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Macroeconomics Exam Review

Course Introduction

Macroeconomics is a foundational course that explores the behavior and performance of an economy as a whole. It focuses on aggregate measures such as gross domestic product (GDP), unemployment rates, inflation, and economic growth. Students will examine how government fiscal and monetary policies impact the overall economy, understand the determinants of national income, and analyze the causes and consequences of economic fluctuations. The course equips learners with tools to interpret economic indicators and apply macroeconomic theories to real-world issues and policy debates.

Recommended Textbook

Principles of Macroeconomics 8th Edition by N. Gregory Mankiw

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158 Chapters

11779 Verified Questions

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Page 2

Chapter 1: Ten Principles of Economics

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Q1) The study of how society manages its scarce resources is most closely associated with which field of study?

A)environmental studies

B)economics

C)management

D)accounting

Answer: B

Q2) What term refers to the idea that society has limited resources and therefore cannot produce all the goods and services people wish to have?

A)inefficiency

B)inequality

C)scarcity

D)market failure

Answer: C

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Chapter 1: Ten Principles of Economics: How People Make Decisions

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Sample Questions

Q1) You are considering staying in college another semester so that you can complete a major in economics.In deciding whether or not to stay you should

A)compare the total cost of your education to the total benefits of your education.

B)compare the total cost of your education to the benefits of staying one more semester.

C)compare the cost of staying one more semester to the benefits of staying one more semester.

D)compare the total benefits of your education to the cost of staying one more semester.

Answer: C

Q2) A marginal change is a

A)change that involves little,if anything,that is important.

B)large,significant adjustment.

C)change for the worse,and so it is usually a short-term change.

D)small,incremental adjustment.

Answer: D

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Chapter 1: Ten Principles of Economics: How People Interact

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Sample Questions

Q1) The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole

A)is a basic principle regarding individual decisionmaking.

B)amounts to a denial of one of the basic principles regarding interactions among people.

C)supports the idea that the "invisible hand" should guide economic activity.

D)was promoted by the economist Adam Smith in a well-known 1776 book.

Answer: B

Q2) Trade between the United States and Guatemala

A)benefits both the United States and Guatemala.

B)is a losing proposition for the United States because Guatemalan labor is less expensive than U.S.labor.

C)is a losing proposition for Guatemala because capital is much more abundant in the U.S.than in Guatemala.

D)is a losing proposition for Guatemala because U.S.workers are more productive than Guatemalan workers.

Answer: A

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Chapter 1: Ten Principles of Economics: How the Economy

As a Whole Works

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Q1) Suppose a typical worker in India can produce 32 units of product in an eight-hour day,while a typical worker in Bangladesh can produce 30 units of product in a 10-hour day.We can conclude that

A)worker productivity in Bangladesh is higher than in India.

B)the standard of living will likely be higher in India than in Bangladesh.

C)productivity is 4 units per hour for the worker in Bangladesh and 3 units per hour for the worker in India.

D)there will be no difference between the standard of living in India and Bangladesh.

Q2) During the 1990s,the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation.A likely explanation of these facts is that

A)the United Kingdom has a better education system than Turkey.

B)the rate of growth of the quantity of money was slower in the United Kingdom than in Turkey.

C)workers in Turkey are more productive than workers in the United Kingdom.

D)there are more instances of market power in Turkey than in the United Kingdom.

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Page 6

Chapter 1: Ten Principles of Economics: Part A

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Sample Questions

Q1) What are the two reasons for the government to intervene in a market?

Q2) Economists use the term ------ to refer to fluctuations in economic activity,such as employment and production.

Q3) Consider two countries,Muria and Zenya.In Muria total annual output is worth $800 million and people work 40 million hours.In Zenya total annual output is worth $900 million and people work 50 million hours.In which country is productivity higher?

Q4) Refer to Scenario 1-5.What is your opportunity cost of going to the movies?

Q5) What is the main difference between a centrally planned economy and a market economy?

Q6) Under what conditions might government intervention in a market economy improve the economy's performance?

Q7) Refer to Scenario 1-6.What is the company's marginal cost?

Q8) Give an example of government intervention that is intended to improve equality.

Q9) Explain the concept of market failure.

Q10) Invisible hand is a term used by the economist ------ to describe how the decisions of households and firms lead to desirable market outcomes.

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Q11) The term ------ refers to a small incremental adjustment to an existing plan of action.

Chapter 1: Ten Principles of Economics: Part B

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Sample Questions

Q1) A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests.

A)True

B)False

Q2) Because resources are scarce,a society cannot give all individuals the standard of living to which each aspires.

A)True

B)False

Q3) The cost of an action is measured in terms of foregone opportunities.

A)True

B)False

Q4) Economics is the study of how evenly goods and services are distributed within society.

A)True

B)False

Q5) Trade can make everyone better off except in the case where one person is better at doing everything.

A)True

B)False

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Chapter 2: Thinking Like an Economist

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Sample Questions

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) When studying the effects of changes in public policy,economists believe that A)it is important to distinguish between the short run and the long run.

B)the assumptions used in studying those effects should be the same for the short run as for the long run.

C)the short-run effects of those changes are always more beneficial to society than are the long-run effects.

D)the long-run effects of those changes are always more beneficial to society than are the short-run effects.

Q2) Refer to Figure 2-6.If this economy devotes all of its resources to the production of blankets,then it will produce

A)0 blankets and 360 pillows.

B)200 blankets and 240 pillows.

C)320 blankets and 120 pillows.

D)360 blankets and 0 pillows.

Q3) Refer to Figure 2-5.It is possible for this economy to produce

A)60 dryers and 50 washers.

B)60 dryers and 60 washers.

C)80 dryers and 50 washers.

D)All of the above.

Page 10

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Chapter 2: Thinking Like an Economist: The Economist As Policy Adviser

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Sample Questions

Q1) The Economic Report of the President

A)discusses recent developments in the economy and presents analysis of current policy issues.

B)is written by the Council of Economic Advisers.

C)is the responsibility of the economists at the Office of Management and Budget.

D)Both a and b are correct.

Q2) Which of the following is the best explanation for why President Harry Truman once said that he wanted to find a one-armed economist?

A)President Truman received input from so many economists that he only wanted one view from each.

B)President Truman thought economists should analyze policies but not make or enforce them.

C)Economists understand that most policy decisions involve trade-offs so they are likely to present multiple views of policies.

D)A one-armed economist would conduct only positive analysis and no normative analysis.

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Chapter 2: Thinking Like an Economist: Why Economists

Disagree

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Sample Questions

Q1) President Ronald Reagan once joked that a Trivial Pursuit game designed for economists would

A)have no questions but hundreds of answers.

B)have 100 questions and 3,000 answers.

C)have 1,000 questions but no answers.

D)never produce a winner.

Q2) Almost all economists agree that tariffs and import quotas

A)reduces general economic welfare.

B)increases general economic welfare.

C)have no effect on general economic welfare.

D)stimulate a less than fully employed economy.

Q3) Joe and Fred are economists.Joe thinks that the wealthiest 10% of the US population should be taxed a rate higher than the rest of society because they can better afford it.Fred thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success.In this example,Joe and Fred

A)disagree about the validity of a positive theory.

B)have different normative views about tax policy.

C)must both be incorrect because tax policy is never that simple.

D)None of the above is correct.

Page 12

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Sample Questions

Q1) John Maynard Keynes referred to economics as an easy subject,

A)at which very few excel.

B)but not as easy as philosophy or the pure sciences.

C)which very few can enjoy.

D)which deals primarily with common sense.

Q2) 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.

Q3) When a government program is justified not on its merits but on the number of jobs it will create,

A)the program is an efficient use of taxpayer dollars.

B)it should be approved only if the unemployment rate is low.

C)taxes should be raised to fund the program.

D)it is known as the "broken window fallacy."

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Chapter 2: Thinking Like an Economist: Graphing a Brief Review

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Sample Questions

Q1) The slope of a line is equal to

A)rise divided by run.

B)run divided by rise.

C)rise minus run.

D)rise plus run.

Q2) An ordered pair is

A)the process of checking calculations twice before placing them on a graph.

B)two numbers that can be represented by a single point on a graph.

C)two numbers that are represented by two points on a graph.

D)two points on a graph that are of equal distance from the origin.

Q3) Which of the following is not held constant when looking at an individual's demand curve?

A)income

B)price

C)preferences

D)the availability of alternative goods

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Chapter 2: Thinking Like an Economist: Part A

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Sample Questions

Q1) Economists at which administrative department analyze data on workers and those looking for work to help formulate labor-market policies?

Q2) Who would be more likely to study the inflation rate in the United States,a macroeconomist or a microeconomist?

Q3) Suppose a war in the Middle East interrupts the flow of crude oil and oil prices skyrocket around the world.For economists,this historical episode serves as a

Q4) Refer to Figure 2-3.What is the name of the model depicted in the figure?

Q5) Refer to Figure 2-3.What do the ovals represent in the figure?

Q6) Refer to Figure 2-3.What are two elements not included in this figure that could be included in a more complex model?

Q7) Refer to Figure 2-22.What is the slope of the line with points A,B,and C?

Q8) As a substitute for laboratory experiments,economists use evidence available through history's

Q9) Refer to Figure 2-14.What is the opportunity cost of moving from point R to point Q?

Q10) Refer to Figure 2-22.What is the x-coordinate of point R?

Q11) Economists at which administrative department help enforce the nation's antitrust laws?

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Chapter 2: Thinking Like an Economist: Part B

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Sample Questions

Q1) In the circular-flow diagram,factors of production are the goods and services produced by firms.

A)True

B)False

Q2) The circular-flow diagram explains,in general terms,how the economy is organized and how participants in the economy interact with one another.

A)True

B)False

Q3) Refer to Figure 2-14.Given the technology available for manufacturing doghouses and dishwashers,this economy does not have enough of the factors of production to support the level of output represented by point C.

A)True

B)False

Q4) If new government regulations designed to protect wetlands remove very productive farmland from production,then the production possibilities frontier will shift inward.

A)True

B)False

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Chapter 3: Interdependence and the Gains From Trade

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Sample Questions

Q1) 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.

Q2) 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.

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Chapter 3: Interdependence and the Gains From Trade: A

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Sample Questions

Q1) Which of the following is not a reason people choose to depend on others for goods and services?

A)to improve their lives

B)to allow them to enjoy a greater variety of goods and services

C)to consume more of each good without working any more hours

D)to allow people to produce outside their production possibilities frontiers

Q2) 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

Q3) Refer to Figure 3-4.If the production possibilities frontier shown for Lisa is for 4 months of work,then how long does it take Lisa to produce one jacket?

A)1/4 month

B)1/2 month

C)2 months

D)4 months

Page 18

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Chapter 3: Interdependence and the Gains From Trade:

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Sample Questions

Q1) Refer to Figure 3-18.The opportunity cost of 1 bowl for Juba is A)1/4 cup.

B)2/3 cup.

C)3/2 cups.

D)4 cups.

Q2) Refer to Figure 3-22.Which of the following prices would result in an mutually advantageous trade for Alice and Betty?

A)100 pizzas for 100 pitchers of lemonade

B)100 pizzas for 125 pitchers of lemonade

C)100 pizzas for 180 pitchers of lemonade

D)100 pizzas for 220 pitchers of lemonade

Q3) Refer to Figure 3-18.The opportunity cost of 1 cup for Bintu is A)1/8 bowl.

B)1/4 bowl.

C)4 bowls.

D)8 bowls.

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Chapter 3: Interdependence and the Gains From Trade:

Applications of Comparative Advantage

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Sample Questions

Q1) 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.

Q2) Trade between countries

A)allows each country to consume at a point outside its production possibilities frontier.

B)limits a country's ability to produce goods and services on its own.

C)must benefit both countries equally;otherwise,trade is not mutually beneficial.

D)can best be understood by examining the countries' absolute advantages.

Q3) Refer to Figure 3-25.Colombia should specialize in the production of A)coffee and import soybeans.

B)soybeans and import coffee.

C)both goods and import neither good.

D)neither good and import both goods.

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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 muffin?

Q2) Refer to Scenario 3-1.What is Catherine's opportunity cost of producing cake? Explain how you derived your answer.

Q3) Define absolute advantage.

Q4) Refer to Figure 3-26.What is Mary's opportunity cost of one cookie?

Q5) Refer to Scenario 3-2.Which country,if either,has a comparative advantage producing broccoli? Defend your answer using the numbers given.

Q6) Refer to Scenario 3-1.Is it possible for Greg and Catherine to gain from trade? Defend your answer.

Q7) Sally can make 8 cups of soup per hour or 20 crackers per hour.Harry can make 10 cups of soup per hour or 30 crackers per hour.Can Sally and Harry gain from trade? If so,what is the range of prices of crackers for soup at which they would both find trade advantageous?

Q8) Explain the difference between absolute advantage and comparative advantage.Which is more important in determining trade patterns,absolute advantage or comparative advantage? Why?

Q9) Refer to Figure 3-26.What is Kate's opportunity cost of one cookie?

Q10) Refer to Figure 3-26.What is Mary's opportunity cost of one muffin? Page 22

Define comparative advantage.

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Page 23

Chapter 3: Interdependence and the Gains From Trade:

Part B

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Q1) In most countries today,many goods and services consumed are imported from abroad,and many goods and services produced are exported to foreign customers.

A)True B)False

Q2) If a person chooses self-sufficiency,then she can only consume what she produces.

A)True

B)False

Q3) Opportunity cost measures the trade-off between two goods that each producer faces.

A)True

B)False

Q4) It takes Ross 6 hours to produce a bushel of corn and 2 hours to wash and polish a car.It takes Courtney 6 hours to produce a bushel of corn and 1 hour to wash and polish a car.Courtney and Ross cannot gain from specialization and trade,since it takes each of them 6 hours to produce 1 bushel of corn.

A)True B)False

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Chapter 4: The Market Forces of Supply and Demand

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Sample Questions

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 economists use most often are

A)inflation and trade.

B)supply and demand.

C)competition and prices.

D)markets and equilibrium.

Q3) 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.

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Chapter 4: The Market Forces of Supply and

Demand:Markets and Competition

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Q1) The market for ice cream is a A)monopolistic market.

B)highly competitive market.

C)highly organized market.

D)Both b and c are correct.

Q2) The highest form of competition is called A)arbitrage.

B)monopolistic competition.

C)equilibrium.

D)perfect competition.

Q3) An example of a perfectly competitive market would be the market for A)tennis racquets.

B)pizza.

C)garbage collection.

D)wheat.

Q4) In competitive markets,which of the following is not correct?

A)Firms produce identical products.

B)No individual buyer can influence the market price.

C)Some sellers can set prices.

D)Buyers are price takers.

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Chapter 4: The Market Forces of Supply and Demand: Demand

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Sample Questions

Q1) If macaroni and cheese is an inferior good,then an increase in

A)the price will cause the demand curve for macaroni and cheese to shift to the left.

B)the price will cause the demand curve for macaroni and cheese to shift to the right.

C)a consumer's income will cause the demand curve for macaroni and cheese to shift to the left.

D)a consumer's income will cause the demand curve for macaroni and cheese to shift to the right.

Q2) When drawing a demand curve,

A)demand is measured along the vertical axis,and price is measured along the horizontal axis.

B)quantity demanded is measured along the vertical axis,and price is measured along the horizontal axis.

C)price is measured along the vertical axis,and demand is measured along the horizontal axis.

D)price is measured along the vertical axis,and quantity demanded is measured along the horizontal axis.

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Chapter 4: The Market Forces of Supply and Demand: Supply

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Q1) A decrease in supply is represented by a

A)movement downward and to the left along a supply curve.

B)movement upward and to the right along a supply curve.

C)rightward shift of a supply curve.

D)leftward shift of a supply curve.

Q2) A decrease in the price of a good will

A)increase supply.

B)decrease supply.

C)increase quantity supplied.

D)decrease quantity supplied.

Q3) The quantity supplied of a good is the amount that A)buyers are willing and able to purchase.

B)sellers are able to produce.

C)buyers and sellers agree will be brought to market.

D)sellers are willing and able to sell.

Q4) Other things equal,when the price of a good falls,the

A)quantity supplied of the good increases.

B)supply decreases.

C)quantity supplied of the good decreases.

D)demand increases.

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Chapter 4: The Market Forces of Supply and Demand:

Supply and Demand Together

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Sample Questions

Q1) Suppose roses are currently selling for $20 per dozen,but the equilibrium price of roses is $30 per dozen.We would expect a

A)shortage to exist and the market price of roses to increase.

B)shortage to exist and the market price of roses to decrease.

C)surplus to exist and the market price of roses to increase.

D)surplus to exist and the market price of roses to decrease.

Q2) Refer to Figure 4-23.In this market for sunscreen,there is a decrease in the price of zinc oxide,an input into sunscreen,and more producers enter the market.The equilibrium price

A)increases and the equilibrium quantity decreases.

B)decreases and the equilibrium quantity increases.

C)is ambiguous and the equilibrium quantity increases.

D)decreases and the equilibrium quantity is ambiguous.

Q3) Refer to Figure 4-19.In this market,equilibrium price and quantity,respectively,are

A)$10 and 30 units.

B)$10 and 50 units.

C)$10 and 70 units.

D)$4 and 50 units.

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Chapter 4: The Market Forces of Supply and

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Q1) 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.

Q2) The signals that guide the allocation of resources in a market economy are A)surpluses and shortages.

B)quantities.

C)government policies.

D)prices.

Q3) Adam Smith suggested that an invisible had guides market economies.In this analogy,what is the baton that the invisible hand uses to conduct the economic orchestra?

A)the government

B)prices

C)subsidies

D)the Federal Reserve

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Chapter 4: The Market Forces of Supply and Demand: Part

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Q1) Refer to Scenario 4-1.What is the equilibrium price in this market?

Q2) Refer to Figure 4-31.Suppose there is an improvement in technology in this market and the price of lamps,a complementary good,increases.What changes do you predict in the equilibrium price and quantity?

Q3) Refer to Scenario 4-1.Suppose the price is currently equal to 10 in this market.Is there a shortage or surplus in this market,and how large is the shortage/surplus?

Q4) 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?

Q5) 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.

Q6) Refer to Figure 4-28.Using the points on the figure,describe the change that would occur if consumer incomes increase and this is an inferior good.

Q7) Suppose consumers expect the price of a good to be higher in the future than it is today.Would the current demand for the good increase or decrease?

Q8) Refer to Scenario 4-1.What is the equilibrium quantity in this market?

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Chapter 4: The Market Forces of Supply and Demand: Part

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Q1) An increase in the price of ink will shift the supply curve for pens to the left.

A)True

B)False

Q2) All goods and services are sold in perfectly competitive markets.

A)True

B)False

Q3) The market demand curve shows how the total quantity demanded of a good varies as the income of buyers varies,while all the other factors that affect how much consumers want to buy are held constant.

A)True

B)False

Q4) A surplus is the same as an excess demand.

A)True

B)False

Q5) If a higher price means a greater quantity supplied,then the supply curve slopes upward.

A)True

B)False

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Chapter 5: Elasticity and Its Applications

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Q1) When studying how some event or policy affects a market,elasticity provides information on the

A)equity effects on the market by identifying the winners and losers.

B)magnitude of the effect on the market.

C)speed of adjustment of the market in response to the event or policy.

D)number of market participants who are directly affected by the event or policy.

Q2) Which of the following statements about the consumers' responses to rising gasoline prices is correct?

A)Because gasoline is a necessity,consumers do not decrease their quantity demanded in either the short run or the long run.

B)Consumers react to a 10% increase in price with about a 10% decrease in quantity demanded in both the short run and long run.

C)Consumers decrease their quantity demanded more in the short run than in the long run.

D)Consumers decrease their quantity demanded more in the long run than in the short run.

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Chapter 5: Elasticity and Its Applications: The Elasticity of Demand

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Q1) Refer to Figure 5-5.Using the midpoint method,between prices of $20 and $30,price elasticity of demand is about

A)0.33.

B)0.4.

C)1.33.

D)3.

Q2) Refer to Figure 5-3.Which demand curve is perfectly inelastic?

A)A

B)B

C)C

D)D

Q3) Jerome says that he will spend exactly $25 each month on new apps for his mobile device,regardless of the price of apps.Jerome's demand for apps is

A)perfectly elastic.

B)unit elastic.

C)perfectly inelastic.

D)somewhat inelastic,but not perfectly inelastic.

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Page 34

Chapter 5: Elasticity and Its Applications: The Elasticity of Supply

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Q1) If a 15% change in price results in a 20% change in quantity supplied,then the price elasticity of supply is about

A)1.33,and supply is elastic.

B)1.33,and supply is inelastic.

C)0.75,and supply is elastic.

D)0.75,and supply is inelastic.

Q2) If the price elasticity of supply for a good is equal to infinity,then the

A)supply curve is vertical.

B)supply curve is horizontal.

C)supply curve also has a slope equal to infinity.

D)quantity supplied is constant regardless of the price.

Q3) 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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Q1) Refer to Scenario 5-3.Total consumer spending on aged cheddar cheese will

A)increase,and total consumer spending on bread will increase.

B)increase,and total consumer spending on bread will decrease.

C)decrease,and total consumer spending on bread will increase.

D)decrease,and total consumer spending on bread will decrease.

Q2) In the early 1970s,OPEC's goal was to

A)decrease the world-wide price of oil so that the quantity demanded increased,thus raising total revenues for OPEC members.

B)increase the world-wide price of oil by reducing the quantity of oil supplied.

C)increase the world-wide price of oil by increasing the quantity of oil supplied,thus raising total revenues for OPEC members.

D)decrease the world-wide price of oil so that quantity demanded increased.

Q3) Knowing that the demand for wheat is inelastic,if all farmers voluntarily did not plant wheat on 10 percent of their land,then

A)consumers of wheat would buy more wheat.

B)wheat farmers would suffer a reduction in their total revenue.

C)wheat farmers would experience an increase in their total revenue.

D)the demand for wheat would decrease.

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Chapter 5: Elasticity and Its Applications: Part A

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Q1) If the cross-price elasticity of demand between two goods is negative,what is the relationship between the two goods?

Q2) Suppose a market has the demand function Qd=20-0.5P.Using the midpoint method,what is the price elasticity of demand between $30 and $40?

Q3) What is the price elasticity of demand at any point on a perfectly elastic demand curve?

Q4) With regard to elasticity,if a firm has a longer time to adjust to a price increase,supply will be more

Q5) 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?

Q6) What is the price elasticity of demand at any point on a perfectly inelastic demand curve?

Q7) 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?

Q8) With regard to elasticity,as a firm nears its production capacity,supply becomes more

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Chapter 5: Elasticity and Its Applications: Part B

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Q1) If the income elasticity of demand for a good is negative,then the good must be an inferior good.

A)True

B)False

Q2) Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in response to changes in prices or income.

A)True

B)False

Q3) The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

A)True

B)False

Q4) If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12,the price elasticity of supply is 2.

A)True

B)False

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Chapter 6: Supply Demand and Government Policies

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Q1) Which of the following is not correct?

A)Economists have two roles: scientist and policy adviser.

B)As scientists,economists develop and test theories to explain the world around them.

C)Economic policies rarely have effects that their architects did not intend or anticipate.

D)As policy advisers,economists use their theories to help change the world for the better.

Q2) Rent-control laws dictate

A)the exact rent that landlords must charge tenants.

B)a maximum rent that landlords may charge tenants.

C)a minimum rent that landlords may charge tenants.

D)both a minimum rent and a maximum rent that landlords may charge tenants.

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) Refer to Figure 6-13.If the government imposes a price ceiling of $6 on this market,then there will be

A)no shortage.

B)a shortage of 5 units.

C)a shortage of 10 units.

D)a shortage of 20 units.

Q2) In response to a shortage caused by the imposition of a binding price ceiling on a market,

A)price will no longer be the mechanism that rations scarce resources.

B)long lines of buyers may develop.

C)sellers could ration the good or service according to their own personal biases.

D)All of the above are correct.

Q3) Refer to Figure 6-2.The price ceiling

A)causes a shortage of 40 units.

B)is not binding,because it is set above the equilibrium price.

C)causes a shortage of 45 units.

D)causes a shortage of 85 units.

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Page 40

Chapter 6: Supply Demand and Government Policies: Taxes

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Q1) Refer to Figure 6-24.Andrew is a buyer of the good.Taking the tax into account,how much does Andrew effectively pay to acquire one unit of the good?

A)$16

B)$18

C)$24

D)$26

Q2) Refer to Figure 6-28.Suppose a tax of $4 per unit is imposed on this market.Which of the following is correct?

A)Buyers and sellers will share the burden of the tax equally.

B)Buyers will bear more of the burden of the tax than sellers.

C)Sellers will bear more of the burden of the tax than buyers.

D)Any of the above is possible in this market.

Q3) Refer to Figure 6-18.The per-unit burden of the tax on buyers is

A)$6.

B)$8.

C)$14.

D)$24.

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Chapter 6: Supply Demand and Government Policies: Part

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Q1) If the demand curve is more price elastic than the supply curve,will the buyers or the sellers bear a greater burden of a tax? Draw a diagram to illustrate your answer.

Q2) When a price ceiling is binding,is the price ceiling set above or below the market equilibrium price?

Q3) Refer to Scenario 6-2.Suppose the government sets a price floor at $13 for this product.Is this price floor binding,and what will be the size of the shortage/surplus in this market?

Q4) Refer to Figure 6-31.If the government set a price ceiling at $9,would there be a shortage or surplus,and how large would be the shortage/surplus?

Q5) Refer to Scenario 6-1.If the government set a price floor at $7,would there be a shortage or surplus,and how large would be the shortage/surplus?

Q6) Using a supply and demand diagram,show a labor market with a binding minimum wage.Use the diagram to show those who are helped by the minimum wage and those who are hurt by the minimum wage.

Q7) Refer to Figure 6-32.If the government set a price ceiling at $40,would there be a shortage or surplus,and how large would be the shortage/surplus?

Page 42

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Chapter 6: Supply Demand and Government Policies: Part B

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Q1) Because the supply and demand of housing are inelastic in the short run,the initial shortage caused by rent control is large.

A)True

B)False

Q2) Advocates of the minimum wage admit that it has some adverse effects,but they believe that these effects are small and that a higher minimum wage makes the poor better off.

A)True

B)False

Q3) If a good or service is sold in a competitive market free of government regulation,then the price of the good or service adjusts to balance supply and demand. A)True

B)False

Q4) A price ceiling is a legal minimum on the price at which a good or service can be sold.

A)True B)False

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Chapter 7: Consumers Producers and the Efficiency of Markets

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Q1) Which of the Ten Principles of Economics does welfare economics explain more fully?

A)The cost of something is what you give up to get it.

B)Markets are usually a good way to organize economic activity.

C)Trade can make everyone better off.

D)A country's standard of living depends on its ability to produce goods and services.

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) If a consumer places a value of $20 on a particular good and if the price of the good is $25,then the

A)consumer has consumer surplus of $5 if he buys the good.

B)consumer does not purchase the good.

C)price of the good will rise due to market forces.

D)market is out of equilibrium.

Q2) If the cost of producing sofas decreases,then consumer surplus in the sofa market will

A)increase.

B)decrease.

C)remain constant.

D)increase for some buyers and decrease for other buyers.

Q3) All else equal,what happens to consumer surplus if the price of a good decreases?

A)Consumer surplus increases.

B)Consumer surplus decreases.

C)Consumer surplus is unchanged.

D)Consumer surplus may increase,decrease,or remain unchanged.

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Page 45

Chapter 7: Consumers Producers and the Efficiency of

Markets: Producer Surplus

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Sample Questions

Q1) Ronnie operates a lawn-care service.On each day,the cost of mowing the first lawn is $15,the cost of mowing the second lawn is $25,and the cost of mowing the third lawn is $40.His producer surplus on the first three lawns of the day is $100.If Ronnie charges all customers the same price for lawn mowing,that price is A)$20.

B)$60.

C)$80.

D)$180.

Q2) The marginal seller is the seller who A)cannot compete with the other sellers in the market. B)would leave the market first if the price were any lower. C)can produce at the lowest cost.

D)has the largest producer surplus.

Q3) Refer to Figure 7-14.If the government imposes a price ceiling of $50 in this market,then producer surplus will decrease by A)$325.

B)$100.

C)$300.

D)$200.

Page 46

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Chapter 7: Consumers Producers and the Efficiency of

Markets: Market Efficiency

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Q1) Refer to Figure 7-27.If the government mandated a price increase from P1 to a higher price,then

A)total surplus would decrease.

B)consumer surplus would increase.

C)total surplus would increase,since producer surplus would increase.

D)total surplus would remain unchanged.

Q2) Refer to Figure 7-21.Which area represents producer surplus when the price is P1?

A)A

B)B

C)C

D)D

Q3) 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.

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Chapter 7: Consumers Producers and the Efficiency of

Markets: Conclusion Market Efficiency and Market Failure

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Q1) Market power and externalities are examples of

A)laissez-faire economics.

B)public policy.

C)market failure.

D)welfare economics.

Q2) 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.

Q3) The decisions of buyers and sellers that affect people who are not participants in the market create

A)market power.

B)externalities.

C)profiteering.

D)market equilibrium.

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Page 48

Chapter 7: Consumers Producers and the Efficiency of

Markets: Part A

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Q1) Refer to Figure 7-32.At what price will total surplus be maximized in this market?

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 Figure 7-33.How much is total consumer surplus in this market at the equilibrium price?

Q4) Refer to Figure 7-33.Suppose demand shifts such that consumers wish to purchase 12 fewer units at every price.How much is total surplus in this market at the new equilibrium price?

Q5) Refer to Figure 7-31.If the market equilibrium price rises from $25 to $35,how much is the increase in producer surplus to the producers supplying units at the initial $25 price?

Q6) 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?

Q7) Refer to Figure 7-31.If the market equilibrium price rises from $25 to $35,how much is the producer surplus for the producers entering the market after the price increase?

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Chapter 7: Consumers Producers and the Efficiency of

Markets: Part B

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Q1) Economists argue that restrictions against ticket scalping actually drive up the cost of many tickets.

A)True B)False

Q2) Total surplus in a market is consumer surplus minus producer surplus.

A)True

B)False

Q3) A buyer is willing to buy a product at a price greater than or equal to his willingness to pay,but would refuse to buy a product at a price less than his willingness to pay.

A)True

B)False

Q4) The area below the demand curve and above the supply curve measures the producer surplus in a market.

A)True B)False

Q5) Producer surplus measures the benefit to sellers from receiving a price above their costs.

A)True B)False

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Chapter 8: Application the Cost of Taxation

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Q1) 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.

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) 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

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Chapter 8: Application the Cost of Taxation: The

Deadweight Loss of Taxation

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Q1) Refer to Figure 8-6.The tax results in a deadweight loss that amounts to A)$600.

B)$900.

C)$1,500.

D)$1,800.

Q2) Refer to Figure 8-12.Suppose a $3 per-unit tax is placed on this good.The loss of producer surplus resulting from this tax is

A)$5.50.

B)$17.50.

C)$22.50.

D)$45.00

Q3) Refer to Scenario 8-2.If Karla hires Roland to mow her lawn,Karla's consumer surplus is

A)$3.

B)$5.

C)$8.

D)$25.

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Page 52

Chapter 8: Application the Cost of Taxation: The Determinants of

the Deadweight

Loss

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Q1) The less freedom young mothers have to work outside the home,the

A)more elastic the supply of labor will be.

B)less elastic the supply of labor will be.

C)more horizontal the labor supply curve will be.

D)larger is the decrease in employment that will result from a tax on labor.

Q2) Refer to Figure 8-15.Panel (a)and Panel (b)each illustrate a $4 tax placed on a market.In comparison to Panel (a),Panel (b)illustrates which of the following statements?

A)When demand is relatively inelastic,the deadweight loss of a tax is smaller than when demand is relatively elastic.

B)When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic.

C)When supply is relatively inelastic,the deadweight loss of a tax is smaller than when supply is relatively elastic.

D)When supply is relatively elastic,the deadweight loss of a tax is larger than when supply is relatively inelastic.

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Chapter 8: Application the Cost of Taxation: Deadweight

Loss and Tax Revenue As Taxes Vary

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Q1) Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?

A)Both the size of the deadweight loss and tax revenue increase.

B)The size of the deadweight loss increases,but the tax revenue decreases.

C)The size of the deadweight loss increases,but the tax revenue first increases,then decreases.

D)Both the size of the deadweight loss and tax revenue decrease.

Q2) A decrease in the size of a tax is most likely to increase tax revenue in a market with

A)elastic demand and elastic supply.

B)elastic demand and inelastic supply.

C)inelastic demand and elastic supply.

D)inelastic demand and inelastic supply.

Q3) As the size of a tax rises,the deadweight loss

A)rises,and tax revenue first rises,then falls.

B)rises as does tax revenue.

C)falls,and tax revenue first rises,then falls.

D)falls as does tax revenue.

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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) Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How much tax revenue is collected after the tax is imposed?

Q2) Suppose that the market for product X is characterized by a typical,downward-sloping,linear demand curve and a typical,upward-sloping,linear supply curve.If a $2 tax per unit results in a deadweight loss of $200,how large would be the deadweight loss from a $6 tax per unit?

Q3) Refer to Figure 8-26.How much is producer surplus at the market equilibrium?

Q4) Refer to Figure 8-26.How much is consumer surplus at the market equilibrium?

Q5) Is the United States' labor supply more inelastic or more elastic? Briefly summarize the competing theories.

Q6) Using demand and supply diagrams,show the difference in deadweight loss between (a)a market with inelastic demand and supply and (b)a market with elastic demand and supply.

Q7) Refer to Figure 8-26.Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit.Will the tax revenue collected from the tax increase,decrease,or stay the same?

Q8) Refer to Figure 8-26.What are the equilibrium price and equilibrium quantity in this market?

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Chapter 8: Application the Cost of Taxation: Part B

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Q1) When a tax is imposed on a good,consumer surplus decreases and producer surplus remains unchanged.

A)True

B)False

Q2) If the government imposes a $3 tax in a market,the buyers and sellers will share an equal burden of the tax.

A)True

B)False

Q3) Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

A)True

B)False

Q4) When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic.

A)True

B)False

Q5) As the size of a tax increases,the government's tax revenue rises,then falls.

A)True

B)False

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Chapter 9: Application International Trade

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Q1) 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?

Q2) 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.

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Chapter 9: Application International Trade: The Determinants of Trade

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Sample Questions

Q1) Suppose Ireland exports beer to China and imports pineapples from the United States.This situation suggests that

A)Ireland has a comparative advantage relative to the United States in producing pineapples,and China has a comparative advantage relative to Ireland in producing beer.

B)Ireland has a comparative advantage relative to China in producing beer,and the United States has a comparative advantage relative to Ireland in producing pineapples.

C)Ireland has an absolute advantage relative to the United States in producing pineapples,and China has an absolute advantage relative to Ireland in producing beer.

D)Ireland has an absolute advantage relative to China in producing beer,and the United States has an absolute advantage relative to Ireland in producing pineapples.

Q2) A country has a comparative advantage in a product if the world price is

A)lower than that country's domestic price without trade.

B)higher than that country's domestic price without trade.

C)equal to that country's domestic price without trade.

D)not subject to manipulation by organizations that govern international trade.

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Page 59

Chapter 9: Application International Trade: The Winners

and Losers From Trade

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Sample Questions

Q1) When a country opens up to trade in a good for which it has a comparative advantage,and the country begins to export the good,we can conclude that

A)the domestic price will fall after trade opens up.

B)both buyers and sellers in that country will be better off as a consequence of opening up the market to international trade.

C)the total surplus for this good will increase as a result of opening up the market to international trade.

D)opening the market to international trade will create a deadweight loss.

Q2) Refer to Figure 9-1.From the figure it is apparent that

A)Guatemala will experience a shortage of coffee if trade is not allowed.

B)Guatemala will experience a surplus of coffee if trade is not allowed.

C)Guatemala has a comparative advantage in producing coffee,relative to the rest of the world.

D)foreign countries have a comparative advantage in producing coffee,relative to Guatemala.

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Chapter 9: Application International Trade: The Arguments for Restricting Trade

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Sample Questions

Q1) In a December 2007 New York Times column,Paul Krugman noted that

A)it is difficult to find instances of trade between high-wage countries in the modern era.

B)it is difficult to find instances of trade between high-wage countries and low-wage countries in the modern era.

C)the United States now imports more oil and other raw materials from other advanced countries than from the third world.

D)the United States now imports more manufactured goods from the third world than from other advanced countries.

Q2) A possible outcome of the multilateral approach to free trade is that such an approach can

A)win political support when a unilateral approach cannot.

B)result in more restricted trade than under a unilateral approach,when international negotiations fail.

C)result in drastic reductions in tariffs for many countries.

D)All of the above are correct.

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Chapter 9: Application International Trade: Conclusion

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Q1) Economists view the fact that Florida grows oranges,Texas pumps oil,and California makes wine as

A)confirmation of the virtues of free trade.

B)confirmation of the infant-industry argument.

C)confirmation that free trade agreements are not necessary.

D)confirmation that specialization in absolute advantage works.

Q2) 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.

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Chapter 9: Application International Trade: Part A

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Sample Questions

Q1) A tax on an imported good is called a ------ .

Q2) Refer to Figure 9-26.Suppose the world price in this market is $7.If the country allows free trade,how many units will domestic consumers demand,and how many units will domestic producers produce?

Q3) Refer to Scenario 9-3.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus in this market?

Q4) Refer to Figure 9-28.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus in this market?

Q5) Refer to Figure 9-26.With no trade allowed,how much are consumer surplus,producer surplus,and total surplus in this market?

Q6) Refer to Figure 9-29.With no trade allowed,what are the equilibrium price and equilibrium quantity in this market?

Q7) Refer to Figure 9-27.If the country allows free trade,by how much do consumer surplus,producer surplus,and total surplus change with trade?

Q8) Refer to Figure 9-27.Suppose the country imposes a $5 per unit tariff.If the country allows trade with a tariff,how much is the deadweight loss caused by the tariff?

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Chapter 9: Application International Trade: Part B

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Q1) If Argentina exports oranges to the rest of the world,Argentina's producers of oranges are worse off,and Argentina's consumers of oranges are better off,as a result of trade.

A)True

B)False

Q2) When a country abandons no-trade policies in favor of free-trade policies and becomes an importer of steel,then the domestic price of steel will increase as a result.

A)True

B)False

Q3) The world price of cotton is the highest price of cotton observed anywhere in the world.

A)True B)False

Q4) Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium without trade,thus reducing the gains from trade.

A)True B)False

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Page 64

Chapter 10: Measuring a Nations Income

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Q1) Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

A)the unemployment rate

B)the inflation rate

C)gross domestic product

D)the trade deficit

Q2) Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?

A)Why do prices in general rise by more in some countries than in others?

B)Why do wages differ across industries?

C)Why do national production and income increase in some periods and not in others?

D)How rapidly is GDP currently increasing?

Q3) A macroeconomist is interested in

A)explaining how changes in sellers' behavior affect prices of a particular good.

B)explaining price changes in a particular market.

C)explaining why the unemployment rate is higher.

D)All of the above are correct.

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Chapter 10: Measuring a Nations Income: The Economy's

Income and Expenditure

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Q1) Gross domestic product measures

A)income and expenditures.

B)income but not expenditures.

C)expenditures but not income.

D)neither income nor expenditures.

Q2) For an actual economy,total expenditures on goods and services by households does not equal GDP because

A)household spending exceeds their incomes.

B)household expenditures on goods and services falls short of GDP,since household save for the future.

C)household expenditures include only goods,since services are intangible and cannot be measured accurately.

D)household expenditures on goods and services are made using borrowed funds.

Q3) In the actual economy,households

A)spend all of their income.

B)divide their income among spending,taxes,and saving.

C)buy all goods and services produced in the economy.

D)Both (a)and (c)are correct.

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Chapter 10: Measuring a Nations Income: The Measurement

of GDP

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Sample Questions

Q1) A farmer sells five pounds of pecans to a Smith's Fresh Pecans for $10.Smith's Fresh Pecans resells three pounds for $4.50 per pound.The remaining pecans are shelled and canned and sold for a total of $8.00 Taking these transactions into account,how much is added to GDP?

A)$22.50

B)$29.50

C)$21.50

D)$31.50

Q2) If a state made a previously-illegal activity,such as gambling or prostitution,legal,then,other things equal,GDP

A)decreases.

B)increases.

C)doesn't change because both legal and illegal production are included in GDP.

D)doesn't change because these activities are never included in GDP.

Q3) Which of the following is not included in U.S.GDP?

A)additions of newly produced output to inventory

B)production of U.S citizens working in foreign countries.

C)the estimated rental value of owner-occupied housing

D)the value of food purchased from a grocery store to make meals at home without pay

Page 67

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Chapter 10: Measuring a Nations Income: The Components of GDP

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Q1) A U.S.grocery chain purchases olive oil from Tunisia and sells it to U.S.consumers.In which of the following is this transaction included?

A)U.S.consumption and U.S.imports

B)U.S.consumption but not U.S.imports

C)U.S.imports but not U.S.consumption

D)neither U.S.consumption nor U.S.imports

Q2) Net exports equal

A)exports plus imports.

B)exports minus imports.

C)imports minus exports.

D)GDP minus imports.

Q3) In the United States in 2015,consumption represented slightly less than

A)60 percent of GDP.

B)70 percent of GDP.

C)80 percent of GDP.

D)90 percent of GDP.

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Chapter 10: Measuring a Nations Income: Real Versus Nominal

GDP

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Q1) The GDP deflator for years subsequent to the base year measures the change in

A)nominal GDP from the base year that cannot be attributable to a change in real GDP.

B)real GDP from the base year that cannot be attributable to a change in nominal GDP.

C)nominal GDP from the base year that cannot be attributable to a change in prices.

D)real GDP from the base year that cannot be attributable to a change in prices.

Q2) If real GDP doubles and the GDP deflator doubles,then nominal GDP

A)remains constant.

B)doubles.

C)triples.

D)quadruples.

Q3) A country reported nominal GDP of $100 billion in 2010 and $75 billion in 2009.It also reported a GDP deflator of 125 in 2010 and 120 in 2009.Between 2009 and 2010,

A)real output and the price level both rose.

B)real output rose and the price level fell.

C)real output fell and the price level rose.

D)real output and the price level both fell.

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Page 69

Chapter 10: Measuring a Nations Income: Is GDP a

Measure of Economic Well-Being

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Sample Questions

Q1) Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size.In the meantime,population grew by 40 percent and prices rose by 100 percent.What happened to 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) Suppose the government passes a law eliminating holidays and,as a result,the production of goods and services increases because people work more days per year (and thus enjoy less leisure per year).Based on this scenario,which of the following statements is correct?

A)GDP would definitely increase,despite the fact that GDP includes leisure.

B)GDP would definitely increase because GDP excludes leisure.

C)GDP could either increase or decrease because GDP includes leisure.

D)GDP could either increase or decrease because GDP excludes leisure.

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Chapter 10: Measuring a Nations Income: Part A

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Q1) Explain how GNP differs from GDP.

Q2) Calculate the inflation rate for a country where the GDP deflator rises from 120 to 165.

Q3) Foreign countries buy $1.2 trillion of U.S.goods and services.U.S.residents purchase $1.8 trillion of foreign goods and services.What is net exports?

Q4) Consumption is $7 trillion,investment is $1.5 trillion,government expenditures are $2 trillion,government transfer payments are $1 trillion,exports are $1.50 trillion and imports are $1.25 trillion.What is GDP?

Q5) A farmer sells sugar to a candy producer for $150.If the producer uses this sugar to make candy that sells for $200,what is the total contribution to GDP from these transactions?

Q6) Explain how real GDP differs from nominal GDP.

Q7) In 2010 a country had nominal GDP of 6 trillion euro and real GDP of 5 trillion euro.In 2011 it had nominal GDP of 6.5 trillion euro and real GDP of 5.2 trillion euro.What was its inflation rate in 2011? Show your work.

Q8) In the circular flow diagram what are the three types of payments from firms to factors of production? Is the sum of these payments greater than,less than,or equal to GDP?

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Chapter 10: Measuring a Nations Income: Part B

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Q1) When an American doctor opens a practice in Bermuda,his production there is part of U.S.GDP.

A)True

B)False

Q2) Economists use the term inflation to describe a situation in which the economy's overall production level is rising.

A)True

B)False

Q3) In years of economic contraction,firms throughout the economy increase their production of goods and services,employment rises,and jobs are easy to find.

A)True

B)False

Q4) GDP does not directly measure those things that make life worthwhile,but it does measure our ability to obtain many of the inputs into a worthwhile life.

A)True

B)False

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Chapter 11: Measuring the Cost of Living

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Q1) The inflation rate is defined as the A)price level in an economy.

B)change in the price level from one period to the next.

C)percentage change in the price level from the previous period.

D)price level minus the price level from the previous period.

Q2) 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.

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Chapter 11: Measuring the Cost of Living: The Consumer Price Index

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Sample Questions

Q1) Several studies in the 1990s concluded that the consumer price index overstated inflation by about

A)3 percentage points per year,and that number of percentage points likely still applies now.

B)3 percentage points per year,but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 3 percentage points.

C)1 percentage point per year,and that number of percentage points likely still applies now.

D)1 percentage point per year,but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 1 percentage point

Q2) A decrease in the price of large tractors imported into the United States from Russia

A)leaves the GDP deflator unchanged but decreases the consumer price index.

B)decreases the GDP deflator but leaves the consumer price index unchanged.

C)decreases both the GDP deflator and the consumer price index.

D)leaves both the GDP deflator and the consumer price index unchanged.

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Page 74

Chapter 11: Measuring the Cost of Living: Correcting

Economic Variables for the Effects of Inflation

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Sample Questions

Q1) Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014.The consumer price index was 126 in 2004 and 170 in 2014.Janelle's 2004 salary in 2014 dollars is

A)$45,953.

B)$89,280.

C)$107,953.

D)$83,651.

Q2) If the CPI was 90 in 1975 and is 225 today,then $100 today purchases the same amount of goods and services as

A)$25.00 purchased in 1975.

B)$33.33 purchased in 1975.

C)$40.00 purchased in 1975.

D)$135.55 purchased in 1975.

Q3) If the CPI was 108.00 in 1942 and is 336.96 today,then $10 in 1942 purchased the same amount of goods and services as

A)$2.57 purchases today.

B)$28.89 purchases today.

C)$31.20 purchases today.

D)$38.89 purchases today.

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Chapter 11: Measuring the Cost of Living: Part A

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Q1) What measure reflects the overall cost of goods and services produced domestically?

Q2) 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?

Q3) Suppose that the price of one gallon of milk was $0.25 in 1950,that the CPI in 1950 was 25,and that in 2000 the CPI was 200.What is the price of a 1950 gallon of milk in 2000 dollars?

Q4) Refer to Scenario 24-5.What are the prices of books,CDs,and DVDs in 2009?

Q5) In 1954,Mickey Mantle earned $21,000 playing for the New York Yankees.The CPI in 1954 was 26.9,and the CPI in 2010 was 218.06.What is Mickey Mantle's 1954 salary in 2010 dollars?

Q6) Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation.What is the real interest rate?

Q7) If the CPI was 170 in 1998 and was 187 in 1999,what was the inflation rate in 1999?

Q8) Write the formula for finding the rate of inflation in 2011 if you have only the CPI for the years 2010,2011,and 2012.

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Chapter 11: Measuring the Cost of Living: Part B

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Q1) The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

A)True

B)False

Q2) Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

A)True

B)False

Q3) When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

A)True

B)False

Q4) The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

A)True B)False

Q5) A COLA automatically raises the wage when the CPI rises.

A)True B)False

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Chapter 12: Production and Growth

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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) In which of the following countries did real GDP per person fall by about 13% from 2000 to 2014?

A)India

B)Singapore

C)Zimbabwe

D)None of the above are correct.

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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Sample Questions

Q1) Measured in 2014 dollars,real GDP per person in the United States in 2014 was about

A)$37,000.

B)$56,000.

C)$57,000.

D)$67,000.

Q2) Which of the following pairs of countries experienced approximately the same rate of growth of real income per person over about the last 120 years?

A)Germany and Japan

B)Indonesia and Bangladesh

C)the United States and Argentina

D)Mexico and Pakistan

Q3) Which country has had a higher growth rate than the U.S.over about the last 120 years?

A)India

B)Mexico

C)United Kingdom

D)Pakistan

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Page 79

Chapter 12: Production and Growth: Productivity Its Role and Determinants

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Q1) In 2010,Acme Foods produced 300,000 bags of pretzels,employing 12,000 hours of labor.In 2011,it produced 322,000 bags of pretzels,employing 14,000 hours of labor.Acme Foods productivity

A)decreased by 8%.

B)was unchanged.

C)increased by 6.8%.

D)increased by 7.3%.

Q2) Janet is a farmer.Which of the following are included in her human capital?

A)her tractor and what she's learned from experience

B)her tractor but not what she's learned from experience

C)what she's learned from experience but not her tractor

D)neither her tractor nor what she's learned from experience

Q3) For a given year,productivity in a particular country is most closely matched with that country's

A)level of real GDP over that year.

B)level of real GDP divided by hours worked over that year.

C)growth rate of real GDP divided by hours worked over that year.

D)growth rate of real GDP per person over that year.

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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) An organization that tries to encourage the flow of investment to poor countries is the

A)World Bank.

B)Organization of Less Developed Countries.

C)Alliance of Developing Countries.

D)International Development Alliance.

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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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Sample Questions

Q1) Is physical capital a produced factor of production? Is human capital a produced factor of production?

Q2) 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?

Q3) Some economists argue that it is possible to raise the standard of living by reducing population growth.As an economist interested in incentives rather than coercion,what kind of policy would you recommend to slow population growth?

Q4) Consider the production function $ Y=2 F(L, K, H, N) $. Suppose $ F(12,10,9,7)=100 $ and $ F(24,20,18,14)=180 $ . Does the production function have the property of constant returns to scale? Why or why not?

Q5) In addition to investment in physical and human capital,what other public policies might a country adopt to increase productivity?

Q6) "Market prices give no reason to believe that natural resources are a limit to economic growth." Explain this statement.

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Page 83

Chapter 12: Production and Growth: Part B

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Q1) If a rich country reduced subsidies to domestic producers of goods that poor countries have a comparative advantage producing,the standard of living in these poor countries would likely rise.

A)True

B)False

Q2) Like physical capital,human capital is a produced factor of production.

A)True

B)False

Q3) Income rises after a charity gives poor families free livestock.The harvest that year was also particularly bountiful.The charity should take full credit for the observed increase in the standard of living.

A)True

B)False

Q4) If a country made it easier for people to establish and prove the ownership of their property,real GDP per person would likely rise.

A)True

B)False

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Chapter 13: Saving Investment and the Financial System

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Q1) Institutions that help to match one person's saving with another person's investment are collectively called the

A)Federal Reserve system.

B)banking system.

C)monetary system.

D)financial system.

Q2) The primary economic function of the financial system is to

A)keep interest rates low.

B)provide expert advice to savers and investors.

C)match one person's consumption expenditures with another person's capital expenditures.

D)match one person's saving with another person's investment.

Q3) When a country saves a larger portion of its GDP than it did before,it will have

A)more capital and higher productivity.

B)more capital and lower productivity.

C)less capital and higher productivity.

D)less capital and lower productivity.

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Chapter 13: Saving Investment and the Financial System: Financial Institutions in the US economy

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Q1) Suppose that the tires of a certain tire manufacturer are discovered to be defective.Other things the same,this news would cause

A)the demand for this company's stock to decrease,so the price would rise.

B)the demand for this company's stock to decrease,so the price would fall.

C)the supply of this company's stock to decrease,so the price would fall.

D)the supply of this company's stock to decrease,so the price would rise.

Q2) Two of the economy's most important financial intermediaries are

A)suppliers of funds and demanders of funds.

B)banks and the bond market.

C)the stock market and the bond market.

D)banks and mutual funds.

Q3) It is claimed that a secondary advantage of mutual funds is that

A)an investor can avoid investment charges and fees.

B)they give ordinary people access to loanable funds for investing.

C)they usually outperform stock market indexes.

D)they give ordinary people access to the skills of professional money managers.

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Page 86

Chapter 13: Saving Investment and the Financial System:

Saving and Investment in the National Income Accounts

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Sample Questions

Q1) Which of the following equations will always represent GDP in an open economy?

A)S = I - G

B)I = Y - C + G

C)Y = C + I + G

D)Y = C + I + G + NX

Q2) A closed economy

A)does not trade with other economies.

B)is centrally-planned.

C)does not allow financial intermediation.

D)All of the above are correct.

Q3) Suppose that in a closed economy GDP is equal to 20,000,consumption equal to 15,000,government purchases equal 4,000 and taxes equal 3,000.What are private saving,public saving,and national saving?

A)-2,000,1,000,and 2,000,respectively.

B)1,000,2,000,and 3,000,respectively.

C)2,000,-1,000,and 1,000,respectively.

D)2,000,1,000,and 2,000,respectively.

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Page 87

Chapter 13: Saving Investment and the Financial System:

The Market for Loanable Funds

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Q1) Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold.What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Q2) In 2009,the U.S.government's budget deficit increased substantially.Other things the same,this means the

A)supply of loanable funds shifted to the right.

B)supply of loanable funds shifted to the left.

C)demand for loanable funds shifted to the right.

D)demand for loanable funds shifted to the left.

Q3) Refer to Figure 26-2.What is measured along the horizontal axis of the graph?

A)the quantity of loanable funds

B)the size of the government budget deficit or surplus

C)the real interest rate

D)the nominal interest rate

Q4) A higher interest rate makes_________ less attractive.Therefore the quantity of loanable funds demanded decreases.

Q5) A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

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Chapter 13: Saving Investment and the Financial System:

Part A

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Q1) What is the source of the supply of loanable funds?

Q2) The financial system is important because it helps to match one persons _____ with another persons _____.

Q3) Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Q4) In a closed economy private saving is $500 billion and the government budget deficit is $100 billion.What is investment?

Q5) 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?

Q6) Stock in Frozen Dreams,an ice cream manufacturer,has a price to earnings ratio of 24.Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Q7) When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

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Chapter 13: Saving Investment and the Financial System:

Part B

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Q1) To state that national saving is equal to investment,for a closed economy,is to state an accounting identity.

A)True

B)False

Q2) The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

A)True

B)False

Q3) An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

A)True

B)False

Q4) Joan uses some of her income to buy mutual fund shares.A macroeconomist refers to Joan's purchase as investment.

A)True

B)False

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Page 90

Chapter 14: The Basic Tools of Finance

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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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Q1) Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund,then in three years your $20,000 will grow to $23,152.50.What rate of interest does your financial advisor expect you to earn?

A)5 percent

B)6 percent

C)7 percent

D)8 percent

Q2) Suppose you will receive $800 in two years.If the interest rate is 5 percent,then the present value of this future payment is

A)$725.62.It would be higher if the interest rate were higher.

B)$727.28.It would be higher if the interest rate were higher.

C)$725.62.It would be lower if the interest rate were higher.

D)$727.28.It would be lower if the interest rate were higher.

Q3) At which interest rate is the present value of $360 three years from today equal to about $310 today?

A)4.7 percent

B)5.1 percent

C)5.5 percent

D)5.9 percent

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Chapter 14: The Basic Tools of Finance: Managing Risk

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Q1) Refer to Figure 27-5.From the appearance of the utility function,we know that A)Dexter is risk averse.

B)Dexter gains more satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars.

C)the property of decreasing marginal utility applies to Dexter.

D)All of the above are correct.

Q2) A person who is risk averse might accept a 50% chance of losing $100 today in exchange for a 50% chance of winning $125 in two years if the interest rate was

A)9% but not 10%

B)10% but not 11%

C)11% but not 12%

D)None of the above is correct;a risk averse person would not accept any of the above bets.

Q3) If Cara's utility falls more by losing $600 than it rises by gaining $600,she has

A)increasing marginal utility of wealth and is risk averse.

B)increasing marginal utility of wealth but is not risk averse.

C)decreasing marginal utility of wealth and is risk averse.

D)decreasing marginal utility of wealth but is not risk averse.

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Chapter 14: The Basic Tools of Finance: Asset Valuation

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Q1) Suppose fundamental analysis indicates that XYZ Corporation's stock is undervalued.

A)This means its present value is less than its price.You should consider adding the stock to your portfolio.

B)This means its present value is less than its price.You shouldn't consider adding the stock to your portfolio.

C)This means its present value is more than its price.You should consider adding the stock to your portfolio.

D)This means its present value is more than its price.You shouldn't consider adding the stock to your portfolio.

Q2) In the 1990s,Fed Chairperson Alan Greenspan questioned whether the stock market

A)boom at that time reflected "irrational exuberance."

B)decline at that time reflected "irrational funk."

C)boom at that time reflected "rational exuberance."

D)decline at that time reflected "rational funk."

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Chapter 14: The Basic Tools of Finance: Conclusion

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Q1) 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.

Q2) 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.

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Chapter 14: The Basic Tools of Finance: Part A

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Sample Questions

Q1) Jack's Lock and Key is considering remodeling.It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year,$2,500 the second year,$1,500 the third year and have no effect after then.If the interest rate is 5%,should Jack's remodel? Defend your answer by showing your work.

Q2) At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Q3) Write the formula for finding the future value in n years of $x today.

Q4) Suppose the Johnson Corporation releases an earnings report that beats the market's expectations.What does the efficient markets hypothesis predict will happen to Johnson's stock price.

Q5) 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.

Q6) Write the formula to find the present value of $x to be paid in n years.

Q7) Define the efficient markets hypothesis.

Q8) What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

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Chapter 14: The Basic Tools of Finance: Part B

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Sample Questions

Q1) Risk-averse persons will take no risks.

A)True

B)False

Q2) Risk-averse individuals like good things more than they dislike comparable bad things.

A)True

B)False

Q3) The market for insurance is one example of reducing risk by using diversification.

A)True

B)False

Q4) From the standpoint of the economy as a whole,the role of insurance is to greatly reduce or eliminate the risks inherent in life.

A)True

B)False

Q5) According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

A)True

B)False

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Chapter 15: Unemployment

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Q1) To maintain their standard of living,most people rely on

A)government assistance.

B)their personal savings.

C)their labor earnings.

D)rental income.

Q2) The natural rate of unemployment

A)varies less than the measured unemployment rate.

B)cannot be changed by government policy.

C)is closely associated with the ups and downs in economic activity.

D)is set by the Federal Reserve.

Q3) The deviation of unemployment from its natural rate is called A)the economic rate of unemployment.

B)cyclical unemployment.

C)frictional unemployment.

D)structural unemployment.

Q4) 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.

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Chapter 15: Unemployment: Identifying Unemployment

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Q1) The Bureau of Labor Statistics places people in the "employed" category if they A)are temporarily absent from their jobs.

B)are self-employed.

C)work without pay in a family member's business.

D)All of the above are correct.

Q2) Which of the following is a requirement for the Bureau of Labor Statistics to place someone in the "unemployed" category?

A)The person must have worked no more than 10 hours during the past week..

B)The person must have tried to find employment during the previous four weeks.

C)The person may not have been laid off.

D)All of the above are correct.

Q3) Bob is looking for work after school,but everywhere he fills out an application,the managers say they always have a lot more applications than open positions.Tom has a law degree.Several firms have made him offers,but he thinks he might be able to find a firm where his talents could be put to better use.

A)Bob and Tom are both frictionally unemployed.

B)Bob and Tom are both structurally unemployed.

C)Bob is frictionally unemployed,and Tom is structurally unemployed.

D)Bob is structurally unemployed,and Tom is frictionally unemployed.

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Page 99

Chapter 15: Unemployment: Job Search

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Q1) Suppose that the Bureau of Labor Statistics predicts that the number of jobs for dental hygienists will grow faster than most occupations while the number of jobs for bookbinders will decline.This change in the labor market could lead to

A)frictional unemployment created by efficiency wages.

B)structural unemployment created by efficiency wages.

C)frictional unemployment created by sectoral shifts.

D)structural unemployment created by sectoral shifts.

Q2) A typical American worker covered by unemployment insurance receives

A)50 percent of his former wages for 26 weeks.

B)50 percent of his former wages for 52 weeks.

C)100 percent of his former wages for 26 weeks.

D)100 percent of his former wages for 52 weeks.

Q3) Which of the following is not correct?

A)Frictional unemployment is inevitable in a dynamic economy.

B)Although the unemployment created by sectoral shifts is unfortunate,in the long run such changes lead to higher productivity and higher living standards.

C)The internet can help facilitate the job search and reduce frictional unemployment.

D)Unemployment insurance decreases frictional unemployment.

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Page 100

Chapter 15: Unemployment: Minimum-Wage Laws

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Sample Questions

Q1) Refer to Figure 28-3.If the government imposes a minimum wage of $8,then employment will decrease by A)0 workers.

B)2,000 workers.

C)3,000 workers.

D)4,000 workers.

Q2) If the minimum wage is currently above the equilibrium wage,then a decrease in the minimum wage

A)increases both the quantity demanded and the quantity supplied of labor.

B)decreases both the quantity demanded and the quantity supplied of labor.

C)increases the quantity of labor demanded but decreases the quantity of labor supplied.

D)decreases the quantity of labor demanded but increases the quantity of labor supplied.

Q3) Minimum-wage laws

A)reduce unemployment.

B)cause labor shortages,which further raise wages above equilibrium.

C)affect highly-educated workers more than high school dropouts.

D)None of the above is correct.

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Chapter 15: Unemployment: Unions and Collective Bargaining

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Q1) Labor unions

A)raise wages in unionized industries.

B)create labor shortages in non-unionized industries.

C)play a larger role in the current U.S.economy than in European countries such as Norway and Sweden.

D)prefer to operate in states with right-to-work laws.

Q2) There is a clear consensus among economists that unions are

A)good for the economy because they result in higher wages for most workers.

B)good for the economy because they are a necessary antidote to the market power of employers.

C)bad for the economy because they are cartels and therefore detrimental to an efficient allocation of resources.

D)None of the above is correct;there is no clear consensus among economists about whether unions are good or bad for the economy.

Q3) Collective bargaining refers to

A)the process by which the government sets exemptions from the minimum wage law.

B)setting the same wage for all employees to prevent conflict among workers.

C)firms colluding to set the wages of employees below equilibrium.

D)the process by which unions and firms agree on the terms of employment.

Page 102

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Chapter 15: Unemployment: The Theory of Efficiency Wages

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Q1) Efficiency-wage theory suggests that paying

A)low wages might be profitable because they raise the efficiency of a firm's workers.

B)low wages might be profitable because they lower the efficiency of a firm's workers.

C)high wages might be profitable because they raise the efficiency of a firm's workers.

D)high wages might be profitable because they lower the efficiency of a firm's workers.

Q2) Which of the following causes of unemployment is associated with a wage rate above the market equilibrium level?

A)minimum-wage laws

B)unions

C)efficiency wages

D)All of the above are correct.

Q3) Efficiency wages

A)raise the productivity of a firm's workers,so the firm hires more workers.

B)raise the productivity of a firm's workers,so the firm hires fewer workers.

C)reduce the productivity of a firms' workers,so the firm hires more workers.

D)reduce the productivity of a firm's workers,so the firm hires fewer workers.

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103

Chapter 15: Unemployment: Part A

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Sample Questions

Q1) Write the formula for calculating the labor force participation rate.

Q2) Explain how the actions of labor unions generate greater unemployment.

Q3) Why might a favorable change in the economy,such as technological improvement or a decrease in the price of imported oil,be associated with an increase in frictional unemployment?

Q4) Briefly explain the four rationales for efficiency wages.

Q5) Briefly compare the structural unemployment that arises from minimum-wage laws to the frictional unemployment that arises from the process of job search.

Q6) Refer to Figure 28-7.If the minimum wage is set at $100,how many will be unemployed?

Q7) 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?

Q8) How are discouraged workers counted in the unemployment 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) Some degree of unemployment is __________ in a complex economy.

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Chapter 15: Unemployment: Part B

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Q1) The labor-force participation rate equals the percentage of the labor force that is either employed or unemployed.

A)True

B)False

Q2) An American worker who becomes unemployed typically receives 100% of her former salary during the first six months she is unemployed.

A)True

B)False

Q3) Causes of the changing role of women in American society over the past several decades include new technologies that have reduced the amount of time required to complete routine household tasks,improved birth control,and changing political and social attitudes.

A)True B)False

Q4) The demand for labor by a certain firm is independent of the demand for that firm's product.

A)True

B)False

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Page 105

Chapter 16: The Monetary System

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Q1) 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.

Q2) Diana tutors Tiago for two hours before his economics final exam.Tiago pays Diana through a direct transfer from his bank on a payment app.Diana then uses her debit card to buy pizza for dinner from the local pizza parlor.This is an example of

A)the exchange of money facilitating production and trade.

B)trade between two people who each have a good or service that the other wants.

C)an inefficient allocation of scarce resources.

D)the creation of money through monetary policy.

Q3) 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.

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Chapter 16: The Monetary System: The Meaning of Money

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Q1) Mia puts money into a piggy bank so she can spend it later.What function of money does this illustrate?

A)store of value

B)medium of exchange

C)unit of account

D)None of the above is correct.

Q2) Which list ranks assets from most to least liquid?

A)currency,fine art,stocks

B)currency,stocks,fine art

C)fine art,currency,stocks

D)fine art,stocks,currency

Q3) Which of the following is not included in M1?

A)currency

B)demand deposits

C)traveler's checks

D)credit cards

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Chapter 16: The Monetary System: The Federal Reserve System

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Q1) 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.

Q2) When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

A)those assets are government bonds and the Fed's reason for selling them is to increase the money supply.

B)those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.

C)those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply.

D)those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.

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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 5 percent,then $600 of additional reserves can create up to A)$30 of new money.

B)$3,000 of new money.

C)$12,000 of new money.

D)None of the above is correct.

Q3) If the reserve ratio is 15 percent,the money multiplier is A)7.7.

B)6.7.

C)5.7.

D)15.

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Chapter 16: The Monetary System: The Feds Tools of Monetary Control

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Q1) In December 1999 people feared that there might be computer problems at banks as the century changed.Consequently,people wanted to hold relatively more in currency and relatively less in deposits.In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands.These actions by the public

A)would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds.

B)would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds.

C)would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds.

D)would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds.

Q2) The discount rate is

A)the interest rate the Fed charges banks.

B)one divided by the difference between one and the reserve ratio.

C)the interest rate banks receive on reserve deposits with the Fed.

D)the interest rate that banks charge on overnight loans to other banks.

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Page 110

Chapter 16: The Monetary System: Part A

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Q1) The interest rate charged by the Fed to member banks is called the _____.

Q2) Monetary policy has an important influence on _____ and _____ in the short run.

Q3) If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.

Q4) 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?

Q5) A bank has $30,000 in deposits and has $5,400 in reserves.What is its reserve ratio?

Q6) Economists argue that the move from barter to money increased trade and production.How is this possible?

Q7) The Fed ____ bonds when it conducts an open-market purchase. This action _____ the money supply.

Q8) Describe how the use of leverage affects the impact of bank investments.

Q9) How are Federal Reserve Board Governors selected?

Q10) List two examples of commodity money.

Q11) Are credit cards and debit cards money? What's the difference between credit and debit cards?

Q12) Describe the role of the Federal Deposit Insurance Corporation (FDIC). Page 111

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Chapter 16: The Monetary System: Part B

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Q1) Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

A)True

B)False

Q2) Banks cannot influence the money supply if they are required to hold all deposits in reserve.

A)True B)False

Q3) The Federal Reserve primarily uses open-market operations to change the money supply.

A)True

B)False

Q4) 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

Q5) Currently,bank runs are a major problem for the U.S.banking system and the Fed. A)True B)False

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Chapter 17: Money Growth and Inflation

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22 Verified Questions

22 Flashcards

Source URL: https://quizplus.com/quiz/79726

Sample Questions

Q1) Which country is correctly matched with its 2015 inflation rate?

A)9 percent inflation in the United States.

B)3.6 percent inflation in Russia.

C)59 percent inflation in Venezuela.

D)4.9 percent inflation in India.

Q2) Which of the following is not correct?

A)The inflation rate is measured as the percentage change in a price index.

B)For the last 40 or so years,U.S.inflation hasn't shown much variation from its average rate of about 2 percent.

C)During the 19th century there were long periods of falling prices in the U.S.

D)Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.

Q3) Hyperinflation can be explained by

A)the market for loanable funds.

B)the quantity theory of money.

C)the velocity theory of money.

D)the market for federal funds.

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Chapter 17: Money Growth and Inflation: The Classical

Theory of Inflation

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245 Verified Questions

245 Flashcards

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Sample Questions

Q1) When the money market is drawn with the value of money on the vertical axis,the money demand curve slopes

A)upward,because at higher prices people want to hold more money.

B)downward,because at higher prices people want to hold more money.

C)downward,because at higher price people want to hold less money.

D)upward,because at higher prices people want to hold less money.

Q2) Monetary neutrality means that a change in the money supply

A)does not change real variables.Most economists think this is a good description of the economy in the short run and in the long run.

B)does not change real variables.Most economists think this is a good description of the economy in the long run but not the short run.

C)does not change nominal variables.Most economists think this is a good description of the economy in the short-run and the long run.

D)does not change nominal variables.Most economists think this is a good description of the economy in the long run but not the short run.

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Page 115

Chapter 17: Money Growth and Inflation: The Costs of Inflation

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94 Verified Questions

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Source URL: https://quizplus.com/quiz/79724

Sample Questions

Q1) Which movie is an allegory about late 19th century monetary policy?

A)The Wizard of Oz

B)Mary Poppins

C)It's a Wonderful Life

D)Trading Places

Q2) Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

A)menu costs and shoeleather costs

B)menu costs but not shoeleather costs

C)shoeleather costs but not menu costs

D)menu costs but not shoeleather costs.

Q3) Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

A)Inflation is 3 percent;the tax rate is 15 percent.

B)Inflation is 2 percent;the tax rate is 40 percent.

C)Inflation is 1 percent;the tax rate is 50 percent.

D)The after-tax real interest rate is the same for all of the above.

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Page 116

Chapter 17: Money Growth and Inflation: Conclusion

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3 Verified Questions

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Sample Questions

Q1) Inflation costs are minimized under which inflation rate?

A)-20 percent

B)5 percent

C)15 percent

D)575 percent

Q2) 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.

Q3) Inflation costs are minimized during periods of A)hyperinflation.

B)large,unexpected deflation.

C)moderate inflation.

D)rapid money growth.

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Chapter 17: Money Growth and Inflation: Part A

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63 Verified Questions

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Sample Questions

Q1) Wages and prices are many times higher today than they were 30 years ago,yet people do not work a lot more hours or buy fewer goods.How can this be?

Q2) Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Q3) Define each of the symbols and explain the meaning of M × V = P × Y.

Q4) Why did farmers in the late 1800s dislike deflation?

Q5) One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Q6) Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Q7) When the Federal Reserve injects money into the banking system,it initially causes an excess ________ of money.Equilibrium in the money market is reestablished through a(n)_______ in the price level.

Q8) What are menu costs and why does high inflation increase menu costs?

Page 118

Q9) List and define any two of the costs of high inflation.

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Chapter 17: Money Growth and Inflation: Part B

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60 Verified Questions

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Sample Questions

Q1) When the Fed increases the money supply and creates inflation,it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.

A)True

B)False

Q2) Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

A)True

B)False

Q3) Unexpected and large deflation is desirable,according to the Friedman rule. A)True

B)False

Q4) Jimmy Carter,Ronald Reagan,and Gerald Ford are all U.S.presidents whose political careers were helped by inflation.

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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Page 120

Chapter 18: Open Economy Macroeconomics Basic

Concepts: The International Flows of Goods and Capital

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227 Verified Questions

227 Flashcards

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Sample Questions

Q1) A Japanese bank buys U.S.government bonds,this purchase

A)increases U.S.net capital outflow and has no affect on Japanese net capital outflow.

B)increases U.S.net capital outflow and increases Japanese net capital outflow.

C)increases U.S.net capital outflow,but decreases Japanese net capital outflow.

D)decreases U.S.net capital outflow,but increases Japanese net capital outflow.

Q2) If U.S.residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S.assets,

A)U.S.net capital outflow is $300 billion;capital is flowing into the U.S.

B)U.S.net capital outflow is $300 billion;capital is flowing out of the U.S.

C)U.S.net capital outflow is -$300 billion;capital is flowing into the U.S.

D)U.S.net capital outflow is -$300 billion;capital is flowing out of the U.S.

Q3) Eric,a resident of Sweden,purchases a book printed in the U.S.Which country's exports increase?

A)Sweden's

B)the U.S.'s

C)Sweden's and the U.S.'s

D)neither Sweden's nor the U.S.'s

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Page 121

Chapter 18: Open Economy Macroeconomics Basic

Concepts: The Prices for International Transactions Real and Nominal Exchange Rates

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76 Verified Questions

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Sample Questions

Q1) If a U.S.dollar purchases 4 Argentinean pesos,and a gallon of milk costs $3 in the U.S.and 6 pesos in Argentina what is the real exchange rate?

A)2

B)3/2

C)2/3

D)1/2

Q2) Other things the same,if the U.S.real exchange rate appreciates,U.S.net exports

A)increase and U.S.net capital outflow decreases.

B)decrease and U.S.net capital outflow increases.

C)and U.S.net capital outflow both increase.

D)and U.S.net capital outflow both decrease.

Q3) If the exchange rate is 1.25 New Zealand dollars per U.S dollar,the price of apples is $2 a pound in the U.S.and 1 New Zealand dollar per pound in New Zealand,what is the real exchange rate?

A)2.50

B)2

C)1.25

D).75

Page 122

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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

87 Flashcards

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Sample Questions

Q1) If P = domestic prices,P* = foreign prices,and e is the nominal exchange rate,which of the following is implied by purchasing-power parity?

A)P = e/P*

B)1 = e/P*

C)e = P*/P

D)None of the above is correct.

Q2) An MP3 player in Singapore costs 200 Singaporean dollars.In the U.S.it costs 100 US dollars.What is the nominal exchange rate if purchasing-power parity holds?

A)2.0

B)1.0

C).50

D)None of the above is correct.

Q3) If purchasing-power parity holds,a bushel of rice costs $10 in the U.S. ,and the nominal exchange rate is 25 Thai baht per dollar,what is the price of rice in Thailand?

A)400 baht

B)250 bhat

C)100 bhat

D)None of the above is correct.

Page 123

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Chapter 18: Open Economy Macroeconomics Basic

Concepts: Part A

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67 Verified Questions

67 Flashcards

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Sample Questions

Q1) A country recently had saving of 250 billion euro and domestic investment of 400 billion euro.What was the value of this country's net exports? Show your work.

Q2) While vacationing in Italy,you see an interesting meal on a menu.The price is 24 euros.

A.If the exchange rate is .80 euros per dollar,how many dollars would you have to give up to buy the meal?

B.If the dollar appreciated against the euro,but the price of the meal remained 24 euro,would the meal cost more or fewer dollars? Explain.

Q3) Can purchasing-power parity be used to explain the fact that the U.S.dollar depreciated by more than 50 percent against the German mark between 1970 and 1998,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Q4) A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets.If foreigners purchased $100 billion of this country's assets,what was this country's saving? Explain how your found your answer.

Q5) What is the logic behind the theory of purchasing-power parity?

Q6) How do we find the real exchange rate from the nominal exchange rate?

Page 124

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Chapter 18: Open Economy Macroeconomics Basic

Concepts: Part B

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63 Verified Questions

63 Flashcards

Source URL: https://quizplus.com/quiz/79630

Sample Questions

Q1) If prices in the U.S.rise faster than prices in the United Kingdom,then according to the doctrine of purchasing-power parity the U.S.nominal exchange rate should rise

A)True

B)False

Q2) If purchases of foreign assets by U.S.residents exceed purchases of U.S.assets by foreign residents,then U.S.net capital outflow is positive.

A)True

B)False

Q3) If a country's trade surplus falls,its net capital outflow rises.

A)True

B)False

Q4) If the exchange rate is 80 yen per dollar,then a hotel room in Tokyo that costs 25,000 yen costs $200.

A)True

B)False

Q5) A country must have a positive net outflow of capital if it has a trade deficit.

A)True

B)False

125

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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) 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.

Q3) 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.

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126

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 the open-economy macroeconomic model,the supply of loanable funds comes from

A)national saving.

B)private saving.

C)domestic investment.

D)the sum of domestic investment and net capital outflow.

Q2) Other things the same,a decrease in the real interest rate

A)increases the quantity of loanable funds demanded.

B)shifts the demand for loanable funds curve to the right.

C)decreases the quantity of loanable funds demanded.

D)shifts the demand for loanable funds curve to the left.

Q3) In the open-economy macroeconomic model,the supply of dollars in the market for foreign-currency exchange comes from

A)net exports

B)net capital outflow

C)net exports + net capital outflow

D)net exports - net capital outflow

Page 127

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Chapter 19: A Macroeconomic Theory of the Open

Economy: Equilibrium in the Open Economy

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45 Verified Questions

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Source URL: https://quizplus.com/quiz/79716

Sample Questions

Q1) 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.

Q2) U.S.net capital outflow

A)is a source of the supply of loanable funds,and the source of the supply of dollars in the foreign exchange market.

B)is a source of the supply of loanable funds,and a source of the demand for dollars in the foreign exchange market.

C)is a part of the demand for loanable funds,and the source of the supply of dollars in the foreign exchange market.

D)is a part of the demand for loanable funds,and a source of the demand for dollars in the foreign exchange market.

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128

Chapter 19: A Macroeconomic Theory of the Open

Economy: How Policies and Events Affect an Open Economy

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172 Verified Questions

172 Flashcards

Source URL: https://quizplus.com/quiz/79715

Sample Questions

Q1) When a country suffers from capital flight,the exchange rate

A)depreciates,because demand in the market for foreign-currency exchange shifts left.

B)depreciates,because supply in the market for foreign-currency exchange shifts right.

C)appreciates,because demand in the market for foreign-currency exchange shifts right.

D)appreciates,because supply in the market for foreign-currency exchange shifts left.

Q2) If the U.S.government went from a budget deficit to a budget surplus then

A)the interest rate and the real exchange rate would increase.

B)the interest rate and the real exchange rate would decrease.

C)the interest rate would increase and the real exchange rate would decrease.

D)the interest rate would decrease and the real exchange rate would increase.

Q3) The imposition of an import quota shifts

A)the supply of currency right,so the exchange rate falls.

B)the supply of currency left,so the exchange rate rises.

C)the demand for currency right,so the exchange rate rises.

D)the demand for currency left,so the exchange rate falls.

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Chapter 19: A Macroeconomic Theory of the Open

Economy: Part A

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47 Verified Questions

47 Flashcards

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Sample Questions

Q1) Other things the same,if the U.S.interest rate rises,what happens to the net capital outflow of other countries?

Q2) Political events convince people that the assets of country x are now riskier.As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

Q3) Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

Q4) 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?

Q5) If people in the U.S.choose to save a smaller percentage of income,what will happen to the interest rate,net capital outflow,the exchange rate,and net exports?

Q6) Other things the same,which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?

Q7) What is the source of the demand for dollars in the market for foreign-currency exchange?

Page 130

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Chapter 19: A Macroeconomic Theory of the Open

Economy: Part B

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56 Verified Questions

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Sample Questions

Q1) If C+I+G>Y,then net exports and net capital outflow are both greater than zero.

A)True

B)False

Q2) An increase in the government budget deficit shifts the demand for loanable funds to the right.

A)True

B)False

Q3) In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save equals desired quantities of domestic investment and net capital outflow.

A)True

B)False

Q4) Other things the same,a higher real exchange rate raises net exports. A)True

B)False

Q5) If Argentina suffers from capital flight,Argentinean domestic investment and Argentinean net exports will both decline.

A)True B)False

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Chapter 20: Aggregate Demand and Aggregate Supply

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Sample Questions

Q1) During recessions

A)workers are laid off.

B)factories are idle.

C)firms may find they are unable to sell all they produce.

D)All of the above are correct.

Q2) 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.

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) Which of the following typically rises during a recession?

A)investment.

B)unemployment.

C)tax revenues.

D)new home construction.

Q2) During recessions employment typically

A)falls substantially.As the recession ends,employment rises rapidly.

B)rises substantially.As the recession ends,employment declines gradually.

C)falls substantially.As the recession ends,employment rises gradually.

D)rises substantially.As the recession ends,employment declines rapidly.

Q3) Historically,the change in real GDP during recessions has been

A)mostly a change in investment spending.

B)mostly a change in consumption spending.

C)about equally divided between consumption and investment spending.

D)sometimes mostly a change in consumption and sometimes mostly a change in investment.

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Explaining Short-Run Economic Fluctuations

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Sample Questions

Q1) The quantity of money has no real impact on things people really care about like whether or not they have a job.Most economists would agree that this statement is appropriate concerning

A)both the short run and the long run.

B)the short run,but not the long run.

C)the long run,but not the short run.

D)neither the long run nor the short run.

Q2) The saying "Money is a veil." means that

A)while nominal variables are the first thing we may observe about an economy,what's important are the real variables and the forces that determine them.

B)money is the principal medium of exchange in most economies.

C)the primary determinant of short-run economic fluctuations is not real variables,but rather changes in the money supply.

D)in the long run money is of no importance to the determination of either real or nominal variables.

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134

Chapter 20: Aggregate Demand and Aggregate Supply:

The Aggregate-Demand Curve

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Sample Questions

Q1) At a given price level,an increase in which of the following shifts aggregate demand to the right?

A)consumption

B)investment

C)government expenditures

D)All of the above are correct.

Q2) From 2001 to 2005 there was a dramatic rise in the price of houses.If this rise made people feel wealthier,then it would have shifted

A)aggregate demand right.

B)aggregate demand left.

C)aggregate supply right.

D)aggregate supply left.

Q3) Which of the following shifts aggregate demand to the right?

A)both an investment tax credit and a decrease in income tax rates

B)an investment tax credit but not a decrease in income tax rates

C)a decrease in income tax rates but not an investment tax credit

D)neither an investment tax credit nor a decrease in income tax rates

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Page 135

Chapter 20: Aggregate Demand and Aggregate Supply:

The Aggregate-Supply Curve

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95 Verified Questions

95 Flashcards

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Sample Questions

Q1) The aggregate supply curve is upward sloping in

A)the short and long run.

B)neither the short nor long run.

C)the long run,but not the short run.

D)the short run,but not the long run.

Q2) Which of the following shifts the short-run aggregate supply curve to the right?

A)an increase in the money supply

B)an increase in the price level

C)a decrease in the expected price level

D)All of the above are correct.

Q3) 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.

Q4) The long-run aggregate supply curve shifts right if

A)either immigration from abroad increases or technology improves.

B)immigration from abroad increases,but not if technology improves.

C)technology improves,but not if immigration from abroad increases.

D)None of the above are correct.

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Chapter 20: Aggregate Demand and Aggregate Supply:

Two Causes of Economic Fluctuations

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117 Verified Questions

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Sample Questions

Q1) Which of the following is a lesson concerning shifts in aggregate demand?

A)they contribute to fluctuations in output.

B)in the long-run they change real output,but not the price level.

C)policymakers are unable to mitigate the severity of economic fluctuations.

D)All of the above are correct.

Q2) Refer to Stock Market Boom 2015.What happens to the expected price level and what impact does this have on wage bargaining?

A)The expected price level falls.Bargains are struck for higher wages.

B)The expected price level falls.Bargains are struck for lower wages.

C)The expected price level rises.Bargains are struck for higher wages.

D)The expected price level rises.Bargains are struck for lower wages.

Q3) Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,taxes fall.In the short-run

A)real GDP will rise,and the price level might rise,fall,or stay the same.

B)real GDP will fall,and the price level might rise,fall,or stay the same.

C)the price level will rise,and real GDP might rise,fall,or stay the same.

D)the price level will fall,and real GDP might rise,fall,or stay the same.

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Chapter 20: Aggregate Demand and Aggregate Supply:

Part A

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Sample Questions

Q1) Suppose technology advances within a nation.Which curves in the aggregate demand and aggregate supply model would be affected,and which way would they shift?

Q2) Who said about classical economic theory: "the long run is a misleading guide to current affairs.In the long run we are all dead"?

Q3) Refer to Figure 33-12.Explain how the aggregate demand and aggregate supply model changed during periods 1 and 2.

Q4) Name two macroeconomic variables that decline when an economy goes into recession,and name one macroeconomic variable that rises.

Q5) Suppose a country experiences an increase in its capital stock.Which curve(s)in the aggregate demand and aggregate supply model would be affected,and which way would it (they)shift?

Q6) Who wrote the 1936 book titled The General Theory of Employment, Interest, and Money?

Q7) Suppose a country experiences a change in weather patterns that makes farming more difficult.Which curve(s)in the aggregate demand and aggregate supply model would be affected,and which way would it (they)shift?

Q8) Make a list of expenditures whose sum equals GDP.

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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) The effect of a change in the value of the dollar in the foreign exchange market due to a change in the price level helps explain the slope of aggregate demand,but does not shift it.The effects of a change in the value of the dollar in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve.

A)True

B)False

Q2) Increased output and prices in the United States in the early 1940s were mostly the result of increased government expenditures.

A)True

B)False

Q3) If the central bank increased the money supply in response to a decrease in short-run aggregate supply,unemployment would return towards its natural rate,but prices would rise even more.

A)True

B)False

Q4) Technological progress shifts the long-run aggregate supply curve to the right.

A)True

B)False

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Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand

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Q1) The Federal Open Market Committee is

A)the group at the Federal Reserve that sets monetary policy.

B)in charge of tax collection.

C)the group that sets the amount of government spending.

D)the group that reviews income assistance programs.

Q2) 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.

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.

Q4) Fiscal policy affects the economy

A)only in the short run.

B)only in the long run.

C)in both the short and long run.

D)in neither the short nor the long run.

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Chapter 21: The Influences of Monetary and Fiscal Policy on

Aggregate Demand: How Monetary Policy Influences

Aggregate Demand

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Q1) The short-run effects on the interest rate are

A)shown equally well using either liquidity preference theory or classical theory.

B)best shown using classical theory.

C)best shown using liquidity preference theory.

D)not shown well by either liquidity preference theory or classical theory.

Q2) To stabilize interest rates,the Federal Reserve will respond to an increase in money demand by

A)buying government bonds,which decreases the supply of money.

B)selling government bonds,which increases the supply of money.

C)buying government bonds,which increases the supply of money.

D)selling government bonds,which decreases the supply of money.

Q3) If the stock market crashes,then

A)aggregate demand decreases,which the Fed could offset by purchasing bonds.

B)aggregate demand decreases,which the Fed could offset by selling bonds.

C)aggregate demand increases,which the Fed could offset by selling bonds.

D)aggregate demand increases,which the Fed could offset by purchasing the money supply.

Page 141

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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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Sample Questions

Q1) If the multiplier is 3,then the MPC is

A)1/3.

B)3/4.

C)4/3.

D)2/3.

Q2) Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

A)the crowding-out effect

B)the multiplier effect

C)the exchange-rate effect

D)the interest-rate effect

Q3) When taxes increase,the interest rate

A)increases,making the change in aggregate demand larger.

B)increases,making the change in aggregate demand smaller

C)decreases,making the change in aggregate demand larger.

D)decreases,making the change in aggregate demand smaller.

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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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Q1) According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is

A)operating at full capacity.

B)in recession.

C)experiencing zero inflation.

D)experiencing high rates of inflation.

Q2) One of President Obama's first fiscal policy initiatives was A)ARRA.

B)TARP.

C)QE1.

D)QE2.

Q3) Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

A)a decrease in the money supply

B)an increase in tax rates

C)an increase in government purchases

D)an increase in interest rates.

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Chapter 21: The Influences of Monetary and Fiscal Policy on

Aggregate Demand: Part A

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Sample Questions

Q1) Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Q2) To offset increased pessimism by households,the government may ----government spending and/or ----- taxes.

Q3) Changes in aggregate demand can cause fluctuations in ----- and ----- in the short run,and only ---- in the long run.

Q4) When the Federal Funds rate is above the Federal Reserve's target,it will ---- bonds to ----- the money supply.

Q5) Refer to Figure 34-10.Suppose the multiplier is 2 and there is no crowding-out,but there is an accelerator effect.If the economy is currently at point A,then an increase in government purchases of $10 will likely increase aggregate demand to point ----where output is $-----.

Q6) Critics of stabilization policy argue that monetary and fiscal policies affect the economy with -----.

Q7) The ----- effect states that a lower price level reduces the amount of money people wish to hold.When they lend out their excess savings,the ----- falls causing investment spending to rise and increases the quantity of goods and services demanded.

Page 144

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Chapter 21: The Influences of Monetary and Fiscal Policy on Aggregate

Demand: Part B

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Q1) Government expenditures on capital goods such as roads could increase aggregate supply.Such effects on aggregate supply are likely to matter more in the short run than in the long run.

A)True

B)False

Q2) If the MPC is 4/5,the multiplier is 5/4.

A)True

B)False

Q3) Stock prices often rise when the Fed raises interest rates.

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

Q5) An increase in the price level shifts the money demand curve to the left,causing interest rates to increase.

A)True

B)False

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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment

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Q1) The misery index is calculated as the

A)inflation rate plus the unemployment rate.

B)unemployment rate minus the inflation rate.

C)actual inflation rate minus the expected inflation rate.

D)natural unemployment rate times the inflation rate

Q2) In the long run,

A)the natural rate of unemployment depends primarily on the level of aggregate demand.

B)inflation depends primarily upon the money supply growth rate.

C)there is a tradeoff between the inflation rate and the natural rate of unemployment.

D)All of the above are correct.

Q3) When monetary and fiscal policymakers expand aggregate demand,which of the following costs is incurred in the short run?

A)Short-run aggregate supply decreases.

B)The natural rate of unemployment increases.

C)The price level increases more rapidly.

D)The money supply increases less rapidly.

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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:

The Phillips

Curve

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Q1) If a central bank decreases the money supply,then

A)prices,output,and unemployment rise.

B)prices and output rise and unemployment falls.

C)prices rise and output and unemployment fall.

D)prices and output fall and unemployment rises.

Q2) Suppose Americans become concerned about saving for retirement and,as a result,reduce their current consumption expenditures.Which of the following would you expect to occur as a result of this change?

A)In the short run,unemployment will increase and inflation will fall.

B)In the short run,unemployment will increase and inflation will rise.

C)In the short run,unemployment will decrease and inflation will rise.

D)In the short run,unemployment will decrease and inflation will fall.

Q3) Samuelson and Solow reasoned that when aggregate demand was low,unemployment was

A)high,so there was upward pressure on wages and prices.

B)high,so there was downward pressure on wages and prices.

C)low,so there was upward pressure on wages and prices.

D)low,so there was downward pressure on wages and prices.

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Chapter 22: The Short Run Trade Off Between

Inflation and

Shifts in the Phillips Curve the Role of Expectations

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Sample Questions

Q1) If the Federal Reserve increases the rate at which it increases the money supply,then unemployment is lower

A)in the long run and the short run.

B)in the long run but not the short run.

C)in the short run but not the long run.

D)in neither the short run nor the long run.

Q2) Moving from the late 1960s to 1970-1973,

A)inflation remained high while the unemployment rate was lower than in the late 1960s.

B)inflation remained high while the unemployment rate was higher than in the late 1960s.

C)inflation remained low while the unemployment rate was lower than in the late 1960s.

D)inflation remained low while the unemployment rate was higher than in the late 1960s.

Q3) The position of the long-run Phillips curve depends on

A)the inflation rate and the natural rate of unemployment.

B)the inflation rate but not the natural rate of unemployment.

C)the natural rate of unemployment,but not the inflation rate.

D)neither the natural rate of unemployment nor the inflation rate.

Page 148

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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:

Shifts in the Phillips Curve the Role of Supply Shocks

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Sample Questions

Q1) If the Fed wants to reverse the effects of a favorable supply shock on unemployment,it should

A)increase the money supply growth rate which raises the inflation rate.

B)increase the money supply growth rate which reduces the inflation rate.

C)decrease the money supply growth rate which raises the inflation rate.

D)decrease the money supply growth rate which reduces the inflation rate.

Q2) Refer to Figure 35-9.Which of the following events could explain the shift of the aggregate-supply curve from AS1 to AS2?

A)a reduction in firms' costs of production

B)a reduction in taxes on consumers

C)an increase in the price level

D)an increase in the world price of oil

Q3) Refer to Figure 35-9.The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of

A)an increase in the money supply.

B)an adverse supply shock.

C)a decrease of output from Y1 to Y2.

Page 149

D)a slow adjustment of people's expectation of the inflation rate.

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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:

The Cost of Reducing Inflation

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Sample Questions

Q1) Refer to Monetary Policy in Mokania.The Bank of Mokania publicizes that it intends to reduce the inflation rate to 5%.If it actually reduces inflation to 3% and people were expecting inflation to fall only to 8%,then

A)unemployment falls but it would have fallen by more if the Bank of Mokania had reduced inflation to 5% rather than 3%.

B)unemployment falls but it would have fallen by less if the Bank of Mokania had reduced inflation to 5% rather than 3%.

C)unemployment rises but it would have risen by more if the Bank of Mokania had reduced inflation to 5% rather than 3%.

D)unemployment rises but it would have risen by less if the Bank of Mokania had reduced inflation to 5% rather than 3%.

Q2) Refer to The Economy in 2008.The effects of the housing and financial crises could be shown by shifting

A)aggregate demand to the right.

B)aggregate demand to the left.

C)aggregate supply to the right.

D)aggregate supply to the left.

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Page 150

Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:

Part A

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Sample Questions

Q1) What evidence does the Volcker disinflation provide concerning the importance of inflation expectations to the costs of disinflation?

Q2) Suppose the price level is 110.00 at the end of 2020, 121.00 at the end of 2021, and 128.26 at the end of 2022. Can we accurately describe the period 2021-2022 as a period of disinflation?

Q3) If the Fed responded to an adverse supply shock by increasing the growth rate of the money supply and maintained the higher growth rate, what would eventually happen to the short-run Phillips curve? Why?

Q4) What does the natural-rate hypothesis claim?

Q5) Suppose,as in the 1970's in the U.S. ,that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force.Would this have any effect on the long-run Phillips curve?

Q6) A central bank disinflates. Output falls by 3% for one year, 2% the second year, and 1% the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio?

Q7) How is a decrease in the natural rate of unemployment shown in the Phillips curve diagram? Does this decrease change the inflation rate?

Page 151

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Chapter 22: The Short Run Trade Off Between Inflation and Unemployment:

Part B

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Sample Questions

Q1) The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate.

A)True

B)False

Q2) An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

A)True

B)False

Q3) In the long run,the natural rate of unemployment depends primarily on the growth rate of the money supply.

A)True

B)False

Q4) The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

A)True

B)False

Q5) The short-run Phillips curve is based on the classical dichotomy. 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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Sample Questions

Q1) The Federal Reserve

A)requires little time to change policy and aggregate demand responds quickly.

B)requires little time to change policy but aggregate demand responds slowly.

C)usually requires a substantial time to change policy but aggregate demand responds quickly.

D)usually requires a substantial time to change policy and aggregate demand responds slowly.

Q2) "Leaning against the wind" is exemplified by a(n)

A)tax increase when there is a recession.

B)decrease in the money supply when there is a recession.

C)increase in government expenditures when there is a recession.

D)All of the above are correct.

Q3) All of the following are arguments against stabilization policy except

A)Economic forecasting is highly imprecise.

B)Long lags may cause stabilization policies to in fact destabilize the economy.

C)Monetary policy affects aggregate demand by changing interest rates.

D)Fiscal policy must go through a long political process.

Page 153

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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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Sample Questions

Q1) According to traditional Keynesian analysis,if the economy is in a recession,the government can move it back towards full employment by

A)cutting taxes and increasing expenditures.The effect of the tax cut is larger.

B)cutting taxes and increasing expenditures.The effect of the tax cut is smaller.

C)raising taxes and decreasing expenditures.The effect of the tax increase is larger.

D)raising taxes and decreasing expenditures.The effect of the tax increase is smaller.

Q2) Suppose a tax cut affects aggregate demand and aggregate supply.Which of the shifts raise real GDP?

A)both the shift of aggregate demand and the shift of aggregate supply

B)the shift of aggregate demand,but not the shift of aggregate supply

C)the shift of aggregate supply,but not the shift of aggregate demand

D)neither the shift of aggregate demand nor the shift of aggregate supply

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154

Chapter 23: Six Debates Over Macroeconomic Policy:

Should Monetary Policy Be Made by Rule Rather Than by Discretion

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Sample Questions

Q1) Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate demand shifts right,the central bank must

A)decrease the money supply,which will move output back towards its long-run level.

B)decrease the money supply,which will move output farther from its long-run level.

C)increase the money supply,which will move output back towards its long-run level.

D)increase the money supply,which will move output farther from its long-run level.

Q2) According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

A)lower the discount rate and sell bonds.

B)lower the discount rate and buy bonds.

C)raise the discount rate and sell bonds.

D)raise the discount rate and buy bonds.

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Chapter 23: Six Debates Over Macroeconomic Policy:

Should the Central Bank Aim for Zero Inflation

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Sample Questions

Q1) Higher inflation results in

A)more frequent price changes and increased variability of relative prices.

B)more frequent price changes and decreased variability of relative prices.

C)less frequent price changes and increased variability of relative prices.

D)less frequent price changes and decreased variability of relative prices.

Q2) Which of the following is a cost of inflation?

A)shoeleather costs

B)menu costs

C)relative price variability

D)All of the above are correct.

Q3) Proponents of zero inflation argue that a successful program to reduce inflation

A)eventually reduces inflation expectations.

B)eventually raises real interest rates.

C)permanently decreases output.

D)permanently raises unemployment.

Q4) Which costs of inflation could the government reduce without reducing inflation?

A)arbitrary redistributions of wealth

B)shoeleather costs

C)menu costs

D)none of the above is correct.

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Chapter 23: Six Debates Over Macroeconomic Policy:

Should the Government Balance Its Budget

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Q1) A country has a growth rate of 3%.Government spending is 60 billion units of currency and its tax revenues are 32 billion units of currency.The current national debt is 400 billion units of currency.At which inflation rate is its debt-to-income ratio unchanged?

A)2%

B)3%

C)4%

D)5%

Q2) Which of the following is not a typical justification for running a budget deficit?

A)financing a war

B)dealing with a recession

C)fighting inflation

D)dealing with unemployment

Q3) If the budget deficit were reduced,

A)interest rates and investment would increase.

B)interest rates would increase and investment would decrease.

C)interest rates and investment would decrease.

D)interest rates would decrease and investment would increase.

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Chapter 23: Six Debates Over Macroeconomic Policy:

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Sample Questions

Q1) 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.

Q2) Which of the following is correct?

A)No forms of capital income are taxed twice.

B)The tax code cannot be rewritten to provide greater incentive to save.

C)Means-tested benefits increase the incentive to save.

D)There is a correlation between national savings rates and measures of economic well-being.

Q3) A consumption tax that replaces an income tax

A)only taxes a household on the money it spends.

B)discourages saving.

C)would likely result in a lower level of saving than an income tax.

D)ultimately taxes income twice - once when the household pays income tax and once when the household makes a purchase.

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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) 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?

Q2) Identify three government policies that discourage saving.

Q3) Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Q4) Explain how tax cuts can increase aggregate supply.

Q5) Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations.What are some things policymakers can do to boost the economy when aggregate demand is inadequate to ensure full employment?

Q6) If businesses become more pessimistic about the future,what fiscal policies could the government take to stabilize the economy?

Q7) Explain what is meant by the time inconsistency of monetary policy.

Q8) What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Page 160

Q9) What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

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Chapter 23: Six Debates Over Macroeconomic Policy: Part

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Q1) To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

A)True

B)False

Q2) One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

A)True

B)False

Q3) Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

A)True

B)False

Q4) The laws that created the Fed give it only vague recommendations about what goals it should pursue,and they do not tell the Fed how to pursue whatever goals it might choose.

A)True

B)False

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Q1) From 1950 to today,government spending on Social Security,Medicare,and Medicaid as a percentage of GDP has

A)decreased from about ten percent to less than one percent.

B)increased from less than one percent to about ten percent.

C)remained constant at less than one percent.

D)remained constant at about ten percent.

Q2) The U.S.federal government collects about

A)one-third of the taxes in our economy.

B)one-half of the taxes in our economy.

C)two-thirds of the taxes in our economy.

D)three-fourths of the taxes in our economy.

Q3) The U.S.federal government spends its revenues in a number of ways.Rank the following spending categories from largest to smallest.

A)income security,health,national defense,net interest

B)health,national defense,net interest,income security

C)net interest,health,income security,national defense

D)national defense,income security,net interest,health

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