Course Introduction
Macroeconomics
Pre-Test Questions
Macroeconomics explores the behavior and performance of an economy as a whole, focusing on aggregate measures such as national income, gross domestic product (GDP), unemployment rates, inflation, and economic growth. This course examines the fundamental principles and models that explain how economies function at the national and global level, including the roles of fiscal and monetary policy, the impact of government intervention, and the complexities of international trade and finance. Students will develop analytical tools to evaluate economic phenomena, policy debates, and issues affecting societies on a large scale.
Recommended Textbook
Economics 4th Edition by Paul Krugman
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) When the nations that constitute the Organization of Petroleum Exporting Countries (OPEC) restrict the supply of oil to increase their profits, the oil market:
A) achieves an efficient outcome because profits increase.
B) achieves an equitable outcome because the nations with oil resources receive the profits commensurate with that resource.
C) fails because there is no longer an efficient allocation of resources.
D) fails because there is no longer an equitable allocation of resources.
Answer: C
Q2) We are forced to make choices because of:
A) exploitation.
B) efficiency.
C) scarcity.
D) the margin.
Answer: C
Q3) In 2003, Congress passed a tax cut. The country did NOT incur any opportunity cost from this decision.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Economic Models- Trade-Offs and Trade
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Sample Questions
Q1) Alexander has a straight-line, or linear, production possibility frontier when he produces soybeans and corn. If he uses all of his resources to grow soybeans, he can produce 200 bushels of soybeans; if he uses all of his resources for corn production, he can produce 400 bushels of corn. Alexander CANNOT produce _____ bushels of soybeans and _____ bushels of corn.
A) 200; 0
B) 200; 600
C) 0; 400
D) 100; 200
Answer: B
Q2) Economists usually assume that production is subject to increasing opportunity costs because:
A) higher production usually results in more inflation.
B) not all resources are equally suited to producing every good.
C) individuals desire constantly increasing opportunities to make themselves better off.
D) if production is efficient, it is not possible to increase the production of all goods simultaneously.
Answer: B
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Which of the following best exemplifies the law of demand?
A) As income taxes rise, fewer new cars are purchased.
B) As the price of corn rises, more acres of corn are planted.
C) As the price of a car rental rises, fewer cars are rented.
D) As the population rises, more electricity is consumed.
Q2) Which of the following ALWAYS results in an increase in price and quantity?
A) an increase in supply and a decrease in demand
B) an increase in demand with no change in supply
C) an increase in supply with no change in demand
D) a decrease in demand and supply
Q3) (Figure: Shifts in Demand and Supply II) Look at the figure Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose scientists discover that eating pomegranates causes aging. Which panel BEST describes how this will affect the market for pomegranates?
A) panel A
B) panel B
C) panel C
D) panel D
Q4) Why do many clothing stores have big after-Christmas sales on their merchandise?
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Chapter 4: Consumer and Producer Surplus
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Sample Questions
Q1) (Table: Willingness to Pay for Basketball Sneakers) The table Willingness to Pay for Basketball Sneakers shows each player's willingness to pay for basketball sneakers. Assume that each player wants to buy at most, one pair of sneakers. If the price of basketball sneakers is $125, which players will purchase sneakers?
A) Jamichael and Javon
B) Jamichael and Corey
C) Jamichael, Corey, and Rudy
D) Jamichael, Corey, Rudy, and Ray
Q2) (Figure: Change in Total Surplus) Look at the figure Change in Total Surplus. Which of the following areas represent the change in total surplus when the price falls from P<sub>2</sub> to P<sub>3</sub>?
A) A, B, and C
B) B and C
C) B, C, D, and E
D) C and E
Q3) Total surplus is the excess of consumer surplus over producer surplus.
A)True
B)False
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Chapter 5: Price Controls and Quotas- Meddling With Markets
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Sample Questions
Q1) The quota rent is:
A) the difference between the demand price and the supply price at the quota limit.
B) the rent received by landlords who own rent-controlled apartments.
C) the opportunity cost of using a quota-controlled service or of buying a good that is subject to an import quota.
D) the minimum rent that the owner of a building must receive before he or she is willing to rent out the building.
Q2) The most likely reason that the government would implement a _____ is because it feels that the price is too low for _____.
A) price ceiling; consumers
B) price floor; consumers
C) price ceiling; producers
D) price floor; producers
Q3) Price controls encourage black markets because:
A) they eliminate opportunity costs.
B) individuals can profit by illegal exchanges.
C) they create too much efficiency.
D) they create too much equity.
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Chapter 6: Elasticity
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Sample Questions
Q1) Suppose the cross-price elasticity between two goods is zero. What does this tell you about these two goods?
Q2) (Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. At prices greater than $7, demand is _____; at prices below $7 demand is _____; and at $7 demand is _____.
A) elastic; inelastic; unit-elastic
B) inelastic; elastic; unit-elastic
C) unit-elastic; inelastic; elastic
D) equal to 0; elastic; inelastic
Q3) Given a price increase for any good, the price effect on revenue is always larger than the quantity effect on revenue.
A)True
B)False
Q4) If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:
A) 0.75.
B) approximately 0.33.
C) approximately 1.33. D) 1.
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Chapter 7: Taxes
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Sample Questions
Q1) If demand for a good is perfectly inelastic, then consumers will bear the entire burden of an excise tax imposed on that good.
A)True
B)False
Q2) Lump-sum taxes promote economic efficiency but violate the ability-to-pay principle.
A)True
B)False
Q3) The incidence of a tax:
A) is a measure of the revenue the government receives from it.
B) refers to who writes the check to the government.
C) refers to how much of the tax is actually paid by consumers and producers.
D) is a measure of the deadweight loss from the tax.
Q4) If the marginal tax rate is less than the average tax rate, the tax system is:
A) proportional.
B) progressive.
C) degressive.
D) regressive.
Q5) How does an excise tax impose a cost on society?
Q6) Explain how an excise tax levied on suppliers affects the supply curve.
Page 9
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Chapter 9: The Rational Consumer
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Sample Questions
Q1) Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The horizontal intercept for Faruq's budget line is _____ tacos.
A) 50
B) 10
C) 5
D) 100
Q2) How much _____ Susan obtains from eating green beans is a measure of the utility of green beans for her.
A) efficiency
B) usefulness
C) cost
D) satisfaction
Q3) Economists identify the satisfaction a person derives from the consumption of goods and services as:
A) happiness.
B) usefulness.
C) utility.
D) pleasure.
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Chapter 8: International Trade
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Sample Questions
Q1) (Figure: The Market for Thumb Drives) Look at the figure The Market for Thumb Drives. Assume that P<sub>A</sub> is the autarky price, P<sub>W</sub> is the world price, and D and S represent domestic demand and supply, respectively. Producer surplus in free trade equals the area:
A) B + C.
B) B + C + D +E.
C) B + E.
D) E.
Q2) (Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The Production Possibilities for Tractors and Crude Oil. The United States has a comparative advantage in _____ and Mexico has a comparative advantage in _____.
A) both goods; neither good
B) neither good; both goods
C) tractors; crude oil
D) crude oil; tractors
Q3) In autarky, the amount of a country's production and consumption of a good must be identical.
A)True
B)False
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Page 11
Chapter 10: Decision Making by Individuals and Firms
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Sample Questions
Q1) (Scenario: Betty's Cookie Shop) Betty's implicit and explicit costs are equal to:
A) $80,000.
B) $184,500.
C) $204,500.
D) $100,000.
Q2) For most firms, economic profit is:
A) less than accounting profit.
B) equal to accounting profit.
C) greater than accounting profit.
D) negative.
Q3) (Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts. The marginal cost of the third sweatshirt is:
A) $33.
B) $13.
C) $11.
D) $9.
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Chapter 11: Perfect Competition and the Supply Curve
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Q1) (Figure: Prices, Cost Curves, and Profits) Look at the figure Prices, Cost Curves, and Profits. If the price is P<sub>2 </sub>and the firm is profit-maximizing, then the firm's profit is:
A) (fg) × Q<sub>3.</sub>
B) (de) × Q<sub>2.</sub>
C) (fg) × Q<sub>2</sub>.
D) (de) × P<sub>2</sub>.
Q2) (Table: Lilly's Apple Orchard) Look at the table Lilly's Apple Orchard. Lilly is the price-taking owner of an apple orchard. Her orchard has fixed costs of $30. If the price of a bushel of apples is $35, her economic profit will be:
A) -$30
B) -$5
C) $0
D) $5
Q3) In perfectly competitive markets, if the price is _____, the firm will _____.
A) greater than ATC; make an economic profit
B) greater than the minimum ATC; break even
C) less than ATC; make an economic profit
D) less than ATC; break even
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Page 13
Chapter 12: Monopoly
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Sample
Questions
Q1) Public policies toward monopoly in the United States often consist of:
A) laws outlawing all of them.
B) the regulation of natural monopolies.
C) government takeover if monopoly profit exceeds a certain level.
D) forcing monopoly industries to become perfectly competitive.
Q2) Conditions that keep new firms out of a monopoly market are:
A) barriers to entry.
B) terms of sale.
C) labor market stipulations.
D) production controls.
Q3) (Figure: Water Works) Look at the figure Water Works, which describes a small town's water works, a natural monopoly. If the water works is unregulated and maximizes profit, how many customers will it serve?
A) 200
B) 300
C) 375
D) 400
Q4) Why is the demand curve for a monopolist downward-sloping, while the demand curve for the perfectly competitive firm is horizontal?
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Chapter 13: Oligopoly
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Sample Questions
Q1) (Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If industry output is 300 gadgets produced by Margaret and 200 gadgets produced by Ray and if Ray decides to increase output by 100, industry price will be:
A) $4.
B) $3.
C) $2.
D) $1.
Q2) (Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. Total industry output would be _____ gadgets.
A) 10
B) 5
C) 50
D) 500
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Page 15
Chapter 14: Monopolistic Competition and Product
Differentiation
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Sample Questions
Q1) If a firm operating in monopolistic competition is producing a quantity that generates MC = MR, then the marginal decision rule tells us that profit:
A) is maximized.
B) can be increased by decreasing production.
C) can be increased by decreasing the price.
D) is maximized only if MC = P.
Q2) An example of monopolistic competition is the _____ industry.
A) restaurant
B) soft-drink
C) automobile
D) airline
Q3) (Figure: Possible Long-Run Outcome) In the figure Possible Long-Run Outcome, which price and quantity refer to a potential long-run profit maximizing outcome for a firm producing in a monopolistically competitive market?
A) P<sub>1</sub> and Q<sub>3</sub>
B) P<sub>1</sub> and Q<sub>1</sub>
C) P<sub>2</sub> and Q<sub>2</sub>
D) P<sub>1</sub> and Q<sub>4</sub>
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Chapter 15: Externalities
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Sample Questions
Q1) A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that this does NOT happen is that:
A) most individuals are unfamiliar with the Coase theorem. B) the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive. C) agreements arising from such negotiations could not be enforced, since the Constitution guarantees all individuals freedom of access to all public roads. D) lawyers would find a way to prohibit such negotiations unless they were actively involved, and this would make transaction costs prohibitive.
Q2) The socially optimal amount of pollution occurs where the marginal social benefit of pollution is _____ the marginal social cost of pollution. A) equal to B) greater than C) less than
D) There is no socially optimal amount of pollution.
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Chapter 16: Public Goods and Common Resources
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Sample Questions
Q1) The best example of a public good is:
A) legal services.
B) national defense.
C) a municipal library.
D) cable television programming.
Q2) Clean water in a river is nonexcludable because:
A) it is not possible to prevent consumption by people who do not pay for it.
B) more than one person can consume the same unit of the good at the same time.
C) individuals ignore the effect their use has on the amount of the resource remaining for others.
D) consumption is inefficiently low.
Q3) A common resource is a good or service for which exclusion is _____ and which is _____ in consumption.
A) possible; rival
B) possible; nonrival
C) not possible; rival
D) not possible; nonrival
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Chapter 17: The Economics of the Welfare State
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Sample Questions
Q1) In 2012, which of the following demographic groups had the HIGHEST poverty rate?
A) African-Americans
B) Hispanics
C) Whites
D) female-headed families with no husband present
Q2) The _____ identifies the level of income at which half of the households in the population earn more and half of the population earns less.
A) median household income
B) mean household income
C) poverty level
D) Gini coefficient
Q3) There is considerable _____ among the quintiles of the distribution of income, with many families moving from _____ quintiles and others moving from _____ quintiles.
A) immobility; lower to higher; higher to lower
B) mobility; higher to lower; lower to higher
C) immobility; lower to even lower; higher to even higher
D) stability; lower to higher; higher to higher
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19
Chapter 18: Factor Markets and the Distribution of Income
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Sample Questions
Q1) According to the efficiency wage model, all of the following are correct EXCEPT that efficiency wages:
A) reduce unemployment.
B) are a type of market failure.
C) are above the equilibrium wage.
D) may reduce worker turnover.
Q2) At Hamill Manufacturing of Pennsylvania highly skilled senior machinists are paid $70,000, excluding benefits, but the average skilled machinist generates approximately $137,000 in value added. This is partially because diminishing returns to labor cause the value of the marginal product of the last machinist hired to be greater than the average of all of the machinists employed.
A)True
B)False
Q3) If the age at which a person can receive Social Security benefits increases from 67 to 70, the supply of labor will increase.
A)True
B)False
Q4) You overhear an economist refer to the price of leisure. What does this mean? How can leisure have a price?
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Chapter 19: Uncertainty, Risk, and Private Information
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Sample Questions
Q1) When an individual knows more about his or her own actions than other people do, incentives are distorted, which causes:
A) moral hazard.
B) adverse selection.
C) screening.
D) signaling.
Q2) Insurance companies deal with the problems of moral hazard by:
A) always insuring buildings for their full replacement value.
B) refusing to insure commercial properties against losses caused by fire.
C) requiring a deductible to provide an incentive for insured individuals to take reasonable precautions to avoid losses.
D) charging extra in cases of adverse selection.
Q3) Health insurance policies include deductibles:
A) to minimize moral hazard.
B) because when it comes to health, most people are risk-averse.
C) to minimize adverse selection.
D) because many health insurance companies own hospitals.
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Chapter 20: Macroeconomics- the Big Picture
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Sample Questions
Q1) An open economy:
A) trades only with its neighbors.
B) trades goods but not services or assets with other countries.
C) does not trade goods, services, or assets with other countries.
D) trades goods and services with other countries.
Q2) An economic recovery encompasses all of the following EXCEPT:
A) sustained economic growth.
B) a short-run increase in aggregate production.
C) a time of increasing employment.
D) the end of the business cycle.
Q3) (Figure: The Business Cycle) Look at the figure The Business Cycle. Point B on this graph shows a(n):
A) peak.
B) trough.
C) expansion.
D) recession.
Q4) One type of macroeconomic policy is antitrust enforcement.
A)True
B)False
Q5) Explain what is meant by the paradox of thrift.
Page 22
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Chapter 21: Gdp and the Consumer Price Index
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Q1) Real GDP is the same as _____ GDP.
A) current-dollar
B) inflation-adjusted
C) nominal
D) value-added
Q2) Which of the following is the best equation for GDP?
A) GDP = C+ I + G - X + IM
B) GDP = C + I + G + X - IM
C) GDP = C + I + G + taxes - value added
D) GDP = C + I + G + taxes + X + IM
Q3) The indirect ownership of physical capital refers to households owning:
A) cash.
B) stock.
C) savings accounts.
D) their house.
Q4) Goods that are produced in a particular period but NOT sold in that period:
A) go into inventory and are called consumption.
B) end up in inventory and are included in investment.
C) are finally included in depreciation when they are sold.
D) are classified as intermediate goods.
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Chapter 22: Unemployment and Inflation
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Q1) The real interest rate is the nominal interest rate less the rate of inflation.
A)True
B)False
Q2) (Table: Labor Force Data) Look at the table Labor Force Data. Suppose the labor force participation rate is 70%. The labor force is equal to:
A) 1,200 million.
B) 50 million.
C) 105 million.
D) 400 million.
Q3) If a labor market is in equilibrium at a wage that sets the quantity of labor demanded equal to the quantity of labor supplied, how can there still be unemployment?
Q4) (Table: Employment Data) Look at the table Employment Data. The unemployment rate is:
A) 6.25%.
B) 6.45%.
C) 9.09%.
D) 9.37%.
Q5) Explain the difference between shoe-leather costs and menu costs of inflation.
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Chapter 23: Long-Run Economic Growth
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Q1) All of the following are factors that drive productivity growth EXCEPT:
A) growth convergence.
B) physical capital.
C) technological progress.
D) human capital.
Q2) (Scenario: The Aggregate Production Function) Look at the scenario The Aggregate Production Function. If K / L = $81, then real GDP per worker is:
A) $4,050.
B) $4,000.
C) $4,096.
D) $40,500.
Q3) (Figure: Technological Progress and Productivity Growth) Look at the figure Technological Progress and Productivity Growth. If there is an increase in physical capital per worker (all other factors remaining unchanged), it is best indicated by a move from:
A) A to B.
B) B to A.
C) C to B.
D) B to C.
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Chapter 24: Savings, Investment Spending
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Q1) If private savings increase, the _____ loanable funds will _____, interest rates will _____, and the amount of borrowing will _____.
A) demand for; increase; increase; increase
B) demand for; decrease; decrease; decrease
C) supply of; increase; decrease; increase
D) supply of; decrease; increase; decrease
Q2) The budget balance equals:
A) taxes minus government spending.
B) transfers minus government spending.
C) taxes plus government spending.
D) savings plus taxes.
Q3) An increase in the demand for loanable funds would most likely be caused by a(n):
A) increase in the market interest rate.
B) increase in business tax rates.
C) increase in expected business opportunities.
D) decrease in expected business opportunities.
Q4) Suppose the federal government has a budget deficit and the economy is closed. Using the savings-investment spending identity, explain how this affects investment spending.
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Chapter 25: Fiscal Policy
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Sample Questions
Q1) The cyclically balanced budget is important because it:
A) is an estimate of the amount of expansionary fiscal policy necessary to close an inflationary gap.
B) is an estimate of the amount of contractionary fiscal policy necessary to close a recessionary gap.
C) indicates the amount of tax revenue that will be available for implicit liabilities.
D) helps to determine whether the government's taxing and spending policies are sustainable in the long run.
Q2) (Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD , the most appropriate discretionary fiscal policy is to _____ government transfer payments and _____ income tax rates.
A) decrease; increase
B) decrease; decrease
C) increase; maintain
D) increase; decrease
Q3) The business cycle and the budget balance are unrelated.
A)True
B)False
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Chapter 26: Money, Banking, and the Federal Reserve System
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Q1) William McChesney Martin, Alan Greenspan, and Ben Bernanke were all:
A) speakers of the U.S. House of Representatives.
B) candidates for vice president of the United States.
C) chairs of the Federal Reserve.
D) U.S. senators during the Great Depression.
Q2) Checkable deposits are about _____ of M1.
A) 100%
B) 67%
C) 30%
D) 10%
Q3) An economy that lacks a medium of exchange must use a(n) _____ system.
A) anarchist
B) barter
C) communist
D) expanding
Q4) The reserve ratio is the fraction of its:
A) deposits that a bank holds as reserves.
B) loans that a bank is required to hold as reserves.
C) loans that a bank holds as reserves.
D) assets that a bank is required to hold as reserves.
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Chapter 27: Monetary Policy
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Q1) Congress sets the target federal funds rate, but it is the Fed's responsibility to achieve the target rate through purchases and sales of reserves.
A)True B)False
Q2) If the economy is at potential output and the Fed decreases the money supply, in the long run real GDP will likely decrease.
A)True B)False
Q3) If the economy is in a recessionary gap, the Federal Reserve should conduct _____ monetary policy by _____ the money supply.
A) expansionary; decreasing B) expansionary; increasing C) contractionary; decreasing D) contractionary; increasing
Q4) Economists argue that money is neutral:
A) in both the short and the long run. B) in the short run only.
C) in the long run, but money does affect the price level. D) in the long run, but money does not affect the price level.
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Chapter 28: Inflation, Disinflation, and Deflation
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Q1) (Figure: Classical Model of the Price Level) Look at the figure Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD<sub>1</sub> to AD<sub>2</sub>, according to this classical model, the price level will:
A) not change.
B) increase from P<sub>1</sub> to P<sub>2</sub>.
C) increase from P<sub>1</sub> to P<sub>3</sub>.
D) decrease from P<sub>1</sub> to P<sub>2</sub>.
Q2) The short-run Phillips curve:
A) is upward sloping because inflation and unemployment rates have a positive relationship in the short run.
B) is vertical because there is no trade-off between inflation and unemployment rates in the short run.
C) is downward sloping because there is a trade-off between inflation and unemployment rates in the short run.
D) is horizontal because there is no trade-off between inflation and unemployment rates in the short run.
Q3) Explain how the output gap is related to the unemployment rate and the natural unemployment rate.
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Page 30
Chapter 29: Crises and Consequences
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Q1) Following the banking crises of the 1930s, both real GDP and the price level increased immediately.
A)True
B)False
Q2) A shadow bank engages in maturity transformation by:
A) accepting short-term deposits and making short-term loans.
B) accepting long-term deposits and making long-term loans.
C) borrowing short term and lending or investing long term.
D) borrowing long term and lending or investing short term.
Q3) One of the elements addressed in the Dodd-Frank bill was authority over nonbank financial institutions that face bankruptcy.
A)True
B)False
Q4) Policy for dealing with banking crises changed from laissez-faire to taking steps to contain the damage from bank failures:
A) after Ronald Reagan became president in 1980.
B) after World War II in 1945.
C) during the Great Depression in the 1930s.
D) after the Civil War in the 1860s.
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Chapter 30: Macroeconomics- Events and Ideas
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Q1) Monetary policy:
A) can be made more effective with the presence of a liquidity trap.
B) is less hampered by the political process than fiscal policy.
C) has been proven to be an ineffective tool in controlling business cycles.
D) works well only if it is well coordinated with fiscal policy efforts.
Q2) If a contraction in aggregate demand causes a recession, the Great Moderation consensus on macroeconomics suggests that:
A) fiscal discipline with a balanced budget eventually stimulates aggregate demand.
B) fiscal policy should take the leading role in economic stabilization.
C) the use of discretionary fiscal policy is counterproductive except in special circumstances.
D) monetary discipline with a reduction in the money supply eventually stimulates aggregate demand.
Q3) In the 1970s and first half of the 1980s the U.S. economy had high inflation and high unemployment.
A)True
B)False
Q4) Why did the adoption of Keynesian economics come out of the Great Depression?
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Page 32
Chapter 31: Open-Economy Macroeconomics
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Q1) A country has a capital account deficit if the balance on the:
A) financial account is negative.
B) financial account is positive.
C) current account is negative.
D) current account is zero.
Q2) A hamburger costs $8 in the United States and ¥960 in Japan. The nominal exchange rate is ¥110 per dollar. The inflation rates in the United States and in Japan are 2% and 4%, respectively. The purchasing power parity is _____ per dollar.
A) ¥110
B) ¥120
C) ¥125
D) ¥112
Q3) (Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the excess of loanable funds supplied by _____ lenders will be exported to _____ borrowers.
A) U.S.; British
B) British; U.S.
C) U.S. or British; British or U.S.
D) U.S.; worldwide
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Page 33
Chapter 32: Graphs in Economics
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Q1) (Figure: Illustrating Slope) Look at the figure Illustrating Slope. In the graph, line 1 depicts X and Y to be:
A) positively related.
B) nonlinearly related.
C) unrelated.
D) negatively related.
Q2) (Figure: Seasonally Adjusted Unemployment Rate) Look at the figure Seasonally Adjusted Unemployment Rate. The distance between each labeled point on the horizontal axis is one year. What is the approximate slope of the graph between 1/2001 and 1/2003?
A) 2
B) 1
C) -1
D) -2
Q3) If two variables are positively related:
A) as one goes up in value, the other must go up in value, too.
B) as one goes up in value, the other must go down in value.
C) there is always a trade-off between the two.
D) one variable is always the reciprocal of the other.
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Page 34
Chapter 33: Toward a Fuller Understanding
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Q1) The present value of a future payment _____if the _____.
A) increases; wait period increases.
B) decreases; future payment increases.
C) increases; interest rate decreases.
D) decreases; stock market rises.
Q2) Your friend wants to borrow $2,000 and pay it back in one year. She is someone who keeps her word. She agrees to repay you $2,080 in one year. The bank annual interest rate is 5%. Which of the following statements is TRUE?
A) You will be financially worse off if you make the loan rather than deposit $2,000 in the bank.
B) You will be financially better off if you make the loan rather than deposit $2,000 in the bank.
C) The present value of $2,080 payable in one year with an interest rate of 5% is $1,904.76, which is less than the value of the $2,000 you have been asked to lend. D) None of the statements is true.
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Chapter 34: Consumer Preferences and Consumer Choice
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Q1) Gillian is consuming her optimal consumption bundle of peanuts and raisins. The marginal utility associated with the last peanut she consumes is 4 utils, and the marginal utility associated with the last raisin is 2 utils. What must be the price of peanuts relative to that of raisins?
A) 0.5
B) 1
C) 2
D) The relative price is undefined.
Q2) (Table: Bundles of X and Y) Look at the table Bundles of X and Y. Bundle(s):
A) A and B are on the same indifference curve.
B) A and C are on the same indifference curve.
C) D is on the highest indifference curve.
D) C is on the highest indifference curve, and bundles A and B are on the lowest indifference curve.
Q3) For most goods, as we move down an indifference curve:
A) the slope gets flatter.
B) the slope gets steeper.
C) the slope stays the same.
D) total utility decreases.
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Page 36
Chapter 35: Indifference Curve Analysis of Labor Supply
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Q1) (Figure: Davina's Labor Supply Choice) The figure Davina's Labor Supply Choice shows Davina's time allocation budget line when her hourly wage is $10 or $15 and she has 80 hours to allocate between labor and leisure; it also shows two of her indifference curves for income and leisure. When Davina earns $15 per hour, she works _____ hours and enjoys _____ hours of leisure.
A) 20; 60
B) 30; 50
C) 40; 40
D) 50; 30
Q2) (Figure: Davina's Labor Supply Choice) The figure Davina's Labor Supply Choice shows Davina's time allocation budget line when her hourly wage is $10 or $15 and she has 80 hours to allocate between labor and leisure; it also shows two of her indifference curves for income and leisure. Davina's labor supply curve is _____ as her hourly wage rises from $10 to $15.
A) upward-sloping
B) downward-sloping
C) vertical
D) horizontal
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