Principles of Microeconomics
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Course Introduction
Principles of Microeconomics introduces the fundamental concepts of economic analysis at the individual and firm level. The course explores how consumers and producers make decisions given scarce resources, how markets function to allocate goods and services, and the effects of government interventions. Key topics include supply and demand, elasticity, consumer and producer surplus, market structures, and the role of competition. Students will develop analytical tools to understand real-world economic issues, evaluate policy decisions, and appreciate the impact of microeconomic principles on everyday life.
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) The government enforces property rights by
A) requiring property owners to pay property taxes.
B) providing police and courts.
C) forcing people to own property.
D) providing public parks and recreation facilities.
Answer: B
Q2) Equality refers to how the pie is divided,and efficiency refers to the size of the economic pie.
A)True
B)False
Answer: True
Q3) A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.
A)True
B)False
Answer: False
Q4) Trade with any nation can be mutually beneficial.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Thinking Like an Economist
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Q1) Which of the following is an example of a normative,as opposed to positive,statement?
A) The price of gasoline came down sharply during the second half of 2006.
B) If the government were to set a maximum legal price on gasoline,then there would be a shortage of gasoline.
C) Income taxes should be reduced.
D) The federal government obtains much of its revenue from income taxes.
Answer: C
Q2) Which of the following statements applies to economics,as well as to other sciences such as physics?
A) Experiments are considered valid only when they are conducted in a laboratory.
B) Good theories do not need to be tested.
C) Real-world observations often lead to theories.
D) Economics,as well as other sciences,is concerned primarily with abstract concepts.
Answer: C
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4
Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Figure 3-2.Suppose Madagascar is willing to trade 40 rubies to Peru for each emerald that Peru produces and sends to Madagascar.Which of the following combinations of emeralds and rubies could Peru then consume,assuming Peru specializes in emerald production?
A) 2 emeralds and 240 rubies
B) 3 emeralds and 220 rubies
C) 4 emeralds and 200 rubies
D) 5 emeralds and 140 rubies
Answer: A
Q2) Refer to Table 3-8.Assume that Kito and Penda each has 24 labor hours available.If each person divides their time equally between the production of baskets and birdhouses,then total production is
A) 4.75 baskets and 2 birdhouses.
B) 9.5 baskets and 12 birdhouses.
C) 16 baskets and 12 birdhouses.
D) 19 baskets and 24 birdhouses.
Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Q1) If the number of buyers in a market decreases,then A) demand will increase.
B) demand will decrease.
C) supply will increase.
D) supply will decrease.
Q2) An increase in the price of ink will shift the supply curve for pens to the left.
A)True
B)False
Q3) Refer to Table 4-6.If both members and non-members are allowed to purchase tickets to this year's celebrity golf tournament and the country club sets the ticket price at $20,then there will be
A) a shortage of 300 tickets.
B) a surplus of 300 tickets.
C) 300 tickets sold.
D) 600 tickets unsold.
Q4) When the market price is below the equilibrium price,suppliers are unable to sell all they want to sell.
A)True B)False
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Chapter 5: Elasticity and Its Application
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Q1) Which of the following statements does not help to explain why government drug interdiction increases drug-related crime?
A) The demand for illegal drugs is inelastic.
B) Interdiction results in drug addicts having a greater need for quick cash.
C) Interdiction results in an increase in the amount of money needed to buy the same amount of drugs.
D) Government drug programs are more lenient now with drug offenders than they were in the 1980s.
Q2) The price elasticity of demand measures
A) buyers' responsiveness to a change in the price of a good.
B) the extent to which demand increases as additional buyers enter the market.
C) how much more of a good consumers will demand when incomes rise.
D) the movement along a supply curve when there is a change in demand.
Q3) Refer to Figure 5-6.Which of the following price changes would result in no change in sellers' total revenue?
A) The price increases from $6 to $9.
B) The price increases from $9 to $15.
C) The price decreases from $12 to $9.
D) The price decreases from $9 to $5.
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Chapter 6: Supply, Demand, and Government Policies
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Q1) Discrimination is an example of a rationing mechanism that may naturally develop in response to a binding price floor.
A)True
B)False
Q2) Advocates of the minimum wage admit that it has some adverse effects,but they believe that these effects are small and that a higher minimum wage makes the poor better off.
A)True
B)False
Q3) Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax,
A) the actual tax incidence is unaffected by the legislated tax incidence.
B) the employer now is required by law to pay more than 50 percent of the tax.
C) the employee now is required by law to pay more than 50 percent of the tax.
D) employers are no longer required by law to pay any portion of the tax.
Q4) A binding price ceiling causes a shortage in the market.
A)True
B)False
Q5) How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
A) maximizes both the total revenue for firms and the quantity supplied of the product.
B) maximizes the combined welfare of buyers and sellers.
C) minimizes costs and maximizes output.
D) minimizes the level of welfare payments.
Q2) Many economists believe that restrictions against ticket scalping result in each of the following except
A) a smaller audience for cultural and sporting events.
B) shorter lines at cultural and sporting events.
C) less tax revenue for the state.
D) an increase in ticket prices.
Q3) If the government allowed a free market for transplant organs such as kidneys to exist,critics argue that such a market would
A) not reduce the shortage of organs.
B) benefit rich people but not poor people.
C) be inefficient because markets are not good at allocating scarce resources.
D) be inferior to a plan imposed by a benevolent dictator.
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Chapter 8: Application: The Costs of Taxation
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Q1) Diana is a personal trainer whose client Charles pays $80 per hour-long session.Charles values this service at $100 per hour,while the opportunity cost of Diana's time is $75 per hour.The government places a tax of $10 per hour on personal trainers.Before the tax,what is the total surplus?
A) $25
B) $20
C) $5
D) $0
Q2) Refer to Scenario 8-1.If Claudia pays John $80 to clean her house,Claudia's consumer surplus is
A) $80.
B) $30.
C) $20.
D) $10.
Q3) John has been in the habit of mowing Willa's lawn each week for $20.John's opportunity cost is $15,and Willa would be willing to pay $25 to have her lawn mowed.What is the maximum tax the government can impose on lawn mowing without discouraging John and Willa from continuing their mutually beneficial arrangement?
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Chapter 9: Application: International Trade
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Q1) Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade;he argues that everything can be produced at lower cost in other countries.The likely flaw in Congressman Smith's reasoning is that he ignores the fact that A) there is no evidence that any worker ever lost his or her job because of free trade. B) unemployment of labor is not a serious problem relative to other economic problems. C) the gains from trade are based on comparative advantage. D) the gains from trade are based on absolute advantage.
Q2) Refer to Figure 9-11.The change in total surplus in this market because of trade is
A) A,and this area represents a loss of total surplus.
B) B,and this area represents a gain in total surplus.
C) C,and this area represents a loss of total surplus.
D) D,and this area represents a gain in total surplus.
Q3) The greater the elasticities of supply and demand,the smaller are the gains from trade.
A)True
B)False
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Chapter 10: Externalities
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Q1) Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are
A) $1.90 and 38 units,respectively.
B) $1.80 and 35 units,respectively.
C) $1.60 and 42 units,respectively.
D) $1.35 and 58 units,respectively.
Q2) Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $12 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?
A) They are equal.
B) The equilibrium quantity is greater than the socially optimal quantity.
C) The equilibrium quantity is less than the socially optimal quantity.
D) There is not enough information to answer the question.
Q3) Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.
A)True
B)False
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Chapter 11: Public Goods and Common Resources
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Q1) A common theme among examples of market failure is
A) the good being provided harms society in some systematic way.
B) some item of value does not have an owner with the legal authority to control it.
C) cost-benefit analysis will show that private markets should provide the goods and services.
D) government intervention decreases the social benefits.
Q2) When Susie uses a common resource and diminishes other people's enjoyment of it,she creates
A) a free rider problem.
B) an externality.
C) a nonrenewable resource.
D) general knowledge.
Q3) Goods that are excludable include both
A) natural monopolies and public goods.
B) public goods and common resources.
C) common resources and private goods.
D) private goods and natural monopolies.
Q4) Why do wild salmon populations face the threat of extinction while goldfish populations are in no such danger?
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Chapter 12: The Design of the Tax System
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Q1) When a tax is justified on the basis that the taxpayers who pay the tax receive specific government services from payment of the tax,the tax
A) is considered horizontally equitable.
B) burden is minimized.
C) satisfies the benefits principle.
D) is considered vertically equitable.
Q2) In order to determine tax incidence,one must
A) consider issues of equity.
B) also determine the legal liability of the tax.
C) evaluate where the tax burden eventually falls.
D) use the "flypaper theory" of taxation.
Q3) By law,all states must have a state income tax.
A)True
B)False
Q4) Deadweight losses occur in markets in which
A) firms decide to downsize.
B) the government imposes a tax.
C) profits fall because of low consumer demand.
D) equilibrium prices fall.
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Chapter 13: The Costs of Production
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Q1) Refer to Figure 13-5.Why doesn't the total cost curve begin at the origin (the point 0,0)?
A) because variable costs are positive when output is zero
B) because fixed costs are positive when output is zero
C) because the firm is producing at the efficient scale
D) because the firm is maximizing profits
Q2) Refer to Table 13-4.Each worker at Gallo's cork factory costs $12 per hour.The cost of each machine is $20 per day regardless of the number of corks produced.Assume the number of machines does not change.If Gallo's produces at a rate of 78 corks per hour,what is the total machine cost per day?
A) $20
B) $40
C) $240
D) We are unable to determine total machine costs from the information given.
Q3) When a firm is experiencing economies of scale,
A) long-run average total cost is minimized.
B) long-run average total cost is greater than long-run marginal cost.
C) long-run average total cost is less than long-run marginal cost.
D) long-run marginal cost is minimized.
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Chapter 14: Firms in Competitive Markets
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Q1) For a competitive firm,
A) total revenue equals average revenue.
B) total revenue equals marginal revenue.
C) total cost equals marginal revenue.
D) average revenue equals marginal revenue.
Q2) A firm that exits its market has to pay
A) its variable costs but not its fixed costs.
B) its fixed costs but not its variable costs.
C) both its variable costs and its fixed costs.
D) neither its variable costs nor its fixed costs.
Q3) In the short run,a firm operating in a competitive industry will shut down if price is A) less than average total cost.
B) less than average variable cost.
C) greater than average variable cost but less than average total cost.
D) greater than marginal cost.
Q4) For a firm operating in a perfectly competitive industry,marginal revenue and average revenue are equal.
A)True
B)False
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Chapter 15: Monopoly
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Questions
Q1) The De Beers Diamond company is not worried about differentiating its product from all other gemstones.
A)True
B)False
Q2) Refer to Table 15-2.What is the total revenue from selling 8 shirts?
A) $90
B) $695
C) $720
D) $800
Q3) In a competitive market,a firm's supply curve dictates the amount it will supply.In a monopoly market the
A) same is true.
B) supply curve conceptually makes sense,but in practice is never used.
C) supply curve will have limited predictive capacity.
D) decision about how much to supply is impossible to separate from the demand curve it faces.
Q4) What are the four ways that government policymakers can respond to the problem of monopoly?
Q5) Give some examples of the benefits and costs of antitrust laws.
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Chapter 16: Monopolistic Competition
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Q1) Monopolistic competition is characterized by a few sellers offering similar products,whereas oligopoly is characterized by many sellers offering differentiated products.
A)True
B)False
Q2) Which of these types of firms can earn a positive economic profit in the long run?
A) monopolies,but not competitive firms or monopolistically competitive firms
B) monopolies and monopolistically competitive firms,but not competitive firms
C) monopolies,monopolistically competitive firms,and monopolies
D) No firms earn positive economic profit in the long run.Entry will reduce all firms' economic profit to zero in the long run.
Q3) The higher the concentration ratio,the
A) more control an individual firm has to set prices.
B) more competitive the industry.
C) less competitive the industry.
D) Both a and c are correct.
Q4) Brand names are rarely used to convey information about product quality.
A)True
B)False
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Chapter 17: Oligopoly
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Q1) Oligopolists may well be able to reach their preferred,cooperative outcome if
A) the number of oligopolists is large.
B) they learn that a Nash equilibrium is in their best long-term interests.
C) a sufficient number of firms can be persuaded to lower their prices.
D) the game they play is repeated a sufficient number of times.
Q2) Refer to Table 17-17.What is the Nash Equilibrium of this price-setting game?
A) Grocery store 1: Low price
Grocery store 2: Low price
B) Grocery store 1: Low price
Grocery store 2: High price
C) Grocery store 1: High price
Grocery store 2: How price
D) Grocery store 1: High price
Grocery store 2: High price
Q3) Which of the following would be most likely to contribute to the breakdown of a cartel in a natural resource (e.g. ,bauxite)market?
A) high prices
B) low price elasticity of demand
C) high compatibility of member interests
D) unequal member ownership of the natural resource
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Chapter 18: The Markets for the Factors of Production
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Q1) The value of the marginal product is
A) total revenue minus total cost.
B) the change in total output divided by the change in an input.
C) the marginal product of an input times the price of the output.
D) total output divided by total inputs.
Q2) Refer to Table 18-4.What is the fourth worker's marginal product of labor?
A) 120 golf balls
B) 140 golf balls
C) 160 golf balls
D) 180 golf balls
Q3) Refer to Table 18-8.Suppose that the firm pays its workers $45 per day.Each unit of output sells for $10.How many days of labor should the firm hire?
A) 1
B) 2
C) 3
D) 4
Q4) In 2008,the total income of all U.S.residents was approximately $120 billion.
A)True
B)False
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Chapter 19: Earnings and Discrimination
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Q1) Which of the following statements is correct?
A) Compensating wage differentials reflect different skills of workers.
B) Discrimination by employers affects the marginal productivity of workers.
C) The signaling theory of education suggests that schooling does not affect worker productivity.
D) The superstar phenomenon explains why more talented entertainers earn more than less talented entertainers.
Q2) Over the last 20 years or so,the earnings gap between workers with college degrees and workers with high school degrees has
A) remained roughly constant for both men and women.
B) widened for both men and women.
C) widened for men and narrowed for women.
D) narrowed for men and widened for women.
Q3) The theory of efficiency wages suggests that firms may pay above-equilibrium wages
A) to reduce employee turnover.
B) to prevent unions from recruiting members.
C) to reduce the need for minimum wage laws.
D) to increase the demand for better-skilled workers.
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Chapter 20: Income Inequality and Poverty
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Q1) U.S.income data over the last seventy years suggests that the distribution of income
A) has gradually become more equal over the entire time period.
B) has gradually become less equal over the entire time period.
C) gradually became less equal until about 1970,then became more equal from 1970 to 2005.
D) gradually became more equal until about 1970,then became less equal from 1970 to 2005.
Q2) Data for the United States suggests that about how many millionaires inherited their fortunes?
A) One in seven.
B) One in five.
C) One in three.
D) One in two.
Q3) Which of the following is not a characteristic of the Earned Income Tax Credit (EITC)?
A) It does not discourage recipients from working.
B) It is less distortionary than other anti-poverty programs.
C) It helps the disabled who cannot work.
D) It applies only to the working poor.
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Chapter 21: The Theory of Consumer Choice
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Q1) The slope of the budget constraint is all of the following except A) the relative price of two goods.
B) the rate at which a consumer can trade one good for another.
C) the marginal rate of substitution.
D) constant.
Q2) The indifference curves for nickels and dimes are straight lines.
A)True
B)False
Q3) 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.
Q4) Refer to Scenario 21-1.If the price of beer doubles to $2,then the
A) budget constraint intersects the vertical axis at 25 beers.
B) slope of the budget constraint rises to -2.
C) budget constraint intersects the vertical axis at 100 beers.
D) budget constraint shifts inward in a parallel fashion.
Q5) List and briefly explain each of the four properties of indifference curves.
Page 23
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Chapter 22: Frontiers of Microeconomics
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Q1) In economics,a difference in access to relevant knowledge is called a(n)
A) relevancy frontier.
B) knowledge gap.
C) information asymmetry.
D) information equilibrium.
Q2) Economists use basic psychological insights in the field of study called A) psychological economics.
B) transitional economics.
C) behavioral economics.
D) social economics.
Q3) Refer to Table 22-1.Depending on the order of the pairwise voting, A) the friends could go to either Ireland,Greece,or Italy.
B) the friends could go to either Ireland or Greece,but they will not go to Italy.
C) the friends could go to either Greece or Italy,but they will not go to Ireland.
D) the friends could go to either Ireland or Italy,but they will not go to Greece.
Q4) How have insights from the field of psychology influenced the thinking of economists in recent years?
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Chapter 23: Measuring a Nations Income
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Q1) GDP per person tells us the income and expenditure of the A) richest person in the economy.
B) poorest person in the economy.
C) average person in the economy.
D) entire economy.
Q2) A Minnesota farmer buys a new tractor made in Iowa by a German company.As a result,
A) U.S.investment and GDP increase,but German GDP is unaffected.
B) U.S.investment and German GDP increase,but U.S.GDP is unaffected.
C) U.S.investment,U.S.GDP,and German GDP are unaffected,because tractors are intermediate goods.
D) U.S.investment,U.S.GDP,and German GDP all increase.
Q3) If exports are $500,GDP is $8000,government purchases are $1200,imports are $700,and investment is $800,then consumption is $6200.
A)True
B)False
Q4) Changes in inventory are included in the investment component of GDP.
A)True
B)False
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Chapter 24: Measuring the Cost of Living
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Q1) Which of the following is the most accurate statement about the effects of quality change on the CPI?
A) Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products change,changes in quality are still a problem because quality is so hard to measure.
B) Because the BLS adjusts the prices of products in the CPI basket when the quality of the products change,changes in quality are no longer a problem for the CPI.
C) The BLS does not adjust the CPI for quality changes.
D) Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living.
Q2) To calculate the CPI,the Bureau of Labor Statistics uses
A) the prices of all goods and services produced domestically.
B) the prices of all final goods and services.
C) the prices of all consumer goods.
D) the prices of some consumer goods.
Q3) The U.S.income tax system is completely indexed for inflation.
A)True
B)False
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Chapter 25: Production and Growth
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Q1) In the past there have been violent protests against the World Bank and the World Trade Organization.The protesters argued that these institutions promote free trade and also encourage corporations in rich countries to invest in poor countries.The protesters contended that these practices make rich countries richer and poor countries poorer.An economist would
A) disagree with the protesters because these practices will help make both rich and poor countries richer.
B) disagree with the protesters about free trade,but would agree with the protesters about corporate investment.
C) disagree with the protesters about corporate investment,but would agree with the protesters about free trade.
D) agree with the protesters.
Q2) Proprietary technology is knowledge that is
A) known but no longer used much.
B) known,but only recently discovered.
C) known mostly by only those in a certain profession.
D) known only by the company that discovered it.
Q3) How do outward-oriented policies affect a nation's productivity?
Q4) What is the difference between human capital and technology?
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Chapter 26: Saving, investment, and the Financial System
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Q1) Which of the following is correct?
A) In a closed economy equilibrium in the market for loanable funds occurs where saving = investment.
B) Investment is the source for the supply of loanable funds.
C) If there is a surplus in the market for loanable funds,the interest rate rises.
D) All of the above are correct
Q2) In a closed economy,public saving is the
A) amount of income that households have left after paying for taxes and consumption. B) amount of income that businesses have left after paying for the factors of production. C) amount of tax revenue that the government has left after paying for its spending. D) sum of A,B,and C.
Q3) If people become less optimistic about the future earnings of Hyde Park Jazz Studio,then the price of the company's stock will fall. A)True B)False
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Chapter 27: The Basic Tools of Finance
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Q1) Tonya put $250 into an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Tonya have in her account now?
A) $302.50
B) $306.23
C) $308.67
D) $309.39
Q2) What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?
A) $240.38
B) $242.24
C) $244.40
D) None of the above are correct to the nearest cent.
Q3) If you deposit $900 into an account for two years and the interest rate is 4%,how much do you have at the end of the two years?
A) $972.00
B) $973.44
C) $974.19
D) None of the above is correct.
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Chapter 28: Unemployment
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Q1) Within the U.S.population,blacks ages 20 and older have lower rates of labor-force participation than whites.
A)True
B)False
Q2) The Bureau of Labor Statistics defines the unemployment rate as the percentage of the labor force that is unemployed.
A)True
B)False
Q3) According to 2007 data on the U.S.population,which of the following groups of adults (ages 20 and older)has the highest labor-force participation rate?
A) white males
B) white females
C) black males
D) black females
Q4) The Bureau of Labor Statistics computes labor-force participation rates for the entire adult population and for more narrowly defined groups.
A)True
B)False
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Chapter 29: The Monetary System
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Q1) If banks desire to hold no excess reserves,the reserve ratio is 10 percent,and a bank that was previously just meeting its reserve requirement receives a new deposit of $400,then initially the bank has a
A) $400 increase in excess reserves and no increase in required reserves.
B) $400 increase in required reserves and no increase in excess reserves.
C) $360 increase in excess reserves and $40 increase in required reserves.
D) $40 increase in excess reserves and $360 increase in required reserves.
Q2) Imagine that the federal funds rate was below the level the Federal Reserve had targeted.To move the rate back towards it's target the Federal Reserve could
A) buy bonds.This buying would reduce reserves.
B) buy bonds.This buying would increase reserves.
C) sell bonds.This selling would reduce reserves.
D) sell bonds.This selling would increase reserves.
Q3) Other things the same,if the Fed raises the discount rate,then banks choose to borrow
A) more from the Fed so reserves increase.
B) more from the Fed so reserves decrease.
C) less from the Fed so reserves increase.
D) less from the Fed so reserves decrease.
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Chapter 30: Money Growth and Inflation
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Q1) If velocity = 5,the price level = 1.5,and the real value of output is 2,500,then the quantity of money is
A) 333.33.
B) 750.00.
C) 1,050.00.
D) 8,333.33.
Q2) When money is neutral,which of the following increases when the money supply growth rate increases?
A) real output growth
B) real interest rates
C) nominal interest rates
D) the money supply divided by the price level
Q3) According to the principle of monetary neutrality,a decrease in the money supply will not change
A) nominal GDP.
B) the price level.
C) unemployment.
D) All of the above are correct.
Q4) Inflation distorts relative prices.What does this mean and why does it impose a cost on society?
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) Other things the same,if a country saves more,then
A) net capital outflow rises,so net exports rise.
B) net capital outflow rises,so net exports fall.
C) net capital outflow falls,so net exports rise.
D) net capital outflow falls,so net exports fall.
Q2) If a U.S.textbook publishing company sells texts overseas,U.S.net exports
A) increase,and U.S.net capital outflow increases.
B) increase,and U.S.net capital outflow decreases.
C) decrease,and U.S.net capital outflow increases.
D) decrease,and U.S.net capital outflow decreases.
Q3) After 1980 in the United States,
A) national saving fell below investment and net capital outflow was a large positive number.
B) national saving fell below investment and net capital outflow was a large negative number.
C) investment fell below saving and net capital outflow was a large positive number.
D) investment fell below saving,so net capital outflow was a large negative number.
Q4) What does purchasing-power parity imply about the real exchange rate?
Page 33
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) In the open-economy macroeconomic model,the supply of loanable funds comes from
A) national saving.Demand comes from only domestic investment.
B) national saving.Demand comes from domestic investment and net capital outflow.
C) Only net capital outflow.Demand for loanable funds comes from national saving.
D) domestic investment and net capital outflow.Demand for loanable funds comes from national saving.
Q2) When the real exchange rate for the dollar appreciates,U.S.goods become
A) less expensive relative to foreign goods,which makes exports rise and imports fall.
B) less expensive relative to foreign goods,which makes exports fall and imports rise.
C) more expensive relative to foreign goods,which makes exports rise and imports fall.
D) more expensive relative to foreign goods,which makes exports fall and imports rise.
Q3) Other things the same,a higher real exchange rate raises net exports.
A)True
B)False
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) Which of the following statements is correct?
A) Most economists use the model of aggregate demand and aggregate supply to analyze short-run economic fluctuations.
B) Economic fluctuations are essentially unrelated to changes in business conditions.
C) Economic fluctuations follow a regular,predictable pattern.
D) All of the above are correct.
Q2) An increase in the money supply
A) and an investment tax credit both cause aggregate demand to shift right.
B) and an investment tax credit both cause aggregate demand to shift left.
C) causes aggregate demand to shift right,while an investment tax credit causes aggregate demand to shift left.
D) causes aggregate demand to shift left,while an investment tax credit causes aggregate demand to shift right.
Q3) The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that wages are sticky in the short run.
A)True
B)False
Q4) Make a list of things that would shift the aggregate demand curve to the right.
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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 statements generates the greatest amount of disagreement among economists?
A) Increases in the money supply shift aggregate demand to the right.
B) In the long run,increases in the money supply increase prices,but not output.
C) Recessions are associated with decreases in consumption,investment,and employment.
D) Government should use fiscal policy to try to stabilize the economy.
Q2) In the early 1960s,the Kennedy administration made considerable use of
A) fiscal policy to stimulate the economy.
B) fiscal policy to slow down the economy.
C) monetary policy to stimulate the economy.
D) monetary policy to slow down the economy.
Q3) Refer to Figure 34-4.A shift of the money-demand curve from MD<sub>1</sub> to MD<sub>2</sub> could be a result of
A) a decrease in taxes.
B) an increase in government spending.
C) an increase in the price level.
D) All of the above are correct.
Q4) What is the difference between monetary policy and fiscal policy?
Q5) Explain how unemployment insurance acts as an automatic stabilizer.
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Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) If inflation expectations rise,the short-run Phillips curve shifts
A) left.If inflation remains the same,unemployment falls.
B) left.If inflation remains the same,unemployment rises.
C) right.If inflation remains the same,unemployment falls.
D) right.If inflation remains the same,unemployment rises.
Q2) Refer to Figure 35-4.If the economy starts at C and the money supply growth rate decreases,in the short run the economy moves to
A) B.
B) C.
C) F.
D) None of the above is consistent with a decrease in the money supply growth rate.
Q3) Friedman and Phelps believed that the natural rate of unemployment was constant.
A)True
B)False
Q4) Other things the same,an increase in aggregate demand reduces unemployment and raises inflation in the short run.
A)True
B)False
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.
A)True
B)False
Q2) Suppose that the government goes into deficit in order to help local school districts build better schools.Does this burden future generations?
Q3) Fluctuations in employment and output result from changes in
A) aggregate demand only.
B) aggregate supply only.
C) aggregate demand and aggregate supply.
D) neither aggregate demand nor aggregate supply.
Q4) Why do many economists advocate a consumption tax rather than an income tax?
Q5) Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.
A)True
B)False
Q6) The major driver of future federal spending is rising energy costs.
A)True
B)False
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