Principles of Economics
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Course Introduction
Principles of Economics provides students with a foundational understanding of how economic systems operate and the fundamental concepts guiding individual and collective decision-making. The course introduces the basic principles of microeconomics, including supply and demand, market structures, consumer behavior, and the role of government in the economy, as well as core macroeconomic topics such as inflation, unemployment, economic growth, and fiscal and monetary policy. By analyzing real-world examples and current events, students develop analytical skills and learn how economic theories apply to everyday life and policy debates.
Recommended Textbook
Principles of Economics 4th Edition by N.
Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) The basic principles of economics imply that policymakers should A)rely on markets to guide economic activity, except when markets produce inefficient or inequitable outcomes.
B)enact policies that discourage people from specializing in particular economic activities.
C)enact policies that lead to high rates of growth of the quantity of money.
D)All of the above are correct.
Answer: A
Q2) Economics deals primarily with the concept of A)scarcity.
B)poverty.
C)change.
D)power.
Answer: A
Q3) In economics,the cost of something is A)the dollar amount of obtaining it.
B)always measured in units of time given up to get it.
C)what you give up to get it.
D)often impossible to quantify, even in principle.
Answer: C
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Who said,"The whole of science is nothing more than the refinement of everyday thinking?"
A)Isaac Newton
B)Albert Einstein
C)Sigmund Freud
D)Benjamin Franklin
Answer: B
Q2) Refer to Figure 2-8.What is the opportunity cost of moving from point A to point B?
A)8 bathtubs
B)20 barrels
C)the gain in well-being that the society experiences as a result of the move
D)the loss of well-being that the society experiences as a result of the move
Answer: B
Q3) The Federal Reserve
A)designs tax policy.
B)enforces the nation's antitrust laws.
C)sets the nation's monetary policy.
D)analyzes data on workers.
Answer: C
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Page 4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) By definition,exports are
A)a limit placed on the quantity of goods brought into a country.
B)opportunity benefits (as opposed to opportunity costs).
C)goods produced abroad and sold domestically.
D)goods produced domestically and sold abroad.
Answer: D
Q2) Refer to Figure 3-1.The opportunity cost of 2 bushels of corn for Cliff is
A)2 bushels of wheat.
B)3 bushels of wheat.
C)6 bushels of wheat.
D)12 bushels of wheat.
Answer: B
Q3) Refer to Table 3-1.The rancher has a comparative advantage in A)neither good, and the farmer has a comparative advantage in both goods. B)both goods, and the farmer has a comparative advantage in neither good.
C)potatoes, and the farmer has a comparative advantage in meat.
D)meat, and the farmer has a comparative advantage in potatoes.
Answer: D
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Holding the nonprice determinants of supply constant,a change in price would
A)result in either a decrease in supply or an increase in supply.
B)result in a movement along a stationary supply curve.
C)result in a shift of demand.
D)have no effect on the quantity supplied.
Q2) Refer to Table 4-3.Suppose Alfred,Belinda,and Charissa are the only demanders of sandwiches.Also suppose: x = 2; the current price of a sandwich is $3.00; the market quantity supplied of sandwiches is 4; the slope of the supply curve is 2.
Then
A)there is currently a shortage of 6 sandwiches and the equilibrium price of a sandwich is between $3.00 and $5.00.
B)there is currently a shortage of 6 sandwiches and the equilibrium price of a sandwich is $5.00.
C)there is currently a shortage of 8 sandwiches and the equilibrium price of a sandwich is between $3.00 and $5.00.
D)there is currently a shortage of 8 sandwiches and the equilibrium price of a sandwich is higher than $5.00.
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Page 6
Chapter 5: Elasticity and Its Applications
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Q1) Demand is inelastic if the price elasticity of demand is greater than 1.
A)True
B)False
Q2) Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
A)True
B)False
Q3) The main reason for using the midpoint method to calculate an elasticity is that it
A)gives the same answer regardless of whether the price increases or decreases.
B)recognizes that prices are usually increasing, not decreasing.
C)rounds prices to the nearest dollar and quantities to the nearest whole unit.
D)uses fewer numbers than alternative methods.
Q4) Refer to Figure 5-10.If,holding the supply curve fixed,there were an increase in demand that caused the equilibrium price to increase from $6 to $8,then sellers' total revenue would
A)increase.
B)decrease.
C)remain unchanged.
D)The effect on total revenue cannot be determined from the given information.
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Chapter 6: Supply, demand, and Government Policies
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Q1) Suppose the demand for picture frames is elastic and the supply of picture frames is inelastic.A tax of $1 per frame levied on buyers of picture frames will increase the equilibrium price paid by buyers of picture frames by A)$1.
B)more than $0.50 but less than $1.00.
C)a positive amount but less than $0.50.
D)It is impossible to say without more information.
Q2) Refer to Figure 6-8.Suppose the same S and D curves apply,and a tax of the same amount per unit as shown here is imposed.Now,however,the sellers of the good,rather than the buyers,are required to pay the tax to the government.Now,relative to the case depicted in the figure,
A)the burden on buyers will be larger and the burden on sellers will be smaller.
B)the burden on buyers will be smaller and the burden on sellers will be larger.
C)the burden on buyers will be the same and the burden on sellers will be the same.
D)The relative burdens in the two cases cannot be determined without further information.
Q3) How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
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8
Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Figure 7-9.At the equilibrium price,consumer surplus is A)$480.
B)$640.
C)$1,120.
D)$1,280.
Q2) Joel has a 1966 Mustang,which he sells to Susie,an avid car collector.Susie is pleased since she paid $8,000 for the car but would have been willing to pay $11,000 for the car.Susie's consumer surplus is $2,000.
A)True B)False
Q3) Refer to Figure 7-9.Assume demand increases and as a result,equilibrium price increases to $22 and equilibrium quantity increases to 110.The increase in producer surplus is equal to A)$210.
B)$360.
C)$480.
D)$570.
Q4) Consumer surplus measures the benefit to buyers of participating in a market. A)True B)False
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Chapter 8: Application: the Costs of Taxation
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Q1) Refer to Figure 8-5.Without a tax,total surplus in this market is
A)$3,000.
B)$4,800.
C)$6,000.
D)$7,200.
Q2) Refer to Figure 8-7.The decrease in consumer and producer surpluses that is not offset by tax revenue is the area A)C.
B)F.
C)G.
D)C + F.
Q3) Illustrate on three demand-and-supply graphs how the size of a tax (small,medium and large)can alter total revenue and deadweight loss.
Q4) Refer to Figure 8-3.The tax results in a loss of consumer surplus that amounts to A)$360.
B)$480.
C)$560.
D)$680.
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Chapter 9: Application: International Trade
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Q1) Refer to Figure 9-15.The tariff
A)decreases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
B)decreases producer surplus by the area C + D and decreases consumer surplus by the area D + E + F.
C)increases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
D)increases producer surplus by the area B + C and decrease consumer surplus by the area D + E + F.
Q2) Several arguments for restricting trade have been advanced.Those arguments do not include
A)the jobs argument.
B)the protection-as-a-bargaining-chip argument.
C)the no-deadweight-loss argument.
D)the infant-industry argument.
Q3) The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive from participating in a market.
A)True
B)False
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Page 11
Chapter 10: Externalities
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Q1) Tradable pollution permits
A)have prices that are set by the government.
B)will be more valuable to firms that can reduce pollution only at high costs.
C)are likely to create a higher level of total pollution.
D)are less desirable than corrective taxes in reducing pollution.
Q2) Without government intervention,the market equilibrium for oranges will
A)maximize the sum of producer and consumer surplus in the market.
B)be both efficient and equitable.
C)be equitable but not efficient.
D)be neither efficient nor equitable.
Q3) Transaction costs
A)can keep private parties from solving externality problems.
B)are incurred in the production process due to externalities.
C)increase when taxes are imposed to correct negative externalities.
D)are eliminated when the government intervenes in a market with externalities.
Q4) When one firm sells its pollution permit to another firm,
A)both firms benefit.
B)the total amount of pollution remains the same.
C)the total amount of pollution decreases.
D)Both a and b are correct.
Page 12
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Chapter 11: Public Goods and Common Resources
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Q1) One possible solution to the problem of protecting a common resource is to convert that resource to a private good.
A)True
B)False
Q2) Which of the following is an approach used by economists to calculate the value of a human life?
A)comparing the salaries of people who live in cities with more traffic lights to those who live in cities with fewer traffic lights
B)comparing the wages of more risky occupations to less risky occupations
C)comparing the costs of vehicles with safety features such as side-impact airbags to those without such safety features
D)All of the above are correct.
Q3) Most goods in our economy are allocated in markets,where buyers pay for what they receive and sellers are paid for what they provide.
A)True
B)False
Q4) Why do wild salmon populations face the threat of extinction while goldfish populations are in no such danger?
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13
Chapter 12: The Design of the Tax System
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Q1) One reason that deadweight losses are so difficult to avoid is that A)taxes affect the decisions that people make.
B)income taxes are not paid by everyone.
C)consumption taxes must be universally applied to all commodities.
D)the administrative burden is hard to calculate.
Q2) Nancy paid a tax of $0.50 on the last dollar she earned in 1999.Nancy's marginal tax rate in 1999 was
A)more than 50 percent.
B)exactly 50 percent.
C)higher than her average tax rate.
D)lower than her average tax rate.
Q3) State and local governments generate revenue from all of the following sources except A)sales taxes.
B)the federal government.
C)corporate income taxes.
D)customs duties.
Q4) Resources devoted to complying with the tax laws are a type of deadweight loss.
A)True
B)False
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Refer to Figure 13-8.Which curve represents the long-run average total cost?
A)ATCA
B)ATCB
C)ATCC
D)ATCD
Q2) The cost of producing an additional unit of a good is not the same as the average cost of the good.
A)True
B)False
Q3) To an economist,the field of industrial organization answers which of the following questions?
A)Why are consumers subject to the law of demand?
B)Why do firms experience falling marginal product of labor?
C)How does the difference in the number of firms affect prices and the efficiency of market outcomes?
D)Why do firms consider production costs when determining product supply?
Q4) Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases.
A)True
B)False
Page 15
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Chapter 14: Firms in Competitive Markets
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Q1) Joe's Garage operates in a perfectly competitive market.At the point where marginal cost equals marginal revenue,ATC = $20,AVC = $15,and the price per unit is $10.In this situation,
A)Joe's Garage is earning a positive economic profit.
B)Joe's Garage should shut down immediately.
C)Joe's is losing money in the short run, but should continue to operate.
D)the market price will rise in the short run to increase profits.
Q2) When new firms enter a perfectly competitive market, A)demand increases.
B)the short-run market supply curve shifts right.
C)the short-run market supply curve shifts left.
D)existing firms will increase prices to keep the new firms from entering.
Q3) A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.
A)True
B)False
Q4) Give two reasons why the long-run industry supply curve may slope upward.Use an example to demonstrate your reasons.
Q5) List and describe the characteristics of a perfectly competitive market.
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Chapter 15: Monopoly
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Sample Questions
Q1) For a monopolist,
A)average revenue is always greater than the price of the good.
B)marginal revenue is always less than the price of the good.
C)marginal cost is always greater than average total cost.
D)marginal revenue equals marginal cost at the point where total revenue is maximized.
Q2) Refer to Table 15-2.What is the total revenue from selling 6 shirts?
A)$100
B)$600
C)$625
D)$660
Q3) Consumers' willingness to pay for a good minus the amount they actually pay for it equals
A)consumer surplus.
B)consumer benefit.
C)price discriminant.
D)quantity demanded.
Q4) Some companies merge in order to lower costs through efficient joint production.
A)True
B)False
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Chapter 16: Oligopoly
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Q1) Self-interest will typically cause a duopoly's (i) total level of output to exceed the monopoly level.
(ii) total level of output to exceed the competitive level.
(iii) price to fall short of the monopoly price.
A)(i) and (ii)
B)(i) and (iii)
C)(ii) and (iii)
D)(i), (ii), and (iii)
Q2) In the case of oligopoly markets,self-interest prevents cooperation and leads to an inferior outcome for the firms that are involved.
A)True
B)False
Q3) Refer to Table 16-7.If there were many suppliers of bottled water,what would be the price and quantity?
A)$6, 400
B)$5, 500
C)$4, 600
D)$3, 700
Q4) Outline the purpose of antitrust laws.What do they accomplish?
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Chapter 17: Monopolistic Competition
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Q1) A monopolistically competitive market is characterized by barriers to entry.
A)True
B)False
Q2) Under which of the following market structures would the highest output of a particular good be produced?
A)Perfect competition
B)Monopolistic competition
C)Oligopoly
D)Monopoly
Q3) A monopolistically competitive firm is currently earning a positive economic profit.If other firms enter the market,we would expect that the added competition will cause this firm to adjust its
A)output so that it will operate closer to its efficient scale.
B)output so that it will operate further from its efficient scale.
C)output so that it will no longer be at its efficient scale.
D)output, but it might move either closer to or further from its efficient scale.
Q4) Assume the role of a defender of advertising.Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.
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Chapter 18: The Markets for the Factors of Production
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Q1) Refer to Table 18-2.Assuming Davis Golf Balls,Inc.is a competitive,profit-maximizing firm,how many workers will the firm hire?
A)3 workers
B)4 workers
C)5 workers
D)6 workers
Q2) A worker's contribution to a firm's revenue is measured directly by the worker's A)marginal product.
B)value of marginal product.
C)marginal product multiplied by the worker's wage.
D)value of marginal product multiplied by the output price.
Q3) How much of the income in the United States is earned by workers in the form of wages and fringe benefits?
A)more than 90 percent
B)about 75 percent
C)about 50 percent
D)less than 75 percent
Q4) Labor-saving technological advances decrease the marginal productivity of labor.
A)True
B)False
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Chapter 19: Earnings and Discrimination
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Q1) The case study of segregated street cars in southern cities illustrates which of the following?
A)Racial discrimination in the seating areas was an important catalyst in the Civil Rights movement.
B)Segregation laws were supported by local business owners as well as patrons.
C)Firms usually care more about maximizing profits than discriminating against certain customers.
D)Racial discrimination was a precursor to gender discrimination.
Q2) In recent years,the amount of international trade in which the United States engages has
A)increased, altering the demand for skilled and unskilled labor.
B)decreased a little, altering the demand for skilled and unskilled labor.
C)decreased substantially, altering the demand for skilled and unskilled labor.
D)remained fairly constant; thus, the demand for skilled and unskilled labor is unchanged.
Q3) In general,the higher a person's education level,
A)the higher the person's earnings.
B)the more physically attractive the person is likely to be.
C)the more socially outgoing the person is likely to be.
D)All of the above are correct.
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Chapter 20: Income Inequality and Poverty
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Q1) The marketplace acts to allocate resources
A)fairly.
B)to those most desiring them.
C)efficiently.
D)both efficiently and equitably.
Q2) Libertarianism identifies a redistribution of income role for government when
A)individual incomes vary widely.
B)the income distribution is altered by illegal means (e.g.theft).
C)a social planner is needed to smooth out the transitory income stream.
D)workers lose their jobs as a result of structural changes in the economy.
Q3) The utilitarian justification for redistributing income is based on the assumption of diminishing marginal utility.
A)True
B)False
Q4) Since the early 1970s,welfare benefits have declined,
A)which is largely due to the success of the negative income tax program.
B)which is largely due to the success of private charities.
C)yet the percentage of children living with only one parent has increased.
D)and the percentage of children living with only one parent has decreased.
Q5) Explain the relationship between labor earnings and the distribution of income.
Page 22
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Chapter 21: The Theory of Consumer Choice
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Q1) A fall in the price of DVD players leads consumers to buy more DVD players.From this information we can conclude that DVD players
A)are normal goods.
B)are inferior goods.
C)are Giffen goods.
D)None of the above is correct.
Q2) When two goods are easily substitutable,such as right and left shoes,the indifference curves are right angles.
A)True
B)False
Q3) An increase in income will cause a shift in the budget constraint A)outward.
B)towards the good most consumed.
C)towards the good least consumed.
D)inward.
Q4) The slope at any point on an indifference curve equals the absolute price at which one consumer is willing to substitute one good for the other.
A)True
B)False
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Chapter 22: Frontiers of Microeconomics
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Q1) The Condorcet paradox implies that the order in which items are voted on under majority rule is unimportant.
A)True
B)False
Q2) A firm with a very good product
A)does not likely suffer from any moral hazard problem.
B)has more to gain by signaling (advertising) than does a firm with an inferior product.
C)does not need to signal (advertise) because the product's quality speaks for itself.
D)will signal (advertise) only if the cost of signaling is very low.
Q3) The assertion that the median voter is "king" refers directly to the result established by the
A)Arrow impossibility theorem.
B)Condorcet paradox.
C)median voter theorem.
D)Borda mechanism.
Q4) How have insights from the field of psychology influenced the thinking of economists in recent years?
Q5) Explain the Condorcet paradox.To which type of voting system does it apply?
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Chapter 23: Measuring a Nations Income
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Q1) Which of the following transactions adds to U.S.GDP for 2006?
A)In 2006, Marvin Windows manufactures 20 windows that will eventually be installed in an office building in Minneapolis.The windows remain in Marvin's inventory at the end of 2006.
B)An Irish marketing consultant works in Boston during the summer of 2006 and earns $30,000 during that time.
C)When John and Jennifer were both single, they lived in separate apartments and each paid $750 in rent.John and Jennifer got married in 2006 and they bought a house that, according to reliable estimates, could be rented for $1,600 per month.
D)All of the above transactions adds to GDP for 2006.
Q2) Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?
A)Why do prices in general rise by more in some countries than in others?
B)Why do wages differ across industries?
C)Why do production and income increase in some periods and not in others?
D)How rapidly is GDP currently increasing?
Q3) For an economy,in a given time period,income exceeds spending.
A)True
B)False
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Chapter 24: Measuring the Cost of Living
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Q1) By itself,a reduction in the price of large tractors imported into the United States from Russia
A)decreases the GDP deflator and increases the consumer price index.
B)increases the GDP deflator but leaves the consumer price index unchanged.
C)increases both the GDP deflator and the consumer price index.
D)leaves both the GDP deflator and the consumer price index unchanged.
Q2) Suppose that in 2006,the producer price index increases by 2 percent.As a result,economists most likely will predict that A)GDP will increase in 2007.
B)the producer price index will increase by more than 2 percent in 2007.
C)interest rates will fall in the near future.
D)the consumer price index will increase in the future.
Q3) Refer to Table 24-1.Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans.Using 2005 as the base year,the CPI for 2006 is A)100.
B)120.
C)200.
D)240.
Q4) Why does the GDP deflator give a different rate of inflation than does the CPI?
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Chapter 25: Production and Growth
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Q1) In a market economy,we know that a resource has become scarcer when
A)its price rises relative to other prices.
B)it is non-renewable and some of it is used.
C)people search for substitutes.
D)All of the above are correct.
Q2) Real GDP per person in poor countries like Pakistan and Bangladesh is
A)much more than twice as high as it was in the US in 1870.
B)about twice as high as it was in the US in 1870.
C)about the same as it was in the US in 1870.
D)less that it was in the US in 1870.
Q3) Which of the following is an observation made by Kremer?
A)World growth rates increased as the population increased.
B)Technological progress allows for increasing population because of advances in agriculture.
C)World population is growing so rapidly that soon it will outstrip natural resources and our standard of living will decline.
D)All of the above are observations made by Kermer.
Q4) A forest is an example of a nonrenewable resource.
A)True
B)False
Page 27
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Chapter 26: Saving, investment, and the Financial System
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Q1) Which of the following could explain a decrease in the interest rate and the equilibrium quantity of loanable funds?
A)The demand for loanable funds shifted right.
B)The demand for loanable funds shifted left.
C)The supply of loanable funds shifted right.
D)The supply of loanable funds shifted left.
Q2) Other things the same,bonds are likely to have higher interest rates if they have
A)tax exemptions and short terms.
B)tax exemptions and long terms.
C)no tax exemptions and short terms.
D)no tax exemptions and long terms.
Q3) A budget surplus
A)raises the interest rate and investment.
B)reduces the interest rate and investment.
C)raises the interest rate and reduces investment.
D)reduces the interest rate and raises investment.
Q4) A decrease in taxes on interest income would increase the interest rate.
A)True
B)False
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Chapter 27: The Basic Tools of Finance
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Sample Questions
Q1) Natasha promises to pay Jennifer $1,000 in two years.If the interest rate is 6 percent,how many dollars today is this future payment worth?
A)$883.60
B)$887.97
C)$893.67
D)None of the above are correct to the nearest penny.
Q2) Two years ago Brian put some money into an account.He earned 6 percent interest on this account and now has about $1,000.About how much did he deposit into his account two years ago?
A)about $860
B)about $870
C)about $880
D)about $890
Q3) Edgar has four savings accounts.Which one has the most in it?
A)$100 deposited 1 year ago at an 8% interest rate.
B)$100 deposited 2 years ago at a 4% interest rate.
C)$100 deposited 4 years ago at a 2% interest rate.
D)$100 deposited 8 years ago at a 1% interest rate.
Q4) List three different ways that a risk-averse person can reduce financial risk.
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Chapter 28: Unemployment
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Q1) Other things the same,an increase in wages above their equilibrium level
A)increases frictional unemployment but leaves the natural rate of unemployment unchanged.
B)increases frictional unemployment and increases the natural rate of unemployment.
C)increases structural unemployment but leaves the natural rate of unemployment unchanged.
D)increases structural unemployment and increases the natural rate of unemployment.
Q2) Most spells of unemployment are
A)long, and most unemployment observed at any given time is long term.
B)long, but most unemployment observed at any given time is short term.
C)short, but most unemployment observed at any given time is long term.
D)short, and most unemployment observed at any given time is short term.
Q3) Other things the same,countries that offer more generous and longer-lasting unemployment insurance benefits are likely to have higher unemployment rates.
A)True
B)False
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Chapter 29: The Monetary System
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Q1) Refer to Table 29-2.The reserve ratio is
A)0 percent.
B)20 percent.
C)80 percent.
D)100 percent.
Q2) Which of the following actions would have the combined effect of raising the money supply and raising the money multiplier?
A)The Fed sells bonds and raises the reserve requirement ratio.
B)The Fed sells bonds and lowers the reserve requirement ratio.
C)The Fed buys bonds and raises the reserve requirement ratio.
D)The Fed buys bonds and lowers the reserve requirement ratio.
Q3) Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.
Q4) On a bank's T-account,
A)both deposits and reserves are assets.
B)both deposits and reserves are liabilities.
C)deposits are assets, reserves are liabilities.
D)reserves are assets, deposits are liabilities.
Q5) What makes the New York Federal Reserve regional bank so important?
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Chapter 30: Money Growth and Inflation
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Q1) When the money market is drawn with the value of money on the vertical axis,an increase in the price level causes a
A)shift to the right of the money demand curve.
B)shift to the left of the money demand curve.
C)movement to the left along the money demand curve.
D)movement to the right along the money demand curve.
Q2) Deflation
A)increases the ability to pay debts and raises the value of money.
B)increases the ability to pay debts and lowers the value of money.
C)reduces the ability to pay debts and raises the value of money.
D)reduces the ability to pay debts and lowers the value of money.
Q3) The price level rises from 120 to 126.What is the inflation rate?
A)3%
B)5%
C)6%
D)None of the above is correct.
Q4) A rising price level eliminates an excess supply of money.
A)True
B)False
Q5) Explain how inflation affects savings.
Page 32
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) If you go to the bank and notice that a dollar buys more Mexican pesos than it used to,then the dollar has
A)appreciated.Other things the same, the appreciation would make you less likely to travel to Mexico.
B)appreciated.Other things the same, the appreciation would make you more likely to travel to Mexico.
C)depreciated.Other things the same, the depreciation would make you less likely to travel to Mexico.
D)depreciated.Other things the same, the depreciation would make you more likely to travel to Mexico.
Q2) When U.S.national savings rises,domestic investment also necessarily rises.
A)True
B)False
Q3) In an open economy,U.S.national savings can be less than U.S.investment.
A)True
B)False
Q4) How do the nominal exchange rate and the real exchange rate differ?
Q5) What is the logic behind the theory of purchasing-power parity?
Q6) What does purchasing-power parity imply about the real exchange rate?
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) If the government of Colombia made policy changes that increased national saving,the real exchange rate of the peso would
A)depreciate and Colombian net exports would rise.
B)depreciate and Colombian net exports would fall.
C)appreciate and Colombian net exports would rise.
D)appreciate and Colombian net exports would fall.
Q2) When a country experiences capital flight,the interest rate
A)falls because the demand for loanable funds shifts left.
B)falls because the supply for loanable funds shifts right.
C)rises because the demand for loanable funds shifts right.
D)rises because the supply for loanable funds shifts left.
Q3) Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.
A)True
B)False
Q4) If Argentina suffers from capital flight,Argentinean domestic investment will fall and Argentinean net exports will increase.
A)True
B)False
Page 34
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) Other things the same,as the price level rises,the real value of a dollar
A)rises, and interest rates rise.
B)rises, and interest rates fall.
C)falls, and interest rates rise.
D)falls, and interest rates fall.
Q2) The explanations for the slopes of the aggregate demand and short-run aggregate supply curves are the same as the explanations for the slopes of demand and supply curves for specific goods and services.
A)True
B)False
Q3) Which of the following shifts aggregate demand to the right?
A)Congress reduces purchases of new weapons systems.
B)The Fed buys bonds in the open market.
C)The price level falls.
D)Net exports fall.
Q4) If the actual price level is 165,but people had been expecting it to be 160,then
A)the quantity of output supplied rises, but only in the short run.
B)the quantity of output supplied rises in the short run and the long run.
C)the quantity of output supplied falls, but only in the short run.
D)the quantity of output supplied falls in the short run and the long run.
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Which of the following policies would someone who wants the government to follow an active stabilization policy recommend when the economy is experiencing unemployment above the natural rate?
A)decrease the money supply
B)increase government expenditures
C)increase taxes
D)All of the above are correct.
Q2) Refer to Figure 34-3.Which of the following would cause the aggregate demand curve to shift from AD to AD ?
A)an increase in government purchases
B)a decrease in stock prices
C)consumers and firms become more optimistic about the future.
D)an increase in the price level
Q3) According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?
A)interest rate
B)money supply
C)quantity of output
D)price level
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Chapter 35: The Short Run Trade Off Between Inflation and Unemployment
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Q1) If the Fed announced a policy to reduce inflation and people found it credible,the short-run Phillips curve would shift
A)right and the sacrifice ratio would fall.
B)right and the sacrifice ratio would rise.
C)left and the sacrifice ratio would fall.
D)left and the sacrifice ratio would rise.
Q2) Samuelson and Solow believed that the Phillips curve
A)implied that low unemployment was associated with low inflation.
B)indicated that the aggregate supply and aggregate demand model was incorrect.
C)offered policymakers a menu of possible economic outcomes from which to choose.
D)All of the above are correct.
Q3) Which of the following is disinflation?
A)prices stay the same.
B)prices fall.
C)prices rise at a slower rate than they used to.
D)prices rise as a faster rate than they used to.
Q4) Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.
Q5) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) At the end of 2003,the government had a debt of about $3,924 billion.During 2004,real GDP grew by about 4.2 percent and inflation was about 2.6 percent.About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?
A)about $63 billion
B)about $267 billion
C)about $429 billion
D)None of the above is within a few billion dollars of the largest deficit the government could have run without raising the debt to GDP ratio.
Q2) If the budget deficit were reduced
A)interest rates and investment would increase.
B)interest rates would increase and investment would decrease.
C)interest rates and investment would decrease.
D)interest rates would decrease and investment would increase.
Q3) Suppose that the government goes into deficit in order to help local school districts build better schools.Does this burden future generations?
Q4) Tax laws do not give preferential treatment to some kinds of retirement saving. A)True B)False
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