Introduction to Economics Review Questions
Course Introduction
Introduction to Economics provides a comprehensive overview of fundamental economic principles and theories, equipping students with the analytical tools necessary to understand how individuals, businesses, and governments make choices about allocating limited resources. The course covers both microeconomics examining market structures, supply and demand, consumer behavior, and production decisions and macroeconomics exploring broader topics such as inflation, unemployment, economic growth, and fiscal and monetary policy. Through real-world examples and case studies, students learn to apply economic reasoning to current events and everyday situations, laying a solid foundation for further study in economics and related fields.
Recommended Textbook
Economics Principles and Policy 13th Edition by William J. Baumol
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7778 Verified Questions
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) The slope of a curved line at a particular point is
A)always greater than the slope of a straight line at the same point.
B)always smaller than the slope of a straight line at the same point.
C)defined as the slope of the straight line representing the average values for the entire curve.
D)defined as the slope of the straight line that is tangent to the curve at that point.
Answer: D
Q2) Which of the following is one source of disagreement between economists?
A)Some facts about the economy are unknown.
B)Economists differ in their political persuasions.
C)Economic theory may not always give an unambiguous answer to a question.
D)Solving one problem may make another problem worse.
E)All of the above are correct.
Answer: E
Q3) Attempts by the government to reduce the rate of inflation often result in higher unemployment in the short run.
A)True
B)False
Answer: True
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Page 3
Chapter 2: The Economy: Myth and Reality
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Sample Questions
Q1) A firm that does business all over the world is called a(n)
A)multinational corporation.
B)international conglomerate.
C)competitive corporation.
D)government-owned business.
Answer: A
Q2) In a mixed economy
A)all economies choose the same mix of private and public involvement in the economy.
B)the government is more important than the private sector in generating output.
C)there is some government influence over the workings of the free market.
D)all of the above.
Answer: C
Q3) What you mean by business cycles? What are their consequences?
Answer: Business cycles are periodic upswings and downswings in economic growth.One important consequence of these ups and downs in economic growth is that employment varies considerably from one year to the next.
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Chapter 3: The Fundamental Economic Problem: Scarcity and Choice
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Sample Questions
Q1) Which of the following is not an example of a type of factor of production?
A)land
B)labor
C)government
D)capital
Answer: C
Q2) In Figure 3-3, a shift from A to B seems most consistent with which of the following?
A)Society decided to give guns lower priority.
B)There have been more technological advances in guns than in butter.
C)There is a massive immigration of labor.
D)There are unemployed resources in both guns and butter.
Answer: C
Q3) In a properly functioning economy, money costs approximate opportunity costs.
A)True
B)False
Answer: True
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Chapter 4: Supply and Demand: an Initial Look
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Sample Questions
Q1) If price rises, what happens to quantity demanded for a product?
A)It increases.
B)It decreases.
C)It does not change.
D)Uncertain-economic theory has no answer to this question.
Q2) American consumers decide to boycott grapes in support of the farm workers' union.Everything else being equal, the
A)price of grapes will rise.
B)supply of grapes will fall.
C)quantity supplied of grapes will fall.
D)demand curve for grapes will shift to the right.
Q3) Refer to Table 4-1.At $10, what is the surplus?
A)4,500
B)3,000
C)1,500
D)0
Q4) Advertising has no effect on the demand schedule for a good.
A)True
B)False
Q5) Distinguish between scarcity and shortage.
Page 6
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Chapter 5: Consumer Choice: Individual and Market Demand
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Sample Questions
Q1) Marginal utility has a negative slope.This is because of the A)optimal purchase rule.
B)law of increasing costs.
C)law of diminishing marginal utility.
D)marginal rate of substitution.
Q2) Voluntary exchange requires that there must be mutual gain.
A)True
B)False
Q3) If the marginal utility to Juan of sleeping an extra hour (from 8 a.m.to 9 a.m.) is negative,
A) Juan is better off getting up at 8 a.m.
B) Juan is better off getting up at 9 a.m.
C) Juan's total utility from sleeping must be negative.
D) Juan's average utility from every hour he sleeps must be negative.
Q4) The optimal purchase rule is stated as
A)TU = MU.
B)MU = P.
C)TU = P.
D)MU = 0.
Q5) What are the properties of indifference curves?
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Chapter 6: Demand and Elasticity
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Sample Questions
Q1) Income elasticity of demand describes how change in income affects the quantity demanded of a good.
A)True
B)False
Q2) In Figure 6-3(a), demand is
A)perfectly elastic.
B)perfectly inelastic.
C)unit elastic.
D)fixed at one particular quantity.
Q3) If demand for a seller's product is elastic, a price increase will decrease total revenue.
A)True
B)False
Q4) The cross elasticity between two goods has been measured at ?1.2.How are the goods related? Explain.Give an example of goods for which this might be a reasonable measure of cross elasticity.
Q5) As one moves down a straight-line demand curve, the elasticity decreases.
A)True
B)False
Q6) What is an optimal decision?
Page 8
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Chapter 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis
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Sample Questions
Q1) A firm uses two inputs, A and B.At its optimal choice of input proportions,
A)MRP of A = MRP of B.
B)MRPA/PA = MRPB/PB.
C)MPP of A = MPP of B.
D)All of the above are correct.
Q2) Economies of scale lead to declining long-run average cost curves.
A)True
B)False
Q3) A firm's production process shows constant returns to scale.It can produce 5,000 widgets at a total cost of $2,500 and 10,000 widgets at an average cost of A)$10,000.
B)$5,000.
C)$2,000.
D)$0.50.
Q4) Firms choose the highest indifference curve they can obtain given the lowest possible budget line.
A)True
B)False
Q5) How long is the long run?
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Chapter 8: Output, Price, and Profit: the Importance of Marginal Analysis
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Sample Questions
Q1) A firm that sells at a price below average cost is losing money.
A)True
B)False
Q2) To maximize its profits, the firm described in Table 8-1 should produce ____ unit(s) of output.
A)1
B)2
C)3Â D)4
Q3) All business firms should consider their fixed costs in determining the prices they set. A)True
B)False
Q4) Total revenue
A)can be calculated directly from the demand curve.
B)can be calculated directly from the average revenue curve.
C)is found by multiplying price times quantity.
D)All of the above are correct.
Q5) Is it a good thing to go to a point where marginal profit is zero? Explain.
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Chapter 9: Securities: Business Finance and the Economy:
the Tail That Wags the
Dog
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Sample Questions
Q1) Why is plowback the overwhelming favorite among choices of sources of funds for financing corporate investment?
Q2) To the corporation, bonds are more risky than stocks because A)interest rates fluctuate.
B)bond interest is a fixed cost.
C)investors prefer stocks to bonds.
D)speculators manipulate bonds more than stocks.
Q3) The federal agency that monitors and regulates the stock market is the
A)Chicago Mercantile Exchange.
B)Securities and Exchange Commission.
C)Department of Justice.
D)Federal Trade Commission.
Q4) Double taxation is a problem for corporations.
A)True
B)False
Q5) Why are bonds risky to a corporation?
Q6) A hostile takeover is one opposed by the firm's existing management.
A)True
B)False
Q7) Explain how mutual funds are advantageous to small investors. Page 11
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Chapter 10: The Firm and the Industry Under Perfect Competition
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Sample Questions
Q1) In Figure 10-5, points which lie on the firm's short-run supply curve are
A)A, B, C.
B)C, D, H.
C)F, E, G.
D)A, C, H.
Q2) Richard Bland quit his job as an accounting professor to start his own restaurant.He gave up a salary of $50,000 per year and withdrew $100,000 in bank CDs earning 5 percent to buy a building and equipment.In the restaurant's first year it had direct expenses of $75,000 and revenues of $150,000.The restaurant's economic profit was A)$15,000.
B)$20,000.
C)$75,000.
D)not possible to determine from the information given.
Q3) What happens to the price of the product and total revenue for a perfectly competitive firm if it doubles the amount of output it supplies in the market?
Q4) In the long run, any firm may enter or leave a perfectly competitive market.
A)True
B)False
Page 13
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Chapter 11: Monopoly
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Sample Questions
Q1) A monopolist can earn a positive economic profit, even in the long run.
A)True
B)False
Q2) Is the monopolist supply decision more complicated than that of competitive supply?
A)Yes, because the monopolist can choose its price, and the perfect competitor cannot.
B)No, because they are both price takers.
C)No, because the market determines the quantity for the monopolist.
D)No, because the market determines the price for both firms.
Q3) It is possible that if a monopoly is broken up, the cost of production for that product could increase.
A)True
B)False
Q4) For a monopoly, MC = MR < P so that MC < MU.
A)True
B)False
Q5) A monopolist will stop production when MR equals MC.
A)True
B)False
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Chapter 12: Between Competition and Monopoly
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Sample Questions
Q1) The above matrix (Figure 12-4) displays the possible profit results of two firms, A and B, from following two different possible strategies: charging a high price and charging a low price.In each cell, the first number is the profit of firm A, and the second number is the profit of firm B.
a.Assume that collusion is not possible.Determine the optimal strategy for each firm.Explain why it is the best strategy to follow.
a., explain why firms collude.What are the pitfalls of collusion?
b.Based on your answer to
Q2) When oligopolists join together in a cartel, they
A)have chosen to ignore interdependence.
B)have admitted that their behavior is interdependent.
C)are planning to violate the law of supply and demand.
D)are trying to behave like perfect competitors.
Q3) In a perfectly contestable market in the long run, each firm
A)produces at the minimum point on its long-run average total cost curve.
B)earns a profit below its opportunity cost of capital.
C)avoids making capital expenditures.
D)All of the above are correct.
Q4) Why is oligopoly more difficult to model than competition or monopoly?
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Chapter 13: Limiting Market Power: Regulation and Antitrust
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Sample Questions
Q1) A concentration ratio provides a better assessment of market power than the Herfindahl-Hirschman index does.
A)True
B)False
Q2) Using specialized equipment to produce simultaneously a number of similar items
A)leads to economies of scale.
B)is the goal of deregulation.
C)can only happen in a high technology nation.
D)is called economies of scope.
Q3) When it is cheaper for one firm to produce a particular product, ____ exist(s).
A)economies of scale
B)economies of scope
C)diminishing marginal returns
D)cross-subsidization
Q4) Increasing concentration always means an industry has become effectively monopolized.
A)True
B)False
Q5) Why is regulation necessary to achieve "universal service"?
Q6) Distinguish between predatory pricing strategy and bundling strategy.
Page 16
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Chapter 14: The Case for Free Markets: the Price System
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Sample Questions
Q1) In an effort to prepare for war, the Defense Department is required by Congress to stockpile helium, once used to provide lift for blimps (phased out in the 1960s).About 100 years of total U.S.usage of helium is in storage.The Pentagon agrees to buy helium from producers at a price above what would otherwise prevail in the marketplace.Is this likely to result in efficiency?
Explain.
Q2) If both the MU and MC of flower pots is $1.50 and the MU and MC of coffee cups is $2, then economic efficiency would require
A)increased production of flower pots.
B)increased production of coffee cups.
C)the price of coffee cups to exceed the price of flower pots.
D)the price of flower pots to exceed the price of coffee cups.
Q3) Under laissez faire, the allocation of resources among different products depends on A)consumer preferences.
B)production costs.
C)Both a and b are correct.
D)Neither a nor b is correct.
Q4) How does a free-market system address the output selection task?
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Chapter 15: The Shortcomings of Free Markets
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Sample Questions
Q1) A car sells at different prices at different dealerships in an oligopolistic market.If a consumer has imperfect information about the price of a car at each dealership, he should
A)always gather all available information about prices.
B)gather information about prices until the expected marginal utility of more information equals the marginal cost of gathering it.
C)gather information about prices only if it can be gathered without cost.
D)ignore information about prices because it is irrelevant to making an "optimally imperfect" decision.
Q2) An increase in wages in the public sector is always accompanied by an increase in labor productivity.
A)True
B)False
Q3) Which of the following is not a public good?
A)a coastal lighthouse
B)national defense
C)a flood-control levee
D)the latest Walt Disney movie
Q4) Why do markets tend to underproduce public goods?
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Chapter 16: Externalities, the Environment, and Natural Resources
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Sample Questions
Q1) Increasing environmental awareness in the United States has occurred with increasing GDP, which has reduced concerns about basic needs.
A)True
B)False
Q2) Environmental damage
A)cannot be reduced to zero.
B)is inevitable where humans exist.
C)tends to increase as long as benefits outweigh the costs to the damagers.
D)All of the above are correct.
Q3) The effectiveness of direct controls on pollution depends on: (i) the budgets and enthusiasm of the regulatory bodies; (ii) sufficiently strong statutory penalties.
A)i and ii
B)i but not ii
C)ii but not i
D)neither i nor ii
Q4) Economists believe it is feasible and desirable to reduce environmental damage to zero.
A)True
B)False
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Chapter 17: Taxation and Resource Allocation
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Sample Questions
Q1) Employers can shift payroll taxes by substituting capital for labor.
A)True
B)False
Q2) In practice, turning horizontal and vertical equity into tax law
A)hasn't been tried.
B)has been fairly easy.
C)is resisted by nearly all taxpayers.
D)has been extremely difficult.
Q3) What is the flypaper theory of tax incidence?
This theory is typically wrong.Why?
Q4) For about the last 45 years, federal taxes have remained relatively constant as a percentage of GDP.
A)True
B)False
Q5) State and local governments receive money from sales taxes, property taxes, and the federal government.
A)True B)False
Q6) What is the controversy surrounding property taxes as a source for school funding?
Page 20
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Chapter 18: Pricing the Factors of Production
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Sample Questions
Q1) The demand for borrowed funds is
A)directly related to the interest rate.
B)inversely related to the growth in gross domestic product.
C)a derived demand.
D)leads to derived demand for capital goods.
Q2) Usury laws typically regulate
A)interest rates paid on savings.
B)interest rates charged on loans.
C)rents charged on land.
D)economic rent earned in all factor markets.
Q3) High profits in some risky industries attract additional entrepreneurs to those industries.
A)True
B)False
Q4) The income of Lebron James, for example, is determined by A)the position of the demand curve.
B)the number of athletes in the NBA.
C)his supply curve for labor services.
D)marginal rent.
Q5) Distinguish between invention and innovation.
Page 21
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Chapter 19: Labor and Entrepreneurship: the Human Inputs
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Sample Questions
Q1) College graduates now earn nearly five times as much as their high school-educated peers but the gap is falling.
A)True
B)False
Q2) The impact of an increase in oil prices stemming from the growth of demand is probably going to ____ the wages of petroleum engineers.
A)decrease
B)increase
C)leave unaffected
D)be impossible to predict
Q3) Teenage unemployment rates have consistently been much higher than the overall unemployment rate and black teenagers have fared worse than white teenagers.
A)True
B)False
Q4) Explain the three growth-creating properties of innovation.
Q5) If the MRP of labor is below the wage rate, the firm should lay off workers.
A)True B)False
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Chapter 20: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) Consider the economy described by the income distribution in Table 21-1.From this table, we can conclude that the poorest 60 percent of the population earns
A)15 percent of the income.
B)17 percent of the income.
C)32 percent of the income.
D)68 percent of the income.
Q2) The official dividing line between the poor and nonpoor is called the A)life threshold.
B)life edge.
C)poverty line.
D)beginning line.
Q3) Because of the book, The Other America, Michael Harrington was important in beginning the A)Peace Corps.
B)"War on Poverty."
C)regulation of industry.
D)Environmental Protection Agency.
Q4) What has been the trend in eliminating poverty since 1960?
Q5) How do income redistribution programs affect equality and efficiency?
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Chapter 21: Is Useconomic Leadership Threatened
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Sample Questions
Q1) It is urgent that the U.S.improve in certain economic arenas.
A)True
B)False
Q2) The future of the U.S as leader of the economic world:
A)is likely to continue for generations to come
B)will be sustained in the next generation, but not beyond C)requires U.S.action in several critical economic areas D)requires a return of manufacturing to the U.S.
Q3) Currently, the U.S.net national debt is almost 60 percent of GDP, but this percentage is smaller than that of many fiscally healthy countries.
A)True
B)False
Q4) America's prosperity and economic growth is secure for the foreseeable future.
A)True
B)False
Q5) Innovation in the U.S.was spurred by:
A)a free high school education in the U.S.
B)an influx of capable immigrants
C)an inexpensive patent system
D)All of the above are correct.
Page 24
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Chapter 22: An Introduction to Macroeconomics
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Sample Questions
Q1) The basic organizing framework for both microeconomic and macroeconomic models is
A)purely competitive markets.
B)government planning of the economy.
C)demand and supply.
D)democratic socialism.
E)all of the above.
Q2) Intermediate goods, like milk sold by a farmer to a supermarket, are
A)included in GDP.
B)included in GDP at market value.
C)included if it is imported.
D)are not included in GDP.
Q3) Real GDP values current output of goods and services at their current prices.
A)True
B)False
Q4) What is Gross Domestic Product?
What is included in this statistic?
What is excluded?
Give two examples of goods or services that are included in GDP and two examples of goods or services that are excluded.
Page 25
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Chapter 23: The Goals of Macroeconomic Policy
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Sample Questions
Q1) The growth rate of potential GDP is the sum of the growth rates of
A)labor force and population.
B)labor force and labor productivity.
C)labor force and capital stock.
D)labor productivity and capital stock.
Q2) When the growth rates of actual and potential GDP diverge, they usually diverge because
A)actual GDP growth equals potential GDP growth.
B)actual GDP growth falls below potential GDP growth.
C)potential GDP growth rates fall below actual GDP growth rates.
D)potential GDP growth rates fluctuate while actual GDP growth rates remain stable.
Q3) After a particular loan has been paid off, neither the borrower nor the lender has lost purchasing power.Therefore, it must be true that actual inflation was
A)greater than expected inflation.
B)equal to expected inflation.
C)less than expected inflation.
D)greater than the nominal rate of interest.
Q4) High unemployment is socially wasteful.Why?
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Chapter 24: Economic Growth: Theory and Policy
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Sample Questions
Q1) The fall of actual GDP below the level of potential GDP is a signal that the economy is in a recession.
A)True
B)False
Q2) Which of the following countries has the highest level of average educational attainment?
A)Canada
B)Italy
C)India
D)Sudan
Q3) Productivity levels are higher in rich countries compared to poor countries. A)True
B)False
Q4) The lack of a universal productivity effect of higher education was demonstrated by the experience of A)the United Kingdom. B)Ireland.
C)France.
D)the Soviet Union.
Q5) Describe the three pillars of productivity growth.
Page 27
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Chapter 25: Aggregate Demand and the Powerful Consumer
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Q1) If an economist wants to make a prediction about the effects of a change in disposable income on the change in consumption spending based on historical data, she must assume that
A)the future will closely resemble the past.
B)consumption and disposable income will be negatively related.
C)the consumption function will have a downward slope.
D)as disposable income increases, consumer spending will remain constant.
Q2) Which of the following methods could be used to calculate GDP?
A)the sum of all spending on final goods and services
B)the sum of all factor payments plus depreciation and indirect business taxes
C)the sum of all values added at each stage of production
D)All of the above could be used.
Q3) The federal government's principal tool in altering consumer spending is changing
A)corporate income taxes.
B)federal sales taxes.
C)unemployment insurance benefits.
D)personal income tax rates.
Q4) What is disposable income?
How is it calculated?
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Chapter 26: Demand-Side Equilibrium: Unemployment or Inflation
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Sample Questions
Q1) If total spending exceeds total output, then
A)inventory levels will rise.
B)inventory levels will remain constant.
C)inventory levels will fall.
D)output will eventually decrease.
Q2) If net exports are reduced, the expenditure schedule will shift
A)downward and equilibrium real GDP will rise.
B)upward and equilibrium real GDP will rise.
C)downward and equilibrium real GDP will fall.
D)upward and equilibrium real GDP will fall.
Q3) The main examples of macroeconomic coordination failures are
A)profit declines.
B)relative price changes.
C)recessions and depressions.
D)consumer taste changes.
Q4) The expenditure schedule includes the consumption function.
A)True
B)False
Page 29
Q5) What is a multiplier? How does the multiplier effect occur?
Q6) What is meant by the concept of a "coordination failure" in macroeconomics?
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Chapter 27: Bringing in the Supply Side: Unemployment and Inflation
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Sample Questions
Q1) Inflation reduces the multiplier effect by reducing consumers' wealth and purchasing power.
A)True
B)False
Q2) From the mid-1980s until late 2007, many world economies became less volatile because of:
A)sound macroeconomic policies
B)several structural change that made the economies more flexible
C)good luck
D)All of the above.
E)a through c only
Q3) An inflationary gap exists when consumers and businesses are demanding more output than the economy is capable of producing at full employment.
A)True
B)False
Q4) The aggregate supply curve is a fixed point representing potential GDP.
A)True
B)False
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Chapter 28: Managing Aggregate Demand: Fiscal Policy
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Q1) Critics of supply-side economics argue that
A)tax cuts do not affect supply, only demand.
B)supply-siders exaggerate the effects of tax cuts.
C)incentives have no effect on behavior.
D)the goals of supply-siders are not supported by most economists.
Q2) If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)
A)decrease in output and prices.
B)decrease in output and an increase in prices.
C)increase in output and prices.
D)increase in output and a decrease in prices.
Q3) Which of the following factors has the most quantitative importance on the oversimplified multiplier formula?
A)it ignores variable imports
B)it ignores price-level changes
C)it ignores income taxes
D)All of these equally affect the oversimplified multiplier formula
Q4) Explain why a change in income tax rates causes the consumption schedule to change slope.
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Chapter 29: Money and the Banking System
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Q1) Banking under a system of fractional reserves is a(n)
A)inherently risky business that is unsafe regardless of bank management.
B)inherently risky business that is relatively safe under prudent management.
C)fairly safe business unless management is irresponsible.
D)fairly safe business with no unusual risks.
Q2) One inconvenience of commodity money is the need for A)money to be divisible.
B)uniform quality.
C)portability.
D)All of the above are correct.
Q3) Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.
A)True
B)False
Q4) The "efficiency of the payments mechanism" refers to
A)the ease and speed of exchanging money for goods and services.
B)how fast member banks replenish required reserves.
C)how fast banks pay interest on deposit accounts.
D)how fast countries pay off foreign debts.
Q5) What is the criticism leveled against deposit insurance by the FDIC?
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Chapter 30: Monetary Policy: Conventional and
Unconventional
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Q1) Discount rate policy is most often
A)lowered when market rates rise.
B)used to actively control the money supply.
C)the Fed's primary tool of monetary control.
D)passively changed by the Fed to follow market rates.
Q2) Which of the following is an unconventional monetary policy?
A)lending to banks in unprecedented volume
B)lending to companies other than banks
C)reducing the federal funds rate to zero
D)All of these are unconventional monetary policies.
Q3) If the Federal Open Market Committee decides to expand the money supply, then it will
A)raise the discount rate to member banks.
B)issue directions to purchase government securities, thus putting more reserves in member banks.
C)issue directions to sell government securities, thus taking reserves from member banks.
D)order new Federal Reserve notes delivered to member banks.
Q4) Why is the Chair of the Fed Reserve considered by many to be the most powerful person in the economic world?
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Chapter 31: He Financial Crisis and the Great Recession
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Q1) In 2007, which U.S.firm showed the first indication of significant problems in the financial sector?
A)AIG
B)Bear Stearns
C)J.P.Morgan Chase
D)Lehman Brothers
Q2) If a 10-year Treasury bond pays 1.5% and a 10-year corporate bond pays 4.4%, then the spread on this particular corporate bond is 5.9%.
A)True
B)False
Q3) In response to the economic downturn, the federal government enacted a fiscal stimulus bill with funding in excess of $700 billion.
A)True
B)False
Q4) The Federal Reserve stepped in to help
A)Bear Stearns but not Lehman Brothers.
B)Lehman Brothers but not Bear Stearns.
C)both Bear Stearns and Lehman Brothers.
D)neither Bear Stearns nor Lehman Brothers.
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Chapter 32: The Debate Over Monetary and Fiscal Policy
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Q1) The main policy tool for manipulating consumer spending is personal income tax, but this tool takes time to have an effect.
A)True
B)False
Q2) Which of the following lags makes stabilization policy more problematic?
A)expenditure lags
B)recognition lags
C)policy lags
D)All of the above.
Q3) Velocity is commonly calculated by which of the following formulas?
A)(Value of money stock)/(Value of nominal GDP)
B)(Value of transactions)/(money stock)
C)(Value of financial transactions)/(GDP)
D)(Value of output)/(Value of input)
Q4) Whether prices or real GDP exhibit the greater response to increased aggregate demand depends on the degree of capacity utilization in the economy.
A)True
B)False
Q5) What are the important factors which determine the velocity of money?
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Chapter 33: Budget Deficits in the Short and Long Run
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Q1) The national debt is defined as the total
A)amount that U.S.citizens owe to foreigners.
B)value that U.S.citizens borrow from foreigners during any time period.
C)value of government's indebtedness at any moment in time.
D)amount by which government's expenditures exceed receipts during any time period.
Q2) If a balanced budget were required in 2008, the government would have been required to cut spending and increase taxes.
A)True
B)False
Q3) If you wanted to measure changes in fiscal policy intentions, you should use the A)capital budget.
B)actual deficit.
C)inflation-accounted deficit.
D)structural deficit.
Q4) The budget deficit is the amount by which a government's expenditures exceed its receipts.
A)True
B)False
Q5) Give some arguments for and against a balanced budget requirement.
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Chapter 34: The Trade-Off Between Inflation and Unemployment
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Q1) Based on the evidence, most economists believe that the self-correcting mechanism operates
A)slowly with prices, but quickly with wages.
B)slowly with wages, but quickly with prices.
C)very slowly with wages.
D)efficiently, so that stabilization policy is not necessary.
Q2) If actual inflation differs from expected inflation, what is the slope of the aggregate supply curve?
A)It is horizontal in the short and long run.
B)It is vertical in the short and long run.
C)It is vertical in the short run and upward sloping in the long run.
D)It is upward sloping in the short run and vertical in the long run.
Q3) The long-run Phillips curve in Figure 17-6 (b) would include which of the following points?
A)g, e, m
B)g, e, r
C)j, e, r
D)j, e, m
Q4) In the 1970s, why did the short-run Phillips curve fail to depict the unemployment-inflation trade-off?
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Chapter 35: International Trade and Comparative Advantage
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Q1) If a nation can produce greater quantities of a good than another nation, it has a(n)
A)comparative advantage.
B)absolute advantage.
C)declarative advantage.
D)entire advantage.
Q2) Comparing international trade with trade among the different states of the United States shows that
A)the logic of international trade is quite different from that of intranational trade.
B)the basic reasons for trade are equally applicable within a country or among countries.
C)there is no need to study international trade as a special subject.
D)All of the above are correct.
Q3) Tariffs are different from quotas because they
A)increase government revenue.
B)increase profits.
C)increase the quantity traded.
D)place all the burden on foreigners.
Q4) Why is comparative advantage rather than absolute advantage the basis for trade?
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Chapter 36: The International Monetary System: Order or Disorder
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Q1) Purchasing power parity is widely accepted as a better explainer of short-run changes in exchange rates than interest rate effects.
A)True
B)False
Q2) A recession in the United States will tend to cause recessions in other countries because as U.S.GDP falls, U.S.
A)tariffs will automatically rise.
B)exports will rise.
C)imports will fall.
D)exports will fall.
Q3) Under the gold standard,
A)each nation had discretion over its monetary policy.
B)trade-deficit nations had less control over their money supply than trade-surplus nations.
C)trade-surplus nations had less control over their money supply than trade-deficit nations.
D)no nation had control over its domestic monetary policy.
Q4) What is the euro and why has it been created?
How has its value changed relative to the U.S.dollar since its inception?
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Chapter 37: Exchange Rates and the Macroeconomy
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Q1) Which of the following explains the movements in Figure 20-2?
A)an increase in U.S.imports
B)a decrease in U.S.exports
C)an increase in U.S.exports
D)a decrease in U.S.net exports
Q2) The different effects of fiscal and monetary policy in an open economy with mobile capital hinges on their different effect on A)price levels.
B)interest rates.
C)the money supply.
D)real GDP.
Q3) Which of the graphs in Figure 20-8 illustrates the AD-AS shifts associated with a currency depreciation?
A)1
B)2
C)3
D)4
Q4) Explain how and why economic events in the U.S.affected the economies of Thailand, South Korea, and Indonesia and vice-versa.
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