Macroeconomics
Midterm Exam
Course Introduction
Macroeconomics is the branch of economics that studies the behavior, performance, and structure of an economy as a whole. This course explores the key concepts and models used to analyze national income, economic growth, inflation, unemployment, and the overall functioning of economic systems. Students will learn about the roles of government policies, such as monetary and fiscal policy, in influencing economic outcomes, and examine the impact of international trade and finance. By understanding macroeconomic indicators and frameworks, students will develop the analytical tools necessary to interpret economic events and policy decisions in both domestic and global contexts.
Recommended Textbook
Economics Principles and Policy 12th Edition by William
J. Baumol
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Chapter 1: What Is Economics?
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Sample Questions
Q1) Economists and others use economic theory
A) only to analyze situations in which money changes hands.
B) as a partial basis for public policy recommendations.
C) to confuse their enemies.
D) to replace value judgments about important policy issues.
Answer: B
Q2) The slope of a curved line at a particular point is
A) always greater than the slope of a straight line at the same point.
B) always smaller than the slope of a straight line at the same point.
C) defined as the slope of the straight line representing the average values for the entire curve.
D) defined as the slope of the straight line that is tangent to the curve at that point.
Answer: D
Q3) The high unemployment of 2008-2010 caused a substantial decrease in inflation which created fears of deflation.
A)True
B)False
Answer: True
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3
Chapter 2: The Economy: Myth and Reality
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Q1) A tax must be progressive if an individual with a higher income pays more dollars in taxes than an individual with a lower income.
A)True
B)False
Answer: False
Q2) A tax is progressive if it raises a greater fraction of total tax revenue every year.
A)True
B)False
Answer: False
Q3) All of the following are associated with a mixed economy except
A) some public influence over the workings of free markets.
B) public ownership mixed in with private property.
C) homogenization.
D) different countries blending the state and market sectors in different ways.
Answer: C
Q4) Government spending plays no role in meeting our social and public needs.
A)True
B)False
Answer: False
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Chapter 3: The Fundamental Economic Problem: Scarcity and Choice
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Sample Questions
Q1) A well-functioning market will have high monetary costs applied to high opportunity costs.
A)True
B)False
Answer: True
Q2) Opportunity cost cannot be measured in money terms, only in conceptual terms.
A)True
B)False
Answer: False
Q3) The tendency of opportunity cost to increase as production increases
A) is an example of theory that has not been proven by facts.
B) is a general principle, but not a universal fact.
C) is a universal fact, with no known exceptions.
D) rarely holds in reality, but is a useful theory.
E) cannot be tested with standard economic tools.
Answer: B
Q4) Inputs in production processes are called resources.
A)True
B)False Answer: True
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Chapter 4: Supply and Demand: An Initial Look
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Sample Questions
Q1) Define equilibrium as it relates to markets.Describe the process by which a market reaches a new equilibrium.Include an appropriate diagram.
Q2) The laws of supply and demand force prices to an equilibrium.
A)True
B)False
Q3) Sugar price supports primarily benefit consumers.
A)True
B)False
Q4) Women today are having more babies than women did fifteen years ago.The result is that mothers today have trouble finding baby-sitters and are shocked at what they must pay for child care.Which graph in Figure 4-8 best illustrates how the situation has changed?
A) 1
B) 2
C) 3
D) 4
Q5) Distinguish between demand and quantity demanded.Do the same for supply and quantity supplied.
Q6) Distinguish the terms price ceiling and price floor.
Page 6
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Chapter 5: Consumer Choice: Individual and Market Demand
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Sample Questions
Q1) The demand curve can be derived from indifference curves by varying the price of the commodity in question.
A)True
B)False
Q2) What is the relationship between marginal utility and an individual demand curve?
Q3) What is the marginal rate of substitution, and what role does it play in determining the consumer's optimum choice?
Q4) For most goods and most people, marginal utility probably
A) continues to increase as larger quantities are purchased.
B) plummets after the first few units but soon begins to rise.
C) declines as consumption increases.
D) is negative after the first unit of a good is purchased.
E) is positive and rising for most goods.
Q5) Consumer's surplus is a measure of how much
A) less than his income a consumer spends on goods.
B) more utility a consumer receives from his purchases than he has to pay for them.
C) a consumer's marginal utility differs from his total utility.
D) a change in price induces a consumer to substitute other goods.
Page 7
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Chapter 6: Demand and Elasticity
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Sample Questions
Q1) A price cut will increase the revenue a firm receives if the demand for its product is
A) elastic.
B) inelastic.
C) of unit elasticity.
D) straight elastic.
Q2) A decrease in the price of a good will cause a movement along the demand schedule to a higher quantity demanded.
A)True
B)False
Q3) Buyers' expenditures and sellers' revenues are always identical.
A)True
B)False
Q4) Cross elasticity of demand for
A) substitutes will normally be positive.
B) complements will normally be positive.
C) substitutes will normally be negative.
D) complements will normally be infinite.
Q5) How might a court use cross elasticity in an antitrust case?
Q6) Why are time series data unlikely to give an accurate estimate of demand?
Page 8
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Chapter 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis
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Sample Questions
Q1) Cost minimization requires that a firm equate the ratio of marginal products of inputs to the ratio of input prices.
A)True
B)False
Q2) In Figure 7-7 at 100 units, AVC equals A) 8.
B) 800.
C) 100.
D) 1,000.
Q3) USX, a steel company, reduced the number of man-hours required to produce a ton of steel from 10.8 in 1982 to 3.8 in 1990, thereby eliminating 55,000 jobs.Technically, this rise in productivity means the
A) marginal product of labor increased.
B) average product of labor increased.
C) average product of capital fell.
D) marginal product of capital fell.
Q4) Cost curves in the long run differ from cost curves in the short run.
A)True
B)False
Q5) Explain why the long-run average cost is typically U-shaped.
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Chapter 8: Output, Price, and Profit: The Importance of Marginal Analysis
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Sample Questions
Q1) In arriving at the quantity of output and price of its product, a company A) chooses either output or price, and consumer demand determines the other. B) has no control over either quantity or price.
C) makes two decisions by setting both optimal output and optimal price. D) generally leaves both quantity and price decisions to consumers.
Q2) Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3.They agree to split the lunch bill evenly.Ed chooses a hot dog.The marginal cost to Joe then of ordering a hamburger instead of a hot dog is
A) $1.
B) $2.
C) $2.50.
D) $3.
Q3) From Figure 8-5 one can deduce
A) TR = TC at outputs 10 and 60.
B) MR = MC at output 35.
C) TFC = 100.
D) All of the above are correct.
Q4) A separate average revenue curve is not required when you have the demand curve for a firm.Explain.
Q5) Is it a good thing to go to a point where marginal profit is zero? Explain.
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Chapter
The Tail that Wags the Dog?
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Sample Questions
Q1) The federal agency that monitors and regulates the stock market is the
A) Chicago Mercantile Exchange.
B) Securities and Exchange Commission.
C) Department of Justice.
D) Federal Trade Commission.
Q2) In the fifteenth and sixteenth centuries, most towns prohibited individuals from accumulating stocks of grain.Since such individuals sold the grain and profited greatly during food shortages, they were considered to be exploiting people in need.The result of this prohibition was
A) wilder fluctuation in the price of grain.
B) more grain shortages.
C) losses to farmers in a good crop year.
D) All of the above are correct.
Q3) Which of the following is not a principal means by which corporations obtain money for investment?
A) selling stocks
B) selling bonds
C) retaining earnings
D) receiving dividends
Q4) Explain why bond prices and interest rates are inversely related.
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Chapter 10: The Firm and the Industry under Perfect Competition
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Sample Questions
Q1) The market for a perfectly competitive industry clears at a price of $3, and the minimum average cost for all firms is $2.50.In the long run, we would expect an increase in
A) each firm's output.
B) the number of firms.
C) each firm's profit.
D) each firm's average cost.
Q2) In perfect competition, a firm's marginal revenue equals the price of the product. A)True
B)False
Q3) If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the
A) most effective policy action would be a subsidy to firms for the reduction of emissions.
B) most effective policy action would be a tax on polluting firms.
C) appropriate course of action for government is to do nothing.
D) appropriate course of action for government is to increase R&D outlays to develop technology to remove the emissions from the environment.
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Chapter 11: Monopoly
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Sample Questions
Q1) Table 11-1 shows demand and total cost schedules for Monopoliteria.At its profit-maximizing level of output, Monopoliteria's profit is
A) $10.
B) $15.
C) $22.
D) $30.
Q2) Since a monopoly faces a downward-sloping demand curve, A) then, as Adam Smith wrote, "the price of monopoly is upon every occasion the highest which can be got."
B) price always exceeds average revenue.
C) marginal revenue increases as output increases.
D) the monopolist is a price maker.
Q3) Table 11-1 shows demand and total cost schedules for Monopoliteria.At the profit-maximizing output, what quantity is Monopoliteria producing?
A) 10
B) 12
C) 14
D) 16
Q4) What arguments have been advanced in defense of price discrimination?
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Chapter 12: Between Competition and Monopoly
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Sample Questions
Q1) Identify the market structure characterized by many small firms selling somewhat different products.
A) Monopoly
B) Monopolistic competition
C) Perfect competition
D) Duopoly
Q2) In Figure 12-2, which of the graphs represents a firm that is a sales revenue maximizer?
A) 1
B) 2
C) 3
D) 4
Q3) Society benefits from monopolistic competition because the firms are allocatively efficient.
A)True
B)False
Q4) Oligopolists use advertising as a way of differentiating their products.
A)True
B)False
Q5) Monopolistic competition tends to lead firms to have wasted capacity.Why?
Page 14
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Chapter 13: Limiting Market Power: Regulation and Antitrust
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Sample Questions
Q1) The Herfindahl-Hirschman Index measures
A) concentration in the industry.
B) industrial average output.
C) economies of scale.
D) consumer confidence.
Q2) Which of the following events would increase the four-firm concentration ratio in a milk industry with six firms?
A) The two largest milk producers merge.
B) The largest milk producer buys an ice cream-making plant.
C) The largest milk producer lures customers away from the second-largest producer.
D) The four largest milk producers collusively fix prices.
Q3) One possible solution to improve performance of regulated firms is which of the following?
A) Allow the firm to set its own rate of return.
B) Allow higher rates of return to cover higher cost of better performance.
C) Allow a higher rate of return for better performance.
D) Set lower prices when efficiency improves.
Q4) The Antitrust Division of the Department of Justice carefully scrutinizes mergers.Why?
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Chapter 14: The Case for Free Markets I: The Price System
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Sample Questions
Q1) The questions of what to produce, how to produce, and for whom are answered by
A) free-market economies.
B) economies that are a mixture of planning and markets.
C) command economies.
D) all economic systems in some manner.
Q2) Questions of what to produce, how much to produce, and who will get the output must be faced by
A) market economies.
B) centrally planned economies.
C) the economies of underdeveloped countries.
D) all economies.
Q3) For economic efficiency, which of the following conditions should be met?
A) Scarcer goods should have lower prices.
B) More abundant goods should have lower prices.
C) More abundant goods should have higher prices.
D) All goods should have equal prices.
Q4) Efficient allocation of resources makes everyone better off.
A)True
B)False
Q5) What makes production-planning a daunting task for central planners?
Page 16
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Chapter 15: The Shortcomings of Free Markets
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Sample Questions
Q1) The economic justification for public subsidies to university research is based on
A) the value of this research to the university.
B) the higher salaries graduate students earn as a result of working with professors involved in research.
C) the external benefits of research and development to, in particular, high rates of economic growth.
D) higher incomes earned by those who provide services to university researchers (equipment, supplies, etc.).
Q2) Increasing productivity in a society
A) always results in a better quality of life as society views it.
B) can never make a nation poorer.
C) guarantees that personal services will cost less.
D) makes improved personal services available to everyone.
Q3) Government gives subsidies to encourage production of products with beneficial externalities.
A)True
B)False
Q4) Are national forests public goods? Explain.
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Chapter 16: The Market's Prime Achievement: Innovation and Growth
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Sample Questions
Q1) A firm will tend to follow competitors when they increase spending on R&D, but will not follow them when they decrease such spending.
A)True
B)False
Q2) A profit maximizing firm will continue to spend on R&D until the point where the marginal revenue from R&D is equal to its marginal cost.
A)True
B)False
Q3) In the United States, the financing for innovation has been increasingly supplied by A) large oligopolistic enterprises.
B) independent inventors
C) newly founded entrepreneurial firms.
D) small enterprises.
Q4) The externality problem tends to be more severe for applied research than for basic research.
A)True
B)False
Q5) Do free markets spend enough on R&D activities? Explain your answer.
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Chapter 17: Externalities, the Environment, and Natural Resources
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Q1) Pollution taxes are more efficient in cleaning up the environment than direct controls.What role is there for direct controls?
A) They are useful standby mechanisms.
B) They are useful if it is decided to prohibit the substance altogether.
C) They are useful where dependable metering devices are not available or prohibitively costly to install.
D) All of the above are true.
Q2) Part of the pollution problem is due to
A) the absence of markets for goods like clean air and clean water.
B) the lack of well-defined property rights to clean air and clean water.
C) the unreliability of voluntary programs to cut pollution.
D) All of the above are correct.
Q3) Empirical evidence indicates that imposing taxes on polluting emissions by firms
A) has no effect on the amount of pollution emitted.
B) does not give the government leeway to regulate more dangerous emissions differently than less dangerous emissions.
C) does reduce the amount of pollution emitted.
D) discourages firms from investing in new methods of pollution abatement.
Q4) Why is it misleading to argue that emissions permits are a "license to pollute"?
Page 19
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Chapter 18: Taxation and Resource Allocation
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Sample Questions
Q1) The average tax rate is
A) the ratio of additional taxes to an additional dollar of income.
B) the ratio of taxes to income.
C) the ratio of taxes to GDP.
D) the ratio of income to direct taxes.
Q2) Loopholes reduce the efficiency of the tax system.
A)True
B)False
Q3) Federal personal income tax rates were
A) generally increased in the early 1990s and lowered in the 2000s.
B) generally increased in the 1980s and lowered in the early 1990s.
C) generally decreased in the 1990s and held constant in the 2000s.
D) held constant through the 1990s and 2000s.
Q4) The share of national income going to state and local taxes
A) has risen steadily in the past 40 years to about 22 percent.
B) has dropped steadily in the past 40 years to about 6 or 7 percent.
C) grew substantially until the early 1970s and has leveled off at about 10 to 11 percent.
D) fell steadily until the early 1970s and has risen steadily since then.
Q5) What were the arguments in favor and against repealing the Bush tax cuts?
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Chapter 19: Pricing the Factors of Production
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Sample Questions
Q1) A worker can always build a chair in four hours.If a chair sells for $40 in a perfectly competitive market, then the equilibrium wage per hour in a perfectly competitive labor market is
A) $4.
B) $10.
C) $40.
D) $160.
Q2) Suppose that a community seeks to preserve air quality, and zones a "green belt" around the city which prevents property development within the belt.What is the most likely result of this law?
A) Interest rates will increase.
B) Labor income will increase.
C) Economic rent will increase.
D) Profits will increase.
Q3) Economists consider rent seeking activity to be highly productive.
A)True
B)False
Q4) How can bonuses to exceptional employees be considered economic rents?
Q5) List three primary ways in which profits above "normal" interest rate levels can be earned.
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Chapter 20: Labor and Entrepreneurship: The Human Inputs
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Sample Questions
Q1) In comparison to the U.S., Germany has a relatively low percentage of union membership.
A)True
B)False
Q2) Average hours worked per week have ____ since the early 1900s.
A) declined by almost 7 percent
B) risen by almost 15 percent
C) risen by almost 7 percent
D) declined by almost 35 percent
Q3) One implication of human capital theory is that college graduates should earn substantially less than high school graduates.
A)True
B)False
Q4) The relationship between the quantity of labor supplied and the wage is governed by an income effect and a substitution effect.
A)True
B)False
Q5) Explain how a bilateral monopoly equilibrium outcome differs from a purely competitive outcome.
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Chapter 21: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) Affirmative action laws require employers to hire specified numbers of minorities.
A)True
B)False
Q2) Which of the following observations concerning poverty rates in America is true?
A) Major increase in poverty in the decade from 1963 to 1973.
B) It hit an all-time low by 1983.
C) The economic boom of the 1990s restored it almost to its 1970s levels.
D) It decreased from 2007 to 2009.
Q3) One benefit of a negative income tax is that it would increase work incentives.
A)True
B)False
Q4) The United States has greater inequality of income than A) Japan.
B) Germany and Australia.
C) most industrialized nations.
D) all of the above.
Q5) Compensating wage differentials explain some income differences.
A)True
B)False
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Chapter 22: An Introduction to Macroeconomics
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Q1) Gross Domestic Product is an economic aggregate that represents the A) potential output of a country.
B) total product of a nation's economy.
C) total income earned from all sales.
D) total product that a country exports.
Q2) In her book on the American work week, economist Juliet Schorr argues that Americans work too much.Her argument may be interpreted as concluding that this behavior
A) increases GDP but decreases well being.
B) increases GDP and increases well-being.
C) decreases GDP and decreases well being.
D) decreases GDP but increases well being.
Q3) Gross Domestic Product accurately measures the environmental costs of producing all goods and services.
A)True
B)False
Q4) In 2001, the first year of the Bush administration, Americans learned that recessions were a thing of the past.
A)True
B)False
Page 24
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Chapter 23: The Goals of Macroeconomic Policy
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Q1) If a borrower arbitrarily gains purchasing power as the result of a particular loan agreement, then
A) actual inflation was greater than expected inflation.
B) actual inflation was equal to expected inflation.
C) actual inflation was less than expected inflation.
D) the real interest rate was greater than the nominal interest rate.
Q2) The German inflation rate after World War I was measured in the thousands of percents.This condition is referred to as
A) fundamental inflation.
B) environmental inflation.
C) hyperinflation.
D) episodic inflation.
Q3) Unemployment insurance cannot eliminate the national costs of lost output due to unemployed labor.
A)True
B)False
Q4) How is the unemployment rate calculated? Describe the three principal types of unemployment.
Q5) High unemployment is socially wasteful.Why?
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Chapter 24: Economic Growth: Theory and Policy
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Q1) Imitation is not only the highest form of flattery but also an easier way for poorer countries to develop new technology.
A)True
B)False
Q2) An increase in the number of hours worked would
A) shift the production function upward.
B) shift the production function downward.
C) shift the production function outward.
D) not shift the production function.
Q3) The wage premium in the United States for college graduates over high school graduates has remained constant from 1978 to 2000.
A)True
B)False
Q4) Lower levels of education and training are often associated with low levels of A) production.
B) productivity.
C) inflation.
D) both a and b
Q5) Describe the three pillars of productivity growth.
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Chapter 25: Aggregate Demand and the Powerful Consumer
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Q1) Most older persons regularly spend more than their current disposable income.How is this possible?
A) They receive government transfer payments.
B) They work to supplement their retirement income.
C) They borrow and increase their debt levels.
D) They withdraw funds from accumulated wealth.
Q2) Tax reductions should also reduce the amount of consumer expenditures.
A)True
B)False
Q3) Economists expect the relationship between consumption and disposable income to be
A) unpredictable.
B) transitory.
C) fixed.
D) inverse
E) stable.
Q4) An economic boom in one country usually causes a recession in other countries. A)True
B)False
Q5) What is disposable income? How is it calculated?
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Chapter 26: Demand-Side Equilibrium: Unemployment or Inflation?
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Q1) The equilibrium level of GDP is always accompanied by full employment and stable prices.
A)True
B)False
Q2) A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that
A) inventory stocks are building up.
B) inventory stocks are being depleted.
C) their profits are negative.
D) many of their workers have little to do.
Q3) The economy will reach equilibrium in a simple economy only if saving is A) greater than investment.
B) less than investment.
C) equal to investment.
D) equal to disposable income.
Q4) The oversimplified multiplier formula assumes that the A) level of consumption spending is fixed.
B) price level is fixed.
C) government spending is fixed.
D) net exports depend on income.
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Chapter 27: Bringing in the Supply Side: Unemployment and Inflation?
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Q1) A recessionary gap exists when aggregate demand is above the full employment level of output.
A)True
B)False
Q2) Profit per unit can be expressed as price - cost per unit.
A)True
B)False
Q3) Which of the following is evidence of an inflationary gap?
A) very long lines at employment agencies
B) very short waiting times for product delivery
C) very low sales figures
D) very long search times for people looking for jobs
E) very low unemployment rates
Q4) The case for government stabilization policy is made more compelling if the
A) self-correcting mechanism works very slowly.
B) self-correcting mechanism works too fast.
C) value of the multiplier is very small.
D) aggregate supply curve is very flat.
Page 29
Q5) What causes the aggregate supply curve to have an upward slope in the short run, but a vertical slope in the long run?
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Chapter 28: Managing Aggregate Demand: Fiscal Policy
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Q1) Explain some of the steps that a government would wish to adopt in an inflationary environment.
Q2) Refer to Table 11-1.What is the level of tax revenues in this model?
A) 1,000
B) 950
C) 945.5
D) 937.5
E) 437.5
Q3) Taxes reduce total spending
A) directly by increasing government purchases by an equal amount.
B) directly by substituting investment spending.
C) indirectly by reducing government spending.
D) indirectly by reducing disposable income.
Q4) Supply-side tax cuts also tend to reduce aggregate demand and promote recession.
A)True
B)False
Q5) Government purchases and income taxes have the same effect on the multiplier. A)True
B)False
Q6) How do transfer payments function as negative taxes?
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Chapter 29: Money and the Banking System
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Sample Questions
Q1) A banker operating under a system of fractional reserves
A) is exposed to potential bank runs.
B) must keep a prudent level of reserves.
C) must lend money carefully.
D) All of the above are correct.
Q2) Bankers have a reputation for conservatism in politics, dress, and business affairs.Is there an economic rationale for this conservatism? Explain.
Q3) What is fiat money? Why is fiat money important in the United States today?
Q4) The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve.The actual money multiplier will be
A) 10.
B) 9.
C) 5.
D) 2.
E) 1.
Q5) Unlike recent events in England, the United States has no recent history of bank failures.
A)True
B)False
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Chapter 30: Monetary Policy: Conventional and
Unconventional
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Q1) Currently, in the United States, you can expect the discount rate to be
A) used often to change the money supply.
B) raised in periods of recession.
C) fixed at the bank rate.
D) adjusted to follow market rates of interest.
Q2) The Fed's founders viewed the Fed as a means of maintaining the money supply during economic contractions and as a lender of last resort.
A)True
B)False
Q3) If the Fed sells a U.S.Treasury bill to a member of the public, the banking system has
A) less reserves and the money supply tends to fall.
B) more reserves and the money supply tends to fall.
C) less reserves and the money supply tends to grow.
D) more reserves and the money supply tends to grow.
Q4) The Fed relies on open market operations, which work
A) with the Treasury in creating money to finance bonds.
B) through major stock exchanges to influence bond prices.
C) directly through the nonbank public to change their assets.
D) through the banking system by affecting their reserves.
Page 32
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Chapter 31: The Financial Crisis and the Great Recession
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Q1) Which of the following was not a lesson from the 2007-2009 financial crisis?
A) Financial regulations were too "light" prior to the crisis.
B) Excessive complexity made the financial system more fragile and dangerous.
C) Both monetary policy and fiscal policy are needed in order for the economy to recover.
D) Regulatory failures were based primarily on poor job performance.
Q2) Which of the following are not valid arguments against the effectiveness of the fiscal stimulus bill?
A) Employment continued to fall into early 2010.
B) Without stimulus recessions come to an end naturally.
C) State and local government spending increased.
D) Monetary policy played a large role in stimulating the economy.
Q3) When the housing bubble burst, prices fell particularly severely in A) Georgia.
B) Nevada.
C) Pennsylvania.
D) West Virginia.
Q4) Borrowed funds are used in financing every component of GDP.
A)True
B)False
Page 33
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Chapter 32: The Debate over Monetary and Fiscal Policy
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Q1) Which of the following lags makes stabilization policy more problematic?
A) expenditure lags
B) recognition lags
C) policy lags
D) All of the above.
Q2) As individuals hold more of their financial assets in the form of money market accounts and mutual funds, the velocity of money will decrease.
A)True
B)False
Q3) Both approaches-Keynesian and monetarist-are ways of analyzing
A) aggregate supply.
B) aggregate demand.
C) the average price level.
D) government spending and expenditures.
Q4) In 2009, nominal GDP was $14,050 billion and M was $1,587 billion.Velocity was A) 0.11.
B) 8.85.
C) 11.30.
D) 14.25.
Q5) How does government expenditure discourage some private investment?
Page 34
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Chapter 33: Budget Deficits in the Short and Long Run
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Q1) If crowding out occurs, the Main Burden of the debt is
A) smaller government assets passed along to the next generation.
B) smaller capital stock passed along to the next generation.
C) fewer government services during this generation.
D) higher debt payments passed along to the next generation.
Q2) Argentina in 2001 faced a debt problem more serious than the U.S.debt problem because Argentina was obligated to repay its debt in A) U.S.dollars.
B) their own currencies.
C) a relatively short period of time.
D) large installments.
Q3) Most economists agree that the focus of fiscal policy is to A) plan the economy.
B) balance aggregate demand and aggregate supply.
C) balance the federal budget.
D) balance environmental needs and resources.
Q4) Like many families, the national debt in 2010 was many times larger than the national income.
A)True
B)False
Page 35
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Chapter 34: The Trade-Off between Inflation and Unemployment
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Q1) The intent of indexing is to
A) raise tax revenue automatically during inflation.
B) shift the short-run Phillips curve to the right.
C) take most of the sting out of inflation.
D) reduce inflation gradually.
Q2) Most economists agree that the self-correcting mechanism works A) very slowly.
B) very rapidly.
C) rapidly in the short run and slowly in the long run.
D) slowly in the short run and rapidly in the long run.
Q3) If economic fluctuations originate on the supply side,
A) there will be no relationship between unemployment and inflation.
B) real wage increases will be necessary to eliminate unemployment.
C) inflation and unemployment will be negatively related.
D) inflation and unemployment will be positively related.
Q4) According to rational expectations theory, a long period of unemployment is necessary to reduce inflation.
A)True
B)False
Page 36
Q5) What is the effect of supply-side inflation on the short-run Phillips curve?
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Chapter 35: International Trade and Comparative Advantage
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Q1) A country can gain by importing a good that it can make itself if
A) this enables the country to make another good in which it is extremely efficient.
B) it has an absolute disadvantage in the good.
C) this permits the country to establish comparative advantage in the good.
D) All of the above are correct.
Q2) The world price of a commodity will settle at the level where A) supply and demand are equal within each country.
B) the excess demand of the importing country is equal to the excess supply of the exporting country.
C) the excess demand in the exporting country is equal to the excess demand in the importing country.
D) there is no excess demand in the exporting country.
Q3) If England uses one week's time to produce ten yards of cloth or two barrels of wine and Portugal uses one week's time to produce twelve yards of cloth or six barrels of wine, then England has a comparative advantage in the production of cloth.
A)True
B)False
Q4) How can tariffs lead to a situation in which all parties to a trade lose?
Page 37
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Chapter 36: The International Monetary System: Order or Disorder?
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Sample Questions
Q1) In order to "defend" its overvalued currency, Argentina in 2002 had to reduce its A) interest rates.
B) tax levels.
C) holdings of foreign reserves.
D) balance of payments surpluses.
Q2) A recession in the United States will tend to cause recessions in other countries because as U.S.GDP falls, U.S.
A) tariffs will automatically rise.
B) exports will rise.
C) imports will fall.
D) exports will fall.
Q3) In 2001, the Argentine peso was overvalued relative to the U.S.dollar.
A)True
B)False
Q4) In general, speculators tend to make a floating exchange rate system more stable.
A)True
B)False
Q5) Explain three factors that would cause the dollar to appreciate.
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Chapter 37: Exchange Rates and the Macroeconomy
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Q1) Foreign trade will have no impact on real GDP when
A) exports exceed imports.
B) exports equal imports.
C) imports exceed exports.
D) exports equal zero.
Q2) A closed economy is one that
A) uses tariffs.
B) uses quotas to restrict trade.
C) uses exchange controls.
D) does not trade with other nations.
Q3) Which of the following would be cures for the U.S.trade deficit?
A) Americans saving less and spending more
B) a severe recession in Europe and Asia
C) a severe recession in the United States
D) a tax cut
E) All of the above are correct.
Q4) Explain how exchange rates affect the level of aggregate economic activity and the price level.Use appropriate AS/AD diagrams to illustrate your answer.
Q5) Discuss the opposing points of view on U.S.trade deficit.
Q6) How do the fluctuations in the exchange rate influence the domestic price level?
Page 39
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