Macroeconomic Theory Practice Exam
Course Introduction
Macroeconomic Theory explores the fundamental principles and models that explain the behavior of the overall economy. The course examines key topics such as national income determination, economic growth, unemployment, inflation, and the roles of fiscal and monetary policy. Through analytical frameworks and empirical evidence, students will develop a deep understanding of how aggregate markets function and interact, the causes and consequences of economic fluctuations, and the effectiveness of government interventions in stabilizing the economy. This course provides a solid foundation for advanced study in economics and equips students with the theoretical tools to analyze real-world macroeconomic issues.
Recommended Textbook
Principles of Macroeconomics 8th Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) The overriding reason why households and societies face many decisions is that
A)resources are scarce.
B)goods and services are not scarce.
C)incomes fluctuate with business cycles.
D)people,by nature,tend to disagree.
Answer: A
Q2) When a society cannot produce all the goods and services people wish to have,the economy is experiencing
A)scarcity.
B)surpluses.
C)inefficiencies.
D)inequalities.
Answer: A
Q3) Resources are
A)scarce for households but plentiful for economies.
B)plentiful for households but scarce for economies.
C)scarce for households and scarce for economies.
D)plentiful for households and plentiful for economies.
Answer: C
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Chapter 1: Ten Principles of Economics: How People Make Decisions
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Q1) The principle that "people face tradeoffs" applies to A)individuals.
B)families.
C)societies.
D)All of the above are correct.
Answer: D
Q2) Rational people make decisions at the margin by
A)following marginal traditions.
B)behaving in a random fashion.
C)thinking in black-and-white terms.
D)comparing marginal costs and marginal benefits.
Answer: D
Q3) Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor.This redistribution of wealth
A)is more efficient and more equal for society.
B)is more efficient but less equal for society.
C)is more equal but less efficient for society.
D)is less equal and less efficient for society.
Answer: C
Page 4
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Chapter 1: Ten Principles of Economics: How People Interact
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Q1) If the government were to intervene and set a wage for unskilled labor above the market wage,then we would expect,relative to the market outcome,
A)an increase in the number of unskilled jobs available.
B)a decrease in the number of unskilled jobs available.
C)a decrease in the number of workers wanting unskilled jobs.
D)None of the above is correct.
Answer: B
Q2) Benefits from trade would not include
A)the ability of people and nations to specialize.
B)a greater variety of goods and services becoming available.
C)less competition.
D)lower prices.
Answer: C
Q3) Which of the following statements does not apply to a market economy?
A)Firms decide whom to hire and what to produce.
B)The "invisible hand" usually maximizes the income of society as a whole.
C)Households decide which firms to work for and what to buy with their incomes.
D)Government policies are the primary forces that guide the decisions of firms and households.
Answer: D
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Chapter 1: Ten Principles of Economics: How the Economy
As a Whole Works
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Q1) In the United States,the overall level of prices more than doubled during the A)1950s.
B)1960s.
C)1970s.
D)1980s.
Q2) Which of the following would a permanent increase in the growth rate of the money supply change permanently?
A)inflation
B)unemployment
C)both inflation and unemployment
D)neither inflation nor unemployment
Q3) In the short run,which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy?
A)3 percent per year
B)5 percent per year
C)7 percent per year
D)9 percent per year
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Chapter 1: Ten Principles of Economics: Part A
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Q1) Economists use the term ------ to refer to a situation in which the market on its own fails to produce an efficient allocation of resources.
Q2) Zack quits his job at a consulting firm,which pays $40,000 a year,to enroll in a two-year graduate program.His annual school expenses are $30,000 for tuition,$2,000 for books,and $600 for food.What is his opportunity cost of attending the two-year graduate program?
Q3) Invisible hand is a term used by the economist ------ to describe how the decisions of households and firms lead to desirable market outcomes.
Q4) The term ------ refers to the size of the economic pie,and the term ------ refers to how the pie is divided.
Q5) Give an example of government intervention that is intended to reduce an externality.
Q6) What is another word for "marginal"?
Q7) Refer to Scenario 1-6.What is the company's average cost?
Q8) Refer to Scenario 1-4.What is your opportunity cost of studying economics?
Q9) Refer to Scenario 1-4.What is your opportunity cost of going to the movies?
Q10) Explain how government policies that redistribute income from the rich to the poor might reduce efficiency.
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Chapter 1: Ten Principles of Economics: Part B
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Q1) An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.
A)True
B)False
Q2) A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars.
A)True B)False
Q3) Market power and externalities are two possible causes of market failure.
A)True
B)False
Q4) If wages for accountants rose,then accountants' leisure time would have a lower opportunity cost.
A)True
B)False
Q5) Scarcity means that there is less of a good or resource available than people wish to have.
A)True B)False
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Chapter 2: Thinking Like an Economist
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Q1) Studying which of the following is helpful in learning to think like an economist?
A)theory.
B)case studies.
C)examples of economics in the news.
D)all of the above.
Q2) The language of economics is
A)needlessly arcane.
B)valuable because it provides a new and useful way of learning about the world.
C)easy to learn within a day.
D)unnecessary to learn for a thorough understanding of economics.
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Chapter 2: Thinking Like an Economist: The Economist As Scientist
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Sample Questions
Q1) Refer to Figure 2-16.The opportunity cost of obtaining 30 additional widgets by moving from point A to point C is approximately
A)10 gadgets.
B)30 widgets
C)10 gadgets and 30 widgets.
D)0 gadgets.
Q2) Refer to Figure 2-12.The shift of the production possibilities frontier from A to B can best be described as
A)a downturn in the economy.
B)economic growth.
C)an enhancement of equality.
D)an improvement in the allocation of resources.
Q3) In the circular-flow diagram,which of the following items does not flow from firms to households?
A)goods
B)services
C)capital
D)profit
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Chapter 2: Thinking Like an Economist: The Economist As Policy Adviser
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Q1) A duty of economists at the Department of Labor is to
A)analyze data on workers.
B)schedule federal holidays.
C)enforce the nation's antitrust laws.
D)All of the above are correct.
Q2) Economists at the Department of the Treasury
A)design U.S.currency and coins.
B)provide Congress with the annual budget.
C)enforce the U.S.antitrust laws.
D)provide advice on tax policy to the President.
Q3) Which of the following is an example of a positive,as opposed to normative,statement?
A)When the minimum wage is increased,unemployment is a predictable consequence.
B)The income tax rate should be increased to offset the budget deficit.
C)Increasing government spending is the best way to help the economy move out of a recession.
D)More than one of the above are positive statements.
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Chapter 2: Thinking Like an Economist: Why Economists
Disagree
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Q1) A survey of professional economists revealed that more than three-fourths of them agreed with fourteen economic propositions.Which of the following is not one of those propositions?
A)The United States should not restrict employers from outsourcing work to foreign countries.
B)The United States should withdraw from the North American Free Trade Agreement (NAFTA).
C)The United States should eliminate agricultural subsidies.
D)Local and state governments should eliminate subsidies to professional sports franchises.
Q2) Economists sometimes give conflicting advice because
A)graduate students in economics are encouraged to argue with each other.
B)economists have different values and scientific judgment.
C)economists acting as scientists do not like to agree with economists acting as policy advisers.
D)economics is more of a belief system than a science.
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Q1) Congressman Dearmark justified spending $3 million on a new entertainment complex in his district because it will create 450 new jobs for his residents.As a student of economics,you know that
A)this is a case of the "broken window fallacy."
B)this is a great use of taxpayer dollars.
C)this policy diverts money from spending somewhere else in the economy.
D)Both a and c are correct.
Q2) How did the influential economist John Maynard Keynes explain his remark that though economics is an easy subject compared with the higher branches of philosophy or pure science,it is a subject at which few excel?
A)Most people who study economics are not very bright.
B)Good economists must possess a rare combination of gifts.
C)Economics is quite boring;hence,people tend to lose interest in it before mastering it.
D)Good thinkers become frustrated with economics because it does not make use of the scientific method.
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Chapter 2: Thinking Like an Economist: Graphing a Brief Review
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Sample Questions
Q1) The first number in any ordered pair is
A)the x-coordinate.
B)the y-coordinate.
C)the vertical location of the point.
D)the slope.
Q2) A demand curve shows the relationship
A)between income and quantity demanded.
B)between price and income.
C)between price and quantity demanded.
D)among income,price,and quantity demanded.
Q3) To display information on two variables,an economist must use A)a bar graph.
B)a pie chart.
C)the coordinate system.
D)a time-series graph.
Q4) Refer to Figure 2-18.A movement from point A to point Z is called
A)a shift in demand.
B)a movement along the demand curve.
C)a shift in supply.
D)a movement along the supply curve.
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Chapter 2: Thinking Like an Economist: Part A
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Q1) In the circular flow diagram,when Brian provides labor through the markets for factors of production to ABC Company,the flow of money he receives in exchange is called
Q2) When economists are trying to explain the world,they are scientists.When they are trying to improve it,they are
Q3) Refer to Figure 2-22.What is the slope of the line with points A,B,and C?
Q4) Economists at which administrative department help design tax policy?
Q5) Refer to Figure 2-3.What are two elements not included in this figure that could be included in a more complex model?
Q6) Refer to Figure 2-22.What is the x-coordinate of point R?
Q7) Refer to Figure 2-3.What does the arrow going from oval B to rectangle 2 represent in the figure?
Q8) As a substitute for laboratory experiments,economists use evidence available through history's
Q9) What you must give up to get something else is called the
Q10) Who would be more likely to study the effects of rent control on housing in New York City,a macroeconomist or a microeconomist?
Q11) Refer to Figure 2-3.What do the rectangles represent in the figure?
Q12) Refer to Figure 2-3.What do the outer arrows represent in the figure? Page 15
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Chapter 2: Thinking Like an Economist: Part B
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Q1) Economists at the U.S.Department of the Treasury help design U.S.coins and paper money.
A)True
B)False
Q2) Points on the production possibilities frontier represent efficient levels of production.
A)True
B)False
Q3) There is only one explanation for why economists give conflicting advice on policy issues,and it is that they have different values about what policy should try to accomplish.
A)True
B)False
Q4) The opportunity cost of something is what you give up to get it.
A)True
B)False
Q5) While the production possibilities frontier is a useful model,it cannot be used to illustrate economic growth.
A)True
B)False
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Chapter 3: Interdependence and the Gains From Trade
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Q1) When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all
A)rely upon the government to provide us with the basic necessities of life.
B)rely upon one another for the goods and services we consume.
C)have similar tastes and abilities.
D)are concerned about one another's well-being.
Q2) People who provide you with goods and services
A)are acting out of generosity.
B)do so because they get something in return.
C)have chosen not to become interdependent.
D)are required to do so by the government.
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Chapter 3: Interdependence and the Gains From Trade: A
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Sample Questions
Q1) Refer to Figure 3-2.If the production possibilities frontier shown is for two months of production,then which of the following combinations of peanuts and cashews could Brazil not produce in two months?
A)5 peanuts and 88 cashews
B)4 peanuts and 115 cashews
C)3 peanuts and 155 cashews
D)1 peanuts and 200 cashews
Q2) Refer to Figure 3-4.If the production possibilities frontiers shown are each for one year of working,then which of the following combinations of jackets and sweaters could Lisa and Bryce together produce in a given year?
A)1 sweater and 22 jackets
B)2 sweaters and 20 jackets
C)4 sweaters and 12 jackets
D)5 sweaters and 7 jackets
Q3) Refer to Figure 3-10.If Alice produces only lemonade,she can produce
A)200 pitchers per day.
B)300 pitchers per day.
C)400 pitchers per day.
D)450 pitchers per day.
Page 19
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Refer to Figure 3-15.The opportunity cost of 1 poem for Jordan is
A)1/2 novel.
B)1/3 novel.
C)3 novels.
D)4 novels.
Q2) Refer to Figure 3-24.Betty has
A)an absolute and comparative advantage producing good x.
B)an absolute but not a comparative advantage producing good x.
C)a comparative but not an absolute advantage producing good x.
D)neither a comparative nor an absolute advantage producing good x.
Q3) The gains from trade are
A)evident in economic models,but seldom observed in the real world.
B)evident in the real world,but impossible to capture in economic models.
C)a result of more efficient resource allocation than would be observed in the absence of trade.
D)based on the principle of absolute advantage.
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Chapter 3: Interdependence and the Gains From Trade:
Applications of Comparative Advantage
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Q1) Goods produced abroad and sold domestically are called A)exports.
B)imports.
C)exchange rates.
D)opportunity costs.
Q2) Suppose the U.S.and Japan can both produce airplanes and televisions and the U.S.has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions.Also suppose the U.S.has an absolute advantage in the production of both airplanes and televisions.The U.S.should
A)not trade airplanes or televisions with Japan.
B)import airplanes from Japan and export televisions to Japan.
C)export airplanes to Japan and import televisions from Japan.
D)export both airplanes and televisions to Japan.
Q3) By definition,imports are
A)people who work in foreign countries.
B)goods in which a country has an absolute advantage.
C)limits placed on the quantity of goods leaving a country.
D)goods produced abroad and sold domestically.
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Chapter 3: Interdependence and the Gains From Trade:
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Q1) Which of the following is not an example of the principle that trade can make everyone better off?
A)Americans buy tube socks from China.
B)Residents of Maine drink orange juice from Florida.
C)A homeowner hires the kid next door to mow the lawn.
D)All of the above are examples of the principle that trade can make everyone better off.
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Chapter 3: Interdependence and the Gains From Trade:
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Sample Questions
Q1) Refer to Figure 3-26.What is Kate's opportunity cost of one cookie?
Q2) Refer to Scenario 3-1.What is Catherine's opportunity cost of producing cake? Explain how you derived your answer.
Q3) Refer to Scenario 3-1.What is Catherine's opportunity cost of producing ice cream? Explain how you derived your answer.
Q4) Refer to Scenario 3-2.Which country,if either,has an absolute advantage producing broccoli? Defend your answer.
Q5) Refer to Scenario 3-1.Is it possible for Greg and Catherine to gain from trade? Defend your answer.
Q6) Refer to Figure 3-26.What is Mary's opportunity cost of one muffin?
Q7) If the U.S.could produce 5 televisions per hour of labor and China could produce 3 televisions per hour of labor,would it necessarily follow that the U.S.should specialize in television production?
Explain your answer using the concepts of comparative and or absolute advantage.
Q8) The gains from specialization and trade are based on ------ advantage.
Q10) What does a consumption possibilities frontier represent? Page 23
Q9) Refer to Scenario 3-2.Which country,if either,has a comparative advantage producing rice? Defend your answer using the numbers given.
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Chapter 3: Interdependence and the Gains From Trade:
Part B
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Q1) Adam Smith wrote that a person should never attempt to make at home what it will cost him more to make than to buy.
A)True
B)False
Q2) Zora can produce 4 quilts in a week and she can produce 1 corporate website in a week.Lou can produce 9 quilts in a week and he can produce 2 corporate websites in a week.Zora has the comparative advantage in quilts and the absolute advantage in neither good,while Lou has the comparative advantage in corporate websites and the absolute advantage in both goods.
A)True
B)False
Q3) For international trade to benefit a country,it must benefit all citizens of that country.
A)True
B)False
Q4) Trade allows a country to consume outside its production possibilities frontier.
A)True
B)False
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Chapter 4: The Market Forces of Supply and Demand
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Q1) In a market economy,supply and demand are important because they
A)are direct policy tools used by government agencies to regulate the economy.
B)illustrate when an market is in equilibrium,but they are not helpful when a market is out of equilibrium.
C)can be used to predict the impact on the economy of various events and policies.
D)All of the above are correct.
Q2) The two words most often used by economists are
A)prices and quantities.
B)resources and allocation.
C)supply and demand.
D)efficiency and equity.
Q3) The two words economists use most often are
A)inflation and trade.
B)supply and demand.
C)competition and prices.
D)markets and equilibrium.
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Chapter 4: The Market Forces of Supply and
Demand:Markets and Competition
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Q1) Which of the following is the least likely to be a competitive market?
A)ice cream
B)soybeans
C)cable television
D)new houses
Q2) When all market participants are price takers who have no influence over prices,the markets have
A)only a few buyers and sellers.
B)numerous sellers but only a few buyers.
C)numerous buyers but only a few sellers.
D)numerous buyers and sellers.
Q3) The highest form of competition is called
A)absolute competition.
B)cutthroat competition.
C)perfect competition.
D)market competition.
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Chapter 4: The Market Forces of Supply and Demand: Demand
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Q1) If buyers today become more willing and able than before to purchase larger quantities of stand up paddle boards (SUPs)at each price of SUPs,then
A)we will observe a movement downward and to the right along the demand curve for SUPs.
B)we will observe a movement upward and to the left along the demand curve for SUPs.
C)the demand curve for SUPs will shift to the right.
D)the demand curve for SUPs will shift to the left.
Q2) What will happen in the gasoline market now if buyers expect higher gasoline prices in the near future?
A)The demand for gasoline will increase.
B)The demand for gasoline will decrease.
C)The demand for gasoline will be unaffected.
D)The supply of gasoline will increase.
Q3) Today's demand curve for gasoline could shift in response to a change in
A)today's price of gasoline.
B)the expected future price of gasoline.
C)the number of sellers of gasoline.
D)All of the above are correct.
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Chapter 4: The Market Forces of Supply and Demand: Supply
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Q1) Which of the following would cause a movement along the supply curve for cupcakes?
A)an improvement in technology for commercial mixers
B)a decrease in the price of cupcakes
C)an increase in the price of cake flour
D)All of the above are correct.
Q2) A market supply curve shows how the total quantity supplied of a good varies as
A)production technology varies.
B)price varies.
C)input prices vary.
D)demand varies.
Q3) Refer to Figure 4-13.If Producer A and Producer B are the only producers in the market,then the market quantity supplied when the price is $4 is
A)4 units.
B)8 units.
C)12 units.
D)16 units.
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Chapter 4: The Market Forces of Supply and Demand:
Supply and Demand Together
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Q1) Refer to Figure 4-18.Equilibrium price and quantity are,respectively,
A)$15 and 200 units.
B)$25 and 600 units.
C)$25 and 400 units.
D)$35 and 200 units.
Q2) Suppose the number of buyers in a market decreases and a technological advancement occurs also.What would we expect to happen in the market?
A)Equilibrium price would decrease,but the impact on equilibrium quantity would be ambiguous.
B)Equilibrium quantity would increase,but the impact on equilibrium price would be ambiguous.
C)Equilibrium quantity would decrease,but the impact on equilibrium price would be ambiguous.
D)None of the above is correct.
Q3) Which of the following events must cause equilibrium price to rise?
A)demand increases and supply decreases
B)demand and supply both decrease
C)demand decreases and supply increases
D)demand and supply both increase
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Chapter 4: The Market Forces of Supply and
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Q1) The signals that guide the allocation of resources in a market economy are A)surpluses and shortages.
B)quantities.
C)government policies. D)prices.
Q2) Who gets scarce resources in a market economy?
A)the government
B)whoever the government decides gets them
C)whoever wants them
D)whoever is willing and able to pay the price
Q3) Suppose the United States had a short-term shortage of farmers.Which mechanisms would adjust to remove the shortage?
A)The government would provide tax incentives to encourage people to become farmers.
B)The government would subsidize the production of food.
C)The prices of food and the wages of farmers would adjust.
D)There are no mechanisms to remove the shortage.
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) Suppose the number of buyers in a market decreases.As a result,would the demand curve in this market shift to the right or to the left?
Q2) Refer to Figure 4-29.The movement from S1 to S2 is a
Q3) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if the price of this good increases.
Q4) Does a change in the price in a market result in a shift of the demand curve or in a movement along the demand curve?
Q5) If the price of steel,an input into the production of automobiles,rises,and at the same time the price of gasoline rises,what will happen to the equilibrium price and quantity of automobiles?
Q6) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if the price of a substitute for this good becomes more expensive.
Q7) A group of buyers and sellers of a particular good or service is called a
Q8) Refer to Scenario 4-1.What is the equilibrium quantity in this market?
Q9) If income rises in the market for an inferior good,will the demand curve for the inferior good shift to the right or to the left?
Q10) Refer to Figure 4-31.What are the values of the equilibrium price and quantity? Page 32
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Chapter 4: The Market Forces of Supply and Demand: Part
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Q1) A market's equilibrium is the point at which the supply and demand curves intersect.
A)True
B)False
Q2) A decrease in the price of peanut butter will increase both the equilibrium price and quantity in the market for jelly.
A)True
B)False
Q3) When the market price is below the equilibrium price,the quantity of the good demanded exceeds the quantity supplied.
A)True
B)False
Q4) A yard sale is an example of a market.
A)True
B)False
Q5) Individual demand curves are summed horizontally to obtain the market demand curve.
A)True
B)False
Page 34
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Chapter 5: Elasticity and Its Applications
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Q1) Elasticity is
A)a measure of how much buyers and sellers respond to changes in market conditions.
B)the study of how the allocation of resources affects economic well-being.
C)the maximum amount that a buyer will pay for a good.
D)the value of everything a seller must give up to produce a good.
Q2) Which of the following statements about the consumers' responses to rising gasoline prices is correct?
A)About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars.
B)About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars.
C)About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars.
D)Because gasoline is a necessity,consumers do not decrease their quantity demanded in either the short run or the long run.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Demand
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Sample Questions
Q1) Which of the following is not a determinant of the price elasticity of demand for a good?
A)the time horizon
B)the steepness or flatness of the supply curve for the good
C)the definition of the market for the good
D)the availability of substitutes for the good
Q2) If the price elasticity of demand for a good is 0.3,then a 20 percent decrease in price results in a
A)0.015 percent increase in the quantity demanded.
B)0.6 percent increase in the quantity demanded.
C)6 percent increase in the quantity demanded.
D)66 percent increase in the quantity demanded.
Q3) Refer to Figure 5-9.If the price rises from point D to point C,total revenue
A)increases,and demand is price elastic.
B)decreases,and demand is price elastic.
C)increases,and demand is price inelastic.
D)decreases,and demand is price inelastic.
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Chapter 5: Elasticity and Its Applications: The Elasticity of Supply
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Q1) At price of $1.25,a paper manufacturer is willing to supply 150 spiral notebooks per day.At a price of $1.50,the paper manufacturer is willing to supply 175 spiral notebooks per day.Using the midpoint method,the price elasticity of supply is about
A)1.18.
B)1.00.
C)0.85.
D)0.25.
Q2) Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run.If an increase in the demand for minivans causes the price of minivans to increase by 5%,then the quantity supplied of minivans will increase by about
A)1.5% in the short run and 6% in the long run.
B)6% in the short run and 1.5% in the long run.
C)16.7% in the short run and 4.2% in the long run.
D)4.2% in the short run and 16.7% in the long run.
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Chapter
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Q1) Which of the following statements about agriculture in the U.S.is correct?
A)Technological improvements typically increase both supply and revenue for individual farmers.
B)Technological improvements that increased supply,coupled with inelastic demand for foodstuffs,explain why the number of farmers has decreased dramatically over the last century.
C)Because technological improvements increase the supply of a product for which demand is inelastic,an individual farmer would be better off not adopting the new technology.
D)All of the above are correct.
Q2) Refer to Scenario 5-3.The change in equilibrium quantity will be
A)greater in the aged cheddar cheese market than in the bread market.
B)greater in the bread market than in the aged cheddar cheese market.
C)the same in the aged cheddar cheese and bread markets.
D)Any of the above could be correct.
Q3) Drug-interdiction policies that reduce the supply of illegal drugs may
A)be more effective in the long run than in the short run.
B)be best coupled with drug-education programs designed to reduce demand.
C)increase drug-related crimes.
D)All of the above are correct.
Page 38
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Chapter 5: Elasticity and Its Applications: Part A
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Q1) Refer to Scenario 5-6.Considering the cross price elasticity of demand for mobile and landline telephone service,is the cross price elasticity of demand positive or negative and do the consumers of Plainville regard these goods as substitutes or complements?
Q2) If the income elasticity of demand for a good is 0.56,is the good a normal or inferior good?
Q3) Suppose the price elasticity of demand for a product is 0.5.If a supplier wants to increase revenue,what change should it make to price,if any?
Q4) Suppose the price of gas increases by 20%.Will demand be more elastic if consumers have 3 weeks or 3 years to adjust to this price change?
Q5) Refer to Figure 5-21.Using the midpoint method,what is the price elasticity of supply between $25 and $35?
Q6) Adam and Barb go to the store to purchase some lottery tickets.Without looking at the price,Adam says "I'll take 10 lottery tickets," and Barb says "I'll take $10 worth of lottery tickets." What is each person's price elasticity of demand for lottery tickets?
Q7) The measure of how willing consumers are to buy less of a good as its price rises is called
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Page 39
Chapter 5: Elasticity and Its Applications: Part B
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Q1) If a firm that produces honey is facing elastic demand,then the firm would decrease price to increase revenue.
A)True
B)False
Q2) The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.
A)True
B)False
Q3) Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount.
A)True
B)False
Q4) When the price of knee braces increased by 25 percent,the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent.BYC's price elasticity of supply of knee braces is 0.33.
A)True
B)False
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Page 40
Chapter 6: Supply Demand and Government Policies
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Q1) Which of the following is not an example of a public policy?
A)rent-control laws
B)minimum-wage laws
C)taxes
D)equilibrium laws
Q2) Policymakers use taxes
A)to raise revenue for public purposes but not to influence market outcomes.
B)both to raise revenue for public purposes and to influence market outcomes.
C)when they realize that price controls alone are insufficient to correct market inequities.
D)only in those markets in which the burden of the tax falls clearly on the sellers.
Q3) Price controls
A)always produce a fair outcome.
B)always produce an efficient outcome.
C)can generate inequities of their own.
D)All of the above are correct.
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Chapter 6: Supply Demand and Government Policies:
Controls on Prices
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Q1) Economists blame the long lines at gasoline stations in the U.S.in the 1970s on
A)U.S.government regulations pertaining to the price of gasoline.
B)the Organization of Petroleum Exporting Countries (OPEC).
C)major oil companies operating in the U.S.
D)consumers who bought gasoline frequently,even when their cars' gasoline tanks were nearly full.
Q2) Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?
A)Policymakers have studied the effects of the price ceiling carefully,and they recognize that the price ceiling is advantageous for society as a whole.
B)Buyers of milk,recognizing that the price ceiling is good for them,have pressured policymakers into imposing the price ceiling.
C)Sellers of milk,recognizing that the price ceiling is good for them,have pressured policymakers into imposing the price ceiling.
D)Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling.
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Page 42
Chapter 6: Supply Demand and Government Policies: Taxes
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Q1) Refer to Figure 6-20.Suppose a tax of $5 per unit is imposed on this market.What will be the new equilibrium quantity in this market?
A)less than 25 units
B)25 units
C)between 25 units and 50 units
D)greater than 50 units
Q2) The Federal Insurance Contribution Act (FICA)tax is an example of a(n)
A)payroll tax.
B)sales tax.
C)farm subsidy.
D)income subsidy.
Q3) A tax imposed on the sellers of a good will
A)raise both the price buyers pay and the effective price sellers receive.
B)raise the price buyers pay and lower the effective price sellers receive.
C)lower the price buyers pay and raise the effective price sellers receive.
D)lower both the price buyers pay and the effective price sellers receive.
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Chapter 6: Supply Demand and Government Policies: Part
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Q1) Refer to Figure 6-33.Suppose a $3 per-unit tax is imposed on the sellers of this good.What price will buyers pay for the good after the tax is imposed?
Q2) Refer to Figure 6-31.If the government set a price ceiling at $8,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q3) Refer to Scenario 6-2.Suppose the government sets a price ceiling at $17 for this product.Is this price ceiling binding,and what will be the size of the shortage/surplus in this market?
Q4) If the supply curve is more price elastic than the demand curve,will the buyers or the sellers bear a greater burden of a tax? Draw a diagram to illustrate your answer.
Q5) Refer to Figure 6-33.Suppose a $4 per-unit tax is imposed on the sellers of this good.How many units of this good will be sold after the tax is imposed?
Q6) Refer to Figure 6-31.If the government set a price floor at $9,would there be a shortage or surplus,and how large would be the shortage/surplus?
Q7) Refer to Figure 6-33.Suppose a $3 per-unit tax is imposed on the sellers of this good.How much is the burden of this tax on the buyers in this market?
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Chapter 6: Supply Demand and Government Policies: Part B
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Sample Questions
Q1) Economic policies often have effects that their architects did not intend or anticipate.
A)True
B)False
Q2) Price controls are usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
A)True
B)False
Q3) A tax on sellers increases the quantity of the good sold in the market.
A)True
B)False
Q4) Who bears the majority of a tax burden depends on whether the tax is placed on the buyers or the sellers.
A)True
B)False
Q5) A price ceiling set below the equilibrium price is nonbinding. A)True
B)False
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Chapter 7: Consumers Producers and the Efficiency of Markets
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Q1) The study of how the allocation of resources affects economic well-being is called A)consumer economics.
B)macroeconomics.
C)willingness-to-pay economics.
D)welfare economics.
Q2) Welfare economics explains which of the following in the market for televisions?
A)The government sets the price of televisions;firms respond to the price by producing a specific level of output.
B)The government sets the quantity of televisions;firms respond to the quantity by charging a specific price.
C)The market equilibrium price for televisions maximizes the total welfare of television buyers and sellers.
D)The market equilibrium price for televisions maximizes consumer welfare and minimizes producer profit.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Consumer Surplus
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Q1) A drought in California destroys many red grapes.As a result of the drought,the consumer surplus in the market for red grapes
A)increases,and the consumer surplus in the market for red wine increases.
B)increases,and the consumer surplus in the market for red wine decreases.
C)decreases,and the consumer surplus in the market for red wine increases.
D)decreases,and the consumer surplus in the market for red wine decreases.
Q2) Willingness to pay
A)measures the value that a buyer places on a good.
B)is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept.
C)is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept.
D)is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
Q3) Refer to Figure 7-5.If the price of the good is $6,then consumer surplus is
A)$16.
B)$24.
C)$30.
D)$36.
Page 47
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Producer Surplus
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Q1) Producer surplus directly measures
A)the well-being of society as a whole.
B)the well-being of buyers and sellers.
C)the well-being of sellers.
D)sellers' willingness to sell.
Q2) Cost is a measure of the
A)seller's willingness to sell.
B)seller's producer surplus.
C)producer shortage.
D)seller's willingness to buy.
Q3) Producer surplus is
A)measured using the demand curve for a good.
B)always a negative number for sellers in a competitive market.
C)the amount a seller is paid minus the cost of production.
D)the opportunity cost of production minus the cost of producing goods that go unsold.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Market Efficiency
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Q1) Total surplus in a market will increase when the government
A)imposes a tax on that market.
B)imposes a binding price floor on that market.
C)removes a binding price ceiling from that market.
D)None of the above is correct.
Q2) Total surplus is represented by the area
A)under the demand curve and above the price.
B)above the supply curve and up to the price.
C)under the supply curve and up to the price.
D)between the demand and supply curves up to the point of equilibrium.
Q3) Total surplus
A)can be used to measure a market's efficiency.
B)is the sum of consumer and producer surplus.
C)is the value to buyers minus the cost to sellers.
D)All of the above are correct.
Q4) Refer to Figure 7-24.At equilibrium,producer surplus is
A)$36.
B)$72.
C)$54.
D)$18.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Conclusion Market Efficiency and Market Failure
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Q1) Inefficiency can be caused in a market by the presence of A)market power.
B)externalities.
C)imperfectly competitive markets.
D)All of the above are correct.
Q2) Externalities are
A)side effects passed on to a party other than the buyers and sellers in the market.
B)side effects of government intervention in markets.
C)external forces that cause the price of a good to be higher than it otherwise would be.
D)external forces that help establish equilibrium price.
Q3) Which of the following is not correct?
A)Market power can cause markets to be inefficient.
B)When the decisions of buyers and sellers affect nonparticipants,markets may be inefficient.
C)The tools of welfare economics cannot help economists when markets are inefficient.
D)Externalities can cause markets to be inefficient.
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part A
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Q1) If John's willingness to pay for a good is $20 and the price of the good is $15,how much is John's consumer surplus from purchasing the good?
Q2) Refer to Figure 7-30.If the market equilibrium price falls from $120 to $80,how much consumer surplus do consumers entering the market after the price drop receive?
Q3) Refer to Scenario 7-2.How much is total producer surplus at the equilibrium price in this market?
Q4) Refer to Scenario 7-2.How much is total surplus at the equilibrium price in this market?
Q5) Refer to Figure 7-34.Suppose there is initially a price ceiling set at $4 in this market.If the government removed the price ceiling,by how much would total producer surplus change?
Q6) Refer to Figure 7-30.If the market equilibrium price falls from $120 to $80,how much is the change in total consumer surplus in the market?
Q7) Given the following two equations:
1)Total Surplus = Consumer Surplus + Producer Surplus
2)Total Surplus = Value to Buyers - Cost to Sellers
Show how equation (1)can be used to derive equation (2).
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Chapter 7: Consumers Producers and the Efficiency of
Markets: Part B
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Q1) All else equal,an increase in demand will always increase consumer surplus.
A)True
B)False
Q2) If producing a soccer ball costs Jake $5,and he sells it for $40,his producer surplus is $35.
A)True
B)False
Q3) Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it.
A)True
B)False
Q4) If producing a soccer ball costs Jake $5,and he sells it for $40,his producer surplus is $45.
A)True
B)False
Q5) If the government imposes a binding price floor in a market,then the consumer surplus in that market will decrease.
A)True
B)False
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Chapter 8: Application the Cost of Taxation
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Q1) Who once said that taxes are the price we pay for a civilized society?
A)Aristotle
B)George Washington
C)Oliver Wendell Holmes,Jr.
D)Ronald Reagan
Q2) To fully understand how taxes affect economic well-being,we must compare the
A)consumer surplus to the producer surplus.
B)price paid by buyers to the price received by sellers.
C)reduced welfare of buyers and sellers to the revenue raised by the government.
D)consumer surplus to the deadweight loss.
Q3) In 1776,the American Revolution was sparked by anger over
A)the extravagant lifestyle of British royalty.
B)the crimes of British soldiers stationed in the American colonies.
C)British taxes imposed on the American colonies.
D)the failure of the British to protect American colonists from attack by hostile Native Americans.
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Chapter 8: Application the Cost of Taxation: The
Deadweight Loss of Taxation
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Q1) Refer to Figure 8-12.Suppose a $3 per-unit tax is placed on this good.The per-unit burden of the tax on buyers is
A)$1.
B)$2.
C)$3.
D)$4.
Q2) Taxes cause deadweight losses because taxes
A)reduce the sum of producer and consumer surpluses by more than the amount of tax revenue.
B)prevent buyers and sellers from realizing some of the gains from trade.
C)cause marginal buyers and marginal sellers to leave the market,causing the quantity sold to fall.
D)All of the above are correct.
Q3) Refer to Figure 8-4.The amount of tax revenue received by the government is equal to
A)$245.
B)$350.
C)$490.
D)$700.
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Chapter 8: Application the Cost of Taxation: The Determinants
of the Deadweight
Loss
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Q1) When a good is taxed,the burden of the tax
A)falls more heavily on the side of the market that is more elastic.
B)falls more heavily on the side of the market that is more inelastic.
C)falls more heavily on the side of the market that is closer to unit elastic.
D)is distributed independently of relative elasticities of supply and demand.
Q2) Other things equal,the deadweight loss of a tax
A)decreases as the size of the tax increases.
B)increases as the size of the tax increases,but the increase in the deadweight loss is less rapid than the increase in the size of the tax.
C)increases as the size of the tax increases,and the increase in the deadweight loss is more rapid than the increase in the size of the tax.
D)increases as the price elasticities of demand and/or supply increase,but the deadweight loss does not change as the size of the tax increases.
Q3) Taxes on labor have the effect of encouraging
A)workers to work more hours.
B)the elderly to postpone retirement.
C)second earners within a family to take a job.
D)unscrupulous people to take part in the underground economy.
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Chapter 8: Application the Cost of Taxation: Deadweight
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Q1) Which of the following statements is correct?
A)A decrease in the size of a tax always decreases the tax revenue raised by that tax.
B)A decrease in the size of a tax always decreases the deadweight loss of that tax.
C)Tax revenue decreases when there is a small decrease in the tax rate and the economy is on the downward-sloping part of the Laffer curve.
D)An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the economy is on the upward-sloping part of the Laffer curve.
Q2) The graph that represents the amount of deadweight loss (measured on the vertical axis)as a function of the size of the tax (measured on the horizontal axis)looks like
A)a U.
B)an upside-down U.
C)a horizontal straight line.
D)an upward-sloping curve.
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Chapter 8: Application the Cost of Taxation: Conclusion
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Q1) Taxes are of interest to
A)microeconomists because they consider how to balance equality and efficiency. B)microeconomists because they consider how best to design a tax system.
C)macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity.
D)All of the above are correct.
Q2) Taxes are costly to market participants because they A)transfer resources from market participants to the government. B)alter incentives.
C)distort market outcomes.
D)All of the above are correct.
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Chapter 8: Application the Cost of Taxation: Part A
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Q1) The demand for energy drinks is more elastic than the demand for milk.Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.
Q2) Suppose the demand curve and the supply curve in a market are both linear.If a $2 tax per unit results in a deadweight loss of $200,how large would be the deadweight loss from a $3 tax per unit?
Q3) Refer to Figure 8-25.How much is producer surplus at the market equilibrium?
Q4) Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.What price will sellers receive for the good after the tax is imposed?
Q5) Suppose the demand curve and the supply curve in a market are both linear.To begin,there was a $5 tax per unit,and the $5 tax resulted in a deadweight loss of $1,500.Now,the tax per unit is higher,with the higher tax resulting in a deadweight loss of $6,000.What is the amount of the new tax per unit?
Q6) Refer to Figure 8-26.What are the equilibrium price and equilibrium quantity in this market?
Q7) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How much is producer surplus after the tax is imposed?
Q8) Refer to Figure 8-26.How much is total surplus at the market equilibrium?
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Chapter 8: Application the Cost of Taxation: Part B
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Q1) Total surplus is always equal to the sum of consumer surplus and producer surplus. A)True
B)False
Q2) When a tax is imposed,the loss of consumer surplus and producer surplus as a result of the tax exceeds the tax revenue collected by the government.
A)True
B)False
Q3) Economists disagree on whether labor taxes have a small or large deadweight loss. A)True
B)False
Q4) The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases,deadweight loss continues to increase. A)True
B)False
Q5) The greater the elasticity of demand,the smaller the deadweight loss of a tax. A)True
B)False
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Chapter 9: Application International Trade
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Q1) A logical starting point from which the study of international trade begins is
A)the recognition that not all markets are competitive.
B)the recognition that government intervention in markets sometimes enhances the economic welfare of the society.
C)the principle of absolute advantage.
D)the principle of comparative advantage.
Q2) Which of the following is not an important question for economic policy raised by the experience of the textile industry?
A)How does international trade affect consumer well-being?
B)Who gains and who loses from free trade among countries?
C)How do the gains from trade compare to the losses?
D)Which argument for restricting free trade is politically feasible?
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Chapter 9: Application International Trade: The Determinants of Trade
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Q1) Assume,for Mexico,that the domestic price of oranges without international trade is lower than the world price of oranges.This suggests that,in the production of oranges,
A)Mexico has a comparative advantage over other countries and Mexico will export oranges.
B)Mexico has a comparative advantage over other countries and Mexico will import oranges.
C)other countries have a comparative advantage over Mexico and Mexico will export oranges.
D)other countries have a comparative advantage over Mexico and Mexico will import oranges.
Q2) If the world price of coffee is lower than Colombia's domestic price of coffee without trade,then Colombia
A)should import coffee.
B)has a comparative advantage in coffee.
C)should produce just enough coffee to satisfy domestic demand.
D)should produce no coffee domestically.
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Chapter 9: Application International Trade: The Winners
and Losers From Trade
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Sample Questions
Q1) Refer to Figure 9-25.With free trade,total surplus is
A)$800.
B)$1,200.
C)$1,600.
D)$2,000.
Q2) A tariff
A)lowers the domestic price of the exported good below the world price.
B)keeps the domestic price of the exported good the same as the world price.
C)raises the domestic price of the imported good above the world price.
D)lowers the domestic price of the imported good below the world price.
Q3) Refer to Figure 9-1.With trade,Guatemala will
A)export 22 units of coffee.
B)export 10 units of coffee.
C)import 30 units of coffee.
D)import 12 units of coffee.
Q4) Refer to Figure 9-17.Without trade,consumer surplus is
A)$400 and producer surplus is $200.
B)$400 and producer surplus is $800.
C)$1,600 and producer surplus is $200.
D)$1,600 and producer surplus is $800.
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Chapter 9: Application International Trade: The Arguments for Restricting Trade
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Q1) If the Korean steel industry subsidizes the steel that it sells to the United States,the A)United States should protect its domestic steel industry from this unfair competition.
B)harm done to U.S.steel producers from this unfair competition exceeds the gain to U.S.consumers of cheap Korean steel.
C)harm done to U.S.steel producers is less than the benefit that accrues to U.S.consumers of steel.
D)United States should subsidize the products it sells to Korea.
Q2) Congresswoman Gaga represents a state in which several firms manufacture furniture.She wants to impose tariffs on all imported furniture.Which of the following is the least likely consequence of such tariffs?
A)Domestic furniture buyers will lose consumer surplus,have less variety,and will pay higher prices.
B)Domestic furniture producers will gain producer surplus.
C)Domestic furniture producers will have a higher rate of technological advance.
D)Domestic furniture producers will have more market power.
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Chapter 9: Application International Trade: Conclusion
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Q1) Most economists view the United States' experience with trade as
A)one from which no firm conclusions about the virtues of free trade can be reached,due to the relatively short history of international trade in the U.S.
B)one from which no firm conclusions about the virtues of free trade can be reached,due to the lack of trade within the U.S.throughout most of the early history of the U.S.
C)an ongoing experiment that confirms the virtues of free trade.
D)an ongoing experiment that calls into serious question the notion that free trade enhances the economic well-being of a nation.
Q2) In 2008,the Los Angeles Times asked members of the American public whether free international trade has helped or hurt the economy.Of those surveyed,
A)57 percent said free international trade helped the economy.
B)26 percent said free international trade helped the economy.
C)30 percent said free international trade hurt the economy.
D)16 percent said free international trade hurt the economy.
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64
Chapter 9: Application International Trade: Part A
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Q1) Refer to Figure 9-28.Suppose the world price in this market is $6.If the country allows free trade,how much is producer surplus?
Q2) Refer to Figure 9-29.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus?
Q3) Refer to Figure 9-28.Suppose the world price in this market is $6.If the country allows free trade,will the country import or export this good,and how many units will be imported/exported?
Q4) Refer to Figure 9-29.Suppose the country imposes a $1 per unit tariff.If the country allows trade with a tariff,how many units will domestic consumers demand and how many units will domestic producers supply?
Q5) Refer to Figure 9-29.If the country allows free trade,will the country import or export this good,and how many units will be imported/exported?
Q6) Refer to Figure 9-29.Suppose the country imposes a $1 per unit tariff.If the country allows trade with a tariff,how much is tariff revenue?
Q7) Refer to Scenario 9-3.Suppose the world price in this market is $8 per unit.If the country allows free trade,by how much do consumer surplus,producer surplus,and producer surplus change?
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Chapter 9: Application International Trade: Part B
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Q1) According to the principle of comparative advantage,all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.
A)True
B)False
Q2) The greater the elasticities of supply and demand,the smaller are the gains from trade.
A)True
B)False
Q3) If Honduras were to subsidize the production of wool blankets and sell them in Sweden at artificially low prices,the Swedish economy would be worse off.
A)True
B)False
Q4) If a country allows free trade and its domestic price for a given good is lower than the world price,then it will import that good.
A)True
B)False
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Chapter 10: Measuring a Nations Income
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Q1) Macroeconomists study
A)the decisions of individual households and firms.
B)the interaction between households and firms.
C)economy-wide phenomena.
D)regulations imposed on firms and unions.
Q2) Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?
A)the effect of taxes on the prices of airline tickets,and the profitability of automobile-manufacturing firms
B)the price of beef,and wage differences between genders
C)how consumers maximize utility,and how prices are established in markets for agricultural products
D)the percentage of the labor force that is out of work,and differences in average income from country to country
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Chapter 10: Measuring a Nations Income: The Economy's
Income and Expenditure
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Q1) In a simple circular-flow diagram,total income and total expenditure are
A)never equal because total income always exceeds total expenditure.
B)seldom equal because of the ongoing changes in an economy's unemployment rate.
C)equal only when the government purchases no goods or services.
D)always equal because every transaction has a buyer and a seller.
Q2) According to the circular-flow diagram GDP
A)can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.
B)can be computed as the revenue firms receive from the sales of goods and services but not as the payments they make to factors of production.
C)can be computed as payments firms make to factors of production but not as revenues they receive from the sales of goods and services.
D)cannot be computed as either the revenue firms receive or the payments they make to factors of production.
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Chapter 10: Measuring a Nations Income: The Measurement
of GDP
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Sample Questions
Q1) In 2014,a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company.Big Flakes Cereal Company produces $8 million worth of cereal in 2014,with sales to households during the year of $7 million.The unsold $1 million worth of cereal remains in Big Flake Cereal Company's inventory at the end of 2014.The transactions just described contribute how much to GDP for 2014?
A)$3 million
B)$7 million
C)$8 million
D)$11 million
Q2) Estimates of the values of which of the following non-market goods or services are included in GDP?
A)unpaid housework but not the rental value of owner-occupied homes.
B)the rental value of owner-occupied homes but not unpaid housework.
C)unpaid housework and the rental value of owner-occupied homes.
D)Neither unpaid housework nor the rental value of owner-occupied homes.
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Chapter 10: Measuring a Nations Income: The Components of GDP
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Q1) Which of the following measures includes the effects of taxes?
A)Net national product.
B)Gross national product.
C)National income.
D)Personal income.
Q2) In the economy of Talikastan in 2015,consumption was $1000,GDP was $1950,government purchases were $500,and investment was $700.What were
Talikastan's net exports in 2015?
A)-$250
B)$250
C)$2200
D)Net exports cannot be calculated from the information given.
Q3) In 2015,GDP per person in the United States was almost
A)$38,000.
B)$36,000.
C)$49,000
D)$56,000
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Page 70
Chapter 10: Measuring a Nations Income: Real Versus
Nominal GDP
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Q1) Changes in the GDP deflator reflect A)only changes in prices.
B)only changes in the amounts being produced.
C)both changes in prices and changes in the amounts being produced.
D)neither changes in prices nor changes in the amounts being produced.
Q2) Much of macroeconomics attempts to explain A)changes in the price of oil and gasoline.
B)long-run growth and short-run fluctuations in real GDP. C)changes in the growth rate of state government spending. D)changes in the prices and quantities of individual goods and services.
Q3) Suppose an economy's production consists only of corn and soybeans.In 2010,20 bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel.In 2009,the price of corn was $2 per bushel and the price of soybeans was $1 per bushel.Using 2009 as the base year,it follows that,for 2010,
A)nominal GDP is $50,real GDP is $100,and the GDP deflator is 50.
B)nominal GDP is $50,real GDP is $100,and the GDP deflator is 200.
C)nominal GDP is $100,real GDP is $50,and the GDP deflator is 50.
D)nominal GDP is $100,real GDP is $50,and the GDP deflator is 200.
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Chapter 10: Measuring a Nations Income: Is GDP a Good Measure of Economic Well-Being
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Sample Questions
Q1) Suppose that twenty-five years ago a country had nominal GDP of $1,000,a GDP deflator of 200,and a population of 100.Today it has nominal GDP of $3,000,a GDP deflator of 400,and population of 150.What happened to the real GDP per person?
A)It more than doubled.
B)It increased,but it less than doubled.
C)It was unchanged.
D)It decreased.
Q2) Many things that society values,such as good health,high-quality education,enjoyable recreation opportunities,and desirable moral attributes of the population,are not measured as part of GDP.It follows that
A)GDP is not a useful measure of society's welfare.
B)GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government.
C)GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare.
D)GDP is still the best measure of society's welfare because these other values cannot actually be measured.
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Chapter 10: Measuring a Nations Income: Part A
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Sample Questions
Q1) Calculate GDP for an economy with exports of $5 trillion,investment of $1.5 trillion,consumption spending of $11 trillion,imports of $6 trillion,and government purchases of $3 trillion.
Q2) Calculate the inflation rate for a country where the GDP deflator rises from 120 to 165.
Q3) You find that your paycheck for the year is higher this year than last.Does that mean that your real income has increased? Explain carefully.
Q4) For the economy as a whole,how does income compare to expenditures? Explain.
Q5) Nominal GDP is $15 trillion and real GDP is $10 trillion.What is the GDP deflator? Show your work.
Q6) Explain how real GDP differs from nominal GDP.
Q7) Refer to Figure 23-2.Identify the location for markets for factors of production and markets for goods and services.
Q8) Calculate GDP for a country with investment of $2 trillion,government purchases of $3 trillion,capital depreciation of $1.5 trillion,consumption of $10 trillion,exports of $3.4 trillion,and imports of $3.9 trillion.
Q9) How frequently is U.S.GDP reported? Is GDP adjusted for seasonality?
Q10) Explain how GNP differs from GDP.
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Chapter 10: Measuring a Nations Income: Part B
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Sample Questions
Q1) Recessions are associated with lower incomes,rising unemployment,and falling profits.
A)True
B)False
Q2) U.S.GDP excludes the production of most illegal goods.
A)True
B)False
Q3) If real GDP is higher in one country than in another,then we can be sure that the standard of living is higher in the country with the higher real GDP.
A)True
B)False
Q4) GDP includes the value of paper clips but does not also count the value of the metal used to make them.
A)True
B)False
Q5) The overall effect of accounting for purchases of foreign goods in GDP reduces GDP.
A)True
B)False
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Chapter 11: Measuring the Cost of Living
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Q1) Babe Ruth,the famous baseball player,earned $80,000 in 1931.Today,the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931.However,prices have also risen since 1931.We can conclude that A)the best baseball players today are about 400 times better off than Babe Ruth was in 1931.
B)because prices have also risen,the standard of living of baseball stars hasn't changed since 1931.
C)one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.
D)one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.
Q2) Economists use the term inflation to describe a situation in which
A)some prices are rising faster than others.
B)the economy's overall price level is rising.
C)the economy's overall price level is high,but not necessarily rising.
D)the economy's overall output of goods and services is rising faster than the economy's overall price level.
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Chapter 11: Measuring the Cost of Living: The Consumer Price Index
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Q1) One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI
A)fails to measure all changes in the quality of goods.
B)displays a housing bias.
C)accounts for changes in prices of some goods,but prices of certain goods are assumed to remain constant.
D)All of the above are correct.
Q2) The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?
A)The CPI involves a base year;the GDP deflator does not involve a base year.
B)The CPI can be used to compute the inflation rate;the GDP deflator cannot be used to compute the inflation rate.
C)The CPI reflects the prices of goods and services produced domestically;the GDP deflator reflects the prices of all goods and services bought by consumers.
D)The CPI reflects a fixed basket of goods and services;the GDP deflator reflects current production of goods and services.
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Chapter 11: Measuring the Cost of Living: Correcting
Economic Variables for the Effects of Inflation
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Sample Questions
Q1) During a certain year,the nominal interest rate was 8 percent,the real interest rate was 3 percent,and the CPI was 176.7 at the beginning of the year.The CPI at the end of the year was
A)196.1.
B)185.5.
C)168.3.
D)159.2.
Q2) As long as prices are rising over time,then
A)the nominal interest rate exceeds the real interest rate.
B)the real interest rate exceeds the nominal interest rate.
C)the real interest rate is positive.
D)the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.
Q3) If the CPI was 68 in 1965 and is 285 today,then $100 today purchases the same amount of goods and services as
A)$23.86 purchased in 1965.
B)$32.47 purchased in 1965.
C)$68.00 purchased in 1965.
D)$419.12 purchased in 1965.
Page 77
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Chapter 11: Measuring the Cost of Living: Part A
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Sample Questions
Q1) If the real value of an item bought ten years ago is less than it's nominal value at that time,what can one infer about the change in the overall price level during this ten year period?
Q2) If the price of beef rises and consumers buy more chicken and less beef,what kind of bias does the consumer price index exhibit?
Q3) Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan.
a.What was the expected real interest rate?
b.What was the actual real interest rate?
c.Who benefited and who lost because of the unexpected inflation?
Q4) If the CPI increased from 215 to 218 between the years 2012 and 2013,while the nominal interest rate increased from 3.25% to 3.80%,what is the real interest rate in 2013?
Q5) Suppose Stan Musial earned $115,000 in 1947.If the CPI was 82 in 1947,and was 246 in 1990,what is Stan Musial's 1947 salary in 1990 dollars?
Q6) Refer to Scenario 24-5.Using 2009 as the base year,what is the CPI in each year?
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Page 78
Chapter 11: Measuring the Cost of Living: Part B
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Sample Questions
Q1) Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.
A)True
B)False
Q2) The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year,then multiplying by 100.
A)True
B)False
Q3) Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.
A)True
B)False
Q4) Suppose the CPI in 1950 was 24.1 and the CPI in 1975 was 53.8. When Ken's income rose from $10,000 per year in 1950 to $20,000 per year in 1970,Ken's standard of living improved between 1950 and 1970.
A)True
B)False
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Chapter 12: Production and Growth
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Sample Questions
Q1) There are large differences in the standard of living
A)across countries,but not within countries.
B)within countries over time,but not across countries.
C)across countries and within countries over time.
D)across countries,but not in technology or healthcare.
Q2) During the past century the average growth rate of U.S.real GDP per person implies that it doubled,on average,about every
A)100 years.
B)70 years.
C)35 years.
D)25 years.
Q3) Which of the following are residents of rich countries likely to have in greater quantities,or better quality,than residents of poor countries?
A)housing
B)healthcare
C)life expectancy
D)All of the above.
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Chapter 12: Production and Growth: Economic Growth
Around the World
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Q1) Which of the following can be measured by the level of real GDP per person?
A)productivity and the standard of living
B)productivity but not the standard of living
C)the standard of living but not productivity
D)neither the standard of living nor productivity
Q2) In 2014,real GDP per person in Bangladesh was
A)about 3 times as high as it was in the U.S.in 1870.
B)about twice as high as it was in the U.S.in 1870.
C)about the same as it was in the U.S.in 1870.
D)less than it was in the U.S.in 1870.
Q3) Among the following countries,which one has the highest growth rate of real GDP per person over about the last 100 years?
A)Argentina
B)Mexico
C)the United Kingdom
D)the United States
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Chapter 12: Production and Growth: Productivity Its Role and Determinants
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Q1) Refer to Scenario 25-1.If the production function has the constant-returns-to-scale property,then if we know the values of A,K/L,H/L,and N/L,we also know the value of A)output.
B)labor productivity.
C)A.
D)All of the above are correct.
Q2) Country A has twice as many workers as Country B.Country A also has twice as much physical capital,twice as much human capital,and access to twice as many natural resources as Country B.Assuming constant-returns to scale,which of the following is higher in Country A?
A)both output per worker and productivity
B)output per worker but not productivity
C)productivity but not output per worker
D)neither productivity nor output per worker
Q3) Proprietary technology is technology
A)that the government prohibits firms from using.
B)conserves natural resources.
C)that is useful while other types of technology are outdated.
D)that is known or controlled only by the company that discovered it.
Page 82
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Chapter 12: Production and Growth: Economic Growth and Public Policy
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Q1) In the U.S. ,each additional year of schooling has historically raised a person's wage on average by about
A)5 percent.In less developed countries the gap between the wages of educated and uneducated workers is smaller.
B)10 percent.In less developed countries the gap between the wages of educated and uneducated workers is smaller.
C)5 percent.In less developed countries the gap between the wages of educated and uneducated workers is larger.
D)10 percent.In less developed countries the gap between the wages of educated and uneducated workers is larger.
Q2) Rapid population growth
A)was hailed by Thomas Robert Malthus as the key to future economic growth.
B)tends to lead to higher levels of educational attainment.
C)is the main reason that less developed nations are poor.
D)may depress economic prosperity by reducing the amount of capital which each worker has to work with.
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Chapter 12: Production and Growth: Conclusion the
Importance of Long-Run Growth
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Q1) Economists differ in their views of the role of the government in promoting economic growth.A controversial idea is that government should A)lend support to the invisible hand by maintaining property rights and political stability.
B)lower barriers and impediments to free trade.
C)encourage capital formation.
D)target and subsidize specific industries important for technological progress.
Q2) In order to promote growth in living standards,policymakers must A)protect property rights.
B)maintain political stability.
C)encourage the accumulation of factors of production.
D)All of the above
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Chapter 12: Production and Growth: Part A
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Q1) Some data that at first might seem puzzling: The share of GDP devoted to investment was similar for the United States and South Korea from 1960-1991.However,during these same years South Korea had a 6 percent growth rate of average annual income per person,while the United States had only a 2 percent growth rate.If the saving rates were the same,why were the growth rates so different?
Q2) How does the phenomenon of diminishing returns to capital explain the catch-up effect?
Q3) List the four determinants of an economy's productivity.
Q4) Refer to Figure 25-1.In what way is the figure relevant to the catch-up effect?
Q5) Susan and Calvin paint houses.Susan consistently paints about 400 square feet of a house's exterior per hour,while Calvin consistently paints about 300 square feet per hour.Susan's ---------- exceeds that of Calvin.
Q6) When a country imposes tariffs, intending to protect domestic firms from foreign competition, it is pursuing _______ oriented policies.
Q7) The level of real GDP is a good measure of economic prosperity,and the growth of real GDP is a good measure of ----------.
Q8) What particularly important role do courts play in a market economy?
Page 85
Q9) Explain the distinction between technological knowledge and human capital. To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Production and Growth: Part B
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Q1) One reason that governments may find it useful to sponsor universities and basic research is that to a large extent knowledge is generally a private good.
A)True
B)False
Q2) A country's standard of living depends on its ability to produce goods and services.
A)True
B)False
Q3) In the United States in 2014 real GDP per person was about $56,000,while in some poor countries real GDP per person was less than $5,000.
A)True
B)False
Q4) Since 1870 Canadian and U.S real GDP per person grew from below to above that in the United Kingdom.The explanation for this is likely that productivity grew faster in Canada and the U.S.than in the United Kingdom.
A)True
B)False
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Chapter 13: Saving Investment and the Financial System
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Sample Questions
Q1) Given that Monika's income exceeds her expenditures,Monika is best described as a A)saver or as a supplier of funds.
B)saver or as a demander of funds.
C)borrower or as a supplier of funds.
D)borrower or as a demander of funds.
Q2) If you were to start a business delivering documents,you might need to purchase cell phones,bicycles,desks,and chairs.
A)These purchases are called capital investment.If you raise the funds to purchase them from others you are a saver.
B)These purchases are called capital investment.If you raise the funds to purchase them from others you are a borrower.
C)These purchases are called consumption.If you raise the funds to purchase them from others you are a saver.
D)These purchases are called consumption.If you raise the funds to purchase them from others you are a borrower.
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Chapter 13: Saving Investment and the Financial System: Financial Institutions in the US economy
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177 Verified Questions
177 Flashcards
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Sample Questions
Q1) A low P/E for a stock indicates that A)people may expect earnings to fall in the future,perhaps because the firm will be faced with increased competition.
B)its dividends have been low so that no one is willing to pay very much for it.
C)the corporation is possibly overvalued.
D)All of the above are correct.
Q2) We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that A)the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B)Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation.
C)Bond A has a term of 20 years and Bond B has a term of 2 years.
D)All of the above are correct.
Q3) Other things being constant,when a firm sells new shares of stock,the A)supply of the stock increases and the price decreases.
B)supply of the stock decreases and the price increases.
C)demand for the stock increases and the price increases.
D)demand for the stock decreases and the price decreases.
Page 88
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Chapter 13: Saving Investment and the Financial System:
Saving and Investment in the National Income Accounts
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98 Verified Questions
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Sample Questions
Q1) If the tax revenue of the federal government is less than its spending,then the federal government necessarily
A)runs a budget deficit.
B)runs a budget surplus.
C)runs a national debt.
D)will increase taxes.
Q2) If an economy is closed and if it has no government,then
A)national saving = 0.
B)national saving = private saving.
C)public saving = investment.
D)gross domestic product = consumption.
Q3) Which of the following would a macroeconomist consider as investment?
A)Marisa purchases a bond issued by Proctor and Gamble Corp.
B)Karlee purchases stock issued by Texas Instruments,Inc.
C)Charlie builds a new coffee shop.
D)All of the above are correct.
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89
Chapter 13: Saving Investment and the Financial System:
The Market for Loanable Funds
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Sample Questions
Q1) When the government goes from running a balanced budget to running a budget surplus,
A)national saving decreases,the interest rate rises,and the economy's long-run growth rate is likely to decrease.
B)national saving increases,the interest rate falls,and the economy's long-run growth rate is likely to decrease.
C)national saving decreases,the interest rate rises,and the economy's long-run growth rate is likely to increase.
D)national saving increases,the interest rate falls,and the economy's long-run growth rate is likely to increase.
Q2) At some point during the financial crisis of 2008-2009,people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions.This phenomenon characterized which element of the financial crisis?
A)the decline in confidence in financial institutions
B)the credit crunch
C)the economic downturn
D)the decline in asset prices
Q3) What is a mutual fund?
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Chapter 13: Saving Investment and the Financial System:
Part A
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Sample Questions
Q1) What is the main function of the financial system?
Q2) Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture,which manufactures wooden furniture.He wants your advice on whether to buy stock or bonds.Explain how each of his quotes below should affect his choice between the stock and the bond.
a."I have reason to believe that people are soon going to find rocking chairs have health benefits."
b."I would like to tell people I am part owner of Cedar Valley Furniture." c."I do not want to take on much risk."
Q3) Suppose the Move It! exercise chain has revenues of $45 million,accounting costs of $15 million,and currently has issued 10 million shares of stocks selling at $90 each.Compute the price-earning ratio.Show your work.Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?
Q4) A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.
Q5) What are the basic differences between bonds and stocks?
Q6) The interest rate will______and the quantity of loanable funds invested will_______when the government decreases the budget deficit.
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Chapter 13: Saving Investment and the Financial System:
Part B
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Q1) In a closed economy,each unit of output is either consumed by households or invested.
A)True
B)False
Q2) If a share of stock in Skylight Chili sells for $75,the retained earnings per share are $5,and the dividend per share is $2,then the price-earnings ratio is 15.
A)True
B)False
Q3) Banks and mutual funds are examples of financial markets.
A)True
B)False
Q4) Corporations receive no proceeds from the resale of their stock.
A)True
B)False
Q5) The majority of economists believe that policies that reduce the saving rate will reduce long-run living standards.
A)True
B)False
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Chapter 14: The Basic Tools of Finance
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Sample Questions
Q1) The financial system
A)involves bank accounts,mortgages,stock prices,and many other items.
B)involves decisions and actions undertaken by people at a point in time that affect their lives in the future.
C)coordinates the economy's saving and investment.
D)All of the above are correct.
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Chapter 14: The Basic Tools of Finance: Present Value
Measuring the Time Value of Money
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Sample Questions
Q1) A firm has three different investment options,each costing $10 million.Option A will generate $12 million in revenue at the end of one year.Option B will generate $15 million in revenue at the end of two years.Option C will generate $18 million in revenue at the end of three years.Which option should the firm choose?
A)Option A
B)Option B
C)Option C
D)The answer depends on the rate of interest,which is not specified here.
Q2) Veronica deposited $1,000 into an account two years ago.The first year she earned 7 percent interest;the second year she earned 5 percent.How much money does Veronica have in her account today?
A)$1,133.31
B)$1,120.00
C)$1,123.50
D)None of the above are correct to the nearest cent.
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94
Chapter 14: The Basic Tools of Finance: Managing Risk
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Sample Questions
Q1) Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk.What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?
A)$907.03 to be paid in two years
B)$1,000.01 to be paid in two years
C)$1,100.01 to be paid in two years
D)$1,102.51 to be paid in two years
Q2) Diminishing marginal utility of wealth implies that the utility function is
A)upward-sloping and has decreasing slope.
B)upward-sloping and has increasing slope.
C)downward-sloping and has decreasing slope.
D)downward-sloping and has increasing slope.
Q3) Which of the following make(s)insurance premiums higher than otherwise?
A)adverse selection and moral hazard
B)adverse selection,but not moral hazard
C)moral hazard,but not adverse selection
D)neither adverse selection nor moral hazard
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95
Chapter 14: The Basic Tools of Finance: Asset Valuation
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Sample Questions
Q1) Which of the following methods of picking stocks is not consistent with fundamental analysis?
A)doing research such as thoroughly reading and analyzing companies' annual reports
B)choosing mutual funds that are managed by individuals with good reputations
C)viewing individual stock prices as unpredictable
D)relying upon the advice of Wall Street analysts
Q2) The efficient markets hypothesis says that
A)only individual investors can make money in the stock market.
B)it should be easy to find stocks whose price differs from their fundamental value.
C)stock prices follow a random walk.
D)All of the above are correct.
Q3) The available evidence indicates that
A)about one-half of all managers of active mutual funds consistently outperform index funds.
B)outperforming the market on a consistent basis is extremely difficult to do.
C)there is little truth to the notion that there is a trade-off between risk and return.
D)there is little truth to the efficient markets hypothesis.
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Chapter 14: The Basic Tools of Finance: Conclusion
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Sample Questions
Q1) Stock market fluctuations
A)often go hand in hand with fluctuations in the economy more broadly.
B)rarely have anything to do with fluctuations in the economy more broadly.
C)have few,if any,macroeconomic implications.
D)are attributable to the widespread belief that the efficient markets hypothesis is correct.
Q2) Economists disagree as to whether
A)the stock price of a company should reflect the company's expected profitability.
B)the basic tools of finance reflect valid ideas.
C)stock prices reflect rational estimates of a company's true worth.
D)there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.
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Chapter 14: The Basic Tools of Finance: Part A
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Sample Questions
Q1) A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years.If the interest rate is 9%,should the firm undertake the project? Show evidence to support your answer.
Q2) Write the rule of 70.Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600.Use the rule of 70 to determine about what interest rate she earned.
Q3) Write the formula for finding the future value in n years of $x today.
Q4) Give an example of adverse selection and an example of moral hazard using homeowners insurance.
Q5) Describe the shape of the utility function of a risk averse person.
Q6) Define the efficient markets hypothesis.
Q7) How does moral hazard matter in the market for insurance?
Q8) Your boss asks you to do fundamental analysis of a corporation.What value is she asking for and how would you estimate this value?
Q9) Write the formula to find the present value of $x to be paid in n years.
Q10) A payment of $10,000 is to be made in the future.The interest rate 3%.Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?
Page 98
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Chapter 14: The Basic Tools of Finance: Part B
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Sample Questions
Q1) According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.
A)True
B)False
Q2) Managed mutual funds usually outperform mutual funds that are supposed to follow some stock index.
A)True
B)False
Q3) If a person had increasing marginal utility,then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.
A)True
B)False
Q4) The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.
A)True
B)False
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99
Chapter 15: Unemployment
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Sample Questions
Q1) In the long run the unemployment rate equals A)zero.
B)the cyclical rate of unemployment.
C)the natural rate of unemployment.
D)the sum of the cyclical and natural rate of unemployment.
Q2) To maintain their standard of living,most people rely on
A)government assistance.
B)their labor earnings.
C)their personal savings.
D)All of the above are correct.
Q3) Cyclical unemployment is closely associated with A)long-term economic growth.
B)short-run ups and downs of the economy.
C)fluctuations in the natural rate of unemployment.
D)changes in the minimum wage.
Q4) Cyclical unemployment refers to
A)the portion of unemployment created by job search.
B)short-run fluctuations around the natural rate of unemployment.
C)changes in unemployment due to changes in the natural rate of unemployment.
D)the portion of unemployment created by wages set above the equilibrium level.
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Chapter 15: Unemployment: Identifying Unemployment
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Sample Questions
Q1) Over the past several decades,the difference between the labor-force participation rates of men and women in the U.S.has
A)gradually increased.
B)remained constant.
C)gradually decreased.
D)been eliminated.
Q2) Which of the following is a cause of the changing role of women in American society over the past several decades?
A)new technologies that have reduced the amount of time required to complete routine household tasks
B)improved birth control
C)changing political and social attitudes
D)All of the above are correct.
Q3) The reported unemployment rate should be viewed as
A)a useful but imperfect measure of joblessness.
B)clearly smaller than the true unemployment rate.
C)clearly larger than the true unemployment rate.
D)being very close to the true unemployment rate.
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Chapter 15: Unemployment: Job Search
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Sample Questions
Q1) In the 1990's Ireland made unemployment benefits less generous.This change would likely have reduced
A)both structural unemployment and the natural rate of unemployment.
B)structural unemployment but not the natural rate of unemployment.
C)both frictional unemployment and the natural rate of unemployment.
D)frictional unemployment but not the natural rate of unemployment.
Q2) If all workers and all jobs were the same such that all workers were equally well suited for all jobs,then there would be no
A)cyclical unemployment.
B)frictional unemployment.
C)natural rate of unemployment.
D)structural unemployment.
Q3) Unemployment insurance tends to
A)decrease structural unemployment.
B)decrease cyclical unemployment.
C)increase frictional unemployment.
D)increase the number of discouraged workers.
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Chapter 15: Unemployment: Minimum-Wage Laws
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Sample Questions
Q1) Minimum-wage laws are least likely to affect the wages paid to A)teenagers.
B)low-skill workers.
C)inexperienced workers.
D)highly-educated workers.
Q2) An increase in the minimum wage
A)reduces structural unemployment.
B)reduces frictional unemployment,
C)increases structural unemployment.
D)increases frictional unemployment.
Q3) Minimum-wage laws
A)create unemployment.
B)do not apply in states with right-to-work laws.
C)affect highly-educated workers more than high school dropouts.
D)cause labor shortages,which further raise wages above equilibrium.
Q4) Refer to Figure 28-3.At the equilibrium wage,how many workers are unemployed?
A)0
B)4,000
C)5,000
D)8,000
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Chapter 15: Unemployment: Unions and Collective Bargaining
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49 Verified Questions
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Sample Questions
Q1) Since the 1940's U.S.union membership has
A)fallen.This decline should have reduced structural unemployment.
B)fallen.This decline should not have reduced structural unemployment.
C)risen.This increase should have raised structural unemployment. D)risen.This increase should not have raised structural unemployment.
Q2) Which of the following do unions not cause?
A)frictional unemployment
B)the wage to rise above the equilibrium level
C)conflict between insiders who benefit from high union wages and outsiders who do not get the union jobs
D)reduced wages in industries without unions
Q3) Which of the following is not correct?
A)When a union is present in a labor market,wages are determined by the equilibrium of supply and demand.
B)Like any cartel,a union is a group of sellers acting together in the hope of exerting their joint market power.
C)The process by which unions and firms agree on the terms of employment is called collective bargaining.
D)Most workers in the U.S.economy are not members of a union.
Page 104
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Chapter 15: Unemployment: The Theory of Efficiency Wages
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Sample Questions
Q1) Which of the following is an example of an efficiency wage?
A)a higher wage paid to a more experienced worker
B)a below-equilibrium wage paid by a small business exempt from minimum-wage laws
C)an above-equilibrium wage paid by a firm to reduce turnover costs
D)a wage tied to participation in a government-sponsored job training program
Q2) Efficiency wages contribute to
A)frictional unemployment and the natural rate of unemployment.
B)frictional unemployment but not the natural rate of unemployment.
C)structural unemployment and the natural rate of unemployment.
D)structural unemployment but not the natural rate of unemployment.
Q3) Which of the following causes of unemployment is not associated with a wage rate above the market equilibrium level?
A)efficiency wages
B)job search
C)minimum-wage laws
D)unions
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105
Chapter 15: Unemployment: Part A
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Sample Questions
Q1) Do economists believe that labor unions are good or bad for the U.S. economy?
Q2) List the main employment characteristics over which a labor union negotiates for its workers.
Q3) Suppose that there is an excess supply of economics professors. Should universities necessarily reduce salaries? What does standard economic theory suggest? What does efficiency-wage theory suggest?
Q4) Give a few examples of how sectoral shifts temporarily cause unemployment.
Q5) Give an historical example of an efficiency wage that was considered by the firm to be "one of the finest cost-cutting moves we ever made."
Q6) Most spells of unemployment are short,and most unemployment observed at any given time is long term.How can this be?
Q7) An important determinant of a countrys standard of living is the amount of __________ it typically experiences.
Q8) Write the formula for calculating the labor force participation rate.
Q9) The adult non-institutionalized population in the town of Bedrock is 75 thousand.Within Bedrock,5 thousand are unemployed,and 40 thousand are employed.Calculate the number of people not in the labor force.
Q10) Unemployment insurance __________ the amount of unemployment.
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Chapter 15: Unemployment: Part B
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Sample Questions
Q1) In the U.S. ,the National Labor Relations Board is the government agency that enforces workers' right to unionize.
A)True
B)False
Q2) More than one-third of the unemployed are recent entrants into the labor force.
A)True
B)False
Q3) Critics of government-run employment agencies and public training programs argue that the private market is better at matching workers and jobs than the government is.
A)True
B)False
Q4) Adults who are waiting to be recalled to a job from which they had been laid off are counted as "unemployed."
A)True
B)False
Q5) A firm might offer efficiency wages in order to reduce shirking.
A)True
B)False
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Chapter 16: The Monetary System
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Sample Questions
Q1) When we say that trade is roundabout we mean that A)people sometimes trade goods for goods.
B)trades require a double coincidence of wants.
C)currency is accepted primarily to make further trades.
D)people must spend time searching for the products they wish to purchase.
Q2) David and Asher buy the same pair of sneakers,but each in the wrong size.David proposes a size swap with Asher.This is an example of
A)barter,since the sneakers in the correct size represent a medium of exchange.
B)barter,since the sneakers in the correct size have intrinsic value to both David and Asher.
C)money,since the sneakers in the correct size do not have any intrinsic value.
D)money,since the sneakers in the correct size represent a medium of exchange.
Q3) A double coincidence of wants
A)is required when there is no item in an economy that is widely accepted in exchange for goods and services.
B)is required in an economy that relies on barter.
C)is a hindrance to the allocation of resources when it is required for trade.
D)All of the above are correct.
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Page 108
Chapter 16: The Monetary System: The Meaning of Money
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Q1) M1 includes
A)currency.
B)demand deposits.
C)traveler's checks.
D)All of the above are correct.
Q2) Liquidity refers to
A)the ease with which an asset is converted to the medium of exchange.
B)the measurement of the intrinsic value of commodity money.
C)the measurement of the durability of a good.
D)how many time a dollar circulates in a given year.
Q3) Currency includes
A)paper bills and coins.
B)demand deposits.
C)credit cards.
D)Both (a)and (b)are correct.
Q4) Credit cards
A)defer payments.
B)are a store of value.
C)have led to wider use of currency.
D)are part of the money supply.
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Chapter 16: The Monetary System: The Federal Reserve System
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Sample Questions
Q1) Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system?
A)FOMC
B)the Board of Governors
C)the New York Fed
D)the regional Federal Reserve Banks
Q2) The Board of Governors
A)is chaired by the U.S.Secretary of the Treasury.
B)members are elected by the U.S.public.
C)has 7 members.
D)All of the above are correct.
Q3) The New York Federal Reserve Bank
A)president always gets to vote at the FOMC meetings.
B)conducts open market transactions.
C)is one of 12 regional Federal Reserve Banks.
D)All of the above are correct.
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Page 110
Chapter 16: The Monetary System: Banks and the Money Supply
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Sample Questions
Q1) When a bank loans out $1,000,the money supply
A)does not change.
B)decreases.
C)increases.
D)may do any of the above.
Q2) If the reserve ratio is 8 percent,then an additional $800 of reserves can increase the money supply by as much as
A)$6,400.
B)$8,000.
C)$12,500.
D)$10,000.
Q3) If $500 of new reserves generates $1000 of new money in the economy,then the money multiplier is
A)2 and the reserve ratio is 50 percent.
B)2 and the reserve ratio is 2 percent.
C)0.5 and the reserve ratio is 50 percent.
D)0.5 and the reserve ratio is 2 percent.
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Page 111
Chapter 16: The Monetary System: The Feds Tools of Monetary Control
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Sample Questions
Q1) During wars the public tends to hold relatively more currency and relatively fewer deposits.This decision makes reserves
A)and the money supply increase.
B)and the money supply decrease.
C)increase,but leaves the money supply unchanged.
D)decrease,but leaves the money supply unchanged.
Q2) Which of the following is correct?
A)The Fed can control the money supply precisely.
B)The amount of money in the economy does not depend on the behavior of depositors.
C)The amount of money in the economy depends in part on the behavior of banks.
D)None of the above is correct.
Q3) The discount rate is the interest rate that
A)banks charge one another for loans.
B)banks charge the Fed for loans.
C)the Fed charges banks for loans.
D)the Fed charges Congress for loans.
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112
Chapter 16: The Monetary System: Part A
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Sample Questions
Q1) When banks decide to increase their reserves, the money supply will _____ (holding all else constant).
Q2) List the two main functions performed by the Fed?
Q3) When the federal funds rate is below the target rate, the Fed will _____ bonds. This action will _____ the money supply
Q4) A bank has $30,000 in deposits and has $5,400 in reserves.What is its reserve ratio?
Q5) What is the change in the money supply when the Fed purchases $700 worth of bonds and the required reserve ratio is 14 percent assuming banks hold no excess reserves?
Q6) Economists argue that the move from barter to money increased trade and production.How is this possible?
Q7) How are Federal Reserve Board Governors selected?
Q8) The prices of goods at a grocery store are listed in dollars.Which function of money does this illustrate?
Q9) What does it mean for the Fed to be the "lender of last resort?"
Q10) The existence of money makes trade easier.How is it that money can also increase the standard of living?
Q11) Describe the role of the Federal Deposit Insurance Corporation (FDIC).
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Chapter 16: The Monetary System: Part B
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Sample Questions
Q1) When you purchase school supplies at the book store using cash,you are using money as a medium of exchange.
A)True
B)False
Q2) A debit card is more similar to a credit card than to a check.
A)True
B)False
Q3) Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.
A)True
B)False
Q4) Roundabout trade decreases production.
A)True
B)False
Q5) Members of the Board of Governors are appointed by the president of the U.S.and confirmed by the U.S.Senate.
A)True
B)False
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Chapter 17: Money Growth and Inflation
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22 Verified Questions
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Sample Questions
Q1) In which of the following cases was the inflation rate 12 percent over the last year?
A)One year ago the price index had a value of 110 and now it has a value of 120.
B)One year ago the price index had a value of 120 and now it has a value of 132.
C)One year ago the price index had a value of 134 and now it has a value of 150.
D)One year ago the price index had a value of 145 and now it has a value of 163.
Q2) Over the past 80 years,the overall price level in the U.S.has experienced a(n)
A)4-fold increase.
B)10-fold increase.
C)13-fold increase.
D)17-fold increase.
Q3) Which of the following statements about U.S.inflation is not correct?
A)Low inflation was viewed as a triumph of President Carter's economic policy.
B)There were long periods in the nineteenth century during which prices fell.
C)The U.S.public has viewed inflation rates of even 7 percent as a major economic problem.
D)The U.S.inflation rate has varied over time,but international data show even more variation.
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Chapter 17: Money Growth and Inflation: The Classical Theory of
Inflation
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245 Verified Questions
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Sample Questions
Q1) There is evidence that the rate at which money changed hands rose during the German hyperinflation.This means that
A)velocity rose.If monetary neutrality holds the rise in velocity increased the ratio M/P.
B)velocity rose.If monetary neutrality holds the rise in velocity decreased the ratio M/P.
C)velocity fell.If monetary neutrality holds the fall in velocity increased the ratio M/P.
D)velocity fell.If monetary neutrality holds the fall in velocity decreased the ratio M/P.
Q2) According to the assumptions of the quantity theory of money,if the money supply increases 5 percent,then
A)both the price level and real GDP would rise by 5 percent.
B)the price level would rise by 5 percent and real GDP would be unchanged.
C)the price level would be unchanged and real GDP would rise by 5 percent.
D)both the price level and real GDP would be unchanged.
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116
Chapter 17: Money Growth and Inflation: The Costs of
Inflation
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Sample Questions
Q1) When inflation falls,people
A)make less frequent trips to the bank and firms make less frequent price changes.
B)make less frequent trips to the bank while firms make more frequent price changes.
C)make more frequent trips to the bank while firms make less frequent price changes.
D)make more frequent trips to the bank and firms make more frequent price changes.
Q2) Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real interest rate?
A)Inflation is 5 percent;the tax rate is 40 percent.
B)Inflation is 4 percent;the tax rate is 30 percent.
C)Inflation is 3 percent;the tax rate is 45 percent.
D)Inflation is 2 percent;the tax rate is 50 percent.
Q3) In which of the following cases is the after-tax real interest rate highest?
A)inflation is 6%,the pre-tax real interest rate is 3%,and the tax rate is 20%.
B)inflation is 6%,the pre-tax real interest rate is 3%,and the tax rate is 25%.
C)inflation is 4%,the pre-tax real interest rate is 2%,and the tax rate is 20%.
D)inflation is 4%,the pre-tax real interest rate is 2%,and the tax rate is 25%.
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Chapter 17: Money Growth and Inflation: Conclusion
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Sample Questions
Q1) In order to maintain stable prices,a central bank must
A)maintain low interest rates.
B)keep unemployment low.
C)tightly control the money supply.
D)sell indexed bonds.
Q2) Inflation costs are minimized during periods of A)hyperinflation.
B)large,unexpected deflation.
C)moderate inflation.
D)rapid money growth.
Q3) Inflation costs are minimized under which inflation rate?
A)-20 percent
B)5 percent
C)15 percent
D)575 percent
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118
Chapter 17: Money Growth and Inflation: Part A
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63 Verified Questions
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Sample Questions
Q1) When the consumer price index increases,the value of your money has _____.According to the quantity theory of money this is caused by an increase in the
Q2) According to the classical dichotomy and money neutrality,a doubling of the money supply,holding all else constant,causes prices to _______ and real GDP to
Q3) It takes more money to purchase the same amount of goods when prices __________.Therefore,the value of your money has__________.
Q4) Suppose the Fed sells government bonds.Use a graph of the money market to show what this does to the value of money.
Q5) An economy produces two goods,x and y.A year ago the price of x was $4 and the price of y was $6.Today the price of x is $8 and the price of y is $10.What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?
Q6) The classical dichotomy says that two groups of variables are affected by different forces.What are these two groups of variables?
Q7) A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.
Page 119
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Chapter 17: Money Growth and Inflation: Part B
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Source URL: https://quizplus.com/quiz/79631
Sample Questions
Q1) If the Fed increases the money supply,the equilibrium value of money decreases and the equilibrium price level increases.
A)True
B)False
Q2) A person received 4% nominal interest.The inflation rate was -2% and the tax rate was 25%.This person received an after-tax real interest rate of 5%.
A)True
B)False
Q3) The quantity theory of money implies that if output and velocity are constant,then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.
A)True
B)False
Q4) Inflation is costly only if it is unanticipated.
A)True
B)False
Q5) The source of all four classic hyperinflations was high rates of money growth.
A)True
B)False
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Chapter 18: Open Economy Macroeconomics Basic Concepts
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Sample Questions
Q1) Which type(s)of economies interact with other economies?
A)only closed economies
B)only open economies
C)closed economies and open economies
D)neither closed nor open economies
Q2) International trade
A)raises the standard of living in all trading countries.
B)lowers the standard of living in all trading countries.
C)leaves the standard of living unchanged.
D)raises the standard of living for importing countries and lowers it for exporting countries.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: The International Flows of Goods and Capital
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227 Verified Questions
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Sample Questions
Q1) From 1960 to about 1980 the net capital outflow of the U.S.was typically
A)small but always positive.
B)small and sometimes negative and sometimes positive.
C)large and positive.
D)large but sometimes negative and sometimes positive.
Q2) If Norway sold more goods and services abroad than it purchased from abroad,then it had
A)positive net exports which is a trade surplus.
B)positive net exports which is a trade deficit.
C)negative net exports which is a trade surplus.
D)negative net exports which is a trade deficit.
Q3) A U.S.mutual fund buys stocks issued by a Columbian company.This purchase is an example of
A)U.S.foreign direct investment.It increases Columbia's net capital outflow.
B)U.S.foreign direct investment.It decreases Columbia's net capital outflow.
C)U.S.foreign portfolio investment.It decreases Columbia's net capital outflow.
D)U.S.foreign portfolio investment.It increases Columbia's net capital outflow.
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Page 122
Chapter 18: Open Economy Macroeconomics Basic
Concepts: The Prices for International Transactions Real and Nominal Exchange Rates
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Sample Questions
Q1) Goods that cost one dollar in the U.S.cost one euro in France,the real exchange rate would be computed as how many French goods per U.S.goods?
A)one
B)the price of the U.S.goods
C)the number of euros that can be bought with one U.S.dollar
D)None of the above is correct.
Q2) Other things the same,if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar,the dollar has
A)appreciated and so buys more Algerian goods.
B)appreciated and so buys fewer Algerian goods.
C)depreciated and so buys more Algerian goods.
D)depreciated and so buys fewer Algerian goods.
Q3) If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S.beef,a pound of U.S.beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar,then Chilean beef costs
A)1,250 pesos per pound.
B)800 pesos per pound
C)250 pesos per pound.
D)None of the above is correct.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: A First Theory of Exchange-Rate Determination
Purchasing-Power Parity
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87 Verified Questions
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Sample Questions
Q1) Purchasing-power parity theory does not hold at all times because
A)many goods are not easily transported.
B)the same goods produced in different countries may be imperfect substitutes for each other.
C)Both a and b are correct.
D)prices are different across countries.
Q2) If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30,then people could make a profit by
A)buying lobsters in Maine and selling them in Massachusetts.This action would increase the price of lobster in Massachusetts.
B)buying lobsters in Maine and selling them in Massachusetts.This action would decrease the price of lobster in Massachusetts.
C)buying lobsters in Massachusetts and selling them in Maine.This action would increase the price of lobster in Massachusetts.
D)buying lobsters in Massachusetts and selling them in Maine.This action would decrease the price of lobster in Massachusetts.
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part A
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67 Verified Questions
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Sample Questions
Q1) Suppose that money supply growth continues to be higher in Turkey than it is in the United States.What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?
Q2) Last year residents of Country A purchased $600 billion of foreign assets.Foreigners purchased $425 billion dollars of assets and $375 billion of goods and services from country A.What was the value of Country A's imports?
Q3) Suppose that a country has $120 billion of national saving,and $80 billion of domestic investment.Is this possible? Where did the other $40 billion of national savings go?
Q4) A U.S.bank loaned a Canadian oil company 1 million U.S.dollars.The Canadian company then used the entire loan to buy mining equipment from a U.S.company.
As a result of these transactions,by how much and in which direction did:
A.U.S.net exports change?
B.U.S.net capital outflow change?
Q5) According to purchasing-power parity,what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?
Q6) What is the logic behind the theory of purchasing-power parity?
Page 125
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Chapter 18: Open Economy Macroeconomics Basic
Concepts: Part B
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63 Verified Questions
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Sample Questions
Q1) If prices in Mexico rise at a higher rate than prices in the U.S. ,then according to purchasing-power parity the U.S.nominal exchange rate with Mexico should rise.
A)True
B)False
Q2) Movies are a major export of the U.S.
A)True
B)False
Q3) If the U.S.real exchange rate is greater than 1,then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.
A)True
B)False
Q4) If a country sells more goods and services abroad than it purchases abroad,it has positive net exports and a trade surplus.
A)True
B)False
Q5) If a country's trade surplus falls,its net capital outflow rises.
A)True
B)False
126
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Chapter 19: A Macroeconomic Theory of the Open Economy
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Sample Questions
Q1) The open-economy macroeconomic model examines the determination of
A)the output growth rate and the real interest rate.
B)unemployment and the exchange rate.
C)the output growth rate and the inflation rate.
D)the trade balance and the exchange rate.
Q2) Over the past three decades,the United States has
A)generally had,or been very near to a trade balance.
B)had trade deficits in about as many years as it has trade surpluses.
C)persistently had a trade deficit.
D)persistently had a trade surplus.
Q3) The open-economy macroeconomic model includes
A)only the market for loanable funds.
B)only the market for foreign-currency exchange.
C)both the market for loanable funds and the market for foreign-currency exchange.
D)neither the market for loanable funds nor the market for foreign-currency exchange.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Supply and Demand for Loanable Funds and for
Foreign-Currency Exchange
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141 Verified Questions
141 Flashcards
Source URL: https://quizplus.com/quiz/79717
Sample Questions
Q1) In an open economy,the source for the demand for loanable funds is
A)national saving.
B)national saving + net capital outflow.
C)investment
D)investment + net capital outflow
Q2) In an open economy,the demand for loanable funds comes from
A)only those who want to buy domestic capital goods.
B)only those who want to buy foreign assets.
C)those who want to buy either domestic capital goods or foreign assets.
D)None of the above is correct.
Q3) Other things the same,an increase in the U.S.interest rate
A)raises net capital outflow which decreases the quantity of loanable funds demanded.
B)raises net capital outflow which increases the quantity of loanable funds demanded.
C)lowers net capital outflow which decreases the quantity of loanable funds demanded.
D)lowers net capital outflow which increases the quantity of loanable funds demanded.
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Page 128
Chapter 19: A Macroeconomic Theory of the Open
Economy: Equilibrium in the Open Economy
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Sample Questions
Q1) Other things the same,if foreign companies desired to buy more U.S.medical equipment and U.S.residents desired to buy more foreign bonds
A)net exports and the exchange rate would rise.
B)net exports would rise,but what would happen to the exchange rate is uncertain.
C)net exports would fall,but what would happen to the exchange rate is uncertain.
D)net exports and the exchange rate would fall.
Q2) In the open-economy macroeconomic model,if a country's interest rate rises,its net capital outflow
A)rises and the real exchange rate rises.
B)falls and the real exchange rate falls.
C)rises and the real exchange rate falls.
D)falls and the real exchange rate rises.
Q3) Which of the following is correct concerning the open-economy macroeconomic model?
A)The net-capital-outflow curve slopes upward.
B)The key determinant of net capital outflow is the real exchange rate.
C)The supply of dollars in the market for foreign-currency exchange is vertical.
D)None of the above is correct.
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Chapter 19: A Macroeconomic Theory of the Open
Economy: How Policies and Events Affect an Open Economy
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172 Verified Questions
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Sample Questions
Q1) Which of the following would not be a consequence of an increase in the U.S.government budget deficit?
A)U.S.interest rates rise
B)U.S.net capital outflow falls
C)the real exchange rate of the U.S.dollar depreciates
D)the U.S.supply of loanable funds shifts left
Q2) Suppose that India has a government budget surplus,and then goes into deficit.This change would
A)increase India's national saving and shift its supply of loanable funds left.
B)increase India's national saving and shift its demand for loanable funds right.
C)decrease India's national saving and shift its supply of loanable funds left.
D)decrease India's national saving and shift its demand for loanable funds right.
Q3) If a tariff on beef were implemented,which of the following would rise?
A)exports and net exports
B)exports but not net exports
C)net exports but not exports
D)neither exports nor net exports
Page 130
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part A
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Sample Questions
Q1) Explain how a decrease in the demand for capital goods in the U.S.can lead to a change in the U.S.exchange rate.
Q2) Suppose that U.S.citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?
Q3) What is the source of the demand for loanable funds in the open-economy macroeconomic model ?
Q4) Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.
Q5) If for some reason U.S.residents increase their purchases of foreign assets,then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?
Q6) Suppose the U.S.government institutes a "Buy American" campaign,in order to encourage spending on domestic goods.What effect will this have on the U.S.trade balance?
Q7) Suppose that U.S.savers decide that holding Brazilian assets has become riskier.What happens to U.S.net capital outflow? What happens to the U.S.real interest rate?
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Chapter 19: A Macroeconomic Theory of the Open
Economy: Part B
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Sample Questions
Q1) In the open-economy macroeconomic model,other things the same,an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.
A)True
B)False
Q2) Other things the same,when a Canadian company imports bicycles from the U.S. ,the open-economy macroeconomic model treats this transaction as part of the demand for dollars in the U.S.foreign-currency exchange market.
A)True
B)False
Q3) An increase in the government budget deficit shifts the supply of loanable funds to the left.
A)True
B)False
Q4) Because depreciation of the real exchange rate of the dollar increases U.S.net exports,the demand curve for dollars in the foreign-currency exchange market is downward sloping.
A)True
B)False
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Chapter 20: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Which of the following explains why production rises in most years?
A)increases in the labor force
B)increases in the capital stock
C)advances in technological knowledge
D)All of the above are correct.
Q2) On average,over the last 50 years,real GDP has grown by about
A)3 percent per year.
B)2 percent per year.
C)1 percent per year.
D)4 percent per year.
Q3) A relatively mild period of falling incomes and rising unemployment is called a(n) A)depression.
B)recession.
C)expansion.
D)business cycle.
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Three Key Facts About Economic Fluctuations
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Sample Questions
Q1) The best example of recessions being close to each other in the United States can be found in the
A)1980s.
B)1970s.
C)1990s.
D)2000s.
Q2) Which of the following fall during a recession?
A)both retail sales and employment
B)retail sales but not employment
C)employment but not retail sales
D)neither employment nor retail sales
Q3) Which of the following is correct?
A)Over the business cycle investment fluctuates more than consumption.
B)Economic fluctuations are easy to predict.
C)During recessions employment rises.
D)Because of government policy the U.S.had zero recessions in the last 25 years.
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Page 134
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Sample Questions
Q1) Most economists believe that classical macroeconomic theory is a good description of the economy
A)in neither the short nor long run.
B)in the short run and in the long run.
C)in the short run,but not in the long run.
D)in the long run,but not in the short run.
Q2) Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production.This is inconsistent with monetary neutrality because
A)monetary neutrality would mean that neither prices nor production should have risen.
B)monetary neutrality would mean that production should have risen,but prices should not have.
C)monetary neutrality would mean the prices should have risen,but production should not have changed.
D)monetary neutrality would mean that prices and production should both have fallen.
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The Aggregate-Demand Curve
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Sample Questions
Q1) Which of the following shifts aggregate demand right?
A)both a decrease in the price level and the implementation of an investment tax credit
B)a decrease in the price level but not the implementation of an investment tax credit
C)the implementation of an investment tax credit but not a decrease in the price level
D)neither a decrease in the price level nor the implementation of an investment tax credit
Q2) Tax cuts shift aggregate demand
A)right as do increases in government spending.
B)right while increases in government spending shift aggregate demand left.
C)left as do increases in government spending.
D)left while increases in government spending shift aggregate demand right.
Q3) As the price level rises
A)people will want to hold more money,so the interest rate rises.
B)people will want to hold more money,so the interest rate falls.
C)people will want to hold less money,so the interest rate falls.
D)people will want to hold less money,so the interest rate rises.
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Page 136
Chapter 20: Aggregate Demand and Aggregate Supply:
The Aggregate-Supply Curve
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Sample Questions
Q1) An increase in the expected price level shifts short-run aggregate supply to the
A)right,and an increase in the actual price level shifts short-run aggregate supply to the right.
B)right,and an increase in the actual price level does not shift short-run aggregate supply.
C)left,and an increase in the actual price level shifts short-run aggregate supply to the left.
D)left,and an increase in the actual price level does not shift short-run aggregate supply.
Q2) Other things the same,if the long-run aggregate supply curve shifts right,prices
A)and output both increase.
B)and output both decrease.
C)increase and output decreases.
D)decrease and output increases.
Q3) The position of the long-run aggregate supply curve
A)is determined by resource usage and technology.
B)is at the point where the unemployment rate is zero.
C)shifts to the right when the money supply increases.
D)is at the point where the economy would cease to grow.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Two Causes of Economic Fluctuations
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Sample Questions
Q1) Which of the following shifts short-run aggregate supply left?
A)an increase in price expectations
B)an increase in the actual price level
C)a decrease in the money supply
D)a decrease in the price of oil
Q2) Refer to Figure 33-6.Which of the long-run aggregate-supply curves is consistent with a recession?
A)LRAS<sub>1</sub>
B)LRAS<sub>2</sub>
C)LRAS<sub>3</sub>
D)Both LRAS<sub>1</sub> and LRAS<sub>3</sub>
Q3) Refer to Optimism.Which curve shifts and in which direction?
A)aggregate demand shifts right
B)aggregate demand shifts left
C)aggregate supply shifts right.
D)aggregate supply shifts left.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part A
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Sample Questions
Q1) Using the aggregate demand and aggregate supply model,an increase in what curve is by itself consistent with the changes in prices and output that occurred during World War II?
Q2) In the aggregate demand and aggregate supply model,the point where the aggregate demand curve crosses the long run aggregate supply curve,and the expected price level equals the actual price level,is known as what?
Q3) Using the aggregate demand and aggregate supply model,a decrease of what curve is by itself consistent with the changes in prices and output that occurred during the onset of the Great Depression?
Q4) Refer to Figure 33-12.Identify periods 1 and 2.
Q5) Suppose a recession overseas reduces a country's exports.Which curve(s)in the aggregate demand and aggregate supply model would be affected,and which way would it (they)shift?
Q6) Suppose a boom in stock market prices helps make people feel wealthier.Using the model of aggregate demand and aggregate supply,identify the curves that are affected,and which way these curves would shift.
Q7) List the three alternative explanations for the upward slope of the short run aggregate supply curve.
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Chapter 20: Aggregate Demand and Aggregate Supply:
Part B
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61 Verified Questions
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Sample Questions
Q1) Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.
A)True
B)False
Q2) According to classical macroeconomic theory,changes in the money supply change real GDP but not the price level.
A)True
B)False
Q3) Policymakers who influence aggregate demand can potentially mitigate the severity of economic fluctuations.
A)True
B)False
Q4) Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.
A)True
B)False
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Page 140
Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Shifts in aggregate demand affect the price level in
A)the short run but not in the long run.
B)the long run but not in the short run.
C)both the short and long run.
D)neither the short nor long run.
Q2) A goal of monetary policy and fiscal policy is to
A)offset the shifts in aggregate demand and thereby eliminate unemployment.
B)offset shifts in aggregate demand and thereby stabilize the economy.
C)enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.
D)enhance the shifts in aggregate demand and thereby increase economic growth
Q3) Shifts in the aggregate-demand curve can cause fluctuations in
A)neither the level of output nor the level of prices.
B)the level of output,but not in the level of prices.
C)the level of prices,but not in the level of output.
D)the level of output and in the level of prices.
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Page 141
Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Monetary Policy Influences
Aggregate Demand
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198 Verified Questions
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Sample Questions
Q1) Which of the following events would shift money demand to the left?
A)an increase in the price level
B)a decrease in the price level
C)an increase in the interest rate
D)a decrease in the interest rate
Q2) According to classical macroeconomic theory,
A)output is determined by the supplies of capital and labor and the available production technology.
B)for any given level of output,the interest rate adjusts to balance the supply of,and demand for,loanable funds.
C)given output and the interest rate,the price level adjusts to balance the supply of,and demand for,money.
D)All of the above are correct.
Q3) On the graph that depicts the theory of liquidity preference,
A)the demand-for-money curve is vertical.
B)the supply-of-money curve is vertical.
C)the interest rate is measured along the horizontal axis.
Page 142
D)the price level is measured along the vertical axis.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: How Fiscal Policy Influences
Aggregate Demand
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123 Verified Questions
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Sample Questions
Q1) A decrease in government spending
A)increases the interest rate and so investment spending increases.
B)increases the interest rate and so decreases investment spending decreases.
C)decreases the interest rate and so investment spending increases.
D)decreases the interest rate and so investment spending decreases.
Q2) Assume the multiplier is 5 and that the crowding-out effect is $30 billion.An increase in government purchases of $20 billion will shift the aggregate-demand curve to the
A)right by $130 billion.
B)right by $70 billion.
C)right by $50 billion.
D)right by $10 billion.
Q3) Permanent tax cuts shift the AD curve
A)farther to the right than do temporary tax cuts.
B)not as far to the right as do temporary tax cuts.
C)farther to the left than do temporary tax cuts.
D)not as far to the left as do temporary tax cuts.
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Using Policy to Stabilize the Economy
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Sample Questions
Q1) Most recessions and depressions
A)are accurately forecasted.
B)usually occur with ample advance warning.
C)cause falling unemployment.
D)occur with little advance warning.
Q2) Suppose investment spending falls.To offset the change in output the Federal Reserve could
A)increase the money supply.This increase would also move the price level closer to its value before the decline in investment spending.
B)increase the money supply.However,this increase would move the price level farther from its value before the decline in investment spending.
C)decrease the money supply.This decrease would also move the price level closer to its value before the decline in investment spending.
D)decrease the money supply.However,this increase would move the price level farther from its value before the decline in investment spending.
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144
Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part A
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60 Verified Questions
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Sample Questions
Q1) An open-market purchase by the Federal Reserve creates an excess ----- of money.This causes interest rates to ----- and investment to -----.The change in investment causes aggregate demand to shift to the -----.
Q2) Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market.The Federal Reserve will ----- the money supply and aggregate demand will -----.
Q3) There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?
Q4) Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?
Q5) An increase in taxes shifts the aggregate ----- curve to the -----.
Q6) When the interest rate is above equilibrium,there is excess ----- of money.Households will ----- interest-earning assets,which ----- the interest rate.
Q7) Policymakers use ----- policy and ----- policy to stabilize ----- and ----- in the short run.
Page 145
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Chapter 21: The Influences of Monetary and Fiscal Policy on
Aggregate Demand: Part B
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50 Verified Questions
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Sample Questions
Q1) Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.
A)True
B)False
Q2) When the Fed announces a target for the federal funds rate,it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.
A)True
B)False
Q3) If the marginal propensity to consume is 4/5,then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.
A)True
B)False
Q4) For the U.S.economy,the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.
A)True
B)False
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment
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Q1) One determinant of the long-run average unemployment rate is the A)market power of unions,while the inflation rate depends primarily upon government spending.
B)minimum wage,while the inflation rate depends primarily upon the money supply growth rate.
C)rate of growth of the money supply,while the inflation rate depends primarily upon the market power of unions.
D)existence of efficiency wages,while the inflation rate depends primarily upon the extent to which firms are competitive.
Q2) The misery index is supposed to measure the A)social cost of unemployment.
B)health of the economy.
C)lost output associated with a particular unemployment rate.
D)short-run tradeoff between inflation and unemployment.
Q3) One determinant of the natural rate of unemployment is the A)rate of growth of the money supply.
B)minimum wage rate.
C)expected inflation rate.
D)All of the above are correct.
Page 147
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Phillips Curve
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Sample Questions
Q1) Refer to Figure 35-4.Assume the figure depicts possible outcomes for the year 2018.In 2018,the economy is at point A on the left-hand graph,which corresponds to point A on the right-hand graph.The price level in the year 2017 was A)106.
B)108.
C)110.
D)112.
Q2) According to the Phillips curve,policymakers would reduce inflation but raise unemployment if they
A)decreased the money supply.
B)increased government expenditures.
C)decreased taxes.
D)None of the above is correct.
Q3) According to the Phillips curve,policymakers could reduce both inflation and unemployment by
A)increasing the money supply.
B)increasing government expenditures.
C)raising taxes.
D)None of the above is correct.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Shifts in the Phillips Curve the Role of Expectations
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161 Verified Questions
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Sample Questions
Q1) The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the
A)short run,and the natural rate is constant over time.
B)long run,and the natural rate is constant over time.
C)short run,and the natural rate changes over time.
D)long run,and the natural rate changes over time.
Q2) If a government redesigned its unemployment insurance programs so that the unemployed had greater incentives to quickly find appropriate jobs,then which of the following curves would shift right?
A)the long-run Phillips curve and the long-run aggregate supply curve
B)the long-run Phillips curve but not the long-run aggregate supply curve
C)the long-run aggregate supply curve but not the long-run Phillips curve
D)neither the long-run Phillips curve nor the long-run aggregate supply curve
Q3) An increase in expected inflation shifts
A)the long-run Phillips curve right.
B)the short-run Phillips curve right.
C)neither the short-run nor long-run Phillips curve right.
Page 149
D)both the short-run and long-run Phillips curve right.
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Chapter 22: The Short Run Trade Off Between Inflation and
Shifts in the Phillips Curve the Role of Supply Shocks
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60 Verified Questions
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Sample Questions
Q1) If there is an adverse supply shock,then
A)unemployment rises and the short-run Phillips curve shifts right.
B)unemployment rises and the short-run Phillips curve shifts left.
C)unemployment falls and the short-run Phillips curve shifts right.
D)unemployment falls and the short-run Phillips curve shifts left.
Q2) The large increase in oil prices in the 1970s was caused primarily by a(n)
A)increase in demand for oil.
B)decrease in demand for oil.
C)decrease in the supply of oil.
D)increase in the supply of oil.
Q3) An adverse supply shock will shift short-run aggregate supply
A)right,making prices rise.
B)left,making prices rise.
C)right,making prices fall.
D)left,making prices fall.
Q4) In 1980,the U.S.misery index was
A)much higher than average.
B)slightly higher than average.
C)about average.
D)below average.
Page 150
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
The Cost of Reducing Inflation
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87 Verified Questions
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Sample Questions
Q1) Which of the following is not correct?
A)In the short run,policymakers face a tradeoff between inflation and unemployment.
B)Events that shift the long-run Phillips curve right shift the long-run aggregate supply curve left.
C)Unemployment can be changed only by the use of government policy.
D)The decrease in output associated with reducing inflation is less if the policy change is announced ahead of time and is credible.
Q2) Refer to Monetary Policy in Flosserland.Suppose that the Flosserland Department of Finance undertakes a public relations campaign to convince people that it will soon change monetary policy to reduce inflation to 12.5%.If Flosserlanders believe their government then which,if any,curve(s)shift left?
A)the short-run and the long-run Phillips curve
B)the short-run but not the long run Phillips curve
C)the long-run but not the short-run Phillips curve
D)neither the short-run nor the long-run Phillips curve
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Page 152
Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part A
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62 Verified Questions
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Sample Questions
Q1) For a given short-run Phillips curve,if expected inflation is 8% but actual inflation is 10%,is the unemployment rate above or below its natural rate?
Q2) If asset prices fall and inflation expectations remain unchanged,what happens to inflation and unemployment? Defend your answer.
Q3) If there were a favorable supply shock and the central bank wanted to offset the change in the unemployment rate, what would it do?
Q4) Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 4%.
Q5) Suppose that a central bank reduces the money supply growth rate to disinflate. What does disinflation mean? If people do not alter their inflation expectations, what happens to output and unemployment?
Q6) According to the Phillips curve,which fiscal policies can be used to reduce unemployment in the short run?
Q7) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Q8) List one specific policy that would shift the long-run Phillips curve to the right.
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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:
Part B
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Sample Questions
Q1) A decrease in government expenditures serves as an example of an adverse supply shock.
A)True
B)False
Q2) In the long run people come to expect whatever inflation rate the Fed chooses to produce,so unemployment returns to its natural rate.
A)True
B)False
Q3) The natural rate of unemployment is the same as the socially optimal rate of unemployment.
A)True
B)False
Q4) An increase in the inflation rate permanently reduces the natural rate of unemployment.
A)True
B)False
Q5) In most of the 1970s,the Fed's policy created expectations of high inflation.
A)True
B)False
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary and Fiscal Policymakers Try to Stabilize the Economy
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Q1) If the unemployment rate falls below its long-run level,which policies would be appropriate to stabilize output?
A)increase the money supply,increase taxes
B)increase the money supply,cut taxes
C)decrease the money supply,increase taxes
D)decrease the money supply,cut taxes
Q2) President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model
A)both the tax cut and the increase in government expenditures would tend to increase output.
B)only the tax cut would tend to increase output.
C)only the increase in government expenditures would tend to increase output.
D)neither the tax cut nor the increase in government expenditures would tend to increase output.
Q3) "Leaning against the wind" is exemplified by a
A)tax cut when there is a recession.
B)decrease in the money supply when there is a recession.
C)decrease in government expenditures when there is a recession.
D)All of the above are correct.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Fight Recessions With Spending Hikes
Rather Than Tax Cuts
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Q1) Which of the following can tax cuts influence?
A)aggregate demand and aggregate supply
B)aggregate demand but not aggregate supply
C)aggregate supply but not aggregate demand
D)neither aggregate demand nor aggregate supply
Q2) Which of the following is true of stimulus policy enacted in 2009?
A)We can be sure that it reduced the severity of the recession because the recession was less severe than the Great Depression.
B)We can be sure that it reduced the severity of the recession even though the recession was more severe than the Great Depression.
C)We can not be sure that it reduced the severity of the recession,but the recession was less severe than the Great Depression.
D)We can not be sure that it reduced the severity of the recession because the recession was more severe than the Great Depression.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should Monetary Policy Be Made by Rule Rather Than by Discretion
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Q1) According to the political business cycle,after an election,unless the central bank acts inflation is likely to
A)have risen.To counter this the central bank would raise interest rates.
B)have risen.To counter this the central bank would lower interest rates.
C)have fallen.To counter this the central bank would raise interest rates.
D)have fallen.To counter this the central bank would lower interest rates.
Q2) The Federal Open Market Committee meets about
A)every six days.
B)every six weeks.
C)every six months.
D)every sixteen months.
Q3) If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the A)left,and the sacrifice ratio will be low.
B)left,and the sacrifice ratio will be high.
C)right,and the sacrifice ratio will be low.
D)right,and the sacrifice ratio will be high.
Page 157
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Central Bank Aim for Zero Inflation
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49 Verified Questions
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Q1) If inflation were reduced,then it is
A)likely that real incomes would rise more rapidly and labor markets would be more flexible.
B)likely that real incomes would rise more rapidly but unlikely that labor markets would be more flexible.
C)likely that labor markets would be more flexible but unlikely that real incomes would rise more rapidly.
D)unlikely that real incomes would rise more rapidly and unlikely that labor markets would be more flexible.
Q2) A permanent reduction in inflation would
A)permanently reduce the frequency of price changes and permanently lower unemployment.
B)permanently reduce the frequency of price changes and temporarily raise unemployment.
C)temporarily reduce the frequency of price changes and temporarily lower unemployment.
D)temporarily reduce the frequency of price changes and temporarily raise unemployment.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Government Balance Its Budget
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Q1) Which of the following is not correct?
A)Government debt can continue to rise forever.
B)If the government uses funds to pay for investment programs,on net the debt need not burden future generations.
C)Social Security does not transfer wealth from younger generations to older generations.
D)The average U.S.citizens' share of the government debt represents less than 2 percent of her lifetime income.
Q2) Which of the following is not correct?
A)A potential cost of deficits is that they reduce national saving,thereby reducing growth of the capital stock and output growth.
B)Deficits give people the opportunity to consume at the expense of their children,but they do not require them to do so.
C)The U.S.debt per-person is large compared with average lifetime income.
D)Current spending may benefit future generations.
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Chapter 23: Six Debates Over Macroeconomic Policy:
Should the Tax Laws Be Reformed to Encourage Saving
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Sample Questions
Q1) Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?
A)The cost of something is what you give up to get it (Principle 2).
B)Trade can make everyone better off (Principle 5).
C)Markets are usually a good way to organize economic activity (Principle 6).
D)A country's standard of living depends on its ability to produce goods and services (Principle 8).
Q2) Means-tested college aid,base college aid primarily on
A)a student's abilities,and create an incentive to save.
B)a student's abilities but create a disincentive to save.
C)the current interest rate and are an incentive to save.
D)the current interest rate and are a disincentive to save.
Q3) Means-tested government benefits base benefits on
A)a household's wealth and are an incentive to save.
B)a household's wealth and are a disincentive to save.
C)the current interest rate and are an incentive to save.
D)the current interest rate and are a disincentive to save.
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Chapter 23: Six Debates Over Macroeconomic Policy:
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Q1) The six debates over macroeconomic policy exist mostly because A)economists disagree over basic issues such as the importance of saving for economic growth.
B)there are tradeoffs and people disagree about the best way to deal with them.
C)politicians offer misleading information.
D)people fail to clearly see the benefits or the costs of most changes.
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Q1) Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year.How large of a deficit can the government run (as a percentage of GDP)without raising the debt-to-income ratio?
Q2) What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?
Q3) Is it possible that deficits do not burden future generations?
Q4) Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?
Q5) Carefully explain how monetary policy can be used to counter a recession.Explain what the central bank does as well as how its actions affect the economy.Under what circumstances is fiscal policy especially useful?
Q6) Suppose the nation's price level rises as a result of an increase in aggregate demand and a decrease in aggregate supply which leaves output unchanged.If the Fed is required to follow a rule that stabilizes the price level,what will the Fed do to the money supply and what impact will this have on total output in the economy?
Q7) What is meant by the political business cycle?
Q8) Explain why fiscal policy actions typically work with a lag.
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Chapter 23: Six Debates Over Macroeconomic Policy: Part
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Q1) Economists agree that if a monetary policy rule is to be used,the best one makes the growth rate of the money supply constant.
A)True
B)False
Q2) Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.
A)True
B)False
Q3) A recession has no benefit to society-it represents a sheer waste of resources.
A)True
B)False
Q4) A reduction in the marginal tax-rate includes an income effect that tends to increase savings.
A)True
B)False
Q5) Tax laws do not give preferential treatment to some kinds of retirement saving. A)True
B)False
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Chapter 24: A-Financial-Overview-Of-The-US
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Q1) All of the following are transfer payments except A)welfare payments.
B)unemployment compensation.
C)personal income taxes.
D)Social Security.
Q2) Suppose that in 2020 the average citizen's federal tax bill is $12,466,and total federal spending is $10,824 per person.In 2020,the federal government will have
A)a budget surplus.
B)a budget deficit.
C)horizontal equity.
D)vertical equity.
Q3) Most analysts expect the largest federal spending category to continue to grow in importance for many years into the future.What category of spending is this?
A)national defense
B)education
C)income security
D)farm support programs
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