Microeconomics Final Exam
Course Introduction
Microeconomics is the study of individual decision-making processes within an economy, focusing on how households, firms, and governments allocate scarce resources. This course explores the principles of supply and demand, elasticity, market structures, consumer behavior, production and cost theories, and the impact of government interventions. Through theoretical and real-world examples, students gain analytical tools to understand market functionality and to evaluate the efficiency and equity of various economic outcomes.
Recommended Textbook
Economics Principles and Applications 6th Edition by Robert E. Hall
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Chapter 1: What Is Economics
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Q1) The best economic theory is the one
A) whose assumptions most closely match reality
B) that yields the most accurate predictions
C) that most simply represents reality
D) that most closely matches the conscious behavior of economic decision makers
E) that includes the most details
Answer: B
Q2) A microeconomist might study which of the following?
A) how inflation changes over time for several countries
B) how money supply aggregates are measured
C) economic growth in less-developed countries in Africa
D) the relationship between aggregate income and aggregate personal consumption
E) why wages for females are lower than for males in a particular labor market
Answer: E
Q3) Macroeconomics focuses on the behavior of economic agents such as the consumer,a business firm,or a specific market.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Scarcity,choice,and Economic Systems
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Sample Questions
Q1) Assume that the publishing industry produces novels and textbooks,as shown in the production possibilities frontier in Figure 2-9.Between points F and G,the opportunity cost of ten more novels equals __________.Between points G and H,the opportunity cost of ten more novels equals __________.
A) 0.4 textbooks;0.5 textbooks
B) 4 textbooks;5 textbooks
C) 4 million textbooks;5 million textbooks
D) 2.5 textbooks;2 textbooks
E) 10 million textbooks;5 million textbooks
Answer: C
Q2) Suppose that an economy produces civilian goods and military goods.If technological breakthroughs increase its ability to produce military goods,then
A) fewer military goods will be produced
B) more civilian goods will be produced
C) the opportunity cost of producing military goods will rise
D) there will be productive inefficiency in the economy
E) the production possibilities frontier will pivot outward around the axis for military goods
Answer: E
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Chapter 2: Scarcity, choice, and Economic Systems: Part A
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Sample Questions
Q1) An increase in the number of buyers in the market causes
A) a decrease in equilibrium quantity
B) a decrease in equilibrium price
C) an increase in demand
D) a decrease in production
E) an increase in supply
Answer: C
Q2) Consider the competitive market for oil.Which of the following would result from the discovery of new oil fields that can be profitably accessed at the current price?
A) both b and d
B) an increase in the demand for oil
C) an excess demand for oil as oil companies shift resources to developing the new fields
D) an excess supply of oil if the price of oil fails to drop sufficiently
E) an increase in the expected future price of oil
Answer: D
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5
Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) A price ceiling will increase the amount that is traded in the market while a price floor will reduce the amount that is traded in the market
A)True
B)False
Q2) The incidence of an excise tax
A) refers to who really pays it
B) always falls on suppliers
C) is equally divided between demanders and suppliers
D) is determined by the number of demanders
E) is decided by the government when the tax is imposed
Q3) A price floor on corn would have the effect of
A) creating a surplus regardless of the level at which the price floor is set
B) creating a surplus supply when the floor is above the equilibrium price
C) creating a shortage when the price floor is set below the equilibrium price
D) creating a shortage regardless of where the price floor is set
E) ensuring a more equitable distribution of the good among consumers
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Chapter 5: Elasticity
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Q1) If the elasticity of supply is much greater than the elasticity of demand,an excise tax levied on the suppliers will
A) cause the suppliers to incur a greater burden of the tax than demanders
B) cause the demanders to incur a greater burden of the tax than suppliers
C) the burden of the tax will be shared equally between the suppliers and the demanders
D) cause the entire burden of the tax to rest on the demanders
E) Without more information as to the amount of the excise tax,who will incur a greater burden will be unclear
Q2) If demand is price inelastic,
A) price and total revenue change in opposite directions
B) a seller should decrease the price to increase total revenue
C) too few goods are being produced from society's point of view
D) price and total revenue change in the same direction
E) the market can never be in equilibrium
Q3) If the price of a good increases from $20 to $25 and the quantity demanded declines from 15 to 10 units of the good,the price elasticity of demand is 5.
A)True
B)False
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Page 7
Chapter 6: Consumer Choice
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Sample Questions
Q1) A utility-maximizing consumer will choose a collection of goods
A) represented by a point below her budget line
B) represented by a point above her budget line
C) for which the marginal utility from each good is the same
D) for which the marginal utility divided by the price is the same or each good
E) for which the total utility from each good is the same
Q2) The substitution effect measures how
A) the quantity demanded of one good is influenced by a change in income,with prices constant
B) the quantity demanded of one good is influenced by a change the price of another good
C) marginal utility per dollar spent is affected by income changes
D) an increase in the price of a good is effectively the same as a reduction in income
E) the quantity demanded of one good is influenced by a change in the price of that good,with income constant
Q3) Marginal utility is the extra utility a consumer derives from consuming an extra unit of a good.
A)True
B)False
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Page 8
Chapter 7: Production and Cost
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Sample Questions
Q1) If a firm is experiencing constant returns to scale
A) long-run average total cost neither rises nor falls as production increases
B) average fixed cost is zero
C) the increase in average variable cost is exactly offset by a decrease in average fixed cost
D) the decrease in average variable cost is exactly offset by an increase in average fixed cost
E) long-run average total cost is zero.
Q2) Samantha has been working for a law firm and earning an annual salary of $90,000.She decides to open her own practice.Her annual expenses will include $15,000 for office rent,$3,000 for equipment rental,$1,000 for supplies,$1,200 for utilities,and a $35,000 salary for a secretary/bookkeeper.Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $1,000.Assuming that there are no additional expenses,Samantha's annual implicit costs will equal
A) $55,200
B) $221,400
C) $91,000
D) $146,200
E) $145,200
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Page 9
Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) Henry decides to quit his job,take his $60,000 in savings,and open a dry cleaning store.Figure 8-1 shows the revenues and expenditures for his first year of operation.Which of the following items would be included in the calculation of the shop's economic profit and not included in the accounting profit?
A) the cost of raw materials
B) the earnings from the dry cleaning store
C) the lost interest from the $60,000 in savings
D) Henry's salary from the dry cleaning store
E) none,since all items included in economic profit are also included in accounting profit
Q2) Figure 8-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop.The quantities indicated are potential daily sales.If Jonathan sells 5 riding mowers per day,he will earn an economic profit of
A) $3,000
B) $1,750
C) $2,150
D) $1,850
E) $2,050
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Chapter 9: Perfect Competition
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Sample Questions
Q1) The demand curve facing a typical firm in a perfectly competitive market is horizontal.
A)True
B)False
Q2) In the long run,a typical perfectly competitive firm will produce at the minimum point of its long-run average total cost curve and the minimum point of its short-run average total cost curve.
A)True
B)False
Q3) If a perfectly competitive firm cannot avoid economic losses,it should continue to operate in the short run as long as
A) marginal revenue exceeds average fixed cost
B) price exceeds average total cost
C) the market price exceeds average total cost
D) the marginal revenue is less than the average variable cost
E) price exceeds average variable cost
Q4) In a perfectly competitive market,a new firm can enter without any cost.
A)True
B)False
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Chapter 9: Perfect Competition: Part A
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Sample Questions
Q1) One of the defining characteristics of a perfectly competitive market is A) both buyers and sellers are well informed about the market
B) a small number of buyers
C) high barriers to entry
D) a small number of buyers but a large number of sellers
E) buyers are better informed about the market than sellers
Q2) In perfect competition,technological advances will allow economic profits for A) all firms.
B) only the firm developing the new technology.
C) early adopters.
D) none of the firms,as the advance will be immediately adopted by all of them.
Q3) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Q4) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
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Chapter 10: Monopoly
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Sample Questions
Q1) An increase in a monopoly's fixed costs would cause its output to A) rise.
B) fall.
C) stay the same.
D) impossible to predict.
Q2) The monopolist in Figure 10-32 is currently operating in
A) the short run.
B) the long run.
C) the short run or the long run.
D) the very long run.
Q3) The firm depicted in Figure 10-14 will
A) exit the industry in the short run
B) break even
C) suffer an economic loss
D) earn an economic profit
E) shut down in the short run
Q4) For a monopolist,marginal revenue is lower than price.
A)True
B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Oligopolies in the United States rarely engage in explicit collusion because
A) it leads to lower profits
B) firms are very wary of each other in this type of market
C) they may have different dominant strategies
D) it is illegal
E) dominant strategies may not exist
Q2) If a monopolistically competitive firm raises its price,
A) quantity demanded falls to zero
B) quantity demanded declines,but not to zero
C) the market supply curve shifts outward
D) the market supply curve shifts inward
E) quantity demanded remains constant
Q3) The outcomes of different combinations of strategies by two players in a game are indicated in the
A) strategy box
B) payoff matrix
C) competition matrix
D) outcome dilemma
E) collusion matrix
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Page 14
Chapter 12: Labor Markets
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Sample Questions
Q1) The labor supply curve is obtained by
A) summing the slopes of the marginal revenue product curves for individual firms
B) summing the upward-sloping portions of individual workers' labor supply curves
C) summing all individual workers' labor supply curves at each wage
D) summing the downward-sloping portions of individual workers' labor supply curves
E) averaging all individual workers' labor supply curves at each wage
Q2) An increasing marginal product of labor would be most commonly found
A) at high levels of employment
B) in perfect competition
C) at low levels of employment
D) when a product price is rising
E) when a product price is falling
Q3) An increase in the cost of acquiring human capital will shift the labor supply curve to the left;eventually,this will tend to decrease the equilibrium wage rate.
A)True
B)False
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15
Chapter 12: labor Markets: Part A
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Sample Questions
Q1) Even if employers are not prejudiced,employee or customer discrimination will tend to be reinforced by market forces and may lead to permanent wage differences between the favored and unfavored groups.
A)True
B)False
Q2) In comparing a job that requires a high level of skill to one for a job that requires a low skill level,the high-skill job
A) will always command a higher wage than the low-skill job
B) can command a higher wage only if there is sufficient demand for the output produced by the job
C) will command a higher wage whenever the nonmonetary characteristics of the two jobs are equivalent
D) will command a higher wage whenever there is a relatively low supply of labor with the required skill level
E) will command a higher wage whenever the two labor markets are perfectly competitive
Q3) The beneficiaries of the minimum wage are confined to those in poverty.
A)True
B)False
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Page 16
Chapter 13: Capital and Financial Markets
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Sample Questions
Q1) The key difference between the primary and secondary bond markets is that __________ bonds are traded on the primary market,while __________ bonds are traded on the secondary market.
A) newly issued;previously issued
B) government;corporate
C) more valuable;less valuable
D) low risk;high risk
E) high yield;low yield
Q2) Which of the following is a primary function served by financial markets?
A) creating new products and product lines
B) facilitating large-scale production methods
C) encouraging laborers to unionize
D) implementing new production techniques
E) discovering new markets for existing products
Q3) A financial asset is
A) a unit of physical capital with a positive market value
B) any asset that generates a stream of income
C) a share in the ownership of a productive enterprise
D) a form of money
E) a promise to pay future income in some form
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Chapter 14: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Economic efficiency requires that no more Pareto improvements are still possible.
A)True
B)False
Q2) In an efficient economy,
A) no one could be made better off by a change in the way goods are allocated
B) revenue for all firms is maximized
C) a change in the way goods are allocated could make someone worse off
D) goods are allocated fairly among individuals
E) no one would be made worse off if there is a change in the way goods are allocated
Q3) If 10 units of a good are sold at a market price of $40 each,then
A) the value to some individual of the tenth unit of output is $40
B) the economy is efficient
C) selling an 11th unit would be a Pareto improvement
D) a side payment of $40 is needed to ensure that the good is produced
E) the market must be perfectly competitive
Q4) Economic efficiency requires that Pareto improvements still be possible.
A)True
B)False
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Page 18
Chapter 15: Governments Role in Economic Efficiency
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Sample Questions
Q1) Which of the following is an example of a negative externality?
A) Picking up your trash
B) Going to class sick
C) Planting pretty flowers in your yard
D) Getting vaccinated
E) Going to class
Q2) Left to itself,a natural monopoly will produce
A) nothing
B) the efficient level of output
C) the quantity at which marginal cost equals marginal revenue
D) the quantity at which the marginal cost and demand curves intersect
E) the quantity at which the long-run average total cost and demand curves intersect
Q3) The private sector of the economy produces mainly goods that are nonexcludable.
A)True
B)False
Q4) A subsidy equal to the marginal private benefit of a good can be used to make a market with a positive externality efficient.
A)True
B)False
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Chapter 16: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) What can be said regarding comparative advantage in production for the two countries shown in Figure 16-1?
A) Colombia has a comparative advantage in producing both calculators and radios.
B) Korea has a comparative advantage in producing radios and Colombia has a comparative advantage in producing calculators.
C) Korea has a comparative advantage in producing both radios and calculators.
D) Neither country has a comparative advantage in producing radios.
E) Colombia has a comparative advantage only in producing radios.
Q2) In Figure 16-3,if Costa Rica and Panama have identical resources,then Panama has a(n)
A) absolute advantage only in producing bicycles
B) comparative advantage in producing both bicycles and rugs
C) absolute advantage only in producing rugs
D) comparative advantage only in producing rugs
E) absolute advantage in producing both rugs and bicycles
Q3) In general,a society will benefit more,the more interdependent it is.
A)True
B)False
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Chapter 17: What Macroeconomics Tries to Explain
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Sample Questions
Q1) Aggregation is important in macroeconomics because
A) it is a basic tool of reasoning
B) we need a model with as much information as possible
C) it allows us to comprehend the entire economy in all its detail
D) it allows us to keep different markets separate in our minds
E) we need to consider the entire economy at once with a model as simple as possible
Q2) Macroeconomists are able to study the entire economy by
A) ignoring much of the data available in order to reduce the number of markets that need to be studied
B) studying only a few markets at a time
C) simply adding up all the prices and quantities in individual markets
D) aggregation which reduces the number of markets that need to be studied
E) dividing total output by the number of markets
Q3) A measure that economists use in order to keep track of employment is
A) the price level
B) real GDP per person
C) real GDP
D) the growth rate of output
E) the unemployment rate
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Page 21
Chapter 18: Production, income, and Employment
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Sample Questions
Q1) If nominal GDP increased,which of the following could also have occurred?
A) Both prices and real GDP decreased.
B) Prices remained the same and real GDP decreased.
C) Prices decreased and real GDP remained the same.
D) Prices increased and real GDP decreased.
E) Both prices and real GDP remained the same.
Q2) If output rises,then income
A) drops by an equal amount
B) remains stable
C) rises twice as fast as output
D) rises slowly
E) rises by an equal amount
Q3) The monthly Household Survey by the United States Census Bureau (on behalf of the Bureau of Labor Statistics)has a national sample size of
A) 8,000 households
B) 400,000 households
C) 150,000 households
D) 60,000 households
E) 20,000 households
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Page 22
Chapter 19: The Price Level and Inflation
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Sample Questions
Q1) If Social Security is over-indexed,real payments
A) are lower than they would be if they were correctly indexed.
B) are higher than they would be if they were correctly indexed.
C) are constant.
D) are decreasing.
E) are under-indexed.
Q2) The Bureau of :Labor Statistics has been compiling an experimental CPI for the elderly,called CPI-E.
A)True
B)False
Q3) The real interest rate is calculated as the
A) expected rate of inflation divided by the nominal interest rate
B) real GDP plus the expected rate of inflation
C) nominal interest rate minus real GDP
D) nominal interest rate minus the expected rate of inflation
E) real GDP multiplied by the expected rate of inflation
Q4) Inflation imposes a cost on society by directly decreasing average real income in the economy.
A)True
B)False
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Chapter 20: The Classical Long-Run Model
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Sample Questions
Q1) Investment spending is inversely related to the interest rate.
A)True
B)False
Q2) In the long run,if an economy's consumption spending is $5 trillion,its planned investment is $2 trillion,government spending is $1 trillion,net tax revenue is $1 trillion,and household savings are $2 trillion,total output should be
A) $3 trillion
B) $5 trillion
C) $7 trillion
D) $8 trillion
E) $11 trillion
Q3) Refer to Figure 8-1.According to the graph,the equilibrium real hourly wage and quantity of labor employed,respectively,are
A) $10,110 million workers
B) $8,130 million workers
C) $8,150 million workers
D) $6,150 million workers
E) $6,130 million workers
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24
Chapter 20: Part A: The Classical Model in an Open Economy
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Q1) When a country runs a trade deficit,
A) it must be running a budget surplus.
B) its imports will become injections instead of leakages.
C) its exports will become leakages instead of injections.
D) foreigners will demand loanable funds from the country.
E) foreigners will supply loanable funds to the country equal to its trade deficit
Q2) In the classical model,even when a country runs a trade deficit,Say's law holds.
A)True
B)False
Q3) In the classical model,when an open economy has balanced trade,Say's law holds. A)True
B)False
Q4) In the classical model with an open economy,an increase in government purchases may not cause complete crowding out,but crowding out will be complete worldwide. A)True
B)False
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Chapter 21: Economic Growth and Rising Living Standards
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Q1) Which of the following may be sacrificed when pursuing growth policies?
A) Environmental regulations and air quality
B) Anti-monopoly,pro-competitive legislation
C) Safety net programs such as food stamps
D) All of the above
E) Technological progress
Q2) An investment tax credit will lead to
A) a lower equilibrium interest rate in equilibrium
B) a decrease in household consumption spending in equilibrium
C) slower economic growth
D) lower equilibrium investment in physical capital
E) a increase in household consumption spending
Q3) The characteristics that create a vicious cycle of poverty in less developed countries are
A) low levels of current production and a declining population
B) stagnant production,poor infrastructure,and a declining population
C) low current output per capita,high population growth rates,and poor infrastructure
D) inefficient governments,low current production,and low tax rates
E) political instability and low population growth
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Page 26
Chapter 22: Economic Fluctuations
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Q1) Suppose Mike and Renee are the only two people in a very simple economy and that they produce and exchange two goods,soda and pretzels.Which of the following might cause a recession in this simple economy?
A) Mike gets the idea that Renee wants more soda,which Mike produces.
B) Renee gets the idea that Mike wants more pretzels,which she produces.
C) Mike gets the idea that Renee wants less soda,which he produces.
D) Renee gets the idea that Mike wants less soda,which he produces.
E) The production of pretzels being equal to the production of soda.
Q2) Why is a rightward shift of the labor supply curve difficult to rationalize in the classical model?
A) The labor supply curve is based on firms' preferences.
B) Labor supply is very difficult to measure.
C) The labor supply curve is almost never a known entity.
D) Workers' preferences and therefore labor supply tend to change very slowly.
E) Workers' preferences and therefore labor supply tend to change very quickly.
Q3) The 2001-2007 economic expansion began when a change in Federal Reserve policy and other global conditions caused interest rates to drop and stay low.
A)True
B)False
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Page 27
Chapter 23: The Short-Run Macro Model
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Q1) Which of the following is an equilibrium condition of the short-run macro model?
A) Taxes equal transfers.
B) Imports equal exports.
C) Aggregate expenditure equals output.
D) Consumption spending equals autonomous consumption spending.
E) Consumption spending equals investment spending plus government spending.
Q2) If aggregate expenditure at a particular level of income is less than output,
A) output will increase
B) output will decrease
C) output will remain the same
D) output will rise slightly and then level off
E) we cannot determine what will happen to output
Q3) In the short run,
A) the labor market is always in equilibrium
B) actual output can deviate from potential output
C) crowding out is always complete
D) total output is independent of spending
E) spending is independent of total income
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28
Chapter 24: Fiscal Policy
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Sample Questions
Q1) If you divide nominal debt by nominal GDP and real debt by real GDP,you will get two different answers.
A)True
B)False
Q2) To pay interest to those U.S.residents who hold government bonds,the government must tax other U.S.residents,implying that the more we redistribute income among residents to cover interest payments,the higher the average tax rate will have to be.
A)True
B)False
Q3) "Rolling over" the debt means
A) to repay old bonds that come due for payment by issuing new bonds.
B) to repay old bonds that come due by printing money.
C) dividing the tax burden of the debt across the fifty states based on their share of the population.
D) dividing the tax burden of the debt across the fifty states based on their share of economic activity.
E) to repay old bonds that come due by giving gold to the bondholders from the national gold depository in Fort Knox..
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Chapter 25: Money,banks,and the Federal Reserve
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Sample Questions
Q1) Open market bond sales can be conducted either by the Federal Reserve or the Treasury Department,and either way the result is the same.
A)True
B)False
Q2) Which of the following is not included in the M1 money stock?
A) small time deposits
B) demand deposits
C) checking account deposits
D) travelers' checks
E) cash in the hands of the public
Q3) The group within the Federal Reserve System that determines the general course for the nation's money supply is the
A) Federal Monetary Oversight Committee
B) Federal Advisory Council
C) Board of Governors
D) Department of Commerce
E) Federal Open Market Committee
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Chapter 26: The Money Market and Monetary Policy
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Q1) An excess demand for money exists if the interest rate is below the equilibrium rate.
A)True
B)False
Q2) If income changes,that leads to a movement along the money demand curve.
A)True
B)False
Q3) Which of the following will decrease if the Fed sells bonds?
A) autonomous consumption.
B) business investment.
C) real GDP.
D) none of the above.
Q4) Refer to Figure 14-8 above.If the interest rate is currently 5%,
A) the interest rate must fall to restore equilibrium.
B) the interest rate will not change.
C) the interest rate must rise to restore equilibrium.
D) there is an excess supply of money.
E) the excess demand for money is $200 billion.
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Chapter 26: Feedback Effects From GDP to the Money
Market
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Q1) Crowding out occurs
A) when an increase in government spending crowds out tax revenues.
B) when an increase in government spending increases investment spending.
C) when an increase in government spending crowds out bonds.
D) when an increase in government spending crowds out other types of spending.
E) when an increase in government spending crowds out the money supply.
Q2) If government spending increases,which of the following is most likely to occur?
A) GDP,money demand,the interest rate,and investment spending will all increase.
B) GDP,money demand,the interest rate,and investment spending will all decrease.
C) GDP,money demand and the interest rate will increase,while investment spending will decrease.
D) GDP,money demand and the interest rate will decrease,while investment spending will increase.
E) GDP and money demand will increase,but the interest rate will not change.
Q3) One consequence of an increase in government spending is that
A) autonomous consumption will increase
B) autonomous consumption and investment spending will decrease
C) the increase in GDP will equal the size of the amount of spending
D) autonomous consumption and investment spending will increase
E) investment spending will increase
Page 32
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Chapter 27: Aggregate Demand and Aggregate Supply
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Q1) A positive demand shock may
A) cause an economy to operate at a point above potential GDP in the short run
B) increase potential output
C) be caused by relatively low employment levels
D) cause the price level to fall
E) be offset by falling wage rates
Q2) An industry's typical percentage markup
A) should be expected to fluctuate wildly from year to year
B) equals 1 - (average cost per unit/average revenue per unit)
C) is determined by collusion
D) is of price concern for the macroeconomy
E) is relatively low if there is fierce competition among firms.
Q3) A negative demand shock would lead to a decline in both the price level and output in the short run.
A)True
B)False
Q4) The aggregate supply curve describes the same relationship between price and quantity as a microeconomic supply curve.
A)True
B)False
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Chapter 28: Inflation and Monetary Policy
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Q1) Why doesn't the Fed eliminate inflation from the economy entirely?
A) It is incapable of doing so.
B) It believes that inflation is bad for the economy.
C) It believes that the measured inflation rate understates the true rate of inflation.
D) It recognizes that continuing inflation helps labor markets adjust more easily.
E) If it did so,no one would get a raise in salary.
Q2) In the long run,there is a no tradeoff between inflation and unemployment.
A)True
B)False
Q3) In the mid-1980s the natural rate of unemployment in the U.S.was about __________ while at present it is about __________.
A) 10%;2.5%
B) 6.5%;4.5%
C) 4.5%;6.5%
D) 6.5%;6.2%
E) 6.5%;10.0%
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Chapter 29: Exchange Rates and Macroeconomic Policy
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Q1) If Americans expect the dollar price of the British pound to rise,this expectation will cause
A) a rightward movement along the U.S.demand curve for pounds
B) a leftward shift of the U.S.demand curve for pounds
C) a rightward shift the U.S.demand curve for pounds
D) a leftward movement along the U.S.demand curve for pounds
E) no change in the U.S.demand curve for pounds
Q2) Refer to Figure 17-3 above figure,where the current demand curve is D<sub>1</sub>.Suppose interest rates in England drop relative to those in the United States.Which of the following would happen?
A) The U.S.would move from point A to point B along D<sub>1</sub>.
B) The U.S.demand curve for British pounds would shift from D<sub>1</sub> to D<sub>2</sub>
C) The U.S.demand curve for British pounds would shift from D<sub>1</sub> to D<sub>3</sub>
D) The U.S.would move from point A to point C along D<sub>1</sub>.
E) The U.S.would move from point C to point B along D<sub>1</sub>.
Q3) Moral hazard is a problem for the insurance industry.
A)True
B)False
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Chapter 30: Appendix-finding Equilibrium GDP
Algebraically
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Sample Questions
Q1) If I = $2,000,G = $4,000,T = $1,000,NX = $0,autonomous consumption = $1,000 and the marginal propensity to consume is 0.6,what is the equilibrium value of output?
A) $16,000
B) $7,000
C) $6,400
D) $3,840
E) $8,000
Q2) If autonomous consumption is $1,000,the MPC is 0.75,net taxes are $500,investment spending is $800,and government purchases equals $500,and NX = $0,what is equilibrium GDP?
A) $1,800
B) $1,925
C) $2,566.7
D) $7,200
E) $7,700
Q3) If net taxes are included in the model,the equation that shows consumption at each level of income is: C = a + b(Y - T)or C = a + bY - bT.
A)True
B)False
Page 36
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Chapter 31: Appendix: Capital and Leverage
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Q1) It is easy for one financial institution to reduce its leverage by acting alone,but when many financial institutions try to do the same thing at once,asset prices fall rapidly and bank capital declines for all such institutions.
A)True
B)False
Q2) Deleveraging is the process of reducing leverage,and therefore increasing the risk to capital from any further declines in asset prices.
A)True
B)False
Q3) One way to decrease leverage is increasing capital.
A)True
B)False
Q4) Just as greater leverage multiplies a bank's potential profits,it also multiplies a bank's potential losses.
A)True
B)False
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