scarce resources is called A)efficiency.
B)equality.
C)externality.
D)productivity.
Answer: A
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Chapter 1: Ten Principles of Economics: How People Interact
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Q1) 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
Q2) In a market economy,
A)households decide which firms to work for and what to buy with their incomes.
B)firms decide whom to hire and what to make.
C)a central planner makes decisions about production and consumption.
D)Both a and b are correct.
Answer: D
Q3) The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?
A)David Ricardo
B)Thorstein Veblen
C)John Maynard Keynes
D)Adam Smith
Answer: D
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Chapter 1: Ten Principles of Economics: How the Economy
As a Whole Works
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Q1) The business cycle is the
A)relationship between unemployment and inflation.
B)irregular fluctuations in economic activity.
C)positive relationship between the quantity of money in an economy and inflation.
D)predictable changes in economic activity due to changes in government spending and taxes.
Q2) The irregular and largely unpredictable fluctuations in economic activity are called
A)market failure.
B)business cycle.
C)inflation.
D)unemployment.
Q3) What is the most important factor that explains differences in living standards across countries?
A)the quantity of money
B)the level of unemployment
C)productivity
D)equality
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Page 6
Chapter 1: Ten Principles of Economics: Part A
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Q1) Invisible hand is a term used by the economist ------ in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.
Q2) Refer to Scenario 1-6.What is the company's marginal cost?
Q3) Economists use the term ------ to refer to fluctuations in economic activity,such as employment and production.
Q4) Debbie quits her job,which pays $30,000 a year,to finish her college degree.Her annual college expenses are $10,000 for tuition,$2,000 for books,and $700 for food.What is her opportunity cost of attending college for the year?
Q5) Refer to Scenario 1-1.What is your opportunity cost of studying economics?
Q6) Give an example of government intervention that is intended to reduce an externality.
Q7) How does the study of economics depend upon the phenomenon of scarcity?
Q8) Refer to Scenario 1-6.What is the company's average cost?
Q9) What are the two possible causes of market failure?
Q10) Refer to Scenario 1-2.What is your opportunity cost of going to the movies?
Q11) Economists use the term ------ to refer to the ability of a single person (or a small group)to have a substantial influence on market prices.
Q12) Refer to Scenario 1-4.What is your opportunity cost of going to the movies? Page 7
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Page 8
Chapter 1: Ten Principles of Economics: Part B
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Q1) A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars.
A)True B)False
Q2) Government policies that improve equality usually increase efficiency at the same time.
A)True B)False
Q3) Inflation and unemployment both increase as the money supply increases.
A)True B)False
Q4) Tuition is the single-largest cost of attending college for most students.
A)True B)False
Q5) If the average cost of transporting a passenger on the train from Chicago to St.Louis is $75,it would be irrational for the railroad to allow any passenger to ride for less than $75.
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) Where can an economy not produce?
A)inside its production possibilities frontier
B)on its production possibilities frontier
C)outside its production possibilities frontier
D)at the endpoints of its production possibilities frontier
Q2) Refer to Figure 2-12.Which of the following would most likely have caused the production possibilities frontier to shift outward from A to B?
A)a decrease in unemployment
B)a technological advance in the consumer goods industries
C)a general technological advance
D)an increase in the availability of capital-producing resources
Q3) According to the circular-flow diagram,if Suzy is a worker who delivers flowers for Happy Day Flower Company,she participates
A)in the markets for factors of production exchanging labor for income.
B)in the markets for factors of production exchanging flowers for revenue.
C)in the markets for goods and services exchanging flowers for wages,rent,and profit.
D)in the markets for goods and services exchanging labor for income.
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Page 11
Chapter 2: Thinking Like an Economist: The Economist As Policy Adviser
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Q1) When economists are trying to help improve the world,they are
A)in the realm of positive economics rather than normative economics.
B)in the realm of macroeconomics rather than microeconomics.
C)scientists.
D)policy advisers.
Q2) Analysis of data on workers and those looking for work is conducted by economists at the
A)Office of Management and Budget.
B)Department of Labor.
C)Congressional Budget Office.
D)Department of the Treasury.
Q3) The nation's antitrust laws are enforced by economists at the Department of A)Labor.
B)Health and Human Services.
C)Justice.
D)Treasury.
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Page 12
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) Congressman Dearmark justified spending $3 million on a new entertainment complex in his district because it will create 450 new jobs for his residents.As a student of economics,you know that
A)this is a case of the "broken window fallacy."
B)this is a great use of taxpayer dollars.
C)this policy diverts money from spending somewhere else in the economy.
D)Both a and c are correct.
Q3) According to economist John Maynard Keynes,a great economist must also be a(n) A)mathematician.
B)historian.
C)philosopher.
D)All of the above are correct.
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Chapter
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Sample Questions
Q1) The slope of a line is equal to
A)the change in the value of x divided by the change in the value of y.
B)the change in the value of y divided by the change in the value of x.
C)the horizontal distance divided by the vertical distance.
D)the value of y divided by the value of x.
Q2) The x-coordinate is the
A)first number of an ordered pair and represents the point's horizontal location.
B)second number of an ordered pair and represents the point's horizontal location.
C)first number of an ordered pair and represents the point's vertical location.
D)second number of an ordered pair and represents the point's vertical location.
Q3) The slope of a steep upward-sloping line will be a
A)small positive number.
B)large positive number.
C)small negative number.
D)large negative number.
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Chapter 2: Thinking Like an Economist: Part A
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Q1) Refer to Figure 2-3.What does the arrow going from oval B to rectangle 2 represent in the figure?
Q2) Is the following a positive or normative statement? The federal minimum wage is lower than many state minimum wages.
Q3) Refer to Figure 2-3.What do the rectangles represent in the figure?
Q4) Refer to Figure 2-3.What do the outer arrows represent in the figure?
Q5) Refer to Figure 2-15.Consider the production possibilities frontier for an economy that produces only sofas and cars.The opportunity cost of one car is
Q6) Refer to Figure 2-22.How are price and quantity related in this graph?
Q7) Who would be more likely to study the effects of rent control on housing in New York City,a macroeconomist or a microeconomist?
Q8) Refer to Figure 2-14.Which point(s)on the graph show unemployment of resources?
Q9) The institution that sets the nation's monetary policy is called the
Q10) 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?
Q11) Refer to Figure 2-3.What do the inner arrows represent in the figure?
Q13) Refer to Figure 2-22.What is the slope of the line with points A,B,and C? Page 16
Q12) Economists at which administrative department help design tax policy?
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Page 17
Chapter 2: Thinking Like an Economist: Part B
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Sample Questions
Q1) An outcome is said to be efficient if an economy is getting all it can from the scarce resources it has available.
A)True
B)False
Q2) There is only one explanation for why economists give conflicting advice on policy issues,and it is that they have different values about what policy should try to accomplish.
A)True
B)False
Q3) When two variables move in opposite directions,the curve relating them is upward sloping,and we say the variables are positively related.
A)True
B)False
Q4) The slope of a line is equal to the change in the x-variable divided by the change in the y-variable.
A)True
B)False
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Chapter 3: Interdependence and the Gains From Trade
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Q1) People who provide you with goods and services
A)are acting out of generosity.
B)do so because they get something in return.
C)have chosen not to become interdependent.
D)are required to do so by the government.
Q2) When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all
A)rely upon the government to provide us with the basic necessities of life.
B)rely upon one another for the goods and services we consume.
C)have similar tastes and abilities.
D)are concerned about one another's well-being.
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Chapter 3: Interdependence and the Gains From Trade: A Parable for the Modern Economy
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Q1) Refer to Figure 3-4.If the production possibilities frontiers shown are each for one year of production,then which of the following combinations of sweaters and jackets could Lisa and Bryce together not produce in a given year?
A)1 sweater and 21 jackets
B)2 sweaters and 20 jackets
C)3 sweaters and 12 jackets
D)5 sweaters and 4 jackets
Q2) Refer to Figure 3-3.If the production possibilities frontier shown for Arturo is for 100 hours of production,then how long does it take Arturo to make one burrito?
A)1/4 hour
B)1/3 hour
C)3 hours
D)4 hours
Q3) Refer to Figure 3-2.The fact that the line slopes downward reflects the fact that
A)for Brazil,it is more costly to produce peanuts than it is to produce cashews.
B)Brazil will produce more peanuts and fewer cashews as time goes by.
C)Brazil faces a tradeoff between producing peanuts and producing cashews.
D)Brazil should specialize in producing cashews.
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Refer to Figure 3-22.Which of the following prices would result in an mutually advantageous trade for Alice and Betty?
A)100 pizzas for 100 pitchers of lemonade
B)100 pizzas for 125 pitchers of lemonade
C)100 pizzas for 180 pitchers of lemonade
D)100 pizzas for 220 pitchers of lemonade
Q2) Refer to Figure 3-14.Arturo and Dina would not be able to gain from trade if Dina's opportunity cost of one taco changed to
A)1/2 burrito.
B)3/4 burrito.
C)4/3 burritos.
D)2 burritos.
Q3) Trade can make everybody better off because it
A)increases cooperation among nations.
B)allows people to specialize according to comparative advantage.
C)requires some workers in an economy to be retrained.
D)reduces competition among domestic companies.
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Chapter 3: Interdependence and the Gains From Trade:
Applications of Comparative Advantage
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Q1) Suppose the U.S.and Japan can both produce airplanes and televisions and the U.S.has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions.Also suppose the U.S.has an absolute advantage in the production of both airplanes and televisions.The U.S.should A)not trade airplanes or televisions with Japan.
B)import airplanes from Japan and export televisions to Japan.
C)export airplanes to Japan and import televisions from Japan.
D)export both airplanes and televisions to Japan.
Q2) When a country has a comparative advantage in producing a certain good, A)the country should import that good.
B)the country should produce just enough of that good for its own consumption.
C)the country's opportunity cost of that good is high relative to other countries' opportunity costs of that same good.
D)None of the above is correct.
Q3) A country that currently does not trade with other countries could benefit by A)restricting imports and promoting exports.
B)promoting imports and restricting exports.
C)restricting both imports and exports.
D)not restricting trade.
Page 22
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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 Scenario 3-1.What is Greg's opportunity cost of producing ice cream? Explain how you derived your answer.
Q2) Refer to Scenario 3-1.What is Catherine's opportunity cost of producing ice cream? Explain how you derived your answer.
Q3) Refer to Scenario 3-2.Which country,if either,has a comparative advantage producing broccoli? Defend your answer using the numbers given.
Q4) Refer to Figure 3-26.What is Mary's opportunity cost of one muffin?
Q5) Refer to Scenario 3-1.What is Greg's opportunity cost of producing cake? Explain how you derived your answer.
Q6) Jennifer takes 2 hours to make a loaf of bread and 1 hour to make a dozen cookies.Janet takes 3 hours to make a loaf of bread and 3/4 hours to make a dozen cookies.Who,if either,has an absolute advantage baking bread? Who,if either,has an absolute advantage making cookies?
Q7) Refer to Figure 3-26.What is Kate's opportunity cost of one cookie?
Q8) With eight hours of work Elmer can produce 20 pounds of carrots or 15 pounds of peas.With eight hours Bugs can produce 10 pounds of carrots or 7.5 pounds of peas.Can Elmer and Bugs gain from trade? Defend your answer.
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Chapter 3: Interdependence and the Gains From Trade:
Part B
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Q1) Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin.Fred and Barney both gain from the exchange.We can conclude that,for Barney,the opportunity cost of producing 1 pumpkin is greater than 2 tomatoes.
A)True
B)False
Q2) As long as two people have different opportunity costs,each can gain from trade with the other,since trade allows each person to obtain a good at a price lower than his or her opportunity cost.
A)True
B)False
Q3) It is possible for the U.S.to gain from trade with Germany even if it takes U.S.workers fewer hours to produce every good than it takes German workers.
A)True
B)False
Q4) If a person chooses self-sufficiency,then she can only consume what she produces.
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) 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.
Q3) The two words economists use most often are
A)inflation and trade.
B)supply and demand.
C)competition and prices.
D)markets and equilibrium.
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Chapter 4: The Market Forces of Supply and
Demand:Markets and Competition
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Q1) In a competitive market,the quantity of a product produced and the price of the product are determined by
A)a single buyer.
B)a single seller.
C)one buyer and one seller working together.
D)all buyers and all sellers.
Q2) An example of a perfectly competitive market would be the market for A)tennis racquets.
B)pizza.
C)garbage collection.
D)wheat.
Q3) In competitive markets, A)firms produce identical products.
B)no individual buyer can influence the market price.
C)no individual seller can influence the market price.
D)All of the above are correct.
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Chapter 4: The Market Forces of Supply and Demand: Demand
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Q1) Refer to Figure 4-5.Which of the following would cause the demand curve to shift from Demand B to Demand A in the market for oranges in the United States?
A)a freeze in Florida
B)a technological advance that allows oranges to ripen faster
C)a decrease in the price of apples
D)an announcement by the FDA that oranges prevent heart disease
Q2) You lose your job and,as a result,you buy more frozen pizzas.For you,frozen pizza are a(n)
A)luxury good.
B)inferior good.
C)normal good.
D)complementary good.
Q3) Refer to Figure 4-1.It is apparent from the figure that the A)good is inferior.
B)demand for the good decreases as income increases.
C)demand for the good conforms to the law of demand.
D)All of the above are correct.
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Chapter 4: The Market Forces of Supply and Demand: Supply
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Q1) 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.
Q2) The sum of all the individual supply curves for a product is called
A)total supply.
B)market supply.
C)aggregate supply.
D)total output.
Q3) When the price of a good or service changes,
A)the demand curve shifts in the opposite direction.
B)the supply curve shifts in the opposite direction.
C)the supply curve shifts in the same direction.
D)there is a movement along a given supply curve.
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Chapter 4: The Market Forces of Supply and Demand:
Supply and Demand Together
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Q1) Refer to Figure 4-26.Which of the following movements would illustrate the effect in the market for orange juice of an announcement by the American Dental Association that orange juice erodes tooth enamel?
A)Point A to Point B
B)Point C to Point B
C)Point C to Point D
D)Point A to Point D
Q2) Refer to Figure 4-17.At a price of
A)$2,there is a shortage of 6 units.
B)$5,there is a surplus of 25 units.
C)$5,there is a shortage of $25.
D)$7,there is a shortage of 4 units.
Q3) The unique point at which the supply and demand curves intersect is called
A)market harmony.
B)coincidence.
C)equivalence.
D)equilibrium.
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Chapter 4: The Market Forces of Supply and
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Q1) 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
Q2) The signals that guide the allocation of resources in a market economy are
A)surpluses and shortages.
B)quantities.
C)government policies.
D)prices.
Q3) Adam Smith suggested that an invisible had guides market economies.In this analogy,what is the baton that the invisible hand uses to conduct the economic orchestra?
A)the government
B)prices
C)subsidies
D)the Federal Reserve
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) Refer to Figure 4-30.In this market for iPhones,the technology improves while all other factors remain constant.Which curve(s)shift(s)and in which direction?
Q2) Suppose goods A and B are complements.If the price of good A increases,will the demand for good B increase or decrease?
Q3) If income rises in the market for an inferior good,will the demand curve for the inferior good shift to the right or to the left?
Q4) Suppose consumers expect the price of a good to be higher in the future than it is today.Would the current demand for the good increase or decrease?
Q5) Refer to Figure 4-31.Suppose there is an improvement in technology in this market and the price of lamps,a complementary good,increases.What changes do you predict in the equilibrium price and quantity?
Q6) Suppose researchers discover a new,lower cost method of producing calculators.As a result,will the supply of calculators increase or decrease?
Q7) Refer to Figure 4-29.The movement from S1 to S2 is a
Q8) A group of buyers and sellers of a particular good or service is called a
Q9) Refer to Scenario 4-1.What is the equilibrium price in this market?
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) The quantity supplied of a good or service is the amount that sellers are willing and able to sell at a particular price.
A)True
B)False
Q2) A decrease in the price of pizza will shift the supply curve for pizza to the left.
A)True
B)False
Q3) Suppose the demand for calendars increases in November.At the same time,the price of the ink used in the production of calendars increases.In the market for calendars,the equilibrium price rises,but the effect on the equilibrium quantity is ambiguous.
A)True
B)False
Q4) An increase in the price of a product and an increase in the number of sellers in the market affect the supply curve in the same general way.
A)True
B)False
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Chapter 5: Elasticity and Its Applications
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Q1) Which of the following statements about the consumers' responses to rising gasoline prices is correct?
A)About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars.
B)About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars.
C)About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars.
D)Because gasoline is a necessity,consumers do not decrease their quantity demanded in either the short run or the long run.
Q2) In general,elasticity is a measure of
A)the extent to which advances in technology are adopted by producers.
B)the extent to which a market is competitive.
C)how firms' profits respond to changes in market prices.
D)how much buyers and sellers respond to changes in market conditions.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Demand
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Q1) 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.
Q2) Marcus says that he would smoke one pack of cigarettes each day regardless of the price.If he is telling the truth,Marcus's
A)demand for cigarettes is perfectly inelastic.
B)price elasticity of demand for cigarettes is infinite.
C)income elasticity of demand for cigarettes is 0.
D)More than one of the above is correct.
Q3) For a particular good,a 10 percent increase in price causes a 3 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?
A)The relevant time horizon is short.
B)The good is a luxury.
C)The market for the good is narrowly defined.
D)There are many close substitutes for this good.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Supply
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Q1) If the quantity supplied is the same regardless of price,then supply is A)elastic.
B)perfectly elastic.
C)perfectly inelastic.
D)inelastic.
Q2) Refer to Figure 5-15.Using the midpoint method,what is the price elasticity of supply between points D and G?
A)1.89
B)1.26
C)0.53
D)0.34
Q3) Refer to Scenario 5-3.The price elasticity of supply for bread could be A)-1.
B)0.
C)0.5.
D)1.5.
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36
Chapter
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Sample Questions
Q1) Good news for farming can be bad news for farmers because the
A)supply curve for an individual farmer is usually perfectly elastic.
B)supply curve for an individual farmer is usually perfectly inelastic.
C)demand for basic foodstuffs is usually inelastic,meaning that factors that shift supply to the right decrease total revenues to sellers.
D)demand for basic foodstuffs is usually elastic,meaning that factors that shift supply to the right increase total revenues to sellers.
Q2) 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.
Q3) Between 1950 and today there was a
A)20 percent drop in the number of farmers,but farm output increased by more than ten times.
B)30 percent drop in the number of farmers,but farm output more than tripled.
C)40 percent drop in the number of farmers,but farm output more than doubled.
D)70 percent drop in the number of farmers,but farm output increased by about five times.
Page 37
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Chapter 5: Elasticity and Its Applications: Part A
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Q1) Refer to Scenario 5-2.Using the midpoint method,if the price of good Y is $10 and the price of good X decreases from $5 to $3,what is the price elasticity of demand for good X? Is the demand elastic,unitary elastic,or inelastic?
Q2) Refer to Figure 5-21.Using the midpoint method,what is the price elasticity of supply between $15 and $25?
Q3) If the quantity supplied is exactly the same regardless of the price,supply is
Q4) Suppose that good X is a luxury and that good Y is a necessity.Which good would you expect to have more price elastic demand?
Q5) Refer to Scenario 5-6.Using the midpoint method,what is the income elasticity of demand for mobile service?
Q6) With regard to elasticity,if a firm has a longer time to adjust to a price increase,supply will be more
Q7) Suppose the price elasticity of demand for a product is 1.3.If a supplier wants to increase revenue,what change should it make to price,if any?
Q8) Suppose you manage a baseball stadium.To pay the salary for a star player,you would like to increase the total revenue from ticket sales.Should you increase or decrease the price of a ticket to increase revenue? Explain.
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Chapter 5: Elasticity and Its Applications: Part B
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Sample Questions
Q1) Price elasticity of demand along a linear,downward-sloping demand curve increases as price falls.
A)True
B)False
Q2) If the cross-price elasticity of demand for two goods is negative,then the two goods are substitutes.
A)True
B)False
Q3) In general,demand curves for necessities tend to be price elastic.
A)True
B)False
Q4) In general,demand curves for luxuries tend to be price elastic.
A)True
B)False
Q5) If the price elasticity of demand is equal to 0,then demand is unit elastic. A)True
B)False
Q6) Elasticity measures how responsive quantity is to changes in price. A)True
B)False
Page 39
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Chapter 6: Supply Demand and Government Policies
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Q1) Price controls
A)always produce a fair outcome.
B)always produce an efficient outcome.
C)can generate inequities of their own.
D)All of the above are correct.
Q2) 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.
Q3) Which of the following is not correct?
A)Economists have two roles: scientist and policy adviser.
B)As scientists,economists develop and test theories to explain the world around them.
C)Economic policies rarely have effects that their architects did not intend or anticipate.
D)As policy advisers,economists use their theories to help change the world for the better.
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Chapter 6: Supply Demand and Government Policies:
Controls on Prices
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Sample Questions
Q1) Refer to Figure 6-3.In panel (a),there will be A)a shortage.
B)equilibrium in the market.
C)a surplus.
D)lines of people waiting to buy the good.
Q2) If a binding price floor is imposed on the video game market,then A)the demand for video games will decrease.
B)the supply of video games will increase.
C)a surplus of video games will develop.
D)All of the above are correct.
Q3) Refer to Figure 6-11.If the government imposes a price ceiling at $6,it would be A)binding if market demand is Demand A or Demand B.
B)non-binding if market demand is Demand A or Demand B.
C)binding if market demand is Demand A and non-binding if market demand is Demand B.
D)non-binding if market demand is Demand A and binding if market demand is Demand B.
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Chapter 6: Supply Demand and Government Policies: Taxes
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Sample Questions
Q1) If a tax is levied on the buyers of dog food,then
A)buyers will bear the entire burden of the tax.
B)sellers will bear the entire burden of the tax.
C)buyers and sellers will share the burden of the tax.
D)the government will bear the entire burden of the tax.
Q2) Refer to Figure 6-29.Suppose D1 represents the demand curve for gasoline in both the short run and long run,S1 represents the supply curve for gasoline in the short run,and S2 represents the supply curve for gasoline in the long run.After the imposition of the $2,the price paid by buyers will be
A)higher in the long run than in the short run.
B)higher in the short run than in the long run.
C)equivalent in the short run and the long run.
D)unable to be determined without additional information.
Q3) A $5 tax levied on the buyers of pants will cause the
A)supply curve for pants to shift down by $5.
B)supply curve for pants to shift up by $5.
C)demand curve for pants to shift down by $5.
D)demand curve for pants to shift up by $5.
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Chapter 6: Supply Demand and Government Policies: Part
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Sample Questions
Q1) Refer to Scenario 6-2.Suppose the government sets a price ceiling at $12 for this product.Is this price ceiling binding,and what will be the size of the shortage/surplus in this market?
Q2) If the demand curve is more price elastic than the supply curve,will the buyers or the sellers bear a greater burden of a tax? Draw a diagram to illustrate your answer.
Q3) Refer to Figure 6-31.If the government set a price ceiling at $8,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q4) Refer to Figure 6-31.If the government set a price floor at $17,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q5) Refer to Figure 6-31.If the government set a price ceiling at $9,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) 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?
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Chapter 6: Supply Demand and Government Policies: Part B
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Q1) Price controls can generate inequities.
A)True
B)False
Q2) A price ceiling set below the equilibrium price causes a shortage in the market.
A)True
B)False
Q3) A tax on buyers shifts the demand curve to the right.
A)True
B)False
Q4) A binding price ceiling may not help all consumers,but it does not hurt any consumers.
A)True
B)False
Q5) If a good or service is sold in a competitive market free of government regulation,then the price of the good or service adjusts to balance supply and demand.
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) Welfare economics is the study of
A)the well-being of less fortunate people.
B)welfare programs in the United States.
C)how the allocation of resources affects economic well-being.
D)the effect of income redistribution on work effort.
Q4) 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.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Consumer Surplus
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Q1) Suppose Katie,Kendra,and Kristen each purchase a particular type of cell phone at a price of $80.Katie's willingness to pay was $100,Kendra's willingness to pay was $95,and Kristen's willingness to pay was $80.Which of the following statements is correct?
A)For the three individuals together,consumer surplus amounts to $35.
B)Having bought the cell phone,Kristen is better off than she would have been had she not bought it.
C)Had the price of the cell phone been $95 rather than $80,Katie and Kendra definitely would have been buyers and Kristen definitely would not have been a buyer.
D)The fact that all three individuals paid $80 for the same type of cell phone indicates that each one placed the same value on that cell phone.
Q2) When policymakers are considering a particular action,they can use consumer surplus as a(n)
A)objective measure of the benefits to buyers as determined by policymakers.
B)measure of the benefits to buyers as the buyers perceive them.
C)potentially flawed measure of the benefits to buyers if the buyers are not rational.
D)Both b)and c)are correct.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Producer Surplus
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Q1) Kristi and Rebecca sell lemonade on the corner.It costs them 7 cents to make each cup.On a certain day,they sell 40 cups.Their producer surplus for that day amounts to $19.20.Kristi & Rebecca sold each cup for A)31 cents.
B)38 cents.
C)45 cents.
D)55 cents.
Q2) Tom tunes pianos in his spare time for extra income.Buyers of his service are willing to pay $155 per tuning.One particular week,Tom is willing to tune the first piano for $120,the second piano for $125,the third piano for $140,and the fourth piano for $160.Assume Tom is rational in deciding how many pianos to tune.His producer surplus is A)$95.
B)$80.
C)$75.
D)$60.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Market Efficiency
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Q1) Refer to Figure 7-24.At equilibrium,total surplus is measured by the area A)ABD.
B)ABF.
C)FBD.
D)HGCI.
Q2) If the government allowed a free market in organs for transplant there would be A)a decrease in the shortage of organs for transplant.
B)a decrease in producer surplus.
C)an decrease in consumer surplus
D)an increase in the waiting period for transplant organs.
Q3) Refer to Figure 7-23.The equilibrium price is A)P1.
B)P2.
C)P3.
D)P4.
Q4) Refer to Figure 7-21.When the price is P1,area C represents A)total benefit.
B)producer surplus.
C)consumer surplus.
D)None of the above is correct.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Conclusion Market Efficiency and Market Failure
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Q1) 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.
Q2) Inefficiency can be caused in a market by the presence of A)market power.
B)externalities.
C)imperfectly competitive markets.
D)All of the above are correct.
Q3) Market power refers to the A)side effects that may occur in a market.
B)government regulations imposed on the sellers in a market.
C)ability of market participants to influence price.
D)forces of supply and demand in determining equilibrium price.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part A
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Q1) Refer to Figure 7-34.Suppose there is initially a price ceiling set at $4 in this market.If the government removed the price ceiling,by how much would total producer surplus increase for those producers entering the market after the price ceiling is removed?
Q2) Refer to Figure 7-30.If the market equilibrium price is $120,how much is total consumer surplus?
Q3) Refer to Figure 7-33.Suppose demand shifts such that consumers wish to purchase 12 fewer units at every price.How much is total consumer surplus in this market at the new equilibrium price?
Q4) Refer to Scenario 7-1.If the market equilibrium price falls from $10 to $5,how much consumer surplus do consumers entering the market after the price drop receive?
Q5) Refer to Figure 7-31.If the market equilibrium price is $25,how much is total producer surplus in this market?
Q6) Answer each of the following questions about supply and producer surplus.
a.What is producer surplus,and how is it measured?
b.What is the relationship between the cost to sellers and the supply curve?
c.Other things equal,what happens to producer surplus when the price of a good rises? Illustrate your answer on a supply curve.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part B
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Sample Questions
Q1) 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
Q2) If Darby values a soccer ball at $50,and she pays $40 for it,her consumer surplus is $90.
A)True
B)False
Q3) If the United States legally allowed for a market in transplant organs,it is estimated that one kidney would sell for at least $100,000.
A)True
B)False
Q4) The current policy on kidney donation effectively sets a price ceiling of zero. A)True
B)False
Q5) The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.
A)True
B)False
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Chapter 8: Application the Cost of Taxation
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Q1) Anger over British taxes played a significant role in bringing about the A)election of John Adams as the second American president.
B)American Revolution.
C)War of 1812.
D)"no new taxes" clause in the U.S.Constitution.
Q2) 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.
Q3) Who once said that taxes are the price we pay for a civilized society?
A)Aristotle
B)George Washington
C)Oliver Wendell Holmes,Jr.
D)Ronald Reagan
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Chapter 8: Application the Cost of Taxation: The
Deadweight Loss of Taxation
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Q1) Refer to Figure 8-2.The amount of the tax on each unit of the good is A)$1.
B)$4.
C)$5.
D)$9.
Q2) When a tax is levied on buyers,the A)supply curves shifts upward by the amount of the tax.
B)tax creates a wedge between the price buyers effectively pay and the price sellers receive.
C)tax has no effect on the well-being of sellers.
D)All of the above are correct.
Q3) Refer to Figure 8-8.The government collects tax revenue that is the area A)L.
B)B+D.
C)C+F.
D)F+G+L.
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Chapter 8: Application the Cost of Taxation: The Determinants of
the Deadweight
Loss
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Q1) If the labor supply curve is very elastic,a tax on labor
A)has a large deadweight loss.
B)raises enough tax revenue to offset the loss in welfare.
C)has a relatively small impact on the number of hours that workers choose to work.
D)results in a large tax burden on the firms that hire labor.
Q2) Suppose the government imposes a tax on cheese.The deadweight loss from this tax will likely be greater in the
A)first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year.
B)first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.
C)eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year.
D)eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.
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Chapter 8: Application the Cost of Taxation: Deadweight
Loss and Tax Revenue As Taxes Vary
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Q1) If the tax on a good is tripled,the deadweight loss of the tax
A)remains constant.
B)triples.
C)increases by a factor of 9.
D)increases by a factor of 12.
Q2) Ronald Reagan believed that reducing income tax rates would
A)do little,if anything,to encourage hard work.
B)result in large increases in deadweight losses.
C)raise economic well-being and perhaps even tax revenue.
D)lower economic well-being,even though tax revenue could possibly increase.
Q3) Refer to Figure 8-23.If the economy is at point A on the curve,then a small increase in the tax rate will
A)increase the deadweight loss of the tax and increase tax revenue.
B)increase the deadweight loss of the tax and decrease tax revenue.
C)decrease the deadweight loss of the tax and increase tax revenue.
D)decrease the deadweight loss of the tax and decrease tax revenue.
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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 8-29.If you were a policymaker choosing between a $3,$6,or $9 tax,which would you choose and why?
Q2) Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.What price will sellers receive for the good after the tax is imposed?
Q3) The demand for energy drinks is more elastic than the demand for milk.Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.
Q4) Refer to Figure 8-25.Suppose the government increases the size of the tax on this good from $4 per unit to $6 per unit.Will the tax revenue collected from the tax increase,decrease,or stay the same?
Q5) Suppose that the market for product X is characterized by a typical,downward-sloping,linear demand curve and a typical,upward-sloping,linear supply curve.Suppose the price elasticity of supply is 0.7.Will the deadweight loss from a $3 tax per unit be smaller if the absolute value of the price elasticity of demand is 0.6 or if the absolute value of the price elasticity of demand is 1.5?
Q6) In terms of gains from trade,why is it true that taxes cause deadweight losses?
Q7) Refer to Figure 8-25.How much is total surplus at the market equilibrium?
Q8) Refer to Figure 8-25.How much is consumer surplus at the market equilibrium?
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Chapter 8: Application the Cost of Taxation: Part B
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Q1) The Social Security tax is a labor tax.
A)True
B)False
Q2) If a tax did not induce buyers or sellers to change their behavior,it would not cause a deadweight loss.
A)True
B)False
Q3) Economists disagree on whether labor taxes have a small or large deadweight loss.
A)True
B)False
Q4) Total surplus is always equal to the sum of consumer surplus and producer surplus.
A)True
B)False
Q5) A tax on a good causes the size of the market to shrink.
A)True
B)False
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Chapter 9: Application International Trade
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Q1) 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.
Q2) 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?
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Chapter 9: Application International Trade: The
Determinants of Trade
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Q1) Suppose Jamaica has an absolute advantage over other countries in producing sugar,but other countries have a comparative advantage over Jamaica in producing sugar.If trade in sugar is allowed,Jamaica
A)will import sugar.
B)will export sugar.
C)will either import sugar or export sugar,but it is not clear from the given information.
D)would have nothing to gain either from exporting or importing sugar.
Q2) A tax on an imported good is called a A)quota.
B)tariff.
C)supply tax.
D)trade tax.
Q3) Trade among nations is ultimately based on A)absolute advantage.
B)strategic advantage.
C)comparative advantage.
D)technical advantage.
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Page 60
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 A)price paid by American consumers of peaches is unchanged relative to the no-trade situation.
B)total well-being of American producers of peaches is diminished relative to the no-trade situation.
C)total well-being of American consumers of peaches is enhanced relative to the no-trade situation.
D)total well-being of the United States is enhanced relative to the no-trade situation.
Q2) Refer to Figure 9-16.The tariff
A)decreases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
B)decreases producer surplus by the area C + D and decreases consumer surplus by the area D + E + F.
C)increases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
D)increases producer surplus by the area B + C and decrease consumer surplus by the area D + E + F.
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Page 61
Chapter 9: Application International Trade: The Arguments for Restricting Trade
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Q1) The rules established under GATT are enforced by the
A)governments of the nations that are involved in GATT.
B)North American Free Trade Association.
C)World Trade Organization.
D)European Union.
Q2) 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.
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.
Q4) The North American Free Trade Agreement
A)is an example of the unilateral approach to free trade.
B)eliminated tariffs on imports to North America from the rest of the world.
C)reduced trade restrictions among Canada,Mexico and the United States.
D)All of the above are correct.
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Chapter 9: Application International Trade: Conclusion
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Q1) In 2008,the Los Angeles Times asked members of the American public whether free international trade has helped or hurt the economy.Of those surveyed,
A)57 percent said free international trade helped the economy.
B)26 percent said free international trade helped the economy.
C)30 percent said free international trade hurt the economy.
D)16 percent said free international trade hurt the economy.
Q2) Economists view the fact that Florida grows oranges,Texas pumps oil,and California makes wine as
A)confirmation of the virtues of free trade.
B)confirmation of the infant-industry argument.
C)confirmation that free trade agreements are not necessary.
D)confirmation that specialization in absolute advantage works.
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63
Chapter 9: Application International Trade: Part A
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Q1) Refer to Figure 9-29.If the country allows free trade,how much are consumer surplus,producer surplus,and total surplus with trade?
Q2) Refer to Figure 9-29.Suppose the country imposes a $1 per unit tariff.If the country allows trade with a tariff,how many units will be imported?
Q3) Refer to Scenario 9-3.Suppose the world price in this market is $8 per unit,and suppose the country imposes a $1 per unit tariff.If the country allows trade with a tariff,how much are consumer surplus,producer surplus,tariff revenue,and total surplus?
Q4) List four benefits of international trade.
Q5) Suppose the world price of coffee is $2 per pound and Brazil's domestic price of coffee without trade is $3 per pound.If Brazil allows free trade,will Brazil be an importer or an exporter of coffee?
Q6) Refer to Figure 9-29.Suppose the country imposes a $1 per unit tariff.If the country allows trade with a tariff,how much is tariff revenue?
Q7) Refer to Figure 9-27.Suppose the country imposes a $5 per unit tariff.If the country allows trade with a tariff,how much are consumer surplus,producer surplus,tariff revenue,and total surplus?
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Page 64
Chapter 9: Application International Trade: Part B
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Q1) The nation of Spritzland used to prohibit international trade,but now trade is allowed,and Spritzland is exporting wristwatches.Relative to the previous no-trade situation,total surplus in the market for wristwatches in Spritzland has increased.
A)True
B)False
Q2) If Argentina exports oranges to the rest of the world,Argentina's producers of oranges are worse off,and Argentina's consumers of oranges are better off,as a result of trade.
A)True
B)False
Q3) If the world price of a good is greater than the domestic price in a country that can engage in international trade,then that country becomes an importer of that good.
A)True
B)False
Q4) NAFTA is an example of a multilateral approach to achieving free trade.
A)True
B)False
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Chapter 10: Measuring a Nations Income
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Q1) 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
Q2) Macroeconomists study
A)the decisions of individual households and firms.
B)the interaction between households and firms.
C)economy-wide phenomena.
D)regulations imposed on firms and unions.
Q3) Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?
A)Why do prices in general rise by more in some countries than in others?
B)Why do wages differ across industries?
C)Why do national production and income increase in some periods and not in others?
D)How rapidly is GDP currently increasing?
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Chapter 10: Measuring a Nations Income: The Economy's
Income and Expenditure
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Q1) Income generated by a nation's domestic production
A)is less than its domestic production.
B)is equal to its domestic production.
C)is greater than its domestic production.
D)could be less than,equal to,or greater than its domestic production.
Q2) Because every transaction has a buyer and a seller,
A)GDP is more closely associated with an economy's income than it is with an economy's expenditure.
B)every transaction contributes equally to an economy's income and to its expenditure.
C)the number of firms must be equal to the number of households in a simple circular-flow diagram.
D)firms' profits are necessarily zero in a simple circular-flow diagram.
Q3) Gross domestic product measures
A)income and expenditures.
B)income but not expenditures.
C)expenditures but not income.
D)neither income nor expenditures.
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Page 67
Chapter 10: Measuring a Nations Income: The
Measurement of GDP
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Q1) Tesla builds a new vehicle,and completes it in December 2015.It sells the vehicle in January 2016.The value of this vehicle affects U.S.GDP
A)for 2015 only,since it was completed in December of 2015.
B)for both 2015 and 2016.
C)for 2016 only,when it is sold to the buyer.
D)for neither year if it is sold to a citizen of Canada.
Q2) The government of country A,which has adopted American GDP accounting conventions,has calculated that the seasonally-adjusted market value of all final goods and services produced within country A in quarter 1 was $5 billion.The government will report that GDP in quarter 1 was
A)$1.25 billion at an annual rate.
B)$4 billion at an annual rate.
C)$5 billion at an annual rate.
D)$20 billion at an annual rate.
Q3) Which of the following is a way to compute GDP?
A)total income earned.
B)total expenditures on final goods.
C)add up the market values of all final goods and services.
D)All of the above are correct.
Page 68
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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) In 2015,U.S.net exports were
A)positive and about 3 percent the size of GDP.
B)positive and about 6 percent the size of GDP.
C)negative and about 3 percent the size of GDP.
D)negative and about 6 percent the size of GDP.
Q3) Social Security payments are
A)included in GDP because they represent current income.
B)included in GDP because they represent potential consumption.
C)excluded from GDP because they are not private pensions.
D)excluded from GDP because they do not reflect the economy's production.
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Page 69
Chapter 10: Measuring a Nations Income: Real Versus Nominal
GDP
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Sample Questions
Q1) Nominal GDP will definitely increase when A)prices increase and output increases.
B)prices increase and output decreases.
C)prices decrease and output increases.
D)All of the above are correct.
Q2) In the base year,the GDP deflator is always A)-1.
B)0.
C)1.
D)100.
Q3) A country reported nominal GDP of $200 billion in 2010 and $180 billion in 2009.It also reported a GDP deflator of 125 in 2010 and 105 in 2009.Between 2009 and 2010,
A)real output and the price level both rose.
B)real output rose and the price level fell.
C)real output fell and the price level rose.
D)real output and the price level both fell.
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Chapter
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Sample Questions
Q1) Rank the countries from highest to lowest based on underground economic activity as a percentage of GDP.
A)Bolivia,Thailand,United States,Sweden.
B)Thailand,United States,Sweden,Bolivia.
C)United States,Bolivia,Sweden,Thailand.
D)Bolivia,Thailand,Sweden,United States.
Q2) 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.
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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) Explain how real GDP differs from nominal GDP.
Q3) 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.
Q4) GDP is defined as the market value of all final goods and services produced within a country in a given period of time.In spite of this definition,some production is left out of GDP.Explain why some final goods and services are not included.
Q5) How frequently is U.S.GDP reported? Is GDP adjusted for seasonality?
Q6) Refer to Figure 23-2.List the locations associated with the flow of inputs and outputs.
Q7) Calculate the inflation rate for a country where the GDP deflator rises from 120 to 165.
Q8) Calculate GDP for an economy with exports of $5 trillion,investment of $1.5 trillion,consumption spending of $11 trillion,imports of $6 trillion,and government purchases of $3 trillion.
Q9) Foreign countries buy $1.2 trillion of U.S.goods and services.U.S.residents purchase $1.8 trillion of foreign goods and services.What is net exports?
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Chapter 10: Measuring a Nations Income: Part B
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Q1) Both the value of hamburgers sold by a restaurant and the value of the beef it used to make these hamburgers are included in GDP.
A)True
B)False
Q2) Macroeconomic statistics include GDP,the inflation rate,the unemployment rate,retail sales,and the trade deficit.
A)True
B)False
Q3) If the GDP deflator in 2009 was 150 and the GDP deflator in 2010 was 175,then the inflation rate in 2010 was 25%.
A)True
B)False
Q4) Real GDP is a better gauge of economic well-being than is nominal GDP.
A)True
B)False
Q5) The goal of macroeconomics is to explain the economic changes that affect many households,firms,and markets simultaneously.
A)True
B)False
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Chapter 11: Measuring the Cost of Living
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Q1) 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.
Q2) The consumer price index is used to
A)monitor changes in the level of wholesale prices in the economy.
B)monitor changes in the cost of living over time.
C)monitor changes in the level of real GDP over time.
D)monitor changes in the stock market.
Q3) The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
A)the CPI is easier to measure.
B)the CPI is calculated more often than the GDP deflator is.
C)the CPI better reflects the goods and services bought by consumers.
D)the GDP deflator cannot be used to gauge inflation.
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Chapter 11: Measuring the Cost of Living: The Consumer Price Index
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Q1) A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods.BLS attempts to account for this change in the market basket by
A)dropping the good from the basket.
B)substituting in a different vehicle with the same horsepower as the 2008 model.
C)adjusting the share of the market basket allocated to transportation.
D)adjusting the price of the good to account for the quality change.
Q2) The CPI for all goods and services excluding food and energy is called
A)a hedonic price index.
B)the CPI basis.
C)the core CPI.
D)the producer price index.
Q3) If the cost of apparel increases by 50 percent,then,other things the same,the CPI is likely to increase by about
A)0.5 percent.
B)1.5 percent.
C)3.0 percent.
D)11.8 percent.
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Chapter 11: Measuring the Cost of Living: Correcting
Economic Variables for the Effects of Inflation
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Q1) The consumer price index was 225 in 2008 and 232.2 in 2009.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?
A)1.6 percent
B)3.3 percent
C)5.1 percent
D)7.4 percent
Q2) If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent,then the real interest rate is
A)-7.5 percent.
B)-2.5 percent.
C)2.5 percent.
D)7.5 percent.
Q3) During a certain year,the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent.For that year,
A)the nominal interest rate was 6 percent.
B)the nominal interest rate was 14 percent.
C)the inflation rate was 12 percent.
D)the inflation rate was 9 percent.
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Chapter 11: Measuring the Cost of Living: Part A
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Q1) Suppose that the CPI in 1990 was 150,that the inflation rate in 1991 was 6%,and that the inflation rate in 1992 was 4%.What was the CPI in 1991 and 1992?
Q2) If the real interest rate is 10.3% and the nominal interest rate is 12.6%,what is the inflation rate?
Q3) List the five steps for calculating the consumer price index and inflation rate.
Q4) Refer to Scenario 24-5.Using 2010 as the base year,what is the CPI in each year?
Q5) If the CPI was 120 in 1994,was 126 in 1995,and was 134.82 in 1996,what was the inflation rate in 1995 and in 1996?
Q6) Explain how the introduction of new goods might bias the calculation of the consumer price index.
Q7) Refer to Scenario 24-5.What are the prices of books,CDs,and DVDs in 2010?
Q8) Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.
Q9) For a country like the United States,explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.
Q10) Consumer spending in what category is the largest component of the CPI?
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Q11) Refer to Scenario 24-5.Using 2009 as the base year,what is the CPI in each year?
Chapter 11: Measuring the Cost of Living: Part B
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Q1) The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.
A)True
B)False
Q2) Suppose the CPI in 1950 was 24.1 and the CPI in 1975 was 53.8. When Ken's income rose from $10,000 per year in 1950 to $20,000 per year in 1970,Ken's standard of living improved between 1950 and 1970.
A)True
B)False
Q3) The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.
A)True
B)False
Q4) When consumer spending is broken down into the major categories of goods and services,the largest single category is spending on transportation.
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) Which of the following is a good gauge of economic progress?
A)the level of real GDP per person,but not the growth rate of real GDP per person
B)the level of real GDP per person and the growth rate of real GDP per person
C)the growth rate of real GDP per person,but not the level of real GDP per person
D)neither the level nor the growth rate of real GDP per person
Q3) There are large differences in the standard of living
A)across countries,but not within countries.
B)within countries over time,but not across countries.
C)across countries and within countries over time.
D)across countries,but not in technology or healthcare.
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Chapter 12: Production and Growth: Economic Growth
Around the World
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Q1) Which of these countries' growth rates of real GDP per person have exceeded the United States' growth rate of real GDP per person over the last century?
A)Canada and China
B)China and India
C)Germany and India
D)Germany and Pakistan
Q2) Which of the following is not correct?
A)Across countries there are large differences in the average income per person.These differences are reflected in large differences in the quality of life.
B)With a growth rate of about 2 percent per year,average income per person doubles about every 60 years.
C)The ranking of countries by average income changes substantially over time.
D)In some countries real income per person has changed very little over many years.
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Chapter 12: Production and Growth: Productivity Its Role and Determinants
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Q1) Which of the following can explain faster growth of real GDP in country A than in Country B?
A)both greater population growth and greater productivity growth in Country A
B)greater population growth in Country A,but not greater productivity growth in Country A
C)greater productivity growth in Country A,but not greater population growth in Country A
D)neither greater population growth nor greater productivity growth in Country A
Q2) The notion that our ability to conserve natural resources is growing more rapidly than their supplies are dwindling is supported by the fact that
A)most economists do not regard the availability of natural resources as a determinant of productivity.
B)the quantity of natural resources does not enter into any production function.
C)inflation-adjusted prices of most natural resources have been stable or fallen over time.
D)inflation-adjusted prices of most natural resources have risen over time.
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Chapter 12: Production and Growth: Economic Growth and Public Policy
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Q1) Which of the following is correct?
A)There is no debate about the effects of higher population growth on economic growth.
B)Natural resources clearly place limits on growth;there is simply no way to reduce either the amount or type of natural resources needed to produce goods.
C)How much an increase in capital increases a country's output is independent of that country's current level of capital.
D)Economists argue that outward rather than inward policies are likely to promote economic growth.
Q2) If over a short time a large number of teenagers become old enough to find employment and a much smaller number of people retire,then productivity
A)and real GDP per person rise.
B)rises but real GDP per person falls.
C)falls but real GDP per person rises.
D)and real GDP per person fall.
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Chapter 12: Production and Growth: Conclusion the
Importance of Long-Run Growth
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Q1) In order to promote growth in living standards,policymakers must A)protect property rights.
B)maintain political stability.
C)encourage the accumulation of factors of production.
D)All of the above
Q2) Economists differ in their views of the role of the government in promoting economic growth.A controversial idea is that government should A)lend support to the invisible hand by maintaining property rights and political stability. B)lower barriers and impediments to free trade.
C)encourage capital formation.
D)target and subsidize specific industries important for technological progress.
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83
Chapter 12: Production and Growth: Part A
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Q1) What particularly important role do courts play in a market economy?
Q2) 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.
Q3) How would an economist typically assess the extent of economic progress in a nation?
Q4) Which well-known economist from the past asserted that "the power of population is infinitely greater than the power in the earth to produce subsistence for man?"
Q5) "When workers acquire tools,they become more productive." This statement reflects the general fact that ---------- is a determinant of productivity.
Q6) If a production function has the property called ----------,then doubling all inputs causes the amount of output to double as well.
Q7) In what sense is capital accumulation costly to a society?
Q8) The people of Country X save 10 percent of their income,and the people of Country Y save 25 percent of their income.If these respective saving rates persist forever,will one country or the other enjoy a higher rate of income growth forever? Explain.
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Chapter 12: Production and Growth: Part B
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Q1) An increase in capital increases productivity only if it is purchased and operated by domestic residents.
A)True
B)False
Q2) Other things the same,another unit of capital will increase output by more in a poor country than in a rich country.
A)True B)False
Q3) Economist Michael Kremer found that world growth rates fell as population increased.
A)True
B)False
Q4) A country that made its courts less corrupt and its government more stable would likely see its standard of living rise.
A)True
B)False
Q5) Like physical capital,human capital is a produced factor of production. A)True B)False
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Chapter 13: Saving Investment and the Financial System
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Sample Questions
Q1) Bob's new startup goes public and sells shares of future profits.Bob's startup is best described as a
A)saver or as a supplier of funds.
B)saver or as a demander of funds.
C)borrower or as a supplier of funds.
D)borrower or as a demander of funds.
Q2) Given that Monika's income exceeds her expenditures,Monika is best described as a A)saver or as a supplier of funds.
B)saver or as a demander of funds.
C)borrower or as a supplier of funds.
D)borrower or as a demander of funds.
Q3) When opening a print shop you need to buy printers,computers,furniture,and similar items.Economists call these expenditures
A)capital investment.
B)investment in human capital.
C)business consumption expenditures.
D)personal saving.
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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) Suppose the city of Des Moines has a high credit rating,and so when Des Moines borrows funds by selling bonds,
A)the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
B)the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.
C)the city's high credit rating contributes to a lower interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply.
D)the city's high credit rating contributes to a higher interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.
Q2) Other things the same,as the maturity of a bond becomes longer,the bond will pay
A)a lower interest rate because it has less risk.
B)a lower interest rate because it has more risk.
C)a higher interest rate because it has more risk.
D)the same interest rate,because there is no relationship between term and risk.
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Page 87
Chapter 13: Saving Investment and the Financial System:
Saving and Investment in the National Income Accounts
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Sample Questions
Q1) Suppose the economy is closed with national saving of $3 trillion,consumption of $10 trillion,and government purchases of $4 trillion.What is GDP?
A)$3 trillion
B)$9 trillion
C)$11 trillion
D)$17 trillion
Q2) If in a closed economy Y = $11 trillion,which of the following combinations would be consistent with national saving of $3 trillion?
A)C = $8 trillion,G = $3 trillion
B)C = $13 trillion,G = -$1 trillion
C)C = $9 trillion,G = $5 trillion
D)C = $7 trillion,G = $1 trillion
Q3) Larry buys stock in A to Z Express Company.Curly Corporation builds a new factory.Whose transaction would be an act of investment in the language of macroeconomics?
A)only Larry's
B)only Curly Corporation's
C)Larry's and Curly Corporation's
D)neither Larry's nor Curly Corporation's
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Chapter 13: Saving Investment and the Financial System:
The Market for Loanable Funds
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Sample Questions
Q1) Which of the following events could explain an increase in interest rates together with an increase in investment?
A)The government runs a larger deficit.
B)The government institutes an investment tax credit.
C)The government replaces the income tax with a consumption tax.
D)None of the above is correct.
Q2) Interest rates fall and investment falls.Which of the following could explain these changes?
A)The government goes from a surplus to a deficit.
B)The government repeals an investment tax credit.
C)The government replaces a consumption tax with an income tax.
D)None of the above is correct.
Q3) When tax code changes increase saving incentives, the interest rate will _____ and investment will _____.
Q4) What is the source of the supply of loanable funds?
Q5) If Congress increased the tax rate on interest income,investment
A)would increase and saving would decrease.
B)would decrease and saving would increase.
C)and saving would increase.
D)and saving would decrease.
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Chapter 13: Saving Investment and the Financial System:
Part A
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Sample Questions
Q1) What is the main function of the financial system?
Q2) A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.
Q3) If consumers reduced their spending,what would happen to the interest rate and investment?
Q4) In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.
Q5) In a closed economy taxes are $750 billion,government transfers are $400 billion,government expenditures are $500 billion,and investment is $400 billion.What are private saving,public saving and national saving?
Q6) The interest rate will______and the quantity of loanable funds invested will_______when the government decreases the budget deficit.
Q7) Suppose the Move It! exercise chain has revenues of $45 million,accounting costs of $15 million,and currently has issued 10 million shares of stocks selling at $90 each.Compute the price-earning ratio.Show your work.Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?
Q8) What are the basic differences between bonds and stocks?
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Chapter 13: Saving Investment and the Financial System:
Part B
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Sample Questions
Q1) Most entrepreneurs finance their purchases of real capital using their past saving.
A)True
B)False
Q2) When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.
A)True
B)False
Q3) Managed mutual funds perform better on average than index funds because stock prices are usually a good predictor of a company's true value.
A)True
B)False
Q4) Joan uses some of her income to buy mutual fund shares.A macroeconomist refers to Joan's purchase as investment.
A)True
B)False
Q5) Financial crises seldom involve economic downturns.
A)True
B)False
91
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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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Sample Questions
Q1) Lucretia puts $400 into an account when the interest rate is 10 percent.Later she checks her balance and finds it's worth about $708.62.How many years did she wait to check her balance?
A)5 years
B)6 years
C)7 years
D)8 years
Q2) Albert Einstein once referred to compounding as A)"an obsession among economists that defies explanation." B)"the greatest mathematical discovery of all time."
C)his own discovery.
D)John Maynard Keynes's greatest contribution.
Q3) Susan put $375 into an account and one year later had $405.What interest rate was paid on Susan's deposit?
A)5 percent
B)7 percent
C)8 percent
D)10 percent
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Chapter 14: The Basic Tools of Finance: Managing Risk
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Q1) Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of
A)firm-specific risk,which will likely raise shareholders' demand for higher return.
B)firm-specific risk,which will likely not likely raise shareholders' demand for higher return.
C)market risk,which will likely raise shareholders' demand for higher return.
D)market risk,which will likely not raise shareholders' demand for higher return.
Q2) Missy recently rearranged her portfolio so that it has a higher average return.As a result of this rearranging,Missy
A)raised both firm-specific risk and market risk.
B)raised firm-specific risk,but not market risk.
C)raised market risk,but not firm-specific risk.
D)None of the above is correct.
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Chapter 14: The Basic Tools of Finance: Asset Valuation
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Sample Questions
Q1) Whenever the price of an asset rises above what appears to be its fundamental value,the market is said to be experiencing a
A)conjectural mistake.
B)fundamental mishap.
C)speculative bubble.
D)temporary inefficiency.
Q2) Suppose fundamental analysis indicates that XYZ Corporation's stock is undervalued.
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.
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Chapter 14: The Basic Tools of Finance: Conclusion
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Sample Questions
Q1) 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.
Q2) 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.
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Chapter 14: The Basic Tools of Finance: Part A
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Sample Questions
Q1) Your boss asks you to do fundamental analysis of a corporation.What value is she asking for and how would you estimate this value?
Q2) How does moral hazard matter in the market for insurance?
Q3) If the interest rate is 8 percent,then what is the present value of $5,000 to be received in ten years?
Q4) Refer to Scenario 27-1.Suppose Lisa is faced with a choice between two options.With option A Lisa receives a guaranteed $9 million.With option B Lisa faces a lottery that pays $4 million with probability 0.4 and pays $16 million with probability 0.6.Given Lisa's utility function,will she prefer option A or option B? Provide evidence to support your answer.
Q5) What is meant by an asset bubble?
Q6) 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?
Q7) The objective of diversification is to reduce risk.How does a person diversify a stock portfolio? How is risk measured?
Q8) What does "random walk" mean? According to the efficient markets hypothesis,should stock prices follow a random walk?
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Chapter 14: The Basic Tools of Finance: Part B
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Sample Questions
Q1) Managed mutual funds usually outperform mutual funds that are supposed to follow some stock index.
A)True
B)False
Q2) According to fundamental analysis,when choosing stocks for your portfolio,you should prefer undervalued stocks.
A)True
B)False
Q3) The fact that we observe a trade-off between risk and return is puzzling to economists,because that observation conflicts with the notion that most people are risk averse.
A)True
B)False
Q4) Risk-averse persons will take no risks.
A)True B)False
Q5) Moral hazard is illustrated by people who take greater risks after they purchase insurance.
A)True
B)False
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Chapter 15: Unemployment
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Sample Questions
Q1) The amount of unemployment that an economy normally experiences is called the A)average rate of unemployment.
B)natural rate of unemployment.
C)cyclical rate of unemployment.
D)typical rate of unemployment.
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) Cyclical unemployment
A)has a different explanation than does the natural rate of unemployment.
B)refers to the year-to-year fluctuation in unemployment around an economy's natural rate of unemployment.
C)is closely associated with short-run ups and downs of economic activity.
D)All of the above are correct.
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99
Chapter 15: Unemployment: Identifying Unemployment
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Sample Questions
Q1) Which of the following is correct?
A)The labor-force participation rate of women has increased in part due to smaller families.
B)The labor-force participation rate of men has decreased in part due to men retiring younger and living longer.
C)Both a and b are correct.
D)Neither a nor b is correct.
Q2) The labor-force participation rate measures the percentage of the
A)total adult population that is in the labor force.
B)total adult population that is employed.
C)labor force that is employed.
D)labor force that is either employed or unemployed.
Q3) Jai Li just lost her job,and she has not yet started looking for a new one.The Bureau of Labor Statistics counts Jai Li as
A)unemployed and in the labor force.
B)unemployed but not in the labor force.
C)in the labor force but not unemployed.
D)neither in the labor force nor unemployed.
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Chapter 15: Unemployment: Job Search
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Sample Questions
Q1) 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)The internet can help facilitate the job search and reduce frictional unemployment.
D)Unemployment insurance decreases frictional unemployment.
Q2) Wanda quit her job because she was unhappy at work.Arnold was fired from his landscaping job because his company was downsizing.Who is eligible for unemployment insurance benefits?
A)both Wanda and Arnold
B)Wanda but not Arnold
C)Arnold but not Wanda
D)neither Wanda nor Arnold
Q3) Unemployment insurance
A)reduces search effort which raises unemployment.
B)reduces search effort which lowers unemployment.
C)increases search effort which raises unemployment.
D)increases search effort which decreases unemployment.
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Chapter 15: Unemployment: Minimum-Wage Laws
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Sample Questions
Q1) Wages in excess of their equilibrium level help explain
A)frictional but not structural unemployment.
B)structural but not frictional unemployment.
C)both frictional and structural unemployment.
D)neither frictional nor structural unemployment.
Q2) Refer to Figure 28-3.If the government imposes a minimum wage of $4,how many workers will be unemployed?
A)0
B)3,000
C)4,000
D)7,000
Q3) Refer to Figure 28-4.If the government imposes a minimum wage of $8,how many workers will be unemployed?
A)0
B)2,000
C)4,000
D)8,000
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102
Chapter 15: Unemployment: Unions and Collective Bargaining
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Sample Questions
Q1) Which of the following is not correct?
A)When a union is present in a labor market,wages are determined by the equilibrium of supply and demand.
B)Like any cartel,a union is a group of sellers acting together in the hope of exerting their joint market power.
C)The process by which unions and firms agree on the terms of employment is called collective bargaining.
D)Most workers in the U.S.economy are not members of a union.
Q2) 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.
Q3) Since the 1940's U.S.union membership has
A)fallen.This decline should have reduced structural unemployment.
B)fallen.This decline should not have reduced structural unemployment.
C)risen.This increase should have raised structural unemployment.
D)risen.This increase should not have raised structural unemployment.
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Chapter 15: Unemployment: The Theory of Efficiency Wages
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Sample Questions
Q1) Efficiency-wage theory suggests that paying
A)low wages might be profitable because they raise the efficiency of a firm's workers.
B)low wages might be profitable because they lower the efficiency of a firm's workers.
C)high wages might be profitable because they raise the efficiency of a firm's workers.
D)high wages might be profitable because they lower the efficiency of a firm's workers.
Q2) Efficiency wages,minimum-wage laws,and unions all keep wages
A)below the equilibrium level,causing a shortage of labor.
B)below the equilibrium level,causing a surplus of labor.
C)above the equilibrium level,causing a shortage of labor.
D)above the equilibrium level,causing a surplus of labor.
Q3) Efficiency wages
A)increase frictional unemployment by keeping wages above equilibrium.
B)decrease frictional unemployment by keeping wages at equilibrium.
C)increase structural unemployment by keeping wages above equilibrium.
D)decrease structural unemployment by keeping wages at equilibrium.
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104
Chapter 15: Unemployment: Part A
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Sample Questions
Q1) Define the natural rate of unemployment and cyclical unemployment.
Q2) Minimum wage laws,labor unions,and efficiency wages all generate unemployment by what common mechanism?
Q3) Briefly summarize the advantages and disadvantages of unemployment insurance.
Q4) Some degree of unemployment is __________ in a complex economy.
Q5) Refer to Figure 28-6.What type of unemployment is measured by the differences between lines A and B?
Q6) Unemployment insurance __________ the amount of unemployment.
Q7) Briefly compare the structural unemployment that arises from minimum-wage laws to the frictional unemployment that arises from the process of job search.
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) Write the formula for calculating the unemployment rate.
Q11) List the main employment characteristics over which a labor union negotiates for its workers.
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Chapter 15: Unemployment: Part B
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Sample Questions
Q1) One explanation for long-run unemployment is that it takes time for workers to search for the jobs that are best suited for them.
A)True
B)False
Q2) If the wage is kept above the equilibrium wage for any reason,the result is structural unemployment.
A)True
B)False
Q3) The deviation of unemployment from its natural rate is called cyclical unemployment.
A)True
B)False
Q4) Like any cartel,a union is a group of sellers acting together in the hope of exerting their joint market power.
A)True
B)False
Q5) Sectoral shifts temporarily cause unemployment.
A)True
B)False
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Chapter 16: The Monetary System
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Sample Questions
Q1) David and Asher buy the same pair of sneakers,but each in the wrong size.David proposes a size swap with Asher.This is an example of
A)barter,since the sneakers in the correct size represent a medium of exchange.
B)barter,since the sneakers in the correct size have intrinsic value to both David and Asher.
C)money,since the sneakers in the correct size do not have any intrinsic value.
D)money,since the sneakers in the correct size represent a medium of exchange.
Q2) As opposed to a payments system based on barter,a payments system based on money
A)requires a double coincidence of wants.
B)leads to less specialization.
C)makes trades less costly.
D)None of the above is correct.
Q3) When we say that trade is roundabout we mean that A)people sometimes trade goods for goods.
B)trades require a double coincidence of wants.
C)currency is accepted primarily to make further trades.
D)people must spend time searching for the products they wish to purchase.
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107
Chapter 16: The Monetary System: The Meaning of Money
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Q1) In the United States,currency holdings per person average about
A)$110;one explanation for this relatively small average is that many people use credit and debit cards to make transactions.
B)$110;one explanation for this relatively small average is that U.S.citizens hold a lot of foreign currency.
C)$4,490;one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange.
D)$4,490;one explanation for this relatively large average is that U.S.citizens hold a lot of foreign currency.
Q2) Money is the most liquid asset available because
A)it is a store of value.
B)it is a medium of exchange.
C)it is a unit of account.
D)it has intrinsic value.
Q3) Demand deposits are a type of
A)checking account.
B)time deposit.
C)money market mutual fund.
D)savings deposit.
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Page 108
Chapter 16: The Monetary System: The Federal Reserve System
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Q1) 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.
Q2) The Federal Reserve
A)is responsible for conducting the nation's monetary policy,and it plays a role in regulating banks.
B)is responsible for conducing the nation's monetary policy,but it plays no role in regulating banks.
C)is not responsible for conducting the nation's monetary policy,and it plays a role in regulating banks.
D)is not responsible for conducing the nation's monetary policy,and it plays no role in regulating banks.
Q3) 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
Page 109
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Chapter 16: The Monetary System: Banks and the Money Supply
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Sample Questions
Q1) In Ugoland,the money supply is $8 million and reserves are $1 million.Assuming that people hold only deposits and no currency,and that banks hold no excess reserves,then the reserve requirement is
A)14 percent.
B)12.5 percent.
C)8 percent.
D)None of the above is correct.
Q2) Suppose the banking system currently has $300 billion in reserves,the reserve requirement is 5 percent,and excess reserves are $30 billion.What is the level of loans?
A)$270 billion
B)$5,400 billion
C)$6,000 billion
D)$5,100 billion
Q3) If the reserve ratio is 15 percent,the money multiplier is
A)7.7.
B)6.7.
C)5.7.
D)15.
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Chapter 16: The Monetary System: The Feds Tools of Monetary Control
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Q1) When there is a reserve requirement,banks
A)must hold exactly the required quantity of reserves.
B)may hold more than,but not less than,the required quantity of reserves.
C)may hold less than,but not more than,the required quantity of reserves.
D)must seek the Fed's permission whenever they wish to expand or contract their loans to customers.
Q2) The money supply decreases if the Fed
A)sells Treasury bonds.The larger the reserve requirement,the larger the decrease will be.
B)sells Treasury bonds.The smaller the reserve requirement,the larger the decrease will be.
C)buys Treasury bonds.The larger the reserve requirement,the larger the decrease will be.
D)buys Treasury bonds.The smaller the reserve requirement,the larger the decrease will be.
Q3) Reserves increase if the Federal Reserve
A)raises the discount rate or auctions more credit.
B)raises the discount rate but not if it auctions more credit.
C)lowers the discount rate or auctions more credit.
D)lowers the discount rate but not if it auctions more credit.
Page 111
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Chapter 16: The Monetary System: Part A
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Sample Questions
Q1) What does it mean for the Fed to be the "lender of last resort?"
Q2) Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?
Q3) Why is the Chairman of the Federal Reserve often referred to as the "second most powerful person in the United States?"
Q4) You believe the dollars you have today will be accepted in the future in exchange for goods and services.Which function of money does this illustrate?
Q5) Suppose the required reserve ratio is 20%.What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general,why might the actual amount of total money creation be less than the maximum?
Q6) 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.
Q7) What is bank insolvancy?
Q8) What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?
Q9) Describe how the use of leverage affects the impact of bank investments.
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Chapter 16: The Monetary System: Part B
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Sample Questions
Q1) If the Fed decreases reserve requirements,the money supply will increase.
A)True
B)False
Q2) The Federal Reserve was created in 1913 after a series of bank failures in 1907.
A)True
B)False
Q3) U.S.dollars are an example of commodity money and hides used to make trades are an example of fiat money.
A)True
B)False
Q4) Marc puts prices on surfboards and skateboards at his sporting goods store.He is using money as a unit of account.
A)True
B)False
Q5) The Federal Reserve is a privately operated commercial bank.
A)True
B)False
Q6) M2 is both larger and less liquid than M1.
A)True
B)False
Page 113
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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) 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.
Q2) Which of the following statements about U.S.inflation is not correct?
A)Low inflation was viewed as a triumph of President Carter's economic policy.
B)There were long periods in the nineteenth century during which prices fell.
C)The U.S.public has viewed inflation rates of even 7 percent as a major economic problem.
D)The U.S.inflation rate has varied over time,but international data show even more variation.
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.
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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) When the money market is drawn with the value of money on the vertical axis,an increase in the money supply causes the equilibrium value of money
A)and equilibrium quantity of money to increase.
B)and equilibrium quantity of money to decrease.
C)to increase,while the equilibrium quantity of money decreases.
D)to decrease,while the equilibrium quantity of money increases.
Q2) Kelly puts money in a savings account.One year later she has two percent more dollars and can buy three percent more goods.Kelly earned a real interest rate of
A)two percent and prices fell one percent.
B)two percent and prices rose one percent.
C)three percent and prices rose one percent.
D)three percent and prices fell one percent.
Q3) If the nominal interest rate is 8 percent and expected inflation is 2.5 percent,then what is the real interest rate?
A)10.5 percent
B)20 percent
C)5.5 percent
D)3.2 percent
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Chapter 17: Money Growth and Inflation: The Costs of Inflation
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94 Verified Questions
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Sample Questions
Q1) When Haley states that inflation by itself always reduces the real return on her saving,she
A)has expressed the idea of the inflation tax.
B)has expressed the idea behind menu costs.
C)has committed the inflation fallacy.
D)has expressed the idea behind shoeleather costs.
Q2) Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real interest rate?
A)Inflation is 5 percent;the tax rate is 40 percent.
B)Inflation is 4 percent;the tax rate is 30 percent.
C)Inflation is 3 percent;the tax rate is 45 percent.
D)Inflation is 2 percent;the tax rate is 50 percent.
Q3) You put money into an account that earns a 5 percent nominal interest rate.The inflation rate is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?
A)3.6 percent.
B)2.4 percent.
C)2.0 percent.
D)4.4 percent.
Page 116
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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 during periods of A)hyperinflation.
B)large,unexpected deflation.
C)moderate inflation.
D)rapid money growth.
Q3) Inflation costs are minimized under which inflation rate?
A)-20 percent
B)5 percent
C)15 percent
D)575 percent
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Chapter 17: Money Growth and Inflation: Part A
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63 Verified Questions
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Sample Questions
Q1) If velocity is 6,real output is 10,000,and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change,what happens to the price level? Are the change in the money supply and the change in the price level proportional?
Q2) Money neutrality states that a change in the money supply affects_______ variables only.Most economists believe that money neutrality is a good description of how money affects the economy in the _________.
Q3) When the Federal Reserve injects money into the banking system,it initially causes an excess ________ of money.Equilibrium in the money market is reestablished through a(n)_______ in the price level.
Q4) Jackie saves $100 and receives $106 the next year.During the same year,the price of the basket of goods that she purchases increases from $100 to $104.What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?
Q5) The costs a business incurs to change its prices are called ___________.
Q6) According to the classical dichotomy,what changes nominal variables? What changes real variables?
Q7) What are menu costs and why does high inflation increase menu costs?
Q8) Define each of the symbols and explain the meaning of M × V = P × Y.
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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) According to the Fisher effect,if inflation rises then the nominal interest rate rises.
A)True
B)False
Q2) Hyperinflation is generally defined as inflation that exceeds 50 percent per month.
A)True
B)False
Q3) An increase in money demand would create a surplus of money at the original value of money.
A)True
B)False
Q4) In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.
A)True
B)False
Q5) Dollar prices and relative prices are both nominal variables.
A)True
B)False
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Page 119
Chapter 18: Open Economy Macroeconomics Basic Concepts
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2 Verified Questions
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Sample Questions
Q1) International trade
A)raises the standard of living in all trading countries.
B)lowers the standard of living in all trading countries.
C)leaves the standard of living unchanged.
D)raises the standard of living for importing countries and lowers it for exporting countries.
Q2) Which type(s)of economies interact with other economies?
A)only closed economies
B)only open economies
C)closed economies and open economies
D)neither closed nor open economies
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Page 120
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) Which of the following is an example of U.S.foreign direct investment?
A)A U.S.based mutual fund buys stock in Eastern European companies.
B)A U.S.citizen builds and operates a coffee shop in the Netherlands.
C)A Swiss bank buys a U.S.government bond.
D)A German tractor factory opens a plant in Waterloo,Iowa.
Q2) Ivan,a Russian citizen,sells several hundred cases of caviar to a restaurant chain in the United States.By itself,this sale
A)increases U.S.net exports and decreases Russian net exports.
B)increases U.S.net exports and has no effect on Russian net exports.
C)decreases U.S.net exports and increases Russian net exports.
D)decreases U.S.net exports and has no effect on Russian net exports.
Q3) If a country has a trade surplus
A)it has positive net exports and positive net capital outflow.
B)it has positive net exports and negative net capital outflow.
C)it has negative net exports and positive net capital outflow.
D)it has negative net exports and negative net capital outflow.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: The Prices for International Transactions Real and Nominal Exchange Rates
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76 Verified Questions
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Sample Questions
Q1) In the U.S.a candy bar costs $1.If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2,then,what would be the price of a candy bar in China?
A)7.2 yuan
B)6 yuan
C)5 yuan
D)3.6 yuan
Q2) If the price of a sofa is $800 in the U.S.and 2400 pesos in Argentina,and the exchange rate is 4 pesos per dollar,what is the real exchange rate?
A)3
B)4/3
C)3/4
D)None of the above is correct.
Q3) Goods that cost 1/5 of one dollar in the U.S.cost one kroner in Denmark,the real exchange rate would be computed as how many Danish goods per U.S.goods?
A)five
B)the amount of kroner that can be bought with twenty U.S.cents
C)the amount of kroner that can be bought with 5 dollars
D)None of the above is correct.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: A First Theory of Exchange-Rate Determination
Purchasing-Power Parity
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87 Verified Questions
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Sample Questions
Q1) 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
Q2) If purchasing-power parity holds,then the value of the
A)real exchange rate is equal to one.
B)nominal exchange rate is equal to one.
C)real exchange rate is equal to the nominal exchange rate.
D)real exchange rate is equal to the difference in inflation rates between the two countries.
Q3) According to purchasing-power parity,if the Federal Reserve increased the money supply
A)U.S.prices would rise and the nominal exchange rate would rise.
B)U.S.prices would rise and the nominal exchange rate would fall.
Page 123
C)U.S.prices would fall and the nominal exchange rate would rise.
D)U.S.prices and the nominal exchange rate would fall.
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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) A farm equipment retailer in Azerbaijan exchanges Azerbaijan manats (the currency of Azerbaijan)for $300,000 a bank in Azerbaijan was holding.It uses the $300,000 to buy farm equipment from a U.S.company.The U.S.company deposits half of these funds in a U.S.bank and exchanges the other half for euros from a bank in London. As a result of these transactions,by how much,if at all,and in which direction did:
A.U.S.net exports change?
B.U.S.net capital outflow change?
Q2) While on vacation in Europe you notice that a tablet computer is selling for 600 euros in France and for 533 pounds in Britain.You also know that the exchange rates are .75 euros per dollar and .65 British pounds per dollar.Where is the number of dollars you would pay for the tablet lower? How many dollars would you have to pay to buy it there?
Q3) Last year residents of Country A purchased $600 billion of foreign assets.Foreigners purchased $425 billion dollars of assets and $375 billion of goods and services from country A.What was the value of Country A's imports?
Q4) Suppose that a U.S.dollar buys more gold in Australia than it buys in Russia.What does purchasing-power parity imply should happen?
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Page 125
Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part B
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) Other things the same,an increase in foreign prices raises the real exchange rate. A)True
B)False
Q2) Over the past six decades,the U.S.economy has experienced a dramatic increase in the relative importance of international trade and finance.
A)True
B)False
Q3) A country with negative net exports has a trade surplus. A)True
B)False
Q4) If the U.S.real exchange rate is greater than 1,then there is the possibility of arbitraging by buying foreign goods to sell in the U.S. A)True B)False
Q5) By itself,if a U.S.firm builds a new factory overseas,U.S.net capital outflow rises. A)True B)False
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Chapter 19: A Macroeconomic Theory of the Open Economy
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3 Verified Questions
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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) When the U.S.real exchange rate appreciates,U.S.goods become
A)more attractive to consumers in the U.S.and abroad.
B)more attractive to consumers in the U.S.and less attractive to consumers abroad.
C)less attractive to consumers in the U.S.and abroad.
D)less attractive to consumers in the U.S.and more attractive to consumers abroad.
Q2) Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?
A)the exchange rate falls so foreign residents want to buy more U.S.goods and services
B)the exchange rate falls so foreign residents want to buy fewer U.S.goods and services
C)the exchange rate rises so foreign residents want to buy more U.S.goods and services
D)the exchange rate rises so foreign residents want to buy fewer U.S.goods and services
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128
Chapter 19: A Macroeconomic Theory of the Open
Economy: Equilibrium in the Open Economy
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45 Verified Questions
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Source URL: https://quizplus.com/quiz/79716
Sample Questions
Q1) If foreigners want to buy more U.S.bonds,then in the market for foreign-currency exchange the exchange rate
A)and the quantity of dollars traded rises.
B)rises and the quantity of dollars traded falls.
C)falls and the quantity of dollars traded rises.
D)and the quantity of dollars traded falls.
Q2) If the exchange rate falls,U.S.residents pay
A)more dollars for foreign bonds and get more dollars from interest payments.
B)more dollars for foreign bonds but get fewer dollars from interest payments.
C)fewer dollars for foreign bonds and also get fewer dollars from interest payments.
D)fewer dollars for foreign bonds but get more dollars from interest payments.
Q3) When the U.S.real interest rate falls,purchasing U.S.assets becomes
A)less attractive and so U.S.net capital outflow rises.
B)less attractive and so U.S.net capital outflow falls.
C)more attractive and so U.S.net capital outflow rises.
D)more attractive and so U.S.net capital outflow falls.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: How Policies and Events Affect an Open Economy
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172 Verified Questions
172 Flashcards
Source URL: https://quizplus.com/quiz/79715
Sample Questions
Q1) When a country imposes an import quota,its
A)net exports rise and its real exchange rate appreciates.
B)net exports rise and its real exchange rate depreciates.
C)net exports fall and its real exchange rate depreciates
D)None of the above is correct.
Q2) When a country's government budget deficit decreases,
A)the real exchange rate of its currency and its net exports increase.
B)the real exchange rate of its currency and its net exports decrease.
C)the real exchange rate of its currency increases and its net exports decrease.
D)the real exchange rate of its currency decreases and its net exports increase.
Q3) A tax on imported goods is called a(n)
A)excise tax.
B)tariff.
C)import quota.
D)None of the above is correct.
Q4) If a government has a budget surplus,then public saving
A)is positive and increases national saving.
B)is positive but decreases national saving.
C)is negative and decreases national saving.
D)is negative but increases national saving. 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) An economy recently had 800 billion euros of saving and 600 billion euros of net capital outflow.What was its investment? What was its quantity of loanable funds supplied?
Q2) Other things the same,which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?
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) Suppose the U.S.government institutes a "Buy American" campaign,in order to encourage spending on domestic goods.What effect will this have on the U.S.trade balance?
Q6) Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S.citizens from investing in foreign companies and increase the value of the dollar.Evaluate this candidate's promise.
Q7) If a country removes an import quota,what happens to its exchange rate,its exports,and its net exports?
Page 132
Q8) What do trade policies do to the standard of living?
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part B
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56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/79629
Sample Questions
Q1) A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.
A)True B)False
Q2) When the government budget deficit increases,national saving decreases. A)True
B)False
Q3) According to the open-economy macroeconomic model,a decrease in the U.S.government budget deficit increases U.S.net capital outflow,causes the real exchange rate of the dollar to depreciate,and increases U.S.net exports.
A)True B)False
Q4) According to the open-economy macroeconomic model,if the U.S.government budget deficit increases,then both U.S.domestic investment and U.S.net capital outflow decrease.
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) During recessions
A)workers are laid off.
B)factories are idle.
C)firms may find they are unable to sell all they produce.
D)All of the above are correct.
Q2) 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) Which of the following explains why production rises in most years?
A)increases in the labor force
B)increases in the capital stock
C)advances in technological knowledge
D)All of the above are correct.
Q4) In October 2009,the official unemployment rate rose to A)10%.
B)8%.
C)6%
D)4%.
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Three Key Facts About Economic Fluctuations
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Sample Questions
Q1) During recessions investment
A)falls by a larger percentage than GDP.
B)falls by about the same percentage as GDP.
C)falls by a smaller percentage than GDP.
D)falls but the percentage change is sometimes much larger and sometimes much smaller.
Q2) In 2008,the United States was in recession.Which of the following things would you not expect to have happened?
A)increased layoffs and firings.
B)a higher rate of bankruptcy.
C)increased claims for unemployment insurance.
D)increased real GDP.
Q3) Which of the following typically rises during a recession?
A)investment.
B)unemployment.
C)tax revenues.
D)new home construction.
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Page 135
Explaining Short-Run Economic Fluctuations
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Sample Questions
Q1) The aggregate demand is described graphically as A)sloping downward.
B)a vertical line.
C)a horizontal line.
D)sloping upward.
Q2) According to classical macroeconomic theory,changes in the money supply affect
A)unemployment and the price level.
B)unemployment but not the price level.
C)the price level,but not unemployment.
D)neither the price level nor unemployment.
Q3) According to classical macroeconomic theory,changes in the money supply affect
A)real GDP and the price level.
B)real GDP but not the price level.
C)the price level,but not real GDP.
D)neither the price level nor real GDP.
Q4) The division of variables into real and nominal is a dichotomy assumed by A)classical economists.
B)John Maynard Keynes.
C)the wealth effect.
D)short-run macroeconomic theory.
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Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Demand Curve
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141 Verified Questions
141 Flashcards
Source URL: https://quizplus.com/quiz/79711
Sample Questions
Q1) If the dollar appreciates,perhaps because of speculation or government policy,then U.S.net exports
A)increase which shifts aggregate demand right.
B)increase which shifts aggregate demand left.
C)decrease which shifts aggregate demand right.
D)decrease which shifts aggregate demand left.
Q2) When the price level falls
A)people want to hold more money.
B)the interest rate rises.
C)investment spending rises.
D)All of the above are correct.
Q3) When the price level falls,people want to
A)hold more money and the quantity of aggregate goods and services demanded increases.
B)hold more money and the quantity of aggregate goods and services demanded decreases.
C)hold less money and the quantity of aggregate goods and services demanded increases.
D)hold less money and the quantity of aggregate goods and services demanded decreases.
Page 137
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The Aggregate-Supply Curve
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Sample Questions
Q1) Which of the following shifts short-run aggregate supply right?
A)an increase in the price level
B)an increase in the minimum wage
C)a decrease in the price of oil
D)more people migrate abroad than immigrate from abroad
Q2) Other things the same,continued increases in the money supply lead to
A)continued increases in the price level and real GDP.
B)continued increases in the price level but not continued increases in real GDP.
C)continued increases in real GDP but not continued increases in the price level.
D)a one-time permanent increase in both prices and real GDP.
Q3) Other things the same,if technology increases,then in the long run
A)both output and prices are higher.
B)output is higher and prices are lower.
C)output is lower and prices are higher.
D)both output and prices are lower.
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138
Chapter 20: Aggregate Demand and Aggregate Supply:
Two Causes of Economic Fluctuations
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Sample Questions
Q1) Economic expansions in Europe and China would cause
A)the U.S.price level and real GDP to rise.
B)the U.S.price level and real GDP to fall.
C)the U.S.price level to rise and real GDP to fall.
D)the U.S.price level to fall and real GDP to rise.
Q2) Refer to Figure 33-8.Suppose the economy starts at Z.If changes occur that move the economy to a new short run equilibrium of P<sub>1</sub> and Y<sub>1</sub> ,then it must be the case that
A)short run aggregate supply has decreased.
B)short run aggregate supply has increased.
C)aggregate demand has increased.
D)aggregate demand has decreased.
Q3) Refer to Figure 33-6.Which of the long-run aggregate-supply curves is consistent with a short-run economic expansion?
A)LRAS<sub>1</sub>
B)LRAS<sub>2</sub>
C)LRAS<sub>3</sub>
D)Both LRAS<sub>1</sub> and LRAS<sub>3</sub>
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part A
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Sample Questions
Q1) Suppose people anticipate an increase in the expected price level.Which curve(s)in the aggregate demand and aggregate supply model would be affected,and which way would it (they)shift?
Q2) Suppose the government raises taxes.Which curves in the aggregate demand and aggregate supply model would be affected,and which way would they shift?
Q3) Explain how a change in the expected price level would shift the short-run and long-run aggregate-supply curves.
Q4) Make a list of things that would shift the long-run aggregate supply curve to the right.
Q5) Make a list of expenditures whose sum equals GDP.
Q6) Suppose a recession overseas reduces a country's exports.Which curve(s)in the aggregate demand and aggregate supply model would be affected,and which way would it (they)shift?
Q7) Compare changes in the price level for a recession resulting from a shift in aggregate demand to that of a recession resulting from a shift in short run aggregate supply.
Q8) A recession with inflation is know by what term?
Q9) Explain how a recession differs from a depression. Page 140
Q10) Changes in what four variables will shift the long run aggregate supply curve?
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part B
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Q1) The effect of a change in the value of the dollar in the foreign exchange market due to a change in the price level helps explain the slope of aggregate demand,but does not shift it.The effects of a change in the value of the dollar in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve.
A)True
B)False
Q2) The downward slope of the aggregate demand curve is based on logic that as the price level rises,consumption,investment,and net exports all fall.
A)True
B)False
Q3) Other things the same,as the price level falls,the exchange rate rises.A rise in the exchange rate leads to a decrease in net exports.
A)True
B)False
Q4) In the long-run,an increase in aggregate demand increases the price level,but not real GDP.
A)True
B)False
142
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Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand
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Q1) A goal of monetary policy and fiscal policy is to
A)offset the shifts in aggregate demand and thereby eliminate unemployment.
B)offset shifts in aggregate demand and thereby stabilize the economy.
C)enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.
D)enhance the shifts in aggregate demand and thereby increase economic growth
Q2) Shifts in aggregate demand affect the price level in
A)the short run but not in the long run.
B)the long run but not in the short run.
C)both the short and long run.
D)neither the short nor long run.
Q3) 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.
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143
Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Monetary Policy Influences
Aggregate Demand
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Q1) In recent years,the Federal Reserve has conducted policy by setting a target for A)bank reserves.
B)the monetary growth rate.
C)the exchange rate.
D)the federal funds rate.
Q2) When the Federal Reserve increases the Federal Funds target rate,it achieves this target by
A)purchasing government bonds.This action will reduce investment and shift aggregate demand to the right.
B)purchasing government bonds.This action will increase investment and shift aggregate demand to the right.
C)selling government bonds.This action will reduce investment and shift aggregate demand to the left.
D)selling government bonds.This action will increase investment and shift aggregate demand to the left.
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Page 144
Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Fiscal Policy Influences
Aggregate Demand
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Q1) Initially,the economy is in long-run equilibrium.Aggregate demand then shifts leftward by $50 billion.The government wants to increase its spending in order to avoid a recession.If the crowding-out effect is always one-third as strong as the multiplier effect,and if the MPC equals 0.6,then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?
A)by $90 billion
B)by $60 billion
C)by $20 billion
D)by $30 billion
Q2) The multiplier effect is exemplified by the multiplied impact on
A)the money supply of a given increase in government purchases.
B)tax revenues of a given increase in government purchases.
C)investment of a given increase in interest rates.
D)aggregate demand of a given increase in government purchases.
Q3) A tax cut shifts the aggregate demand curve the farthest if
A)the MPC is large and if the tax cut is permanent.
B)the MPC is large and if the tax cut is temporary.
C)the MPC is small and if the tax cut is permanent.
D)the MPC is small and if the tax cut is temporary.
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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) Suppose an increase in interest rates causes rising unemployment and falling output.To counter this,the Federal Reserve would
A)increase government spending.
B)increase the money supply.
C)decrease government spending.
D)decrease the money supply.
Q2) Macroeconomic forecasts are
A)precise;this makes policy lags less relevant.
B)precise;this makes policy lags more relevant.
C)imprecise;this makes policy lags less relevant.
D)imprecise;this makes policy lags more relevant.
Q3) What actions could be taken to stabilize output in response to a large decrease in U.S.net exports?
A)increase taxes or increase the money supply
B)increase taxes or decrease the money supply
C)decrease taxes or increase the money supply
D)decrease taxes or decrease the money supply
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Page 146
Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part A
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Q1) Open-market purchases cause a(n)----- in interest rates and a(n)----- in real GDP in the short run.
Q2) An open-market purchase by the Federal Reserve creates an excess ----- of money.This causes interest rates to ----- and investment to -----.The change in investment causes aggregate demand to shift to the -----.
Q3) The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as -----.
Q4) Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market.The Federal Reserve will ----- the money supply and aggregate demand will -----.
Q5) Suppose a wave of optimism causes firms to increase investment.To stabilize output and employment,the Federal Reserve will -----.
Q6) Refer to Figure 34-10.Suppose the multiplier is 2 and there is no crowding-out,but there is an accelerator effect.If the economy is currently at point A,then an increase in government purchases of $10 will likely increase aggregate demand to point ----where output is $-----.
Q7) An increase in taxes shifts the aggregate ----- curve to the -----.
Q8) A decrease in taxes ---- aggregate demand through larger ----- by households. To view all questions and flashcards with answers, click on the resource link above. Page 147
Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part B
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Questions
Q1) If the marginal propensity to consume is 4/5,then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.
A)True
B)False
Q2) According to the IGM poll,most economists think that the benefits of ARRA exceeded the costs.
A)True
B)False
Q3) When the Fed announces a target for the federal funds rate,it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.
A)True
B)False
Q4) If the marginal propensity to consume is 6/7,then the multiplier is 7.
A)True
B)False
Q5) Stock prices often rise when the Fed raises interest rates.
A)True
B)False
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment
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Q1) The misery index is calculated as the
A)inflation rate plus the unemployment rate.
B)unemployment rate minus the inflation rate.
C)actual inflation rate minus the expected inflation rate.
D)natural unemployment rate times the inflation rate
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) In the long run,
A)the natural rate of unemployment depends primarily on the level of aggregate demand.
B)inflation depends primarily upon the money supply growth rate.
C)there is a tradeoff between the inflation rate and the natural rate of unemployment.
D)All of the above are correct.
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Page 149
Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Phillips Curve
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Q1) Refer to Figure 35-3.What is measured along the vertical axis of the left-hand graph?
A)the wage rate
B)the inflation rate
C)the price level
D)the change in output from one year to the next
Q2) Refer to Figure 35-2.If the economy starts at C and 1,then in the short run,an increase in the money supply growth rate moves the economy to
A)A and 1
B)B and 2
C)C and 3
D)None of the above is correct.
Q3) If consumer confidence falls,then aggregate demand shifts
A)right,raising the inflation rate above its previous level.
B)right,lowering the inflation rate below its previous level.
C)left,raising the inflation rate above its previous level.
D)left,lowering the inflation rate below its previous level.
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Chapter 22: The Short Run Trade Off Between Inflation and
Shifts in the Phillips Curve the Role of Expectations
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Q1) In the late 1960's,Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment
A)existed in the long run and the short run.
B)existed in the long run but not the short run.
C)existed in the short run but not the long run.
D)did not exist.
Q2) In the late 1960s,Milton Friedman and Edmund Phelps argued that
A)the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with monetary neutrality in the long run.
B)the trade-off between inflation and unemployment did not apply in the long run.This claim is inconsistent with monetary neutrality in the long run.
C)the trade-off between inflation and unemployment applied in both the short run and the long run.This claim is consistent with monetary neutrality in the long run.
D)the trade-off between inflation and unemployment applied in both the short run and the long run.This claim is inconsistent with monetary neutrality in the long run.
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Page 151
Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Shifts in the Phillips Curve the Role of Supply Shocks
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Q1) In 1980,the U.S.economy had an inflation rate of
A)about 1 percent and an unemployment rate of about 7 percent.
B)less than 4 percent and an unemployment rate of less than 6 percent.
C)less than 7 percent and an unemployment rate of about 9 percent.
D)more than 9 percent and an unemployment rate of about 7 percent.
Q2) If there is a temporary adverse supply shock,then the short-run Phillips curve shifts to the
A)right.It remains to the right regardless of monetary policy.
B)right.It remains to the right if the central bank pursues expansionary monetary policy.
C)left.It remains to the left regardless of monetary policy.
D)left.It remains to the left if the central bank pursues expansionary monetary policy.
Q3) Refer to Figure 35-9.What is measured along the horizontal axis of the right-hand graph?
A)time
B)the unemployment rate
C)real GDP
D)the growth rate of real GDP
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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) A country is likely to have a higher sacrifice ratio if
A)contracts are shorter,and people believe the central bank will reduce inflation.
B)contracts are longer,and people believe the central bank will not reduce inflation
C)contracts are longer,and people believe the central bank will reduce inflation.
D)contracts are shorter,and people believe the central bank will not reduce inflation.
Q2) Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output.This country's sacrifice ratio is
A)0.4.
B)1.5.
C)2.5.
D)5.0.
Q3) Refer to the Economy in 2008.In the short-run the housing and financial crises
A)raised both the price level and output.
B)raised the price level and reduced output.
C)reduced the price level and raised output.
D)reduced both the price level and output.
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Page 153
Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part A
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Q1) For a given short-run Phillips curve,if expected inflation is 10% but actual inflation is 8%,is the unemployment rate above or below its natural rate?
Q2) Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 4%.
Q3) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Q4) A central bank pledges to reduce the inflation rate from 20% to 5%. People reduce their inflation expectations to 10%, but the central bank only reduces inflation to 15%. What happens to the unemployment rate?
Q5) What is meant by the natural rate of unemployment?
Q6) If there were a favorable supply shock and the central bank wanted to offset the change in the unemployment rate, what would it do?
Q7) If there is a favorable supply shock which direction does the short-run Phillips curve shift? What initially happens to unemployment and inflation as a result of this shock?
Q8) According to the Phillips curve,which fiscal policies can be used to reduce unemployment in the short run?
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part B
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Q1) If the Fed reduces inflation by 2 percentage points and this results in a 6 percentage-point increase in unemployment,then the sacrifice ratio is equal to 3.
A)True
B)False
Q2) If monetary policy moves unemployment below its natural rate,both expected and actual inflation will rise.
A)True
B)False
Q3) The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.
A)True
B)False
Q4) In the long run,the inflation rate depends primarily on the growth rate of the money supply.
A)True
B)False
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Page 155
Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary and Fiscal Policymakers Try to Stabilize the Economy
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Q1) If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output,they could
A)increase government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will raise output above its long-run level.
B)increase government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will reduce output to below its long-run level.
C)decrease government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will raise output above its long-run level.
D)decrease government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will reduce output to below its long-run level.
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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) According to traditional Keynesian analysis,if the economy is in a recession,the government can move it back towards full employment by
A)cutting taxes and increasing expenditures.The effect of the tax cut is larger.
B)cutting taxes and increasing expenditures.The effect of the tax cut is smaller.
C)raising taxes and decreasing expenditures.The effect of the tax increase is larger.
D)raising taxes and decreasing expenditures.The effect of the tax increase is smaller.
Q2) 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
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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) If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the
A)left,and the sacrifice ratio will be low.
B)left,and the sacrifice ratio will be high.
C)right,and the sacrifice ratio will be low.
D)right,and the sacrifice ratio will be high.
Q2) Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate demand shifts right,the central bank must
A)decrease the money supply,which will move output back towards its long-run level.
B)decrease the money supply,which will move output farther from its long-run level.
C)increase the money supply,which will move output back towards its long-run level.
D)increase the money supply,which will move output farther from its long-run level.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Central Bank Aim for Zero Inflation
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Q1) If a central bank were required to target inflation at zero,then when there was an unanticipated decrease in aggregate demand the central bank
A)would have to increase the money supply.This would move unemployment closer to the natural rate.
B)would have to increase the money supply.This would move unemployment further from the natural rate.
C)would have to decrease the money supply.This would move unemployment closer to the natural rate.
D)would have to decrease the money supply.This would move unemployment further from the natural rate.
Q2) Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?
A)Avoid unexpected changes in the inflation rate.
B)Rewrite the tax laws so that nominal gains were taxed instead of real gains.
C)Make policy that would discourage firms from issuing indexed bonds.
D)All of the above are correct.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Balance Its Budget
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Q1) Which of the following is not correct?
A)Government debt can continue to rise forever.
B)If the government uses funds to pay for investment programs,on net the debt need not burden future generations.
C)Social Security does not transfer wealth from younger generations to older generations.
D)The average U.S.citizens' share of the government debt represents less than 2 percent of her lifetime income.
Q2) In fiscal year 2011,the U.S.government ran a deficit of about $1,300 billion.In fiscal year 2012,the government ran a deficit of about $1,087 billion.Other things the same,this change would be expected to have
A)decreased interest rates and investment.
B)decreased interest rates and increased investment.
C)increased interest rates and investment.
D)increased interest rates and decreased investment.
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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) Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?
A)The cost of something is what you give up to get it (Principle 2).
B)Trade can make everyone better off (Principle 5).
C)Markets are usually a good way to organize economic activity (Principle 6).
D)A country's standard of living depends on its ability to produce goods and services (Principle 8).
Q2) Which of the following raise the incentive for households to save?
A)means-testing of government benefits and inheritance taxes
B)means-testing of government benefits but not inheritance taxes
C)inheritance taxes,but not means-testing of government benefits
D)neither means-testing of government benefits nor inheritance taxes
Q3) Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving
A)increases the interest rate and decreases spending on capital goods.
B)increases the interest rate and increases spending on capital goods.
C)decreases the interest rate and increases spending on capital goods.
D)decreases the interest rate and decreases spending on capital goods.
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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) If businesses become more pessimistic about the future,what fiscal policies could the government take to stabilize the economy?
Q2) Suppose a 25-year-old worker purchases a $5,000 bond that pays 6% interest per year which she plans to withdraw when she retires in 40 years.How much will the $5,000 accumulate to in 40 years? If the worker faces a marginal tax rate of 30% on interest income,how much will the $5,000 accumulate to in 40 years?
Q3) What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?
Q4) Why might the response of far-sighted consumers reduce the multiplier effect of an increase in government expenditures?
Q5) During recessions,even with no changes in policy,the deficit tends to ------ because -------------.
Q6) In addition to the tax code,other policies reduce the incentives for people to save Provide an example.
Q7) Suppose that the government goes into deficit in order to help local school districts build better schools.Does this burden future generations?
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Q8) Why do many economists advocate a consumption tax rather than an income tax?
Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Q1) In effect,a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).
A)True
B)False
Q2) The average U.S.citizens' share of the government debt represents less than 2 percent of a person's lifetime income.
A)True
B)False
Q3) A reduction in the marginal tax-rate includes an income effect that tends to increase savings.
A)True
B)False
Q4) In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.
A)True
B)False
Q5) A recession has no benefit to society-it represents a sheer waste of resources.
A)True
B)False
Page 164
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Q1) When a state levies a sales tax,the tax
A)is paid only by the state's residents.
B)occasionally excludes items that are deemed to be necessities.
C)is commonly levied on labor services.
D)applies to wholesale purchases but not retail purchases.
Q2) The three largest categories of spending by the Federal government in order from first to third would be
A)income security,net interest,and national defense
B)national defense,net interest,and income security
C)income security,health,and national defense
D)health,income security,and national defense
Q3) In 1950 there were approximately 7 working age people for every elderly person;however,in 2050 there will be
A)only 2.5 working people for every elderly person.
B)only 5 working age people for every elderly person.
C)10 working age people for every elderly person.
D)14 working age people for every elderly person.
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