Introduction to Microeconomics Exam
Questions
Course Introduction
Introduction to Microeconomics explores the foundational principles that govern the behavior of individuals and firms in making decisions about the allocation of limited resources. Topics covered include supply and demand analysis, consumer choice, production and costs, market structures such as perfect competition and monopoly, and the role of government in regulating markets. Through real-world examples and analytical tools, students will gain an understanding of how economic agents interact within various market environments and how these interactions influence prices, resource distribution, and overall economic welfare.
Recommended Textbook
Economics Principles and Policy 13th Edition by William J. Baumol
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Page 2
Chapter 1: What Is Economics
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Q1) Suppose that a curve has a slope equal to zero at some point A.To the right of A, the curve may
A)have a positive slope.
B)have a negative slope.
C)be a straight line.
D)All of the above are correct.
Answer: D
Q2) Graphs are valuable because they facilitate interpretation of data.
A)True
B)False
Answer: True
Q3) The United States has been willing to trade off greater efficiency for greater wage equality.
A)True
B)False
Answer: False
Q4) A contour map illustrates a cause and effect relationship among three variables.
A)True
B)False
Answer: False
Page 3
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Chapter 2: The Economy: Myth and Reality
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Q1) In the United States each year, approximately
A)50% of all businesses fail.
B)25% of all businesses fail.
C)10% of all businesses fail.
D)5% of all businesses fail.
Answer: C
Q2) Approximately half of all U.S.workers are employed by various levels of government.
A)True
B)False
Answer: False
Q3) The average hourly wage (excluding benefits) in the United States is currently
A)$7.50
B)$9.95
C)$15.00
D)$20.00
Answer: D
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Chapter 3: The Fundamental Economic Problem: Scarcity and
Choice
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Sample Questions
Q1) The concept of "an invisible hand" led Adam Smith to believe that A)if each person looks out for himself or herself, then chaos will inevitably ensue.
B)pursuit of self-interest promotes economic well-being for society as a whole.
C)governmental rule actually results in greater good than is apparent at the time.
D)traditional religion is an appropriate guide for human behavior.
E)All of the above are correct.
Answer: B
Q2) According to Figure 3-1, the opportunity cost of one more bushel of wheat is A)higher at B than at D.
B)lower at B than at D.
C)equal at B and D.
D)impossible to determine from the information given.
Answer: B
Q3) What are the three coordination tasks which markets resolve?
Answer: They are (1) how to produce any given combination of goods efficiently, (2) how to select an appropriate combination of goods, and (3) how to distribute these goods and services among people.
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Page 5
Chapter 4: Supply and Demand: an Initial Look
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Sample Questions
Q1) A change in the price of hamburgers will change the supply of hot dogs.
A)True
B)False
Q2) The price of one good produced by a multiproduct industry rises.For another good produced by that industry
A)the supply curve will shift to the left.
B)the supply curve will remain constant.
C)the supply curve will shift to the right.
D)the demand curve will shift to the right.
Q3) Price ceilings will likely result in the growth of black markets.
A)True
B)False
Q4) When GM advertises its cars, the company is trying to cause a
A)rightward shift in the supply.
B)rightward shift in the demand.
C)leftward shift in the supply.
D)leftward shift in the demand.
Q5) Sugar price supports primarily benefit consumers.
A)True
B)False
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Chapter 5: Consumer Choice: Individual and Market Demand
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Q1) An increase in income produces a parallel, outward shift in the budget line.
A)True
B)False
Q2) In Figure 5-6, a shift in the budget line from AC to AB indicates
A)the price of wine coolers has risen.
B)income has increased.
C)the price of beer has fallen.
D)the price of wine coolers has fallen.
E)All of the above are correct.
Q3) When the price of a commodity falls, we can expect
A)total utility will fall.
B)marginal utility of the last unit purchased will fall.
C)marginal utility of the last unit purchased will rise.
D)purchases will fall because of a change in marginal utility.
Q4) In Figure 5-11, a consumer is initially at point A.There is a price change and she moves to B.It follows that
A)the demand for beer follows the law of demand.
B)the demand for beer does not follow the law of demand.
C)wine is an inferior good.
D)the consumer is confused.
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Chapter 6: Demand and Elasticity
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Q1) The emigration of some of Whoville's workers reduces the quantity of thingamabobs supplied at every price by 50.The new supply curve will ____ the old supply curve.
A)be steeper and less elastic at every price than B)have the same slope and the same elasticity at every price as C)have the same slope and be more elastic at every price than
D)More information is needed to predict the relationship between the elasticities of the two supply curves.
Q2) Julia knows the price elasticity of movie rentals is 3.She knows, therefore, that if she raises her price from $2 to $2.50, her rentals will drop by approximately
A)150 percent.
B)100 percent.
C)75 percent.
D)33 percent.
Q3) Demand elasticity equals quantity times price.
A)True
B)False
Q4) Why do economists measure responsiveness of demand to price in percentage changes rather than in absolute changes?
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Chapter 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis
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Sample Questions
Q1) In Figure 7-15, we would expect a move of the budget line from A to B if
A)the price of machines falls.
B)the price of labor falls.
C)output falls.
D)the product price rises.
Q2) Al's Donuts produces about 600 dozen doughnuts daily.If flour prices increase 20 percent
A)only marginal cost will shift up.
B)only marginal cost and average total cost will shift up.
C)marginal cost, average variable cost, and average total cost will shift up.
D)marginal cost, average total cost, average variable cost, and average fixed cost will shift up.
Q3) In Figure 7-2 at an output of 500, marginal cost equals A)10.
B)20.
C)30.
D)40.
Q4) In the long run, more costs become fixed.
A)True
B)False
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Chapter 8: Output, Price, and Profit: the Importance of Marginal
Analysis
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Sample Questions
Q1) Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest) in a new real estate business.Her accountant predicted a $60,000 revenue the first year.Her husband, an economist, forecast her profit to be
A)$10,000.
B)$28,000.
C)$32,000.
D)$60,000.
Q2) The goal of the business firm is maximization of ____, and the goal of the consumer is maximization of ____.
A)total sales; income
B)total profit; utility
C)total output; utility
D)total sales; utility
Q3) Total profit is represented by the vertical distance between a total revenue curve and a total cost curve.
A)True
B)False
Q4) Do firms really seek to maximize profits?
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Chapter 9: Securities: Business Finance and the Economy:
the Tail That Wags the Dog
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Q1) Over the long run, stock prices have
A)generally fallen.
B)generally stayed roughly constant.
C)generally risen.
D)shown no identifiable pattern of change.
Q2) Recently, Dow Chemical 8.5 percent bonds maturing in 2006 closed at $92 with a face value of 100.This means the Dow bonds
A)sold for $92 each.
B)increased in value $92 that day.
C)sold at 92 percent of par value.
D)had the year of maturity changed to 1992.
Q3) "Plowback" is a preferred source of financing a corporation because
A)it is fairly easy, compared to issuing stocks.
B)it is not subject to double taxation.
C)selling bonds involves the high cost of money.
D)stock markets are subject to random walks.
Q4) Explain how a diversified portfolio can reduce fluctuations in returns even when the economy as a whole is experiencing contractions and expansions.
Q5) Why are bonds risky to a corporation?
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Chapter 10: The Firm and the Industry Under Perfect Competition
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Q1) The perfectly competitive widget industry is in long-run equilibrium.A profit-maximizing manufacturer receives total revenue of $55,000.He uses his labor, $15,000 worth of wire, and $15,000 worth of steel to make the widgets.The manufacturer A)is earning an economic profit of $25,000. B)must have an opportunity cost of labor of less than $25,000. C)must have an opportunity cost of labor of exactly $25,000. D)must have an opportunity cost of labor of more than $25,000.
Q2) A perfectly competitive firm will not operate where MC = MR but at MC = AC. A)True
B)False
Q3) A perfectly competitive firm's short-run supply is infinite at the market price. A)True
B)False
Q4) Perfectly competitive markets are not the best at producing the goods that are desired by consumers.
A)True
B)False
Q5) Why does the supply curve of the perfectly competitive industry shift to the right whenever a new firm enters the industry?
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Chapter 11: Monopoly
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Q1) At his profit-maximizing level of output, a monopolist's average total cost curve is tangent to his demand curve.The monopolist
A)is earning a negative economic profit.
B)may or may not be earning a negative economic profit.
C)is earning zero economic profit.
D)is earning a positive economic profit.
Q2) Provide two circumstances where monopoly may offer efficiency advantages over competition.
Q3) Which of the following observations concerning price discrimination is true?
A)It only occurs in monopolies.
B)It is easier for a monopolist than for a firm that is affected by competition.
C)It means that sales to all customers are equally profitable.
D)It is considered as a bad business practice under all circumstance.
Q4) The two basic reasons why a monopoly exists are barriers to entry and cost advantages.
A)True
B)False
Q5) Why does perfect competition shun advertising? Does advertising benefit a monopoly?
Page 13
Q6) How does the monopolist calculate profit per unit, and total profit?
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Chapter 12: Between Competition and Monopoly
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Q1) An oligopoly can be characterized by production of either identical goods or different goods.
A)True
B)False
Q2) When an airline reduces its fares, other airlines typically match the action.But when an airline increases its fare, other airlines do not follow suit.Which oligopoly model cartel, price leadership, or kinked demand best fits the airline industry as described?
Justify your choice and explain why the other models are less appropriate.
Q3) There is statistical evidence that managers' salaries are tied most closely to A)profits at the profit-maximizing output.
B)sales volume.
C)cost per unit at minimum-cost output.
D)the closeness of output to the point where MR = MC.
Q4) 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.
Q5) 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) If average cost is declining,
A)marginal cost must be below average cost.
B)firms would go bankrupt if all prices were set equal to marginal costs.
C)marginal cost may be declining or increasing.
D)All of the above are correct.
Q2) Deregulation has led to higher prices.
A)True
B)False
Q3) Economists cite some beneficial effects of price discrimination.What are these benefits and how do the antitrust laws treat price discrimination?
Q4) One reason regulators push for higher prices in an industry is to
A)prevent excess profits in the industry.
B)protect the public from excessively low prices.
C)encourage usage of the good or service.
D)protect against the demise of existing firms.
Q5) Regulators often raise prices instead of lowering them.This is designed to
A)prevent the exit of competitors.
B)protect the consumer from cheap products.
C)ensure high-quality products.
D)ensure workers are adequately paid.
Page 15
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Chapter 14: The Case for Free Markets: the Price System
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Sample Questions
Q1) Price decreases always increase economic efficiency.
A)True
B)False
Q2) Perfect central planning is nearly impossible for all of these reasons except:
A)production processes between industries are often interdependent.
B)some processes must be decided together, and not individually, because of their interdependence.
C)if the output target for one industry is adjusted, many others must also be adjusted.
D)all of these reasons are correct.
Q3) In a market system, the primary instruments used to coordinate economic activity are
A)plans.
B)prices.
C)input-output analyses.
D)quantities.
Q4) Prices set too low can actually be against the public interest.
A)True
B)False
Q5) 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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Q1) A commodity is ____ if it is used up when someone consumes it.
A)marginal
B)scalable
C)depletable
D)replaceable
Q2) A monopoly price reflects a good's marginal utility.
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) Rent seeking is a way of earning profit without adding to the product's value.
A)True
B)False
Q5) In the event of a detrimental externality which affects the public interest, government action is the only solution.
A)True
B)False
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Chapter 16: Externalities, the Environment, and Natural Resources
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Q1) Taxes on emissions have led to
A)extraction of pollutants by firms from their liquid discharges.
B)recycling of pollutants in lieu of discharge as waste.
C)voluntary reduction in emissions to avoid the taxes.
D)all of the above.
Q2) Water quality in the United States has ____ in the past 25 years.
A)improved
B)worsened
C)remained unchanged
D)improved slightly before a recent deterioration
Q3) Which of the following environmental approaches is most appropriate when surveillance and enforcement is impractical?
A)direct controls
B)emissions tax
C)volunteerism
D)tradable emission permits
Q4) What are the advantages of a tax system for pollution control?
Q5) The pricing system has a failure built into it when externalities exist.
A)True
B)False
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Chapter 17: Taxation and Resource Allocation
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Q1) The money for Social Security payments to current retirees comes from
A)payroll taxes collected from those retirees when they were working.
B)income taxes collected from the current working population.
C)payroll taxes collected from the current working population.
D)only the interest earned now by the government on the invested Social Security trust fund.
Q2) The payroll tax system is a proportional tax for all income earners.
A)True
B)False
Q3) The courts in some states have declared the financing of public schools by local property taxes unconstitutional because
A)housing should never be the basis for taxation of any kind.
B)taxes on real estate generate too much tax revenue.
C)disparity in property values means some communities have more in tax revenues to spend on education than do communities containing less valuable property.
D)the funds for public education should come from federal revenues, not from local property taxes.
Q4) What is personal income tax?
On which principle does the federal government levy this tax?
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Chapter 18: Pricing the Factors of Production
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Q1) In Japan, the market value of the land is approximately four times that of all the land in the United States, even though Japan is only about the size of California.The most likely explanation for this fact is
A)greater demand for land in Japan relative to the supply than in the United States.
B)land is very productive in Japan.
C)land is not fixed in supply in the United States.
D)Japanese workers are very productive.
Q2) Innovation is the act of putting an invention to practical use.
A)True
B)False
Q3) Entrepreneurs differ from managers because
A)they use innovation to gain advantage over their competitors.
B)managers use established managing styles; entrepreneurs do not.
C)entrepreneurs tend to take more risk than managers.
D)All of the above are correct.
Q4) Economists consider rent seeking activity to be highly productive.
A)True
B)False
Q5) How can bonuses to exceptional employees be considered economic rents?
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Chapter 19: Labor and Entrepreneurship: the Human Inputs
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Q1) Globalization was much more pervasive in the 1800s than it is today.
A)True
B)False
Q2) Union leaders who focus on increasing the size of their union will generally accept a wage just above the competitive level.
A)True
B)False
Q3) Capitalism is an economic system in which the production process is controlled primarily by private firms operating in markets.
A)True
B)False
Q4) Explain why on average the profit levels for invention and entrepreneurship are generally so low.
Q5) An economist would describe college fees as
A)an investment in human capital.
B)a transfer payment.
C)a waste of parents' money.
D)an economic loss.
Q6) Give some explanations for the decline in union membership in the United States.
Page 21
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Chapter 20: Poverty, Inequality, and Discrimination
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Q1) Affirmative action laws require employers to search for qualified minority applicants, but not to necessarily give them jobs.
A)True
B)False
Q2) Prejudice leads, inevitably, to economic discrimination.
A)True
B)False
Q3) Tax loopholes in the personal income tax benefit only very rich people.
A)True
B)False
Q4) Discrimination exists when a man and a woman with the same levels of education earn different incomes.
A)True
B)False
Q5) A free market system tends to
A)produce a fairly equal distribution of income.
B)pay people exactly what they are worth.
C)produce a relatively unequal distribution of income.
D)pay most people more than they are worth, at the expense of reducing firms' profits.
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Chapter 21: Is Useconomic Leadership Threatened
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Q1) The gains made against poverty by President Lyndon Johnson's "War on Poverty" were largely reversed by:
A)welfare cuts
B)an elimination of many jobs to overseas manufacturing facilities
C)slower economic growth
D)all of the above.
E)a and c only
Q2) As a share of GDP, U.S.spending on education is:
A)comparable to that of other wealthy nations in the OECD
B)about 26% higher than the average of wealthy nations in the OECD
C)about 26% lower than the average of wealthy nations in the OECD
D)rising slowly, but steadily
Q3) In recent decades, other countries have:
A)caught up to the U.S.in several important economic arenas
B)surpassed the U.S.in several important economic arenas
C)both of the above are true
Q4) In 2013, the U.S.spent more on research and development than any other country in the world.
A)True
B)False
Page 23
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Chapter 22: An Introduction to Macroeconomics
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Q1) Gross Domestic Product is best described as the A)measure of a nation's total economic welfare.
B)national income, including nonmarket income.
C)sum of money values of all final output produced in the domestic economy within the year.
D)national output minus environmental damage.
Q2) If aggregate demand shifts outward over a long period of time, with aggregate supply held constant, the economy should experience A)unemployment.
B)recession.
C)budget surpluses.
D)inflation.
Q3) Stabilization policy often faces a trade-off between inflation and unemployment. A)True
B)False
Q4) Nominal GDP is another term for
A)current dollar GDP.
B)constant dollar GDP.
C)adjusted dollar GDP.
D)relative value GDP.
Page 24
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Chapter 23: The Goals of Macroeconomic Policy
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Q1) Technological change or the effects of automation cause
A)structural unemployment.
B)frictional unemployment.
C)seasonal unemployment.
D)cyclical unemployment.
Q2) If a borrower arbitrarily gains purchasing power as the result of a particular loan agreement, then
A)actual inflation was greater than expected inflation.
B)actual inflation was equal to expected inflation.
C)actual inflation was less than expected inflation.
D)the real interest rate was greater than the nominal interest rate.
Q3) The rate of interest written on a contract between a borrower and a lender is the
A)nominal interest rate.
B)real interest rate.
C)implied interest rate.
D)expected interest rate.
Q4) Inflation tends to redistribute real income from lenders to borrowers.
A)True
B)False
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Chapter 24: Economic Growth: Theory and Policy
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Q1) Improvements in human capital and education played a major role in the productivity improvements of the U.S.economy from 1995 to 2009.
A)True
B)False
Q2) All increases in the level of human capital take place in schools.
A)True
B)False
Q3) The expansion of information technology and the increasing complexity of the economy should make the wage premium
A)continue rising.
B)continue falling.
C)rise.
D)fall.
Q4) A superior level of technology is an important reason the productivity of workers in rich countries is high.
A)True
B)False
Q5) Discuss that factors that help explain the rapid productivity growth in the United States after 1995.
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Chapter 25: Aggregate Demand and the Powerful Consumer
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Q1) Which of the following observations concerning GDP calculations is true?
A)Goods and services produced by governments are valued at market price.
B)Inventories are treated as if they are yet to be sold.
C)Goods produced but not sold during the year are counted in that year's GDP.
D)Goods that firms add to their inventories do not count in the GDP.
Q2) The tax cuts of 2008 and 2009 were effective because consumers believed that they were temporary.
A)True
B)False
Q3) Which factors will cause the consumption function to shift? Which factors do not cause the function to shift?
Q4) National income can be calculated by subtracting
A)depreciation from GDP.
B)indirect business taxes from GDP.
C)depreciation and indirect business taxes from GDP.
D)transfer payments and taxes from GDP.
Q5) Discuss the major determinants of net exports.
Q6) Explain why national income and domestic product must be equal.
Q7) What is the marginal propensity to consume (MPC) and why is it important in predicting consumer behavior? Page 27
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Chapter 26: Demand-Side Equilibrium: Unemployment or Inflation
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Q1) 45° line diagrams show how
A)investment varies with income.
B)expenditures vary with income.
C)investment spending rises when GDP rises.
D)GDP is affected by government purchases.
Q2) Government stabilization policy would be unnecessary if the economy automatically gravitated toward
A)full inflation.
B)full employment.
C)full recession.
D)an inflationary gap.
Q3) The equilibrium level of GDP is the level at which
A)aggregate demand exceeds output.
B)aggregate demand equals output.
C)aggregate demand is less than output.
D)inventories are being depleted to meet demand.
Q4) Define the terms recessionary gap and inflationary gap.Why do they occur?
Q5) What is meant by the concept of a "coordination failure" in macroeconomics?
Q6) Differentiate between an induced increase in consumption and an autonomous increase in consumption.How are they represented on a graph? Page 29
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Chapter 27: Bringing in the Supply Side: Unemployment and Inflation
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Q1) Most economists agree that the economy will adjust to a recessionary gap, but the adjustment process
A)is rapid and destabilizing.
B)is moderately quick, but not as rapid as necessary.
C)takes place solely on the supply side.
D)is very slow.
Q2) A consequence of an inflationary gap is ____ as output begins to decrease and prices continue to increase.
A)stagflation
B)reflation
C)disinflation
D)perflation
Q3) As the slope of the aggregate supply curve increases, this indicates that
A)the economy is getting close to potential GDP.
B)the economy is reducing employment.
C)inflation will be less of a problem.
D)output is falling.
Q4) What is meant by an economy's self correcting mechanism?
Explain the process through which self correcting mechanism reduces inflationary gap.
31
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Chapter 28: Managing Aggregate Demand: Fiscal Policy
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Q1) There is some agreement between the beliefs of President George W.Bush in 2001 on the effectiveness of tax cuts with the beliefs of former President
A)Keynes.
B)Clinton.
C)Reagan.
D)Carter.
Q2) Ronald Reagan's presidency could be characterized as a period of
A)passive monetary policy.
B)passive fiscal policy.
C)active fiscal policy.
D)active regulatory policy.
Q3) Government purchases have the same multiplier effect as business investment spending.
A)True
B)False
Q4) An increase in income taxes was part of President George W.Bush's plan in 2001 and 2008 to increase aggregate demand.
A)True
B)False
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Chapter 29: Money and the Banking System
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Q1) Bank runs are "contagious" in that they often spread to other banks.
A)True
B)False
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) Currently in the United States, money is backed by A)silver in the IMF vaults.
B)Federal Reserve notes in banks.
C)gold in Fort Knox.
D)everyone's willingness to accept it.
Q4) Nowadays, most observers believe that monetary policy
A)is less important than fiscal policy.
B)is more important than fiscal policy.
C)and fiscal policy are equally important.
D)and fiscal policy are both unimportant.
Q5) Define the following terms and explain their importance to the study of macroeconomics: "a.money" "b.M1" "c.near money" "d.bank run"
Page 33
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Chapter 30: Monetary Policy: Conventional and
Unconventional
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Q1) Bank lending and deposits tend to change as interest rates change.Can the Fed counteract this tendency?
A)Yes, through its ability to affect the money supply.
B)Yes, through its ability to change tax levels.
C)No, the Fed is forbidden by the Constitution from intervening in the economy.
D)No, the Fed almost always follows a passive monetary policy.
Q2) The quantity of reserves demanded decreases as the federal funds rate rises because
A)people want more liquid assets as the federal funds rate rises.
B)the price of bonds rise as the federal funds rate rises.
C)the opportunity cost of holding excess reserves increases as the federal funds rate rises.
D)people want more money to invest as the federal funds rate rises.
Q3) The Federal Reserve's principal tool in the manipulation of aggregate demand is the personal income tax.
A)True
B)False
Q4) The demand for reserves depends on income and the price level.
A)True
B)False
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Chapter 31: He Financial Crisis and the Great Recession
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Q1) The recession of 2007-2009 was the most severe economic downturn in the U.S.since the A)1930s.
B)1950s.
C)1970s.
D)1980s.
Q2) In 2008, the Fed utilized expansionary monetary policy which was made
A)more effective as banks held more excess reserves.
B)less effective as banks held more excess reserves.
C)more effective as banks held less excess reserves.
D)less effective as banks held less excess reserves.
Q3) The central idea behind the Troubled Asset Relief Program was for the Treasury to sell mortgage-backed securities to interested investors, wait for prices to increase, and then buy these securities back for a profit.
A)True
B)False
Q4) Why did observers at first believe that the damage from the impending subprime mortgage crisis would be too small to cause a recession?
Q5) Name some important lessons learned from the financial crisis.
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Chapter 32: The Debate Over Monetary and Fiscal Policy
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Q1) Over the years, economists in universities and government agencies have developed a number of fairly accurate techniques to assist them in predicting what the economy will do.
A)True
B)False
Q2) In utilizing unconventional monetary policy in 2010, the Federal Reserve purchased
A)real estate worth more than $2 trillion.
B)$800 billion in Treasury bills.
C)over $1 trillion in mortgage backed securities.
D)$600 billion in long-term Treasury bonds.
Q3) The fiscal stimulus bills of 2001, 2008, and 2009 were unusual examples of rapid implementation of fiscal policy.
A)True
B)False
Q4) According to the monetarists, the velocity of money is
A)constant by definition.
B)highly variable and unpredictable.
C)constant as a matter of empirical proof.
D)not constant but predictable.
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Chapter 33: Budget Deficits in the Short and Long Run
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Q1) If crowding out occurs, the Main Burden of the debt is
A)smaller government assets passed along to the next generation.
B)smaller capital stock passed along to the next generation.
C)fewer government services during this generation.
D)higher debt payments passed along to the next generation.
Q2) The "crowding out" effect states that government spending pushes up interest rates and reduces private investment spending.
A)True
B)False
Q3) Suppose that the economy is currently at full employment.All other things being equal, if the government implements restrictive policies then the appropriate monetary policy is
A)no change from the current policy.
B)reduce the growth of the money supply.
C)constant growth of the money supply.
D)increase the growth of the money supply.
Q4) The structural deficit does not depend on the state of the economy.
A)True
B)False
Q5) Give some arguments for and against a balanced budget requirement.
Page 37
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Chapter 34: The Trade-Off Between Inflation and Unemployment
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Q1) If workers expect inflation, and tend to overestimate actual inflation when they negotiate wage increases, the result will be a continuing
A)shift of AD to the left.
B)shift of AD to the right.
C)recessionary gap.
D)inflationary gap.
Q2) A study of the U.S.price level and real GDP from 1972 to 2007 reveals a clear upward march toward higher prices and greater output.What explains this?
A)Both the aggregate demand curve and the aggregate supply curve have shifted to the left year after year.
B)Both the aggregate demand curve and the aggregate supply curve have shifted to the right year after year.
C)The aggregate supply curve has shifted to the right while the aggregate demand curve has shifted to the left.
D)The aggregate supply curve has shifted to the left while the aggregate demand curve has shifted to the right.
Q3) What is the effect of supply-side inflation on the short-run Phillips curve?
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Chapter 35: International Trade and Comparative Advantage
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Q1) A tariff has one distinct advantage over a quota.It increases tax revenues to the government.
A)True
B)False
Q2) The United States can produce 1,000 shoes if it specializes in shoe production.Alternatively, it can produce 500 shirts.Taiwan can produce 500 shoes or 200 shirts.Explain which country will specialize in shoe production and which in shirt production.What are the possible terms of trade?
Q3) One of the major reasons why nations trade is that A)nations choose to trade for largely unknown reasons.
B)resources are not equally distributed across the planet.
C)nations wish to exert cultural influence abroad.
D)nations wish to copy others, and need imports to study.
Q4) If one country has an absolute advantage in every commodity, there is no reason for it to trade.
A)True
B)False
Q5) What is mercantilism? What are the draw backs of this doctrine?
Page 39
Q6) How can tariffs lead to a situation in which all parties to a trade lose?
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Chapter 36: The International Monetary System: Order or Disorder
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Q1) Explain three factors that would cause the dollar to appreciate.
Q2) How did the gold standard help countries rectify the balance of payment problem? What were the problems associated with the gold standard?
Q3) Inflation plays a major role in determining whether a currency is appreciating or depreciating.
A)True
B)False
Q4) On June 3, 2005, it cost 1.22 U.S.dollars to buy one euro.How many euros did it take to buy one U.S.dollar?
A)0.82 euros
B)0.88 euros
C)1.22 euros
D)88 euros
Q5) If a country has a balance of payments deficit and wishes to maintain the fixed value of its currency, it will generally
A)sell its own currency for foreign currencies.
B)buy its own currency with foreign reserves.
C)decrease taxes to increase domestic disposable income.
D)increase the money supply to keep interest rates down.
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Chapter 37: Exchange Rates and the Macroeconomy
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Q1) From Table 20-2, what can you conclude about net exports as GDP rises?
A)Net exports rise and then fall as GDP rises.
B)Net exports are constant as GDP rises.
C)Net exports rise as GDP rises.
D)Net exports fall as GDP rises.
Q2) One possible cure for the trade deficit is protectionism.
A)True
B)False
Q3) The international trade response to a contractionary monetary policy will cause aggregate demand to shift ____ and aggregate supply to shift ____.
A)outward, outward
B)inward, outward
C)outward, inward
D)inward, inward
Q4) An increase in the U.S.price level relative to the price level of other countries would
A)increase U.S.net exports and increase aggregate demand.
B)increase U.S.net exports and increase aggregate supply.
C)reduce U.S.net exports and reduce aggregate demand.
D)reduce U.S.net exports and increase aggregate demand.
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