Microeconomics Pre-Test Questions
Course Introduction
Microeconomics is the branch of economics that analyzes the behavior and decision-making processes of individual agents, such as consumers, households, and firms, and how they interact within markets. This course covers fundamental concepts including supply and demand, price determination, consumer choice, production and costs, and market structures ranging from perfect competition to monopoly. Students will learn how resource allocation and pricing decisions are made, the impact of government interventions, and the implications of market failures. Emphasis is placed on developing analytical skills through theoretical models and real-world applications to understand and predict economic outcomes at the micro-level.
Recommended Textbook
Economics Principles and Policy 13th Edition by William J. Baumol
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Chapter 1: What Is Economics
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Sample Questions
Q1) Which of the following is an example of an undesirable side effect of the operation of the market mechanism?
A)negative externalities
B)comparative advantages
C)abstractions
D)productivity growth
Answer: A
Q2) Economic efficiency and income equality are often conflicting goals in an economy.
A)True
B)False Answer: True
Q3) A theory is an explanation of the causal mechanism behind observed phenomena.
A)True
B)False
Answer: True
Q4) A graph conveys information about a cause-and-effect relationship.
A)True
B)False Answer: False
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Chapter 2: The Economy: Myth and Reality
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Sample Questions
Q1) Per capita GDP can be defined as
A)GDP per working person.
B)GDP per unit of capital.
C)GDP per person.
D)GDP per unit of unemployment.
Answer: C
Q2) Government production accounts for about half of all GDP in the United States.
A)True
B)False
Answer: False
Q3) The majority of American workers are employed in the manufacturing sector.
A)True
B)False
Answer: False
Q4) Government plays a role in which type of economy?
A)only free market economies like the United States
B)only socialist economies
C)only mixed economies
D)all economies
Answer: D
Page 4
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Chapter 3: The Fundamental Economic Problem: Scarcity and Choice
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Sample Questions
Q1) Karl Marx was critical of markets on the grounds that they are not efficient.
A)True
B)False
Answer: False
Q2) The shape of the production possibilities frontier in Figure 3-1 implies that
A)some resources are better suited for producing wheat than for producing barley.
B)the opportunity cost of producing more wheat falls as wheat production rises.
C)the farmer's technology is not subject to the principle of increasing costs.
D)the financial cost of producing wheat is higher than the financial cost of producing barley.
Answer: A
Q3) A market system is not considered an effective way of controlling self-interest.
A)True
B)False
Answer: False
Q4) Monetary costs and opportunity costs are always identical.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Supply and Demand: an Initial Look
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Sample Questions
Q1) If the government has stated that it will buy any amount of good X offered at $30, which demand curve in Figure 4-2 is appropriate?
A)1
B)2
C)3
D)4
Q2) At equilibrium, quantity demanded equals quantity supplied.
A)True
B)False
Q3) Refer to Exhibit 4-1.According to the data given, when the market is in Equilibrium, how many weezils are sold?
A)3
B)5
C)11
D)14
Q4) Regulations are sometimes used to "correct" the failures of a market mechanism. A)True
B)False
Q5) Distinguish between scarcity and shortage.
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Chapter 5: Consumer Choice: Individual and Market Demand
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Sample Questions
Q1) What would happen to the budget line if income as well as prices of both goods increase by the same percentage?
A)A rightward parallel shift in the budget line.
B)A leftward parallel shift in the budget line.
C)A rightward shift in the budget line.
D)No shift in the budget line.
Q2) By changing the amount of income a consumer has to spend, a change in the price of one good may affect the quantity demanded of another good.
A)True
B)False
Q3) Total utility increases if one more unit of a product is purchased and marginal utility is positive.
A)True
B)False
Q4) Economists consider instances of increasing marginal utility to be
A)normal.
B)impossible.
C)unusual, as in the case of addictions.
D)irrational.
7
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Chapter 6: Demand and Elasticity
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Sample Questions
Q1) The market demand curve shows how the quantity demanded of a product, during a specified time period, changes as the price of that product changes.
A)True
B)False
Q2) Along the inelastic portion of a demand curve, the
A)change in price will always be less than the change in quantity demanded.
B)percentage change in price will be less than the percentage change in quantity demanded.
C)change in price will always be more than the change in quantity demanded.
D)percentage change in price will be more than the percentage change in quantity demanded.
Q3) If price goes up 20 percent and quantity demanded declines by 10 percent, total revenue will rise.
A)True
B)False
Q4) A line that is perfectly elastic has an elasticity of demand of zero.
A)True
B)False
Q5) What is an optimal decision?
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Chapter 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis
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Sample Questions
Q1) In the typical AC curve, the downward-sloping part is attributable to A)spreading fixed costs over larger outputs and increasing returns to the variable inputs.
B)declining administrative costs as output increases.
C)falling fixed costs.
D)rising total product.
Q2) The law of diminishing marginal returns is the same as increasing returns to scale. A)True
B)False
Q3) The rule for the optimal use of any input says that
A)when MRP is less than price, it pays to expand resource use.
B)when MRP is greater than price, it pays to expand resource use.
C)when MRP equals price, resource use should be cut back.
D)resources should be used only if MRP exceeds price.
Q4) Input proportions are usually fixed by technological conditions alone.
A)True
B)False
Q5) Explain why the long-run average cost is typically U-shaped.
Page 9
Q6) Differentiate between the short run and the long run.
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Chapter 8: Output, Price, and Profit: the Importance of Marginal Analysis
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Sample Questions
Q1) Whenever average cost exceeds marginal cost,
A)average cost is rising.
B)average cost is falling.
C)marginal cost is rising.
D)marginal cost is falling.
Q2) When marginal cost exceeds marginal revenue,
A)marginal profit < 0.
B)the firm should increase output.
C)marginal profit + marginal cost > marginal revenue.
D)marginal cost < marginal revenue marginal profit.
Q3) The rule of equating marginal benefit with marginal cost is proper for economics, but it does not describe the way in which people make non-economic decisions.
A)True
B)False
Q4) If a firm's marginal profit is negative, it should reduce its output level.
A)True
B)False
Q5) What rule(s) should a firm follow in deciding optimum output for profit maximization?
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Chapter 9: Securities: Business Finance and the Economy:
the Tail That Wags the Dog
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Sample Questions
Q1) The least scrutiny of management's operations occurs when ____ is the method used in corporate financing.
A)stock issue
B)bond issue
C)plowback
D)watering
Q2) Speculation serves the market in which of the following ways?
A)It helps smooth out price fluctuations.
B)It raises the price of certain goods.
C)It manufactures a demand for goods that would not ordinarily be found.
D)It allows risk takers the ability to make large amounts of economic rent.
Q3) Corporations obtain funds when their previously issued stock is traded.
A)True
B)False
Q4) The sole owner of a unincorporated business unable to pay its debts:
A)may be sued by the people to whom the business owes money
B)may be forced to pay them out of his own bank account
C)may be forced to sell his personal property to pay those debts
D)all of these are correct
Q5) Explain why using leverage to purchase risky securities is so popular.
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Chapter 10: The Firm and the Industry Under Perfect Competition
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Sample Questions
Q1) Firms in perfect competition are often described as price A)takers.
B)makers.
C)setters.
D)leaders.
Q2) If the profit-maximizing firm depicted in Figure 10-1 is perfectly competitive, how much output should it produce?
A)A
B)B
C)C
D)D
Q3) The short-run supply curve of the perfectly competitive firm is the firm's A)MC curve.
B)AVC curve.
C)MC curve above the minimum point on the AVC curve.
D)MC curve above the minimum point on the ATC curve.
Q4) Perfectly competitive firms are known for being "price makers." A)True
B)False
Q5) Why study perfect competition, if it rarely exists?
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Chapter 11: Monopoly
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Sample Questions
Q1) Provide two circumstances where monopoly may offer efficiency advantages over competition.
Q2) The Red Cross is virtually the only operator of blood banks in the United States.In Figure 11-1 are the demand and cost curves facing the Red Cross blood bank.If the Red Cross were to set price and quantity at the level that it would obtain in the long run in a competitive industry, how much blood would it sell?
A)OA
B)OB
C)OD
D)OC
Q3) In order for a natural monopoly to develop, it
A)is important that the firm be very large.
B)is important that the firm prices its product below cost.
C)is not the absolute size of the firm but its size relative to the total market demand that is important.
D)must be in the presence of government intervention.
Q4) A natural monopoly is one that deliberately erects entry barriers.
A)True
B)False
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Chapter 12: Between Competition and Monopoly
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Sample Questions
Q1) If a market is contestable, then
A)long-run economic profits are minimal due to inefficiency.
B)long-run economic profits are zero.
C)short-run and long-run economic profits are zero.
D)positive economic profits are maximized due to the efficient production spurred by the threat of entry.
Q2) Everything else equal, the more rivals a firm has, the
A)less kinked is its demand curve.
B)closer is its equilibrium price to its average variable costs.
C)more differentiated is its product from rivals' products.
D)more elastic is its demand curve.
Q3) Oligopolists behave independently of each other.
A)True
B)False
Q4) An oligopolist who sets the price for the industry is a price leader.
A)True
B)False
Q5) Monopolistic competition tends to lead firms to have wasted capacity.Why?
Q6) Economists tend to be concerned about entry barriers.Why are entry barriers so important?
Page 14
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Chapter 13: Limiting Market Power: Regulation and Antitrust
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Sample Questions
Q1) The share of industry output sold by the top four steel producers in the country are 19%, 15%, 12%, and 9% respectively.The four-firm concentration ratio for the steel industry is
A)0.19.
B)0.55
C)0.138
D)0.65
Q2) Modern antitrust policy began in response to A)abuses of market power in the oil industry.
B)the inability of railroads to compete effectively with the new trucking industry. C)the charge that the rights of big business were not adequately protected. D)attempts by business leaders to pack Congress with corrupt legislators.
Q3) Firms with monopoly power tend to be more efficient than competitive firms. A)True B)False
Q4) If a firm is a natural monopoly, society will benefit if it is broken into several small companies.
A)True B)False
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Chapter 14: The Case for Free Markets: the Price System
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Sample Questions
Q1) The technique that addresses the problem of assigning inputs to specific industries is A)known as laissez faire.
B)input-output analysis.
C)cost-benefit analysis.
D)a production possibilities frontier.
Q2) "Fair" outcomes and "efficient" outcomes are always identical.
A)True
B)False
Q3) The saying "the lower the price, the better" may not always be correct for an economy's public interest because
A)people should have to pay for what they want.
B)people will overuse something they perceive as being cheaper than the utility they receive for it.
C)the government can no longer afford to provide all the goods and services it provides because it is slowly going broke.
D)cheaper prices will make people buy less of other things.
Q4) Is an efficient market allocation fair? Explain.
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Chapter 15: The Shortcomings of Free Markets
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Sample Questions
Q1) The market mechanism is more efficient in allocating resources between time periods than it is in allocating resources among different industries.
A)True
B)False
Q2) Part of the reason why barely used cars sell for much less than new cars is that
A)buyers and sellers have symmetric information about cars and both have less information about used cars than about new cars.
B)buyers and sellers have symmetric information about cars and both have more information about used cars than about new cars.
C)buyers have more information about used cars than sellers do.
D)sellers have more information about used cars than buyers do.
Q3) Figure 15-1 portrays conditions in the monopolized weezil industry.From the diagram, the production of weezils
A)must cause a detrimental externality.
B)must cause a beneficial externality.
C)must cause either a detrimental or a beneficial externality, more information is needed to determine which one.
D)may or may not cause an externality.
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Chapter 16: Externalities, the Environment, and Natural Resources
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Sample Questions
Q1) Direct controls have a clear advantage when a total ban is necessary.
A)True
B)False
Q2) Economists consider environmental pollution to be a(n)
A)externality.
B)pure public good.
C)allocatively efficient outcome.
D)public interest outcome.
Q3) In a free market for depletable natural resources, any shortage where there is an excess of quantity demanded over quantity supplied must be
A)expected as a matter of course.
B)due to a price floor.
C)the result of discovery of new deposits of the resources.
D)artificial.
Q4) Economists believe it is feasible and desirable to reduce environmental damage to zero.
A)True
B)False
Page 18
Q5) Discuss the role of individuals and governments in committing environmental damage.
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Chapter 17: Taxation and Resource Allocation
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Sample Questions
Q1) Under a proportional tax, the fraction of income paid in taxes
A)rises as income rises.
B)is unchanged as income changes.
C)falls as income rises.
D)is proportional to the change in income.
Q2) In 1984, the South Carolina State Supreme Court ruled that a 20 percent admission tax on X-rated movies was unconstitutional.When the affected cinemas sought a refund of collected taxes, they were denied on the grounds that the tax, although collected by the theater, was indeed paid by the theatergoers.The Supreme Court apparently believed
A)the supply of X-rated movies was perfectly elastic.
B)the demand for X-rated movies was perfectly inelastic.
C)the legislation intended that the theatergoers pay the tax.
D)the burden fell on the theatergoers-there are no excess burdens on the theater.
Q3) When demand for a product is very inelastic, the burden of a tax falls mainly on
A)producers.
B)consumers.
C)tax collectors.
D)people who drop out of the market.
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Chapter 18: Pricing the Factors of Production
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Sample Questions
Q1) If investment is zero, the capital stock
A)continues to flow.
B)falls to zero.
C)remains constant.
D)grows steadily.
Q2) The marginal productivity principle says that a profit-maximizing firm should
A)hire capital until its marginal product is zero.
B)hire labor until another worker costs more to hire than she can earn for the firm.
C)hire the quantities of capital and of labor at which their marginal products are equal.
D)hire capital until its marginal product is negative.
Q3) Economic profit can be viewed as
A)a reward for bearing risks.
B)an undeserved "reward" for exercising monopoly power.
C)a reward for innovation.
D)All of the above are correct.
Q4) A sum of money received at a future date is worth less than the same sum of money received today.Why?
Explain this with an example.
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Chapter 19: Labor and Entrepreneurship: the Human Inputs
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Sample Questions
Q1) Regarding new inventions, which of the following statements is not true?
A)a new invention typically has little competition
B)this effective monopoly on the market earns the inventor abundant profit
C)that profit gets the attention of other potential inventors, who create competing products
D)reduced to zero economic profits, the inventor goes out of business
Q2) Teenage unemployment rates tend to be substantially higher than the overall unemployment rate.
A)True
B)False
Q3) What are the major goals that unions may pursue in labor negotiations? Are these ever in conflict with one another?
Q4) The human capital model assumes that
A)education is a productive investment that raises total output.
B)education does not change potential productivity, but it does save resources by reducing sorting costs for employers.
C)the educational system is a very expensive process to legitimize the intergenerational transmission of privileged status.
D)such factors as the love of learning should be included in the analysis.
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Chapter 20: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) A man may be preferred to a woman by an employer who will make a substantial investment in the training of the employee because A)most employers are sexist and think that women belong in the home caring for children.
B)as a group women tend to have a weaker attachment to the labor force than men. C)employers have observed that women are less productive than men on most jobs. D)employers are afraid women will disrupt the workplace by distracting the male employees.
Q2) In Figure 21-1, if the existing antipoverty program were replaced by a negative income tax, most economists believe that it would result in a move like which of the following?
A)C to F
B)A to B
C)D to E
D)G to D
Q3) A minority candidate may not have the same chances as a white candidate for a job simply based on an employer's misconceptions about minorities.
A)True
B)False
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Chapter 21: Is Useconomic Leadership Threatened
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Sample Questions
Q1) Compared to OECD countries, in the U.S.
A)the poverty level is above the OECD average, but inequality is below the average
B)the poverty level is below the OECD average, but inequality is above the average
C)both poverty and inequality levels are below the OECD average
D)both poverty and inequality levels are above the OECD average
Q2) Poverty and inequality in the U.S.are well below the OECD average.
A)True
B)False
Q3) Regarding the financial crisis of 2008-2009, and Americans' spending habits, it is correct to say that:
A)After 2000, the ratio of consumer debt to GDP dropped steadily.
B)After the financial crisis of 2008-2009, many U.S.consumers incurred more debt.
C)Since 2009, the ratio of consumer debt to GDP has come down notably.
D)None of these is correct.
Q4) Compare the U.S.health care system to that of other countries.Are we getting superior health care for the money we spend?
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Page 23
Chapter 22: An Introduction to Macroeconomics
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Sample Questions
Q1) If a macroeconomist aggregates many markets into one, then
A)individual market differences are eliminated.
B)one must not confuse ravioli and hot dogs.
C)she is performing a meaningless exercise.
D)differences between products must still be noted.
Q2) In Figure 5-2, if the aggregate demand curve shifts outward over time, the economy will
A)experience inflation.
B)see a sustained decrease in the price level.
C)experience a significant decrease in unemployment.
D)experience economic recession.
Q3) In the United States, GDP has grown slower than the population since 1870.
A)True
B)False
Q4) If aggregate demand shifts outward, the result will be inflation.
A)True
B)False
Q5) Business cycles are a persistent feature of the U.S.economy.
A)True
B)False
24
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Chapter 23: The Goals of Macroeconomic Policy
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Sample Questions
Q1) Full employment is defined by all economists as precisely 5 percent of the labor force.
A)True
B)False
Q2) Why do environmentalists worry about faster economic growth?
Economists concede that faster growth is not always better.Why?
Q3) Changes in relative prices usually lead to increases in real income because prices have changed.
A)True
B)False
Q4) Someone unemployed for a long period of time due to technological change would be described as structurally unemployed.
A)True
B)False
Q5) An economy can increase its total output of goods and services if it
A)increases the hours of work or output per hour.
B)increases the hours of work or decreases output per hour.
C)decreases hours of work or decreases output per hour.
D)decreases hours of work and decreases output per hour.
Q6) High unemployment is socially wasteful.Why?
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Chapter 24: Economic Growth: Theory and Policy
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Sample Questions
Q1) Which department in a modern university would most likely advertise itself as a promoter of modern growth theory?
A)computer science
B)accounting
C)economics
D)history
Q2) Investment spending, capital formation, and rapid technological progress are directly related.
A)True
B)False
Q3) In 2008-2009 the U.S.economy provided a
A)healthy climate for investment spending.
B)change in aggregate demand that fostered more capital formation.
C)sluggish climate for investment spending.
D)booming economy that spurred investment spending.
Q4) Give some possible explanations of the productivity slowdown in the United States that occurred in the 1973-1995 period.
Q5) Describe the three pillars of productivity growth.
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Chapter 25: Aggregate Demand and the Powerful Consumer
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Sample Questions
Q1) Consumer spending is an injection in the circular flow of income and spending.
A)True
B)False
Q2) One difficulty of computing the value of GDP is that there are no market prices for
A)exports and imports.
B)business investments.
C)government goods and services.
D)resource values.
Q3) The federal government's principal tool in altering consumer spending is changing A)corporate income taxes.
B)federal sales taxes.
C)unemployment insurance benefits.
D)personal income tax rates.
Q4) A movement upward along the consumption function can be caused only by a(n) A)increase in disposable income.
B)decrease in disposable income.
C)decrease in the price level.
D)increase in the price level.
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Chapter 26: Demand-Side Equilibrium: Unemployment or
Inflation
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Sample Questions
Q1) In Figure 9-3, at $3,000 billion GDP,
A)inventories will be falling, signaling businesses to decrease production.
B)inventories will be falling, signaling businesses to increase production.
C)planned saving increases planned investment.
D)inventories will be accumulating, signaling businesses to increase production.
Q2) One of the possible consequences of the expenditure schedule lying below the level of full employment GDP is
A)unemployment.
B)rising prices.
C)increasing production.
D)decreasing inventories.
Q3) 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.
Q4) An economic recession in Japan will cause the aggregate demand curve in the United States to shift to the right.
A)True
B)False
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Chapter 27: Bringing in the Supply Side: Unemployment and Inflation
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Sample Questions
Q1) The existence of an inflationary gap should cause A)wages to fall.
B)prices to fall.
C)unemployment to rise.
D)net exports to rise.
Q2) If the economy experiences inflation and economic growth, this means that aggregate demand grows by more than aggregate supply.
A)True
B)False
Q3) In Figure 10-2, which segment of the aggregate supply curve has the smallest multiplier effect?
A)AB
B)BC
C)CD
D)DG
Q4) Figure 10-8 illustrates a period of
A)low unemployment and high inflation.
B)low unemployment and low inflation.
C)high unemployment and high inflation.
D)high unemployment and low inflation.
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Chapter 28: Managing Aggregate Demand: Fiscal Policy
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Sample Questions
Q1) When government increases a fixed tax, consumption schedule
A)shifts downward in a parallel manner.
B)shifts upward in a parallel manner.
C)becomes horizontal.
D)becomes vertical.
Q2) In Figure 11-1, to reach the level of potential GDP, the administration of President Obama would most likely advocate
A)increasing Social Security payments.
B)decreasing defense spending.
C)decreasing personal income taxes.
D)All of the above are correct.
Q3) ____ is the income actually available to the consumers that determines aggregate demand.
A)Nominal income
B)Net domestic product
C)Income corrected for depreciation
D)Disposable income
Q4) Most supply-side initiatives have the effect of reducing inequality.
A)True
B)False
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Chapter 29: Money and the Banking System
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Sample Questions
Q1) Government regulations to insure the safety of bank deposits and to control the money supply include
A)limitations on the types and quantities of assets in which banks may invest.
B)elimination of the need for required reserves.
C)setting interest rate ceilings on savings and money market deposit accounts.
D)All of the above are correct.
Q2) Any reserves held by a bank above the amount of minimum legal reserves are called
A)total reserves.
B)required reserves.
C)fiat money.
D)excess reserves.
Q3) Some bank regulation limits the types of assets that banks may own.The intent of this regulation is to
A)protect banks from competition.
B)provide banks with a minimum level of profits.
C)limit the level of bank profits.
D)maintain bank safety.
E)All of the above are correct.
Q4) Explain the "too big to fail" doctrine.
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Chapter 30: Monetary Policy: Conventional and
Unconventional
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Q1) The Fed is institutionally independent.A major disadvantage of this is that monetary policy
A)will always be coordinated with fiscal policy.
B)is not subject to democratic control as other policies are.
C)will never offset fiscal policy.
D)cannot be changed once it has been instituted.
Q2) If the Fed reduces the required reserve ratio, how will this affect excess reserves and the money supply?
A)Both will increase.
B)Excess reserves increase and the money supply decreases.
C)Both will decrease.
D)Excess reserves decrease and the money supply increases.
Q3) As interest rates rise, banks seek to decrease their loans and, thereby, shrink the money supply.
A)True B)False
Q4) When you use the word income, you mean a value that must be qualified by a length of time.
A)True B)False
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Chapter 31: He Financial Crisis and the Great Recession
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Q1) If a 10-year Treasury bond pays 1.5% and a 10-year corporate bond pays 6.0%, what is the interest rate spread on this particular corporate bond?
A)4.0%
B)4.5%
C)7.5%
D)9.0%
Q2) Why did observers at first believe that the damage from the impending subprime mortgage crisis would be too small to cause a recession?
Q3) The 2009 fiscal stimulus bill represented approximately
A)5.5% of GDP and was designed to close the expansionary gap.
B)5.5% of GDP and was designed to close the recessionary gap.
C)7.8% of GDP and was designed to close the expansionary gap.
D)7.8% of GDP and was designed to close the recessionary gap.
Q4) When the housing bubble burst, prices fell particularly severely in A)Georgia.
B)Nevada.
C)Pennsylvania.
D)West Virginia.
Q5) Name some important lessons learned from the financial crisis.
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Chapter 32: The Debate Over Monetary and Fiscal Policy
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Q1) Which of the following was the result of the Federal Reserve's purchase of mortgage-backed securities in 2009?
A)MBS interest rates declined, home mortgage rates declined, and the Fed turned a profit on these operations.
B)MBS interest rates declined, home mortgage rates declined, but the Fed had a loss on these operations.
C)MBS interest rates increased, home mortgage rates declined, and the Fed turned a profit on these operations
D)MBS interest rates increased, home mortgage rates increased, but the Fed had a loss on these operations
Q2) During the financial crisis of 2007-2009, the proper policy response was
A)contractionary monetary and fiscal policy.
B)contractionary monetary and expansionary fiscal policy.
C)expansionary monetary and fiscal policy.
D)expansionary monetary and contractionary fiscal policy.
Q3) The equation of exchange is an accounting identity, not an economic theory.
A)True
B)False
Q4) How does government expenditure discourage some private investment?
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Chapter 33: Budget Deficits in the Short and Long Run
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Q1) One measure of "ability to pay," the national debt is the debt to
A)GDP ratio.
B)tax ratio.
C)spending ratio.
D)investment ratio.
Q2) Conventional budget accounting practices tend to overstate deficits in inflationary periods because they
A)ignore the inflation tax.
B)confuse repayment of principal with real interest expenditures.
C)double count some expenditures.
D)understate real interest rates.
Q3) Lately, the ratio of debt to GDP has been
A)rising at a small rate.
B)rising steadily.
C)falling modestly.
D)staying constant.
Q4) The share of the net national debt owned by foreign individuals, businesses, and governments has steadily risen to 80%.
A)True
B)False
Page 35
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Chapter 34: The Trade-Off Between Inflation and Unemployment
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Sample Questions
Q1) In Figure 17-7, the case for restrictive monetary and fiscal policy is strongest at point A)A.
B)B.
C)C.
D)D.
Q2) Which of the following led to the collapse of the Phillips Curve?
A)Rightward shift in the demand for labor curve
B)Leftward shift of the Phillips curve
C)Leftward shift of the aggregate supply curve
D)Rightward shift of the aggregate demand curve.
Q3) Monetarists typically favor strong policy measures to fight recession.
A)True
B)False
Q4) 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.
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) "Dumping" means destroying goods to prevent driving down the price.
A)True
B)False
Q2) If two countries each are currently producing two goods, and each begins to specialize in the good in which it has a comparative advantage, what will happen to total (world) output?
A)It will increase.
B)It will decrease.
C)It will be unchanged in both countries.
D)It will rise in one country and fall in the other, but the total is unchanged.
E)Uncertain; economic theory has no answer to this question.
Q3) Voluntary exchange is based on the principle that all parties must gain from trade.
A)True
B)False
Q4) A restriction of imports that is accomplished by a quota normally
A)can be accomplished also by a tariff.
B)cannot be replicated exactly by imposing a tariff.
C)can be accomplished also by an export subsidy.
D)can be accomplished also by negotiations within GATT.
Page 37
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Chapter 36: The International Monetary System: Order or Disorder
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Q1) International trade under a floating exchange rate system
A)has been trouble-free owing to the stabilizing role of speculators in the currency markets.
B)has suffered from so many problems that the volume of trade has declined significantly.
C)exposes businesses to unavoidable risks when exchange rates change.
D)has been subject to wild runs on currencies that were on the verge of devaluation.
Q2) The Big Mac index uses prices of a common item to predict long-run changes in exchange rates.
A)True
B)False
Q3) From Table 19-1, what is the exchange rate between the dollar and the pound?
A)One dollar is worth two pounds.
B)One pound is worth two dollars.
C)One pound is worth one dollar.
D)One pound is worth 50 cents.
Q4) What is the euro and why has it been created?
How has its value changed relative to the U.S.dollar since its inception?
Q5) Why is the international financial system today often called a "nonsystem?
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Chapter 37: Exchange Rates and the Macroeconomy
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Q1) In Figure 20-7, there are three aggregate expenditure functions (C + I + G + X IM) for an open economy.Which of the following would cause a movement from C to B?
A)a European economic expansion
B)an appreciation of the dollar
C)a depreciation of the dollar
D)an increase in the money supply
Q2) The monetary expansion of the mid-1990s was expected to lead to a currency appreciation.
A)True
B)False
Q3) A fall in the domestic interest rate leads to capital
A)outflows and exchange rate appreciation.
B)outflows and exchange rate depreciation.
C)inflows and exchange rate depreciation.
D)inflows and exchange rate appreciation.
Q4) Explain how and why economic events in the U.S.affected the economies of Thailand, South Korea, and Indonesia and vice-versa.
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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