Introduction to Economics
Pre-Test Questions
Course Introduction
Introduction to Economics provides students with a foundational understanding of the principles that govern economic decision-making at both individual and societal levels. The course explores fundamental concepts such as scarcity, opportunity cost, supply and demand, market structures, and the role of government in the economy. Students will examine how resources are allocated, how markets function, and the factors influencing economic growth and stability. Real-world examples and basic economic models are used to connect theory with practice, preparing students for further study in economics and related fields.
Recommended Textbook
Economics Principles and Applications 6th Edition by Robert E. Hall
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) The price of apples in Denver,Colorado is
A) a normative value judgment
B) an example of a factor of production
C) a microeconomic variable
D) a macroeconomic variable
E) not the sort of thing that economists would try to explain
Answer: C
Q2) The opportunity cost of any action is
A) irrelevant to economic theory
B) limited to the out-of-pocket cost incurred
C) the sunk cost plus the markup on materials and labor
D) what we gain in the process of consumption
E) what is sacrificed to pursue that action
Answer: E
Q3) The knowledge that students gain while in college is referred to by economists as human capital.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Scarcity,choice,and Economic Systems
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Sample Questions
Q1) Which production possibilities frontier(s)in Figure 2-4 depict(s)a situation in which all resources are perfect substitutes in production?
A) both C and E
B) both D and E
C) C
D) D
E) E
Answer: D
Q2) The law of increasing opportunity cost says that
A) wages increase as employment increases
B) interest rates rise as inflation increases
C) the cost of increasing employment opportunities increases with specialization
D) the more of something we produce,the less expensive it becomes
E) the more of something we produce,the greater is the opportunity cost of producing an additional unit
Answer: E
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Chapter 2: Scarcity, choice, and Economic Systems: Part A
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Sample Questions
Q1) An increase in supply could be caused by a(n)
A) increase in price
B) government-imposed price ceiling
C) decrease in resource prices
D) decrease in consumer incomes
E) unfavorable shift in tastes and preferences
Answer: C
Q2) In the supply and demand schedules in Figure 3-10,the equilibrium quantity of socks is
A) 15 pairs
B) 10 pairs
C) 13 pairs
D) 6 pairs
E) 1 pair
Answer: D
Q3) Both the supply and demand curves can shift due to changes in income.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) Whether a subsidy for a certain good is given to a demander or supplier is irrelevant because
A) in either case,the price that the demander has to pay will decrease;while the price the supplier receives will increase
B) in either case,the price that the demander has to pay will increase;while the price the supplier receives will decrease
C) either situation will create excess demand
D) either situation will create excess supply
E) none of these are correct
Q2) If an excise tax is imposed on a good or service,
A) the supply curve shifts upward
B) the supply curve shifts downward
C) the price paid by consumers decreases
D) the net price received by sellers increases
E) the quantity produced and sold increases
Q3) A government-imposed price ceiling set below the market's equilibrium price for a good will produce an excess supply of the good.
A)True
B)False
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Chapter 5: Elasticity
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Sample Questions
Q1) The cross-price elasticity of demand between butter and margarine is most likely
A) positive,since the goods are substitutes
B) positive,since the goods are complements
C) negative,since the goods are complements
D) negative,since the goods are substitutes
E) zero,since the goods are both normal
Q2) An inferior good is defined by an income elasticity less than 1.
A)True
B)False
Q3) The percent change in the quantity of one commodity demanded divided by the percent change in the price of another commodity is the
A) price elasticity of demand
B) price elasticity of supply
C) income elasticity of demand
D) income elasticity of supply
E) cross-price elasticity of demand
Q4) The price elasticity of demand is usually equal to the slope of the demand curve.
A)True
B)False
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Chapter 6: Consumer Choice
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Sample Questions
Q1) Consuming goods until the ratio of marginal utilities of the goods is equal to the ratio of their prices is consistent with maximizing total utility.
A)True
B)False
Q2) As the price of a computer falls,overall
A) the marginal utility of computers rises
B) the total utility of computers falls
C) the total utility per dollar spent on computers falls
D) individuals would purchase fewer computers in equilibrium
E) individuals would purchase more computers in equilibrium
Q3) If the price of good X (measured on the horizontal axis of a budget line diagram)increases at the same time that the price of good Y (measured on the vertical axis)decreases,the budget line
A) will become flatter
B) will become steeper
C) could become either steeper or flatter,depending on the sizes of the price changes
D) will rotate about its original point of intersection with the horizontal axis
E) will shift outward,but not in a parallel fashion
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8
Chapter 7: Production and Cost
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Sample Questions
Q1) In many markets for personal services (such as shoe repair or lawn care)with low start-up costs,
A) production exhibits constant returns to scale
B) economies of scale are exhausted rapidly
C) economies of scale are exhausted slowly
D) economies of scale are never exhausted
E) there are only short-run costs,no long-run costs
Q2) Figure 7-7 shows a firm's total variable cost for different daily output levels.In addition,the firm has total fixed cost of $50 per day.At an output level of 20 units,average variable cost is
A) $75.00,and average fixed cost is $2.50
B) $17.50,and average fixed cost is $50.00
C) $150.00,and average fixed cost is $2.50
D) $7.50,and average fixed cost is $50.00
E) $17.50,and average fixed cost is $2.50
Q3) Total fixed costs decrease as output expands.
A)True
B)False
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Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) In Figure 8-5,which of the five output levels corresponds to the highest level of total revenue?
A) level A
B) level B
C) level C
D) level D
E) level E
Q2) Hannah's Harmonicas sells 1,000 harmonicas each month at a price of $10.00 each.(She could sell as many as she wishes at that price. )If the marginal cost of producing an additional harmonica is $9.60,then
A) Hannah should produce additional harmonicas
B) Hannah could possibly reduce her profits by producing one additional harmonica
C) Hannah must currently be maximizing her profits
D) too many harmonicas are being produced,from society's point of view
E) Hannah's total economic profit is $400 per month
Q3) When marginal revenue is positive,total revenue must rise as output increases.
A)True
B)False
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Chapter 9: Perfect Competition
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Sample Questions
Q1) Consider a perfectly competitive firm whose minimum average total cost is $100.This firm is representative of all the firms in the market.If the market price is $80,then in the long run
A) new,more-efficient firms will be attracted into the industry
B) market supply will fall
C) the firm's average revenue will fall
D) all the firms currently operating will increase output
E) total market output will rise
Q2) As long as price is greater than average variable cost,a firm maximizes its profit by producing that quantity of output for which
A) average revenue equals average total cost
B) the price is the highest
C) marginal revenue equals marginal cost
D) average total cost is minimized
E) average variable cost is minimized
Q3) The entire marginal cost curve for a perfectly competitive firm represents its short-run supply curve.
A)True
B)False
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Page 11
Chapter 9: Perfect Competition: Part A
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Sample Questions
Q1) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Q2) In perfect competition,technological advances will allow economic profits for
A) all firms.
B) only the firm developing the new technology.
C) early adopters.
D) none of the firms,as the advance will be immediately adopted by all of them.
Q3) Which of the following is not a characteristic of a perfectly competitive market
A) buyers and sellers are well informed about the market
B) standardized product
C) many buyers and few sellers
D) easy exit out of the industry
E) easy entry into the industry
Q4) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
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Chapter 10: Monopoly
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Sample Questions
Q1) An increase in a monopoly's fixed costs would cause its output to A) rise.
B) fall.
C) stay the same.
D) impossible to predict.
Q2) A monopolist earns a profit whenever
A) total revenue equals total cost
B) marginal revenue equals marginal cost
C) price exceeds average variable cost
D) marginal revenue is positive
E) price exceeds average total cost
Q3) Figure 10-5 shows the cost and demand curves facing a monopolist whose marginal cost is constant.The firm has no fixed costs.If it does not discriminate what will it's profit be?
A) area PP'BA
B) area OPAQ*
C) area PP'CA
D) area APC
E) area OP"BQ*
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Page 13
Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) If a cartel is formed in order to maximize the total profits of its members,it will A) charge the monopoly price,but produce more output than a monopoly would B) produce the monopoly output,but charge a lower price than a monopoly would C) charge the same price,and produce the same quantity that a monopoly would D) charge a higher price and produce more output than a monopoly would E) charge the monopoly price,but total output may be higher or lower than a monopoly's
Q2) Sarah and Marisa are the only two baby-sitters available in a small town.Figure 11-14 indicates different combinations of hourly rates charged by the two teenagers,along with their weekly net earnings.If Sarah and Marisa do not collude,then
A) in equilibrium,both will charge $4 per hour
B) in equilibrium,both will charge $5 per hour
C) in equilibrium,Sarah will charge $5 per hour;Marisa will charge $4 per hour
D) in equilibrium,Sarah will charge $4 per hour;Marisa will charge $5 per hour
E) there is no predictable equilibrium
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Chapter 12: Labor Markets
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Sample Questions
Q1) Each of the following,except one,is a condition that characterizes a perfectly competitive labor market.Which is the exception?
A) Workers appear identical to firms.
B) Workers receive wages that are above their marginal revenue product (MRP).
C) There are no barriers to entering the labor market.
D) There are no barriers to exiting from the labor market.
E) There are many buyers of labor in the market.
Q2) Which of the following could explain an increase in labor supply to a particular labor market?
A) a reduced preference for this type of work
B) a decrease in the size of the population
C) an increase in the number of firms in the market
D) a rightward shift of the marginal revenue product curve for labor at a typical firm
E) a reduction in wage rates for similar types of work
Q3) The wage rate is constant along a firm's labor demand curve.
A)True
B)False
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Chapter 12: labor Markets: Part A
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Sample Questions
Q1) Which of the following is a form of statistical discrimination?
A) Young people are charged higher automobile insurance rates due to the higher probability of an accident.
B) Restaurants prefer to hire women than men as servers.
C) Women prefer to see a female doctor than a male doctor.
D) Women are more likely than men to pay too much money for a new automobile because salespeople bargain more with men than with women.
E) Female physicians earn 20 percent less than male physicians,on average.
Q2) Each of the following,except one,might be a barrier to entry into a labor market.Which is the exception?
A) government restrictions
B) cost-of-living differentials
C) labor unions
D) discrimination
E) professional organizations
Q3) Differences in marginal revenue products among workers can help explain the presence of wage differentials.
A)True
B)False
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Page 16
Chapter 13: Capital and Financial Markets
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Sample Questions
Q1) Travel Expert is a corporation that specializes in selling vacation packages in Transylvania and Stansylvania.There are a fixed number of shares of Travel Expert's stock available to the public.If the two countries go to war,making it much more dangerous to travel there,what will most likely happen to the Travel Expert's share price and the number of shares outstanding?
A) Price will fall;number of shares will fall.
B) Price will fall;number of shares will rise.
C) Price will rise;number of shares will remain the same.
D) Price will remain the same;number of shares will fall.
E) Price will fall;number of shares will remain the same.
Q2) The interest rate on U.S.government securities is often called the
A) prime rate
B) public discount
C) riskless rate
D) superior rate
E) universal discount
Q3) The supply curve for a particular bond is vertical.
A)True
B)False
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Page 17
Chapter 14: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Total net benefits gained in a market
A) minus any side payments equals total revenue from producing the good (or,equivalently,total expenditure on the good)
B) is the sum of producer and consumer surplus in that market
C) is the difference between consumer surplus and producer surplus in that market
D) are maximized when the market price equals zero
E) always exceeds the sum of total expenditure on the good and the total cost of providing it
Q2) The height of the demand curve at any quantity indicates
A) total expenditure on the good or service
B) total revenue to the seller of the good or service
C) whether the price is fair or not
D) how much that particular unit is worth to the person who buys it
E) how much the person who buys that unit actually pays for it
Q3) Pareto improvements that require the use of side payments typically are easy to coordinate and tend to enhance economic efficiency.
A)True
B)False
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Chapter 15: Governments Role in Economic Efficiency
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Sample Questions
Q1) To achieve economic efficiency,a pure public good
A) would have to be provided at marginal cost
B) would have to be provide at marginal revenue
C) should never be provided
D) should be provided to everyone
E) would have to be provide free of charge
Q2) If all unwelcome or harmful activities were eliminated, A) the benefits from eliminating these activities would exceed the cost of eliminating them
B) there would be no remaining potential Pareto improvements
C) society would be more efficient
D) society would be less efficient
E) the result would be Pareto efficient
Q3) Single-price monopoly is inefficient because A) side payments are not made
B) a monopoly firm charges a price that exceeds its marginal cost
C) a monopoly firm charges a price equal to its marginal cost
D) a monopoly firm produces the quantity at which P = MR = MC.
E) a monopoly firm produces the quantity at which MR = MC.
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Page 19
Chapter 16: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Suppose the opportunity cost is a constant 500 TV sets for 1 car in Canada and 1,000 TV sets for 8 cars in Mexico.Then,if both countries specialize in accordance with their comparative advantage,the production of 1,000 extra TV sets in one country and 1,000 fewer TV sets in the other would imply that the world as a whole can have
A) 2 more cars
B) 6 more cars
C) 8 more cars
D) 125 more cars
E) 500 more cars
Q2) Suppose that a nation has an absolute advantage in the production of all goods.In this instance,it
A) has no incentive to engage in international trade
B) is producing at a point on its production possibilities frontier
C) has no unemployment
D) also has a comparative advantage in the production of those goods
E) should specialize in producing the goods for which it has a lower opportunity cost than other countries
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Chapter 17: What Macroeconomics Tries to Explain
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Sample Questions
Q1) A measure that economists use in order to keep track of employment is
A) the price level
B) real GDP per person
C) real GDP
D) the growth rate of output
E) the unemployment rate
Q2) For the average living standard of a nation to __________,__________ must increase faster than the price level
A) increase;nominal GDP
B) increase;real GDP
C) decrease;nominal GDP
D) remain constant;nominal GDP
E) decrease;real GDP
Q3) Periodic fluctuations in GDP are called business cycles.
A)True
B)False
Q4) The United States has never experienced double-digit inflation.
A)True
B)False
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Chapter 18: Production, income, and Employment
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Sample Questions
Q1) Mike recently lost his job as a construction worker.During this unemployment spell,Mike actively searched for work but recently took a job that paid cash "under the table" while he continued to search and collect unemployment payments.Mike would be considered __________ by the Bureau of Labor Statistics but his inclusion would cause the officially reported unemployment rate to __________ the true unemployment rate.
A) an involuntary part-time worker;overestimate
B) a discouraged worker;underestimate
C) unemployed;underestimate
D) unemployed;overestimate
E) employed;equal
Q2) When the economy is operating at an unemployment rate below the full employment rate,
A) actual output is above potential output
B) actual output equals potential output
C) actual output is below potential output
D) frictional unemployment has been eliminated
E) structural unemployment has been eliminated
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Chapter 19: The Price Level and Inflation
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Sample Questions
Q1) Suppose a local union has a contract that calls for the nominal wage to increase by 5 percent plus 100 percent of any increase in the CPI.If the CPI increases by 4% and there is a 1% positive bias in the inflation rate,by how much would nominal wages unnecessarily increase?
A) 9 percent
B) 1 percent
C) 5 percent
D) 3 percent
E) 4 percent
Q2) The CPI includes the prices of
A) goods and services purchased by American consumers
B) goods and services purchased by all consumers (both foreign and domestic)
C) goods and services purchased by the government
D) investment goods purchased by businesses
E) exports purchased by foreign buyers
Q3) The Consumer Price Index (CPI)is an index of the cost of a market basket of goods purchased by a typical household.
A)True
B)False
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Page 23
Chapter 20: The Classical Long-Run Model
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Sample Questions
Q1) Net taxes are
A) the total amount of taxes paid to the government
B) total tax revenues of the federal government
C) total tax revenues plus transfer payments
D) total tax revenues minus transfer payments
E) total tax revenues minus taxes paid by firms
Q2) Say's law promises that each and every firm in the economy will be able to sell all of the particular output it produces.
A)True
B)False
Q3) The government budget deficit is
A) the difference between government purchases and government revenues from bonds and taxes
B) caused by a lack of business sector investment
C) created when the government expenditures exceed net taxes
D) caused by leakages in the economy
E) is created by government injections
Q4) Saving and taxes are considered leakages from the spending stream.
A)True
B)False
Page 24
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Chapter 20: Part A: The Classical Model in an Open Economy
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Q1) In the classical model with an open economy,an increase in the trade deficit as a result of a tax cut,causes a decline in the interest rate,attracting more loanable funds from abroad.
A)True
B)False
Q2) In the classical model,when an open economy has balanced trade,Say's law holds. A)True
B)False
Q3) In the classical model with an open economy,an increase in government purchases may not cause complete crowding out,but crowding out will be complete worldwide.
A)True
B)False
Q4) When a country runs a trade deficit,
A) it must be running a budget surplus.
B) its imports will become injections instead of leakages.
C) its exports will become leakages instead of injections.
D) foreigners will demand loanable funds from the country.
E) foreigners will supply loanable funds to the country equal to its trade deficit
Page 25
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Chapter 21: Economic Growth and Rising Living Standards
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Sample Questions
Q1) Which of the following is a stock variable?
A) The interest rate
B) Real GDP
C) Investment in physical capital
D) Physical capital
E) Investment in human capital
Q2) To have a rising standard of living,a nation's stock of capital must
A) equal the amount of consumption in the country
B) grow faster than the population
C) be associated with a low rate of investment and high rate of consumption
D) grow slower than the population
E) decline to enable the production of essential consumption goods
Q3) Refer to Figure 9-7.Everything else equal,which attainable production point will result in the most economic growth?
A) A
B) B
C) C
D) D
E) all points would promote growth equally
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Chapter 22: Economic Fluctuations
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Q1) Which statement best describes economic fluctuations?
A) Expansions and contractions typically have about the same lengths.
B) Expansions typically last 7 years,while recessions typically last 3 years.
C) Expansions tend to be shorter than contractions.
D) The percent change in output is larger during recessions than during expansions.
E) Expansions and contractions vary in duration and magnitude,with expansions tending to last longer than contractions.
Q2) Which of the following occurs during a recession?
A) Output falls,employment rises,and unemployment rises.
B) Output rises,employment falls,and unemployment falls.
C) Output falls,employment falls,and unemployment rises.
D) Output rises,employment rises,and unemployment falls.
E) Output falls,employment falls,and unemployment falls.
Q3) Which of the following occurs during a recession?
A) Output rises,employment rises and unemployment falls.
B) Output falls,employment falls and unemployment rises.
C) Output rises,employment falls and unemployment falls.
D) Output rises,employment rises and unemployment rises.
E) Output rises,employment rises and tax revenues fall.
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Page 27
Chapter 23: The Short-Run Macro Model
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Sample Questions
Q1) The part of consumption that is determined by income is referred to as autonomous consumption.
A)True
B)False
Q2) Aggregate expenditure includes final spending by households,businesses,and government on final goods and services.
A)True
B)False
Q3) For any value of the MPC (marginal propensity to consume),the formula for the expenditure multiplier is
A) 1/(1 - MPC)
B) 1/MPC
C) 1/(MPC - 1)
D) (1 + MPC)/MPC
E) 1/(1 + MPC)
Q4) In the short-run macro model,adjustment toward equilibrium is facilitated by price changes.
A)True
B)False
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Chapter 24: Fiscal Policy
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Sample Questions
Q1) Suppose you are the president of a large bank.In which situation would you be most reluctant to loan money to a country?
A) Its nominal debt is $10 trillion.
B) Its nominal debt is 1 percent of nominal GDP.
C) Its nominal deficit is $150 billion.
D) Its real deficit is 100 percent of real GDP.
E) Its real debt is 1 percent of real GDP.
Q2) In the 2000s,government budget deficits became larger as a percent of GDP.
A)True
B)False
Q3) The national debt must be paid back in the future.
A)True
B)False
Q4) Countercyclical fiscal policy is viewed by most economists
A) as the perfect instrument for preventing boom and bust economies
B) as a useful but imperfect instrument for reacting to boom and bust economies
C) having no impact in the short run or long run.
D) doing more damage than good in both the short run and long run.
E) as having an impact only in the long run.
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Chapter 25: Money,banks,and the Federal Reserve
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Sample Questions
Q1) The Federal Reserve System was created in
A) 1776
B) 1894
C) 1913
D) 1930
E) 1936
Q2) How would an increase in the required reserve ratio affect banks' ability to create money?
A) Banks will be able to create more money because of the decrease in excess reserves.
B) Banks will be able to create more money because of the increase in the demand deposit multiplier.
C) It will have no effect on banks' ability to create money.
D) It will reduce banks' ability to create money by forcing them to hold more reserves.
E) It will reduce the banks' ability to create money by increasing excess reserves.
Q3) An increase in the discount rate will lead to a decrease in the money supply.
A)True
B)False
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Chapter 26: The Money Market and Monetary Policy
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Sample Questions
Q1) If there is a decrease in the price level,
A) there will be a rightward movement along a stationary money demand curve
B) there will be a leftward movement along a stationary money demand curve
C) the demand curve for money will shift rightward
D) the demand curve for money will shift leftward
E) there will be no movement of the demand curve for money and no movement along it
Q2) A decrease in the interest rate shifts the money demand curve to the right.
A)True
B)False
Q3) If the interest rate is below its equilibrium value,the price of
A) bonds will fall.
B) money will fall.
C) bonds will rise.
D) stocks will fall.
E) real estate will fall.
Q4) A decrease in the interest rate reduces the opportunity cost of holding money.
A)True
B)False
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Chapter 26: Feedback Effects From GDP to the Money
Market
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Sample Questions
Q1) In the short-run macro model,which of the following increases when government spending increases?
A) The interest rate
B) Investment spending
C) Taxes
D) Spending on consumer durables
E) The money supply
Q2) If government spending increases,which of the following is most likely to occur?
A) GDP,money demand,the interest rate,and investment spending will all increase.
B) GDP,money demand,the interest rate,and investment spending will all decrease.
C) GDP,money demand and the interest rate will increase,while investment spending will decrease.
D) GDP,money demand and the interest rate will decrease,while investment spending will increase.
E) GDP and money demand will increase,but the interest rate will not change.
Q3) If the interest rate increases due to an increase in government purchases,the rise in real GDP will be greater than what would have occurred if the interest rate had remained stable.
A)True
B)False
Page 32
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Chapter 27: Aggregate Demand and Aggregate Supply
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Q1) The economy's self-correcting mechanism
A) prevents the economy from ever being in disequilibrium
B) guides the economy to full employment in the long run
C) maintains a steady long-run price level
D) is a short-run adjustment process
E) is controlled by the Fed
Q2) Which of the following would shift the aggregate demand curve to the right?
A) Increases in government purchases,investment spending,autonomous consumption,taxes,or the money supply
B) Increases in government purchases,investment spending,autonomous consumption,or the money supply
C) Decreases in government purchases,investment spending,autonomous consumption,taxes,or the money supply
D) Increases in government purchases,investment spending,autonomous consumption or taxes
E) Decreases in government purchases or investment spending,and increases in autonomous consumption,taxes,or the money supply
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Chapter 28: Inflation and Monetary Policy
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Q1) A fluctuating rate of inflation
A) will cause a downturn in the housing sector
B) redistributes income from creditors to debtors
C) redistributes income from the employed to the unemployed
D) was the problem that originally led to the creation of the Federal Reserve System
E) interferes with long-run planning
Q2) If there is a large increase in the price of oil and the Fed wishes to maintain stable output,which of the following should it do?
A) Do nothing,because the self-correcting mechanism will adjust the economy
B) Sell bonds in the open market
C) Wait,because output seldom changes when there is an increase in the price of oil
D) Encourage firms to not adjust the wages they pay
E) Buy bonds in the open market
Q3) Moving up the Phillips curve in the short run will cause the entire curve to shift upward in the long run.
A)True
B)False
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Chapter 29: Exchange Rates and Macroeconomic Policy
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Q1) If the exchange rate (dollars per unit of foreign currency)has increased,we say there has been a(n)
A) appreciation of the foreign currency
B) depreciation of the foreign currency
C) revaluation of the foreign currency
D) devaluation of the foreign currency
E) fixing of the foreign currency
Q2) A decrease in the price of a foreign currency is represented graphically as
A) rightward movement along the demand curve for that currency
B) an upward shift of the demand curve
C) a downward shift of the demand curve
D) a horizontal line
E) a vertical line
Q3) A devaluation of a currency means that the exchange rate (price of that currency)has changed to a higher fixed rate.
A)True
B)False
Q4) Managed floats are only effective in the long run.
A)True
B)False
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Chapter 30: Appendix-finding Equilibrium GDP
Algebraically
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Sample Questions
Q1) If autonomous consumption is $1,000,the MPC is 0.75,net taxes are $500,investment spending is $800,and government purchases equals $500,and NX = $0,what is equilibrium GDP?
A) $1,800
B) $1,925
C) $2,566.7
D) $7,200
E) $7,700
Q2) If autonomous consumption is $5,000,the MPC is 0.7,net taxes are $2,000,investment spending is $4,000,and government purchases equal $2,500,and NX = $0,what is equilibrium GDP?
A) $14,428.6
B) $33,666.7
C) $40,800
D) $43,000
E) $45,000
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36
Chapter 31: Appendix: Capital and Leverage
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Q1) Deleveraging is the process of reducing leverage,and therefore increasing the risk to capital from any further declines in asset prices.
A)True
B)False
Q2) Deleveraging is the process of reducing leverage,and therefore reducing the risk to capital from any further declines in asset prices.
A)True
B)False
Q3) It is easy for one financial institution to reduce its leverage by acting alone,but when many financial institutions try to do the same thing at once,asset prices fall rapidly and bank capital declines for all such institutions.
A)True
B)False
Q4) It was the rapid and system-wide deleveraging that contributed to the downward spiral of the 2008 financial crisis.
A)True
B)False
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