Introduction to Economics Final
Exam
Course Introduction
Introduction to Economics provides a foundational understanding of how individuals, businesses, and governments make choices regarding the allocation of scarce resources. The course explores essential economic concepts such as supply and demand, market structures, consumer behavior, production costs, and the roles of markets and government in the economy. Students will gain insight into both microeconomic and macroeconomic perspectives, learn to analyze real-world economic issues, and develop a framework for informed economic decision-making in personal and professional contexts.
Recommended Textbook
Principles of Economics 4th Edition by N.
Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Q1) Trade allows each person to specialize in the activities he or she does best,thus increasing each individual's productivity.
A)True
B)False
Answer: True
Q2) What you give up to obtain an item is called your
A)opportunity cost.
B)explicit cost.
C)true cost.
D)direct cost.
Answer: A
Q3) Which of the following products would be considered scarce?
A)golf clubs
B)Picasso paintings
C)apples
D)All of the above are correct.
Answer: D
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Page 3
Chapter 2: Thinking Like an Economist
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Q1) Refer to Figure 2-1.Juan buys a new pair of shoes at a shoe store.To which of the arrows does this purchase directly contribute?
A)A only
B)A and B
C)C only
D)C and D
Answer: B
Q2) A certain production possibilities frontier shows production possibilities for two goods: wheat and shirts.Which of the following concepts can not be illustrated in this model?
A)the flow of dollars between (i) sellers of wheat and shirts and (ii) buyers of wheat and shirts
B)the tradeoff between production of wheat and production of shirts
C)the opportunity cost of shirts in terms of wheat
D)the effect of economic growth on production possibilities involving wheat and shirts
Answer: A
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4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-3.The opportunity cost of 1 birdhouse for Missouri is A)1/2 basket.
B)1 basket.
C)1 1/2 baskets.
D)2 baskets.
Answer: A
Q2) Refer to Figure 3-3.Ginger has a comparative advantage in A)tap shoes and Fred has a comparative advantage in ballet slippers.
B)both goods and Fred has a comparative advantage in neither good.
C)ballet slippers and Fred has a comparative advantage in tap shoes.
D)neither good and Fred has a comparative advantage in both goods.
Answer: C
Q3) Refer to Table 3-6.If England and Spain specialize and trade based on the principle of comparative advantage,England will export which product to Spain?
A)cheese
B)bread
C)both cheese and bread
D)England cannot benefit from trade with Spain.
Answer: B
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Which of the following quantities would increase in response to a decrease in the price of ironing boards?
A)the quantity of irons demanded at each possible price of irons
B)the equilibrium quantity of irons
C)the equilibrium price of irons
D)All of the above are correct.
Q2) The side of the market that deals with the willingness and ability to produce and sell is
A)demand.
B)competition.
C)supply.
D)monopoly.
Q3) A supply curve slopes upward because
A)as more is produced, total cost of production falls.
B)an increase in input prices increases supply.
C)the quantity supplied of most goods and services increases over time.
D)an increase in price gives producers an incentive to supply a larger quantity.
Q4) Local cable TV companies frequently are monopolists.
A)True
B)False
6
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Chapter 5: Elasticity and Its Applications
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Q1) Refer to Figure 5-1.Assume the section of the demand curve labeled A corresponds to prices between $6 and $12.Then,when the price increases from $8 to $10,
A)the percent decrease in the quantity demanded exceeds the percent increase in the price.
B)the percent increase in the price exceeds the percent decrease in the quantity demanded.
C)sellers' total revenue increases as a result.
D)it is possible that the quantity demanded fell from 550 to 500 as a result.
Q2) Refer to Figure 5-8.At a price of $48 per unit,sellers' total revenue amounts to
A)$150.
B)$200.
C)$288.
D)$364.
Q3) The price elasticity of supply measures how responsive
A)sellers are to a change in price.
B)sellers are to a change in buyers' income.
C)buyers are to a change in production costs.
D)equilibrium price is to a change in supply.
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) To say that a price ceiling is binding is to say that the price ceiling
A)results in a scarcity.
B)is set above the equilibrium price.
C)results in excess demand.
D)All of the above are correct.
Q2) A tax on sellers shifts the supply curve upward by exactly the amount of the tax.
A)True
B)False
Q3) Economists generally believe that rent control is
A)an efficient and equitable way to help the poor.
B)not efficient, but the best available means of solving a serious social problem.
C)a highly inefficient way to help the poor raise their standard of living.
D)an efficient way to allocate housing, but not a good way to help the poor.
Q4) Opponents of the minimum wage point out that the minimum wage
A)encourages teenagers to drop out of school.
B)prevents some workers from getting needed on-the-job training.
C)contributes to the problem of unemployment.
D)All of the above are correct.
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Page 8
Chapter 7: Consumers, producers, and the Efficiency of Markets
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Q1) Refer to Table 7-3.Who experiences the largest gain in consumer surplus when the price of an orange decreases from $1.05 to $0.75?
A)Alex
B)Barb
C)Carlos
D)Alex and Barb experience the same gain in consumer surplus, and Carlos's gain is zero.
Q2) The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
A)maximizes costs of the seller.
B)maximizes tax revenue for the government.
C)maximizes the combined welfare of buyers and sellers.
D)minimizes the expenditure of buyers.
Q3) The area below the price and above the supply curve measures the producer surplus in a market.
A)True
B)False
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Page 9
Chapter 8: Application: the Costs of Taxation
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Q1) When a tax on a good is enacted,
A)buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.
B)buyers always bear the full burden of the tax.
C)sellers always bear the full burden of the tax.
D)sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them.
Q2) If the labor supply curve is nearly vertical,a tax on labor
A)has a large deadweight loss.
B)raises a small amount of tax revenue.
C)has little impact on the amount of work that workers are willing to do.
D)results in a large tax burden on the firms that hire labor.
Q3) The result of the large tax cuts in the first Reagan Administration demonstrated very convincingly that Arthur Laffer was correct when he asserted that cuts in tax rates would increase tax revenue.
A)True
B)False
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Chapter 9: Application: International Trade
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Q1) Refer to Figure 9-13.When the country for which the figure is drawn allows international trade in computers,
A)consumer surplus changes from the area A + B + D to the area a.
B)producer surplus changes from the area C to the area B + C + D.
C)total surplus decreases by the area D.
D)All of the above are correct.
Q2) Refer to Figure 9-7.The price corresponding to the horizontal dotted line on the graph represents the price of cars
A)after trade is allowed.
B)before trade is allowed.
C)that maximizes total surplus when trade is allowed.
D)that minimizes the well-being of domestic car producers when trade is allowed.
Q3) A tariff on a product
A)enhances the economic well-being of the domestic economy.
B)increases the domestic quantity supplied.
C)increases the domestic quantity demanded.
D)results in an increase in producer surplus that is greater than the resulting decrease in consumer surplus.
Q4) How does an import quota differ from an equivalent tariff?
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Chapter 10: Externalities
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Q1) Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced?
A)They are equal.
B)The equilibrium quantity is greater than the socially optimal quantity.
C)The equilibrium quantity is less than the socially optimal quantity.
D)There is not enough information to answer the question.
Q2) Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?
A)The equilibrium quantity is greater than the socially optimal quantity.
B)The equilibrium quantity is less than the socially optimal quantity.
C)They are equal.
D)There is not enough information to answer the question.
Q3) Refer to Figure 10-7.Which graph illustrates a corrective tax?
A)the left graph
B)the right graph
C)both graphs
D)neither graph
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Chapter 11: Public Goods and Common Resources
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Q1) Which of the following is not an advantage to congestion charges for motorists who wish to drive on busy streets?
A)reduced carbon monoxide pollution
B)increased use of public transportation
C)improved taxi service
D)increased government revenues
Q2) Which of the following is not a reason that the findings of cost-benefit analyses on public goods are only rough approximations?
A)Without prices, it is difficult to be sure how much people really value a good.
B)Analysts can't be sure that the respondents to surveys are telling the truth.
C)Analysis must include not only the cost of building the project but also the cost of maintenance, if any.
D)People value goods differently if they are publicly provided rather than privately provided.
Q3) When one person enjoys the benefit of national defense,she reduces the benefit to others.
A)True
B)False
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13
Chapter 12: The Design of the Tax System
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Q1) In order to construct a more complete picture of the economic burden of government across income classes,economists usually
A)include both tax payments as well as transfer payments received.
B)focus only on the tax payments of wealthy tax payers.
C)limit their analysis to taxes based on the ability-to-pay principle.
D)focus their analysis on issues of tax efficiency.
Q2) A tax system based on the ability-to-pay principle claims that all citizens should A)pay taxes based on the benefits they receive from government services.
B)pay the same amount in taxes.
C)pay taxes based on consumption rather than income.
D)make an equal sacrifice.
Q3) Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000.What is the average tax rate when income is $50,000?
A)20 percent
B)15 percent
C)12 percent
D)10 percent
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Refer to Table 13-3.Each worker at Gallo's cork factory costs $12 per hour.The cost of each machine is $20 per day regardless of the number of corks produced.If Gallo's produces at a rate of 35 corks per hour,what is the total labor cost per hour?
A)$40
B)$48
C)$384
D)$424
Q2) Refer to Table 13-2.At which number of workers does diminishing marginal product begin?
A)2
B)3
C)4
D)5
Q3) Refer to Figure 13-9.The firm experiences diseconomies of scale if it changes its level of output
A)from Q to Q .
B)from Q to Q .
C)from Q to Q .
D)from Q to Q .
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Page 15
Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) In calculating accounting profit,accountants typically don't include A)long-run costs.
B)sunk costs.
C)explicit costs of production.
D)opportunity costs that do not involve an outflow of money.
Q2) In the long-run equilibrium of a market with free entry and exit,marginal firms are operating
A)at the point where average variable cost equals marginal cost.
B)at the minimum point on their marginal cost curves.
C)at their efficient scale.
D)where accounting profit is zero.
Q3) When firms are neither entering nor exiting a perfectly competitive market,
A)total revenue must equal total variable cost for each firm.
B)economic profits must be zero.
C)price must equal average variable cost for each firm.
D)Both a and c are correct.
Q4) Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price,what effect would this have on the market?
Q5) List and describe the characteristics of a perfectly competitive market.
Page 16
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Chapter 15: Monopoly
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Sample Questions
Q1) The amount of power that a monopoly has depends on whether there are close substitutes for its product.
A)True
B)False
Q2) The collection of statutes aimed at curbing monopoly power is called
A)the 14th amendment.
B)the Clayton Act.
C)the Sherman Act.
D)antitrust law.
Q3) Refer to Figure 15-3.A profit-maximizing monopoly's total cost is equal to
A)(P - P ) × Q .
B)P × Q .
C)P × Q .
D)P × Q .
Q4) Refer to Figure 15-3.At the profit-maximizing level of output,
A)marginal revenue is equal to P .
B)marginal cost is equal to P .
C)average revenue is equal to P .
D)average total cost is equal to P .
Q5) Explain the benefits and costs of antitrust laws.
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Chapter 16: Oligopoly
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Q1) Refer to Table 16-8.If both firms follow a dominant strategy,Firm A's profits (losses)will be
A)$-50
B)$-20
C)$-10
D)$-5
Q2) An equilibrium occurs in a game when
A)price equals marginal cost.
B)quantity supplied equals quantity demanded.
C)all independent strategies counterbalance all dominant strategies.
D)all players follow a strategy that they have no incentive to change.
Q3) Suppose that Makemoney Movies produces two new films - The Hulk and The Piano.Makemoney offers theaters the two films together at a single price but will not supply the movies separately.What do economists call this business practice?
A)Predatory pricing
B)Resale price maintenance
C)Tying
D)Leverage
Q4) Explain the practice of tying and discuss why it is controversial.
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Chapter 17: Monopolistic Competition
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Q1) As firms exit a monopolistically competitive market,profits of remaining firms
A)decline and product diversity in the market decreases.
B)decline and product diversity in the market increases.
C)rise and product diversity in the market decreases.
D)rise and product diversity in the market increases.
Q2) Monopolistic competition is the only market structure that features "many sellers."
A)True
B)False
Q3) Consider a monopolistically competitive firm in a market in long-run equilibrium.This firm is likely
A)earning a positive economic profit since it is charging a price above marginal cost.
B)earning no economic profit since it is charging a price equal to its marginal cost.
C)earning a positive economic profit since it is charging a price above its average total cost.
D)earning no economic profit since it is charging a price equal to it average total cost.
Q4) List five goods that are likely sold in a monopolistically competitive market.
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Page 19
Chapter 18: The Markets for the Factors of Production
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Q1) In the United States,technological advances help explain persistently rising employment in the face of rising wages.
A)True
B)False
Q2) Which of the following events would bring about a change in the value of the marginal product of labor?
A)technological progress
B)a change in the marginal product of labor
C)a change in the price of the product that the firm sells
D)All of the above are correct.
Q3) Refer to Scenario 18-4.We would expect that,as a result of the contamination,the value of the marginal product for Rocchetta Industries' workers would
A)be offset by a decrease in wages.
B)be unaffected by a rise in demand for bottled water.
C)rise.
D)fall.
Q4) Labor-saving technological advances decrease the marginal productivity of labor.
A)True
B)False
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Chapter 19: Earnings and Discrimination
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Q1) Which of the following can be used to help explain wage differences among different groups of workers?
A)human capital acquired through education
B)human capital acquired through job experience
C)compensating differentials
D)All of the above can explain wage differences.
Q2) The organized withdrawal of labor from a firm by a union is called A)a strike.
B)a bargain.
C)a monopoly.
D)a tournament.
Q3) Taxi cab drivers in large cities are likely to earn more than taxi cab drivers in rural areas.One reason for this wage differential could be that
A)driving in large cities is more dangerous than driving in rural areas.
B)driving in large cities is more fun than driving in rural areas.
C)driving in large cities is easier than driving in rural areas.
D)it is unlikely that a taxi cab driver in a large city will be involved in a traffic accident with farm animals.
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Chapter 20: Income Inequality and Poverty
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Q1) Refer to Table 20-1.Seventy-five percent of all families have incomes below what level?
A)$28,000
B)$50,000
C)$85,000
D)There is insufficient information to answer this question.
Q2) Explain what is meant by "in-kind transfer" programs.Briefly outline the advantages and disadvantages of an in-kind transfer program.
Q3) The philosopher John Rawls argued that
A)people would choose income equality if they had to determine an economic distribution system before knowing their place in it.
B)people would choose income inequality to allow the maximum use of their individual talents.
C)government has a role to ensure income equality to prevent social unrest.
D)people would choose income equality because it is morally right.
Q4) The elderly represent the largest demographic group in poverty.
A)True
B)False
Q5) Explain the relationship between labor earnings and the distribution of income.
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Chapter 21: The Theory of Consumer Choice
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Q1) Giffen goods are inferior goods for which the income effect dominates the substitution effect.
A)True
B)False
Q2) An individual's demand curve for a good is derived by
A)varying the income level and observing the resulting total utility derived from both goods.
B)varying the price of one good and observing the resulting quantities of the other good.
C)shifting the budget line to the left and calculating the loss in total utility.
D)varying the price of one good and observing the resulting quantities demanded of that good.
Q3) Utility measures
A)the income a consumer receives from consuming a bundle of goods.
B)the satisfaction a consumer receives from consuming a bundle of goods.
C)the satisfaction a consumer places on their budget constraint.
D)All of the above are correct.
Q4) Explain the relationship between the budget constraint and indifference curve at consumer optimum.
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Chapter 22: Frontiers of Microeconomics
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Q1) Suppose that you major in physics because potential employers perceive that it is harder than other majors.Assuming education has no real value,your majoring in physics provides potential employers with A)a signal.
B)a screen.
C)a potential moral hazard.
D)a potential adverse selection.
Q2) Which of the following is a plausible explanation for a firm paying above-equilibrium wages to its workers?
A)It increases the probability that a worker who shirks will be caught.
B)It discourages workers from shirking out of fear of losing their high-paying job.
C)The Condorcet Paradox suggests that paying high wages will result in greater effort by employees.
D)By paying a high wage, employers solve this adverse selection problem and motivate the employees to work harder.
Q3) The classic example of adverse selection is the market for used cars.
A)True
B)False
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Chapter 23: Measuring a Nations Income
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Q1) Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?
A)Why do prices in general rise by more in some countries than in others?
B)Why do wages differ across industries?
C)Why do production and income increase in some periods and not in others?
D)How rapidly is GDP currently increasing?
Q2) The local Chevrolet dealership has an increase in inventory of 25 cars in 2006.In 2007 it sells all 25 cars.Which of the following statements is correct?
A)The full value of the increased inventory will be counted as part of GDP in 2006, and the value of the cars sold in 2007 will not cause 2007 GDP to increase.
B)The value of the increased inventory will not affect 2006 GDP; instead, the full value of the inventory will be counted as part of 2007 GDP.
C)The value of the increased inventory will be counted as part of 2006 GDP and the value of the cars sold in 2007 will increase 2007 GDP.
D)One-half of the value of the increased inventory will be counted as part of 2006 GDP and the other one-half of the value will be counted as part of 2007 GDP.
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25
Chapter 24: Measuring the Cost of Living
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Q1) Suppose the CPI was 108 in 1967,and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967.Then today's CPI is
A)410.10.
B)433.33.
C)468.00
D)505.44.
Q2) Suppose that dairy products have risen in price relatively less than prices in general over the last several years.To which problem in the construction of the CPI is this "low" rate of price increase most relevant?
A)substitution bias
B)introduction of new goods
C)unmeasured quality change
D)income bias
Q3) Suppose the CPI today is 120 and five years ago it was 80.Then in today's prices something that cost $1 five years ago now costs $1.50.
A)True
B)False
Q4) Why does the GDP deflator give a different rate of inflation than does the CPI?
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Chapter 25: Production and Growth
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Sample Questions
Q1) In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor.What was their productivity?
A)1/8 cabinet per hour
B)8 hours per cabinet
C)40 cabinets
D)None of the above is correct.
Q2) The logic behind the catch-up effect is that
A)workers in countries with low incomes will work more hours than workers in countries with high incomes.
B)the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital.
C)new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.
D)None of the above is correct.
Q3) If your company opens and operates a branch in a foreign country,you will be engaging in foreign direct investment.
A)True
B)False
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Chapter 26: Saving, investment, and the Financial System
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Q1) A low price-earnings ratio indicates that either the stock is
A)undervalued or people are relatively optimistic about the corporation's prospects.
B)overvalued or people are relatively optimistic about the corporation's prospects.
C)overvalued or people are relatively pessimistic about the corporation's prospects.
D)undervalued or people are relatively pessimistic about the corporation's prospects.
Q2) Which of the following is not correct?
A)When a country saves more, it has more capital.
B)A supplier of loanable funds borrows money.
C)The interest rate adjusts to balance the quantity supplied of and the quantity demanded of loanable funds.
D)If Mary buys equipment for her factory, Mary is engaging in capital investment.
Q3) Joan uses some of her income to buy mutual fund shares.A macroeconomist refers to Joan's purchase as investment.
A)True
B)False
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Chapter 27: The Basic Tools of Finance
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Q1) Which of the following is correct concerning diversification?
A)It only reduces firm-specific risk, but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
B)It only reduces firm-specific risk; much of the reduction comes from increasing the number of stocks in a portfolio from 1 to 30.
C)It only reduces market risk, but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
D)None of the above is correct.
Q2) Suppose that Rupert's utility drops more if he loses $50 than if he gains $50.This implies that Rupert's
A)marginal utility diminishes as wealth rises so he must be risk averse.
B)marginal utility diminishes as wealth rises, but we can't tell from this if he is risk averse.
C)marginal utility increases as wealth rises, so he must be risk averse.
D)marginal utility increases as wealth rises, but we can't tell from this if he is risk averse.
Q3) Discuss the statistical evidence concerning the efficient markets hypothesis.
Q4) List three different ways that a risk-averse person can reduce financial risk.
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Chapter 28: Unemployment
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Q1) Other things the same,countries that offer more generous and longer-lasting unemployment insurance benefits are likely to have higher unemployment rates.
A)True
B)False
Q2) In 2004,based on concepts similar to those used to estimate U.S.employment figures,the Canadian adult non-institutionalized population was 25.022 million,the labor force was 16.956 million,and the number of people employed was 15.864 million.According to these numbers,the Canadian labor-force participation rate and unemployment rate were about
A)67.8% and 6.4%
B)67.8% and 4.4%
C)63.4% and 6.4%
D)63.4% and 4.4%
Q3) Frictional unemployment exists because of the time it takes for workers to search for the jobs that best suit their tastes and skills.
A)True
B)False
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Chapter 29: The Monetary System
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Q1) Joe wants to trade eggs for sausage.Lashonda wants to trade sausage for eggs.Joe and Lashonda have a double-coincidence of wants.
A)True
B)False
Q2) M1 includes savings deposits.
A)True
B)False
Q3) Refer to Table 29-3.The reserve requirement is 10 percent and then someone deposits an additional $50,000 into the bank,then if the bank takes no other action it will
A)have $65,000 in excess reserves.
B)have $55,000 in excess reserves.
C)need to raise an additional $5,000 of reserves to meet the reserve requirement
D)None of the above is correct.
Q4) What makes the New York Federal Reserve regional bank so important?
Q5) Which of the following has a four-year term?
A)the members of the Board of Governors
B)the Chair of the Board of Governors
C)the members of the FOMC
D)All of the above are correct.
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Chapter 30: Money Growth and Inflation
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Q1) The quantity theory of money can explain hyperinflations but not moderate inflation.
A)True
B)False
Q2) When prices are falling,economists say that there is
A)disinflation.
B)deflation.
C)a contraction.
D)an inverted inflation.
Q3) The country of Veridian has a tax system identical to that of the United States.Suppose someone in Veridian bought a parcel of land for 10,000 deera (the local currency)in 1964 when the price index equaled 100.In 2005,the person sold the land for 100,000 deera,and the price index equaled 500.The tax rate on nominal capital gains was 20%.Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2005 prices to find the after-tax real capital gain.
A)$72,000
B)$62,000
C)$32,000
D)$6,400
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) A U.S.based company sells semiconductors to an Italian firm.The U.S.company uses all of the revenues from this sale to purchase automobiles from Italian firms.These transactions
A)increase both U.S.net exports and U.S.net capital outflow.
B)decrease both U.S.net exports and U.S.net capital outflow.
C)increase U.S.net exports and do not affect U.S.net capital outflow.
D)None of the above is correct.
Q2) In every economy,national saving equals domestic investment plus net capital outflow.
A)True
B)False
Q3) If purchasing-power parity holds,a dollar will buy
A)more goods in foreign countries than in the United States.
B)as many goods in foreign countries as it does in the United States.
C)fewer goods in foreign countries than it does in the United States.
D)None of the above is implied by purchasing-power parity.
Q4) In an open economy,U.S.national savings can be less than U.S.investment.
A)True
B)False
Q5) What is the logic behind the theory of purchasing-power parity?
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) From 2001 to 2004,the U.S.government went from a budget surplus to a budget deficit.Other things the same,this would have decreased
A)both the supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
B)neither the supply of loanable funds nor the supply of dollars in the market for foreign-currency exchange.
C)the supply of loanable funds but not the supply of dollars in the market for foreign-currency exchange.
D)the supply of dollars in the market for foreign-currency exchange, but not the supply of loanable funds.
Q2) If there is capital flight from the United States,then the demand for loanable funds
A)and the supply of dollars in the foreign-exchange market shift right.
B)and the supply of dollars in the foreign-exchange market shift left.
C)shifts left while the supply of dollars in the foreign-exchange market shifts right.
D)shifts right while the supply of dollars in the foreign-exchange market shifts left.
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) Because not all prices adjust instantly to changing circumstances,an unexpected fall in the price level leaves some firms with higher-than-desired prices,and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.
A)True
B)False
Q2) Historically,the change in real GDP during recessions has been
A)mostly a change in investment spending.
B)mostly a change in consumption spending.
C)about equally divided between consumption and investment spending.
D)sometimes mostly a change in consumption and sometimes mostly a change in investment.
Q3) The long-run aggregate supply curve shifts left if
A)the capital stock increases.
B)there is a hurricane.
C)the government removes some environmental regulations that limit production methods.
D)None of the above is correct.
Q4) Make a list of things that would shift the aggregate demand curve to the right.
Q5) Make a list of expenditures whose sum equals GDP.
Page 35
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) If the stock market booms,
A)aggregate demand increases, which the Fed could offset by increasing the money supply.
B)aggregate supply increases, which the Fed could offset by increasing the money supply.
C)aggregate demand increases, which the Fed could offset by decreasing the money supply.
D)aggregate supply increases, which the Fed could offset by decreasing the money supply.
Q2) In the long run,changes in the money supply affect A)prices.
B)output.
C)unemployment rates.
D)All of the above.
Q3) Stock prices often rise when the Fed raises interest rates.
A)True
B)False
Q4) There are three factors that help explain that slope of the aggregate demand curve.Which two are less important? Why are they less important?
Chapter 35: The Short Run Trade Off Between Inflation and Unemployment
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Q1) Proponents of rational expectations argued that the sacrifice ratio
A)could be high because it was rational for people not to immediately change their expectations.
B)could be high because people might adjust their expectations quickly if they found anti-inflation policy credible.
C)could be low because it was rational for people not to immediately change their expectations.
D)could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.
Q2) Refer to Figure 35-3.Starting from c and 3,in the long run,an increase in money supply growth moves the economy to
A)a and 1.
B)back to c and 3.
C)d and 4.
D)e and 5.
Q3) In most of the 1970s,the Fed's policy created expectations of high inflation.
A)True
B)False
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Page 37
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?
Q2) Tax laws do not give preferential treatment to some kinds of retirement saving.
A)True
B)False
Q3) Which of the following is not an argument against requiring the government to balance its budget?
A)Some economists believe that rules are better than discretion.
B)Per-capita debt is small relative to lifetime income.
C)The effect of deficit spending on future generations depends in part on what the government buys.
D)Other government policies also redistribute income across generations.
Q4) Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?
A)decrease the money supply
B)decrease taxes
C)decrease government expenditures
D)None of the above is correct.
Q5) Explain the time inconsistency of monetary policy.
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