Principles of Microeconomics
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Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools used to understand the behavior of individuals and firms in making decisions regarding the allocation of scarce resources. The course covers topics such as supply and demand, market equilibrium, elasticity, consumer and producer choice, the role of government in the economy, and the organization of different market structures including perfect competition, monopoly, and oligopoly. Through real-world examples and theoretical analysis, students gain insight into how markets function and how economic policies can impact efficiency and welfare.
Recommended Textbook
Principles of Economics 5th Edition by N.
Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Q1) Suppose that the Federal Reserve Bank announces that it will be making a change to a key interest rate to increase the money supply.This is likely because
A) the Federal Reserve Bank is worried about inflation.
B) the Federal Reserve Bank is worried about unemployment.
C) the Federal Reserve Bank is hoping to reduce the demand for goods and services.
D) the Federal Reserve Bank is worried that the economy is growing too quickly.
Answer: B
Q2) Based on the available evidence,which of the following groups benefits most from mandatory seat belt laws?
A) automakers
B) pedestrians
C) drivers
D) owners of collision-repair shops
Answer: D
Q3) Trade with any nation can be mutually beneficial.
A)True
B)False
Answer: True
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3
Chapter 2: Thinking Like an Economist
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Q1) With the resources it has,an economy can produce at any point on or outside the production possibilities frontier,but it cannot produce at points inside the frontier.
A)True
B)False
Answer: False
Q2) If Steven's income decreases and,as a result,he chooses to buy fewer bagels per month at each price,then his demand curve will A) shift to the right.
B) shift to the left.
C) not shift;instead,Steven will move along his demand curve downward and to the right. D) not shift;instead,Steven will move along his demand curve upward and to the left.
Answer: B
Q3) Two variables that have a negative correlation move in opposite directions. A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Table 3-8.At which of the following prices would both Kito and Penda gain from trade with each other?
A) 30 baskets for 15 birdhouses
B) 30 baskets for 18 birdhouses
C) 30 baskets for 24 birdhouses
D) Kito and Penda could not both gain from trade with each other at any price.
Answer: C
Q2) Refer to Table 3-4.Which of the following combinations of meat and potatoes could the farmer produce in 40 hours?
A) 1 pound of meat and 15 pounds of potatoes.
B) 2 pounds of meat and 11 pounds of potatoes.
C) 3 pounds of meat and 6 pounds of potatoes.
D) 4 pounds of meat and 20 pounds of potatoes.
Answer: A
Q3) If a person chooses self-sufficiency,then she can only consume what she produces.
A)True
B)False
Answer: True
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Opponents of cigarette taxes often argue that tobacco and marijuana are substitutes so that high cigarette prices
A) encourage marijuana use,and the evidence supports this argument.
B) encourage marijuana use,but the evidence does not support this argument.
C) discourage marijuana use,and the evidence supports this argument.
D) discourage marijuana use,but the evidence does not support this argument.
Q2) The law of demand states that,other things equal,when the price of a good rises,the quantity demanded of the good rises,and when the price falls,the quantity demanded falls.
A)True B)False
Q3) A university's football stadium is never more than half-full during football games.This indicates
A) the ticket price is above the equilibrium price.
B) the ticket price is below the equilibrium price.
C) the ticket price is at the equilibrium price.
D) nothing about the equilibrium price.
Q4) Sellers respond to a surplus by cutting their prices.
A)True B)False
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Chapter 5: Elasticity and Its Application
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Q1) Refer to Figure 5-6.Sellers' total revenue would increase if the price
A) increased from $6 to $8.
B) decreased from $18 to $16.
C) decreased from $16 to $15.
D) All of the above are correct.
Q2) Refer to Figure 5-12.Over which range is the supply curve in this figure the most elastic?
A) Between $16 and $40
B) Between $40 and $100
C) Between $100 and $220
D) Between $220 and $430
Q3) If the price elasticity of demand for a good is 1.5,then a 3 percent decrease in price results in a
A) 0.5 percent increase in the quantity demanded.
B) 2 percent increase in the quantity demanded.
C) 4.5 percent increase in the quantity demanded.
D) 5 percent increase in the quantity demanded.
Q4) Measures of elasticity enhance our ability to study the magnitudes of changes.
A)True
B)False
Page 7
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Chapter 6: Supply, Demand, and Government Policies
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Q1) Refer to Figure 6-1.A binding price ceiling is shown in
A) panel (a)but not panel (b).
B) panel (b)but not panel (a).
C) both panel (a)and panel (b).
D) neither panel (a)nor panel (b).
Q2) Refer to Figure 6-9.The price that buyers pay after the tax is imposed is
A) $5.
B) $6.
C) $7.
D) $8.
Q3) Rent control may lead to lower rents for those who find housing,but the quality of the housing may also be lower.
A)True
B)False
Q4) If the government levies a $500 tax per car on buyers of cars,then the price received by sellers of cars would
A) decrease by more than $500.
B) decrease by exactly $500.
C) decrease by less than $500.
D) increase by an indeterminate amount.
Page 8
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) All else equal,an increase in supply will cause an increase in consumer surplus. A)True
B)False
Q2) Refer to Table 7-2.If the market price is $5.50,the consumer surplus in the market will be
A) $3.00.
B) $4.50.
C) $15.50.
D) $21.00.
Q3) Refer to Figure 7-13.Total surplus can be measured as the area
A) JNK.
B) JNML.
C) JRL.
D) JNL.
Q4) Refer to Figure 7-16.At equilibrium,total surplus is represented by the area
A) A+B+C.
B) A+B+D+F.
C) A+B+C+D+H+F.
D) A+B+C+D+H+F+G+I.
Page 9
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Chapter 8: Application: The Costs of Taxation
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Q1) When a tax is placed on the buyers of a product,a result is that buyers effectively pay
A) less than before the tax,and sellers effectively receive less than before the tax.
B) less than before the tax,and sellers effectively receive more than before the tax.
C) more than before the tax,and sellers effectively receive less than before the tax.
D) more than before the tax,and sellers effectively receive more than before the tax.
Q2) Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.
A)True
B)False
Q3) Refer to Figure 8-2.The per-unit burden of the tax on buyers is
A) $2.
B) $3.
C) $4.
D) $5.
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10
Chapter 9: Application: International Trade
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Q1) One should be especially wary of the national-security argument for restricting trade when that argument is made by
A) representatives of industry.
B) representatives of the defense establishment.
C) members of households.
D) foreign government officials.
Q2) Refer to Figure 9-17.With free trade,total surplus is
A) $150.
B) $300.
C) $450.
D) $600.
Q3) Refer to Figure 9-17.When the country moves from free trade to trade and a tariff,consumer surplus
A) decreases by $144 and producer surplus does not change.
B) decreases by $144 and producer surplus increases by $48.
C) decreases by $198 and producer surplus does not change.
D) decreases by $198 and producer surplus increases by $48.
Q4) Trade decisions are based on the principle of absolute advantage.
A)True
B)False
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Chapter 10: Externalities
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Q1) 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.
Q2) Corrective taxes cause deadweight losses,reducing economic efficiency.
A)True
B)False
Q3) An externality arises when a person engages in an activity that influences the well-being of
A) buyers in the market for that activity and yet neither pays nor receives any compensation for that effect.
B) sellers in the market for that activity and yet neither pays nor receives any compensation for that effect.
C) bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.
D) Both (a)and (b)are correct.
Q4) Why are efficiency taxes preferred to regulatory policies as methods remedy externalities?
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Chapter 11: Public Goods and Common Resources
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Q1) Suppose that the cost of installing an overhead pedestrian walkway in a college town is $80,000.The walkway is expected to reduce the risk of fatality by 0.8 percent,and the cost of a human life is estimated at $10 million.The town should
A) install the walkway because the estimated benefit is twice the cost.
B) install the walkway because the estimated benefit equals the cost.
C) not install the walkway,since the cost is twice the estimated benefit.
D) install the walkway,since the cost of even a single life is too great not to take action.
Q2) A lighthouse is typically considered to be a public good because
A) the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse.
B) there is rarely another lighthouse nearby to provide competition.
C) a nearby port authority cannot avoid paying fees to the lighthouse owner.
D) all passing ships are able to enjoy the benefits of the lighthouse without paying.
Q3) Even economists who advocate small government agree that national defense is a good that the government should provide.
A)True
B)False
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Page 13
Chapter 12: The Design of the Tax System
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Q1) A person's tax obligation divided by her income is called her
A) marginal social tax rate.
B) marginal private tax rate.
C) marginal tax rate.
D) average tax rate.
Q2) Deadweight losses arise because a tax causes some individuals to change their behavior.
A)True
B)False
Q3) Horizontal and vertical equity are the two primary measures of efficiency of a tax system.
A)True
B)False
Q4) Refer to Table 12-9.For this tax schedule,what is the average tax rate for an individual with $280,000 in taxable income?
A) 39.9%
B) 40.2%
C) 42.7%
D) 44.8%
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Chapter 13: The Costs of Production
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Q1) Refer to Table 13-9.What is the average variable cost for the month if 6 instructional modules are produced?
A) $180.00
B) $533.33
C) $700.00
D) $713.33
Q2) Which of the following can be added to profit to obtain total revenue?
A) net profit
B) capital profit
C) operational profit
D) total cost
Q3) In some cases,specialization allows larger factories to produce goods at a lower average cost than smaller factories.
A)True
B)False
Q4) For a firm,the production function represents the relationship between
A) implicit costs and explicit costs.
B) quantity of inputs and total cost.
C) quantity of inputs and quantity of output.
D) quantity of output and total cost.
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Chapter 14: Firms in Competitive Markets
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Q1) Which of the following represents the firm's long-run condition for exiting a market?
A) exit if P < MC
B) exit if P < FC
C) exit if P < ATC
D) exit if MR < MC
Q2) In the long run the market supply
A) must always be horizontal.
B) could be upward sloping if the cost of production falls as new firms enter the market.
C) could be upward sloping if the cost of production rises as new firms enter the market.
D) could be upward sloping if technological improvements lower the cost of producing in the market.
Q3) Refer to Figure 14-2.The firm will earn zero economic profit if the market price is
A) $0
B) $6
C) $7
D) $10
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Chapter 15: Monopoly
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Q1) Which of the following would be most likely to have monopoly power?
A) a long-distance telephone service provider
B) a local cable TV provider
C) a large department store
D) a gas station
Q2) For a monopolist,when the output effect is greater than the price effect,marginal revenue is
A) positive.
B) negative.
C) zero.
D) maximized.
Q3) Refer to Figure 15-3.What area measures the monopolist's profit?
A) (B-F)*K
B) (A-H)*J
C) (B-G)*K
D) 0.5[(B-F)*(L-K)]
Q4) Describe how government is involved in creating a monopoly.Why might the government create one? Give an example.
Q5) Why might economists prefer private ownership of monopolies over public ownership of monopolies?
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Chapter 16: Monopolistic Competition
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Q1) Free entry eliminates long-run profits for firms in competitive and monopolistic industries.
A)True
B)False
Q2) In a monopolistically competitive market,
A) the entry of new firms creates externalities.
B) the absence of restrictions on entry by new firms ensures that there will be no deadweight loss.
C) there are always too many firms in the market relative to the socially-optimal number of firms.
D) firms cannot earn positive economic profits in the short run.
Q3) What do economists call a market structure in which there are many firms selling products that are similar but not identical?
A) perfect competition
B) monopoly
C) monopolistic competition
D) oligopoly
Q4) Why does a typical monopolistically competitive firm face a downward-sloping demand curve?
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Chapter 17: Oligopoly
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Q1) Whether an oligopoly consists of 3 firms or 10 firms,the level of output likely will be the same.
A)True
B)False
Q2) To move the allocation of resources closer to the social optimum,policymakers should typically try to induce firms in an oligopoly to A) collude with each other.
B) form various degrees of cartels.
C) compete rather than cooperate with each other.
D) cooperate rather than compete with each other.
Q3) Like monopolists,oligopolists are aware that an increase in the quantity of output always
A) reduces the price of their product.
B) reduces their profit.
C) reduces their revenue.
D) reduces productivity.
Q4) The essence of an oligopolistic market is that there are only a few sellers.
A)True B)False
Q5) Outline the purpose of antitrust laws.What do they accomplish?
Page 19
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Chapter 18: The Markets for the Factors of Production
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Q1) The value of the marginal product of labor is equal to the change in A) marginal cost caused by the addition of the last worker.
B) total cost caused by the addition of the last worker.
C) total revenue caused by the addition of the last worker.
D) total profit caused by the addition of the last worker.
Q2) Consider the labor market for computer programmers.During the late 1990s,the value of the marginal product of all computer programmers increased dramatically.Holding all else equal,what effect did this process have on the labor market for computer programmers?
A) The equilibrium wage increased and the equilibrium quantity of labor increased.
B) The equilibrium wage increased and the equilibrium quantity of labor decreased.
C) The equilibrium wage decreased and the equilibrium quantity of labor increased.
D) The equilibrium wage decreased and the equilibrium quantity of labor decreased.
Q3) The marginal product of land depends on the quantity of land that is available.
A)True
B)False
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Chapter 19: Earnings and Discrimination
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Q1) A natural correction to employer discrimination in market economies is the A) threat of judicial review.
B) profit motive.
C) political process.
D) union movement.
Q2) Evidence of discrimination is most apparent when one compares wages among broad groups.
A)True
B)False
Q3) In the United States,the earnings gap between workers with college degrees and workers with high school degrees
A) has never been documented by reliable evidence.
B) is evident,but it has remained roughly constant over the past 20 years.
C) is evident,but it has diminished over the last 20 years.
D) is evident,and it has widened over the last 20 years.
Q4) The "superstar" phenomenon can apply to which of these jobs?
A) high-school teacher
B) anchorperson for a national news program
C) heart surgeon
D) carpenter.
Page 21
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Chapter 20: Income Inequality and Poverty
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Q1) Refer to Figure 20-1.Between 1965 and 2001,during recessions (the shaded bars)the number of individuals in poverty has
A) increased.
B) decrease.
C) not changed.
D) decreased and then increased.
Q2) The measured poverty rate may not reflect the true extent of economic deprivation because it does not include some forms of government assistance.
A)True
B)False
Q3) Many economists believe that a family bases its spending decisions on its permanent,or average,income rather than on transitory income.
A)True
B)False
Q4) In 2005,what percentage of U.S.families had income levels below $103,100?
A) 5 percent
B) 20 percent
C) 80 percent
D) 95 percent
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Chapter 21: The Theory of Consumer Choice
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Q1) Assume that consumption when young and consumption when old are both normal goods.The income effect of an increase in the interest rate will result in
A) an increase in saving when young.
B) an increase in saving when old.
C) a decrease in saving when young.
D) a decrease in saving when old.
Q2) What are the two effects of a change in a price that a consumer experiences?
A) the income effect and the budget effect
B) the complement effect and the substitute effect
C) the price effect and the preference effect
D) the income effect and the substitution effect
Q3) Harry experiences an increase in his wages.The hours of labor that he supplies to the market would decrease if
A) the income effect is larger than the substitution effect.
B) the substitution effect is larger than the income effect.
C) neither the income effect nor the substitution effect apply to Harry's labor-leisure tradeoff.
D) Harry views both labor and leisure as inferior goods.
Q4) List and briefly explain each of the four properties of indifference curves.
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Chapter 22: Frontiers of Microeconomics
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Q1) Which of the following sets of preferences can not satisfy the property of transitivity?
A) Plan A is preferred to plan D.Plan D is preferred to plan B.Plan C is preferred to plan B.
B) Plan A is preferred to plan B.Plan B is preferred to plan C.Plan A is preferred to plan C.
C) Plan C is preferred to plan A.Plan B is preferred to plan A.Plan C is preferred to plan B.
D) Plan D is preferred to plan C.Plan C is preferred to plan B.Plan B is preferred to plan D.
Q2) The field of political economy
A) applies the methods of political science to microeconomics.
B) applies the methods of political science to macroeconomics.
C) is relevant to the issue of how active government should be in economic matters. D) integrates psychological insights to better understand individual choices.
Q3) The classic example of adverse selection is the market for used cars.
A)True
B)False
Q4) 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) A good is produced by a firm in 2007,added to the firm's inventory in 2007,and sold to a household in 2008.It follows that
A) the value of the good is added to the investment category of 2007 GDP and added to the investment category of 2008 GDP.
B) the value of the good is added to the investment category of 2007 GDP and subtracted from the investment category of 2008 GDP.
C) the value of the good is subtracted from the investment category of 2007 GDP and added to the investment category of 2008 GDP.
D) the value of the good is subtracted from the investment category of 2007 GDP and subtracted from the investment category of 2008 GDP.
Q2) Which of the following is not included in GDP?
A) a can of bug spray
B) the services of an exterminator
C) the honey produced and sold by a beekeeper
D) All of the above are included in GDP.
Q3) If nominal GDP is $12,000 and the GDP deflator is 80,then real GDP is $15,000.
A)True
B)False
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Chapter 24: Measuring the Cost of Living
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Q1) Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan.
a.
What was the expected real interest rate?
b.
What was the actual real interest rate?
c.
Who benefited and who lost because of the unexpected inflation?
Q2) In 1969,Fritz bought a Ford Mustang for $2,500.If the price index was 36.7 in 1969 and the price index was 180 in 2006,then what is the price of the Ford Mustang in 2006 dollars?
A) $509.72
B) $6,866.49
C) $9,761.58
D) $12,261.58
Q3) The real interest rate measures the change in dollar amounts.
A)True
B)False
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Chapter 25: Production and Growth
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Q1) Real Foods produced 400,000 cans of diced tomatoes in 2007 and 460,000 cans of diced tomatoes in 2008.They employed the same number of labor hours each year.Relative to their productivity in 2007,their productivity in 2008 was
A) 6 percent lower.
B) unchanged.
C) 6 percent higher.
D) 15 percent higher.
Q2) Which of the following countries had the highest growth rate over the last 100 or so years?
A) Brazil
B) Germany
C) Canada
D) United States
Q3) All else equal,if there are diminishing returns,then if a country raised its capital by 100 units last year and by 100 units this year,
A) the increase in output was greater for this year than last year.
B) the increase in output was greater last year than this year.
C) the increase in output is the same in both years.
D) None of the above is necessarily correct.
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Chapter 26: Saving, investment, and the Financial System
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Q1) Other things the same,a higher interest rate induces people to
A) save more,so the supply of loanable funds slopes upward.
B) save less,so the supply of loanable funds slopes downward.
C) invest more,so the supply of loanable funds slopes upward.
D) invest less,so the supply of loanable funds slopes downward.
Q2) What are the basic differences between bonds and stocks?
Q3) Suppose the government deficit increases,but the interest rate remains the same.Which of the following things might have happened simultaneously to keep interest rates the same?
A) The government reduces the amount that people may put into savings accounts on which the interest is tax exempt.
B) Because they are optimistic about the future of the economy,firms desire to borrow more to purchase physical capital.
C) Consumers decide to decrease consumption and work more.
D) All of the above could explain why the interest rate would be unchanged.
Q4) When a corporation experiences financial problems,bondholders are paid before stockholders.
A)True B)False
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Chapter 27: The Basic Tools of Finance
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Q1) A risk-averse person has
A) a utility function whose slope gets flatter as wealth rises.This means they have increasing marginal utility of wealth.
B) a utility function whose slope gets flatter as wealth rises.This means they have diminishing marginal utility of wealth.
C) a utility function whose slope gets steeper as wealth rises.This means they have increasing marginal utility of wealth.
D) a utility function whose slope gets steeper as wealth rises.This means they have diminishing utility of wealth.
Q2) As the interest rate increases,the present value of future sums decreases,so firms will find fewer investment projects profitable.
A)True
B)False
Q3) If you are faced with the choice of receiving $500 today or $800 6 years from today,you will be indifferent between the two possibilities if the interest rate is 8.148 percent.
A)True
B)False
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Chapter 28: Unemployment
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Q1) Data show that at least 20 percent of U.S.manufacturing jobs are destroyed every year.
A)True
B)False
Q2) Employment can rise in one region of the country while it falls in another.
A)True
B)False
Q3) The unemployed who quit their jobs,were fired for cause,or just entered the labor force are not eligible for unemployment insurance.
A)True
B)False
Q4) Refer to Table 28-1.The unemployment rate of Wrexington in 2004 was A) 10%.
B) 12.5%.
C) 14.3%.
D) 80%.
Q5) Structural unemployment is often thought to explain relatively short spells of unemployment.
A)True
B)False
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Chapter 29: The Monetary System
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Q1) If the reserve ratio for all banks is 12.5 percent,then $1,000 of additional reserves can create up to
A) $7,000 of new money.
B) $8,000 of new money.
C) $11,500 of new money.
D) $12,500 of new money.
Q2) Which of the following is not included in either M1 or M2?
A) U.S.Treasury bills
B) small time deposits
C) demand deposits
D) money market mutual funds
Q3) The Fed's primary tool to change the money supply is
A) changing the discount rate.
B) changing the reserve requirement.
C) conducting open market operations.
D) redeeming Federal Reserve notes.
Q4) Designers of the Federal Reserve System were concerned that the Fed might form policy favorable to one part of the country or to a particular party.What are some ways that the organization of the Fed reflects such concerns?
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Chapter 30: Money Growth and Inflation
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Q1) An assistant manager at a restaurant gets a $100 a month raise.He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.
A) His real and nominal salary have risen.
B) His real and nominal salary have fallen.
C) His real salary has risen and his nominal salary has fallen.
D) His real salary has fallen and his nominal salary has risen.
Q2) If the price level increased from 120 to 126,then what was the inflation rate?
A) 3 percent
B) 5 percent
C) 6 percent
D) None of the above is correct.
Q3) Consider the money market drawn with the value of money on the vertical axis.If money demand is unchanged and the price level rises,then
A) the money supply must have increased,perhaps because the Fed bought bonds.
B) the money supply must have increased,perhaps because the Fed sold bonds.
C) the money supply must have decreased,perhaps because the Fed bought bonds.
D) the money supply must have decreased,perhaps because the Fed sold bonds.
Q4) Explain how inflation affects savings.
Q5) Why did farmers in the late 1800s dislike deflation?
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) Both foreign direct investment and foreign portfolio investment by U.S.residents increase U.S.net capital outflow.
A)True
B)False
Q2) If a country has business opportunities that are relatively attractive to other countries,we would expect it to have
A) both positive net exports and positive net capital outflow.
B) both negative net exports and negative net capital outflow.
C) positive net exports and negative net capital outflow.
D) negative net exports and positive net capital outflow.
Q3) What does purchasing-power parity imply about the real exchange rate?
Q4) A country has $50 million of domestic investment and net capital outflow of $15 million.What is saving?
A) $65 million.
B) -$65 million.
C) $35 million.
D) -$35 million.
Q5) Under what circumstances does purchasing-power parity explain how exchange rates are determined,and why is it not completely accurate?
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) If interest rates rose more in Germany than in the U.S. ,then other things the same
A) U.S.citizens would buy more German bonds and German citizens would buy more U.S.bonds.
B) U.S.citizens would buy more German bonds and German citizens would buy fewer U.S.bonds.
C) U.S.citizens would buy fewer German bonds and German citizens would buy more U.S.bonds.
D) U.S.citizens would buy fewer German bonds and German citizens would buy fewer U.S.bonds.
Q2) If the U.S.government imposes a quota on toy imports,then
A) net capital outflow rises.
B) net exports rise.
C) the exchange rate rises.
D) All of the above are correct.
Q3) Which of the following is most likely to increase the exports of a country?
A) The government gives subsidies to firms that export goods or services.
B) The government reduces the size of the budget surplus.
C) Political instability within the country increases modestly.
D) None of the above will increase exports.
Page 34
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) The effects of a higher than expected price level are shown by
A) shifting the short-run aggregate supply curve right.
B) shifting the short-run aggregate supply curve left.
C) moving to the right along a given aggregate supply curve.
D) moving to the left along a given aggregate supply curve.
Q2) The initial impact of the repeal of an investment tax credit is to shift
A) aggregate demand right.
B) aggregate demand left.
C) aggregate supply right.
D) aggregate supply left.
Q3) Changes in the price level affect which components of aggregate demand?
A) only consumption and investment
B) only consumption and net exports
C) only investment
D) consumption,investment,and net exports
Q4) What do most economists believe concerning the relation between the price level and real output?
Q5) Stagflation results from continued decreases in aggregate demand.
A)True
B)False
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) In liquidity preference theory,an increase in the interest rate,other things the same,decreases the quantity of money demanded,but does not shift the money demand curve.
A)True
B)False
Q2) Refer to Scenario 34-1.For this economy,an initial increase of $500 in net exports translates into a
A) $2,000 increase in aggregate demand when the crowding-out effect is taken into account.
B) $2,500 increase in aggregate demand when the crowding-out effect is taken into account.
C) $2,000 increase in aggregate demand in the absence of the crowding-out effect.
D) $2,500 increase in aggregate demand in the absence of the crowding-out effect.
Q3) In the short run,an increase in the money supply causes interest rates to
A) increase,and aggregate demand to shift right.
B) increase,and aggregate demand to shift left.
C) decrease,and aggregate demand to shift right.
D) decrease,and aggregate demand to shift left.
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Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) Refer to Monetary Policy in Southland.Suppose that the Southland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and that it actually reduces inflation to that level.Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%.Then
A) unemployment falls,but it would have fallen more if people had been expecting 12.5% inflation.
B) unemployment falls,but it would have fallen more if people had been expecting 25% inflation.
C) unemployment rises,but it would have risen more if people had been expecting 12.5% inflation.
D) unemployment rises,but it would have risen more if people had been expecting 25% inflation.
Q2) In the long run,which of the following would shift the long-run Phillips curve to the right?
A) an increase in the minimum wage
B) an increase in government spending
C) an increase in the money supply
D) a decrease in the money supply
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Which of the following is not an argument against reforming the tax laws to encourage saving?
A) A public budget surplus can raise national saving.
B) The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
C) Low-income households save a larger fraction of their income than high-income households.
D) Tax cuts might cause a budget deficit.
Q2) The discussion in this chapter should
A) make you a better participant in our national debates.
B) make it easy to choose between policy alternatives.
C) mislead you into political discussions.
D) show you the benefits but not the costs of policy options.
Q3) The average person's share of the U.S.government debt as a percentage of lifetime income is
A) less than 2 percent.
B) about 5 percent.
C) about 10 percent.
D) over 12 percent.
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