Survey of Economics
Exam Answer Key
Course Introduction
Survey of Economics provides an introduction to the fundamental concepts and principles of both microeconomics and macroeconomics. The course examines how individuals, firms, and governments make decisions regarding the allocation of scarce resources, the functioning of competitive markets, supply and demand analysis, and the determination of prices and output. Key macroeconomic topics include national income, unemployment, inflation, fiscal and monetary policy, and economic growth. This course is designed to give students a broad overview of the field of economics and its relevance to current events and everyday life, providing a foundation for more advanced study in economics or related disciplines.
Recommended Textbook Principles of Economics 5th Edition by N.
Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) To raise productivity,policymakers could
A) increase spending on education.
B) provide tax credits to firms for capital improvements.
C) fund research and development.
D) All of the above are correct.
Answer: D
Q2) For which of the following individuals would the opportunity cost of going to college be highest?
A) a promising young mathematician who will command a high salary once she earns her college degree
B) a student with average grades who has never held a job
C) a famous,highly-paid actor who wants to take time away from show business to finish college and earn a degree
D) a student who is the best player on his college basketball team,but who lacks the skills necessary to play professional basketball
Answer: C
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3
Chapter 2: Thinking Like an Economist
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Q1) Points outside the production possibilities frontier represent infeasible levels of production.
A)True
B)False
Answer: True
Q2) Historical episodes are
A) valuable to economists because they allow economists to see how the science of economics has evolved.
B) valuable to economists because they allow economists to evaluate economic theories of the present.
C) not of concern to economists because economics is about predicting the future,not dwelling on the past.
D) not of concern to economists because the exact circumstances of historical episodes are unlikely to be observed again.
Answer: B
Q3) Two variables that have a negative correlation move in opposite directions.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-4.The rancher has an absolute advantage in the production of A) meat.
B) potatoes.
C) both goods.
D) neither good.
Answer: A
Q2) The gains from trade are
A) evident in economic models,but seldom observed in the real world.
B) evident in the real world,but impossible to capture in economic models.
C) a result of more efficient resource allocation than would be observed in the absence of trade.
D) based on the principle of absolute advantage.
Answer: C
Q3) Refer to Figure 3-5.Puneet's opportunity cost of one wallet is
A) 4/5 purse and Chirag's opportunity cost of one wallet is 2/3 purse.
B) 4/5 purse and Chirag's opportunity cost of one wallet is 3/2 purses.
C) 5/4 purses and Chirag's opportunity cost of one wallet is 2/3 purse.
D) 5/4 purses and Chirag's opportunity cost of one wallet is 3/2 purses.
Answer: C
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Refer to Table 4-8.Which space represents a decrease in equilibrium price and an indeterminate change in equilibrium quantity?
A) A
B) B
C) C
D) D
Q2) A dress manufacturer recently has come to expect higher prices for dresses in the near future.We would expect
A) the dress manufacturer to supply more dresses now than it was supplying previously.
B) the dress manufacturer to supply fewer dresses now than it was supplying previously. C) the demand for this manufacturer's dresses to fall.
D) no change in the dress manufacturer's current supply;instead,future supply will be affected.
Q3) If a person expects the price of socks to increase next month,then that person's current demand for socks will increase.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Q1) Refer to Figure 5-15.Using the midpoint method,what is the price elasticity of supply between point A and point B?
A) 0.58
B) 0.71
C) 1.06
D) 1.4
Q2) Suppose the price of Twinkies decreases from $1.45 to $1.25 and,as a result,the quantity of Twinkies demanded increases from 2,000 to 2,200.Using the midpoint method,the price elasticity of demand for Twinkies in the given price range is
A) 2.00.
B) 1.55.
C) 1.00.
D) 0.64.
Q3) The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded.
A)True
B)False
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Chapter 6: Supply, Demand, and Government Policies
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Q1) Price controls are usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
A)True
B)False
Q2) A tax on sellers and an increase in input prices affect the supply curve in the same way.
A)True
B)False
Q3) Refer to Figure 6-9.The equilibrium price in the market before the tax is imposed is
A) $1.
B) $2.
C) $5.
D) $6.
Q4) Most economists are in favor of price controls as a way of allocating resources in the economy.
A)True
B)False
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) Refer to Figure 7-9.If the equilibrium price rises from $50 to $200,what is the producer surplus to new producers?
A) $625
B) $3,750
C) $5,625
D) $10,000
Q2) Connie can clean windows in large office buildings at a cost of $1 per window.The market price for window-cleaning services is $3 per window.If Connie cleans 100 windows,her producer surplus is $200.
A)True
B)False
Q3) Refer to Table 7-5.Who experiences the largest loss of consumer surplus when the price of an orange increases from $0.70 to $1.40?
A) Alex
B) Barb
C) Carlos
D) All three individuals experience the same loss of consumer surplus.
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Page 9
Chapter 8: Application: The Costs of Taxation
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Q1) Taxes on labor tend to increase the number of hours that people choose to work.
A)True
B)False
Q2) Refer to Figure 8-6.The tax results in a deadweight loss that amounts to
A) $600.
B) $900.
C) $1,500.
D) $1,800.
Q3) Refer to Figure 8-2.The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is
A) $0.
B) $1.
C) $2.
D) $3.
Q4) In order for Henry George's single tax on land not to distort economic incentives,the tax would have to be on
A) improvements to land.
B) land used for commercial purposes.
C) land used for residential purposes.
D) raw land.
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Chapter 9: Application: International Trade
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Q1) When the nation of Mooseland first permitted trade with other nations,domestic producers of sugar experienced a decrease in producer surplus of $5 million and total surplus in Mooseland's sugar market increased by $2 million.We can conclude that
A) Mooseland became an exporter of sugar.
B) the overall economic well-being of participants in the sugar market in Mooseland fell because of trade.
C) consumer surplus in Mooseland increased by $7 million.
D) the opening of trade caused the domestic demand curve for sugar in Mooseland to shift to the right.
Q2) If a country's domestic price of a good is lower than the world price,then that country has a comparative advantage in producing that good.
A)True
B)False
Q3) A tax on an imported good is called a A) quota.
B) tariff.
C) supply tax.
D) trade tax.
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Chapter 10: Externalities
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Sample Questions
Q1) Corrective taxes are unlike most other taxes because they A) distort incentives.
B) move the allocation of resources away from the social optimum.
C) raise revenue for the government.
D) move the allocation of resources closer to the social optimum.
Q2) An externality is
A) the costs that parties incur in the process of agreeing and following through on a bargain.
B) the uncompensated impact of one person's actions on the well-being of a bystander. C) the proposition that private parties can bargain without cost over the allocation of resources.
D) a market equilibrium tax.
Q3) Refer to Table 10-3.If the government charged a fee of $69 per unit of pollution,how many units of pollution would the firms eliminate altogether?
A) 7
B) 8
C) 9
D) 10
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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) At the local park there is a playground that anyone may use.There is rarely anyone using the playground,so children who use the playground receive full enjoyment from its use.The playground is
A) rival in consumption and is excludable.
B) not rival in consumption,but is excludable.
C) rival in consumption,but is not excludable.
D) not rival in consumption nor is it excludable.
Q3) Depending on congestion,national parks can be either a common resource or a public good.
A)True
B)False
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Chapter 12: The Design of the Tax System
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Q1) Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000.What is the average tax rate when income is $60,000?
A) 21.7 percent
B) 25.0 percent
C) 46.7 percent
D) 50.0 percent
Q2) When interest income from savings is taxed,
A) people will save more to make up for what is lost in taxes.
B) people will save the same amount as they would have without the tax.
C) people will save less than they would without the tax.
D) None of the above is correct since the government would not tax interest on savings.
Q3) Approximately what percentage of the U.S.federal government's receipts come from individual income taxes?
A) 8%
B) 15%
C) 45%
D) 67%
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Chapter 13: The Costs of Production
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Sample Questions
Q1) A total-cost curve shows the relationship between the A) quantity of an input used and the total cost of production.
B) quantity of output produced and the total cost of production.
C) total cost of production and profit.
D) total cost of production and total revenue.
Q2) In the short run,a firm incurs fixed costs
A) only if it incurs variable costs.
B) only if it produces no output.
C) only if it produces a positive quantity of output.
D) whether it produces output or not.
Q3) When marginal cost is rising,average variable cost
A) must be rising.
B) must be falling.
C) must be constant.
D) could be rising or falling.
Q4) Economic profit is greater than or equal to accounting profit.
A)True
B)False
Q5) What effect,if any,does diminishing marginal product have on the shape of the marginal cost curve?
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) A competitive firm has been selling its output for $20 per unit and has been maximizing its profit,which is positive.Then,the price rises to $25,and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price.Once the firm has adjusted,which of the following statements is correct?
A) The firm's quantity of output is higher than it was previously.
B) The firm's average total cost is higher than it was previously.
C) The firm's marginal revenue is higher than it was previously.
D) All of the above are correct.
Q2) Refer to Figure 14-1.Which of the four prices corresponds to a perfectly competitive firm earning negative economic profits in the short run but trying to remain open?
A) P1
B) P2
C) P3
D) P4
Q3) If a firm notices that its average revenue equals the current market price,that firm must be participating in a competitive market.
A)True
B)False
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Chapter 15: Monopoly
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Sample Questions
Q1) Which of the following statements is correct?
A) Two examples of early antitrust laws are the Clinton and Stigler Antitrust Acts.
B) Antitrust laws automatically prevent mergers between companies that produce similar products.
C) Antitrust laws reduce the government's power to regulate private companies.
D) Antitrust laws can reduce social welfare if they prevent mergers that would lower costs through more efficient joint production.
Q2) Monopolists can achieve any level of profit they desire because they have unlimited market power.
A)True
B)False
Q3) A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it
A) can prevent children from buying the lower-priced tickets and selling them to adults.
B) has some degree of monopoly pricing power.
C) can easily distinguish between the two groups of customers.
D) All of the above are correct.
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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) Refer to Scenario 16-3.If firm B decides to advertise its product it can expect to
A) earn a profit of $48 million per year.
B) earn a profit of $36 million per year.
C) earn a profit of $12 million per year.
D) incur a loss of $12 million per year.
Q2) Critics of markets that are characterized by firms that sell brand name products argue that brand names encourage consumers to pay more for branded products that A) have elastic demand curves.
B) are very different from generic products.
C) are indistinguishable from generic products.
D) consumer-advocate groups have found to be inferior.
Q3) Refer to Figure 16-4.Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?
A) panel a
B) panel b
C) panel c
D) panel d
Q4) List five goods that are likely sold in a monopolistically competitive market.
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Chapter 17: Oligopoly
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Q1) If two players engaged in a prisoner's dilemma game are likely to repeat the game,they are more likely to cooperate than if they play the game only once.
A)True
B)False
Q2) Tying involves a firm
A) colluding with another firm to restrict output and raise prices.
B) selling two individual products together for a single price rather than selling each product individually at separate prices.
C) temporarily cutting the price of its product to drive a competitor out of the market.
D) requiring that the firm reselling its product do so at a specified price.
Q3) All cartels are inherently reliant on
A) a horizontal demand curve.
B) an inelastic demand for their product.
C) the cooperation of their members.
D) enforcement of antitrust laws.
Q4) Explain the practice of tying and discuss why it is controversial.
Q5) What effect does the number of firms in an oligopoly have on the characteristics of the market?
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Chapter 18: The Markets for the Factors of Production
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Q1) Which of the following statements is correct?
A) The market for capital is unlike the market for labor because the rental price of capital is unaffected by the marginal product of capital,whereas the price of labor is affected by the marginal product of labor.
B) The market for capital is unlike the market for labor because the purchase price of capital is unaffected by the marginal product of capital,whereas the price of labor is affected by the marginal product of labor.
C) The market for capital is like the market for labor because the rental price of capital is affected by the marginal product of capital,and the price of labor is affected by the marginal product of labor.
D) Both a and b are correct.
Q2) If the value of the marginal product of labor exceeds the wage,then the firm could
A) increase profit by hiring additional labor.
B) increase profit by reducing the amount of labor hired.
C) increase revenue by lowering output.
D) reduce total cost by hiring additional workers.
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Chapter 19: Earnings and Discrimination
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Q1) Assuming that all other things are equal,including the wage,which of the following statements is correct?
A) The quantity of labor supplied for easy jobs exceeds that for difficult jobs.
B) The quantity of labor supplied for fun jobs exceeds that for dull jobs.
C) The quantity of labor supplied for safe jobs exceeds that for dangerous jobs.
D) All of the above are correct.
Q2) The ownership of human capital
A) is typically embodied in related physical capital.
B) may be subject to government restrictions on transferability.
C) is not easily transferable.
D) All of the above are correct.
Q3) The United States is losing manufacturing jobs to countries like China and India,where manufacturing jobs have increased 30 percent since 1995.
A)True
B)False
Q4) Discrimination is an emotionally charged issue that is impossible to study objectively.
A)True
B)False
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Chapter 20: Income Inequality and Poverty
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Q1) Which of the following statements about the minimum wage is correct?
A) An increase in the minimum wage enhances the well-being of all unskilled workers.
B) An increase in the minimum wage has no effect on the well-being of middle-class families.
C) Advocates of the minimum wage argue that the demand for labor is relatively inelastic.
D) Critics of the minimum wage argue that it is an undesirable way of helping the poor because it is costly to the government.
Q2) The life cycle effect characterizes a lifetime income profile in which income
A) tends to follow a seasonal pattern.
B) rises as a worker gains maturity and experience.
C) rises and falls in conjunction with the business cycle.
D) falls during the early years of market activity and peaks at retirement.
Q3) The utilitarian justification for redistributing income is based on the assumption of diminishing marginal utility.
A)True
B)False
Q4) Explain the relationship between labor earnings and the distribution of income.
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Chapter 21: The Theory of Consumer Choice
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Q1) Alicia is a vegetarian,so she does not eat beef.That is,beef provides no additional utility to Alicia.She loves potatoes,however.If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis,her indifference curves will
A) slope downward.
B) be vertical straight lines.
C) slope upward.
D) be horizontal straight lines.
Q2) Refer to Figure 21-9.Given the budget constraint depicted in the graph,the consumer will choose bundle
A) B.
B) C.
C) D.
D) E.
Q3) Refer to Figure 21-7.When comparing bundle A to bundle E,the consumer
A) prefers bundle A because it contains more donuts.
B) prefers bundle E because it lies on a higher indifference curve.
C) prefers bundle E because it contains more donuts.
D) is indifferent between the two bundles.
Q4) 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) Some of the systematic mistakes that people make include
A) being overconfident.
B) placing too much weight on events that are more vivid compared to those with greater statistical probability.
C) being generally unwilling to change their minds.
D) All of the above are correct.
Q2) An example of an information asymmetry is when a worker knows more than his employer about his work effort.
A)True
B)False
Q3) According to the median voter theorem,majority rule will produce an outcome that is inconsistent with transitive preferences.
A)True
B)False
Q4) Informational asymmetry may apply to a hidden action or hidden characteristic where the informed party may be reluctant to reveal relevant information.
A)True
B)False
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Chapter 23: Measuring a Nations Income
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Q1) For an economy as a whole,income must equal expenditure because A) the number of firms is equal to the number of households in an economy.
B) international law requires that income equal expenditure.
C) every dollar of spending by some buyer is a dollar of income for some seller.
D) every dollar of saving by some consumer is a dollar of spending by some other consumer.
Q2) Refer to Table 23-5.Batterland's inflation rate from 2005 to 2006 was A) -25%.
B) 25%.
C) 33.3%.
D) 100%.
Q3) If the price of a DVD player is three times the price of a CD player,then a DVD player contributes
A) more than three times as much to GDP as does a CD player.
B) less than three times as much to GDP as does a CD player.
C) exactly three times as much to GDP as does a CD player.
D) to GDP but a CD player does not contribute to GDP.
Q4) Microeconomics and macroeconomics are closely linked.
A)True
B)False
Page 25
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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) The consumer price index tries to gauge how much incomes must rise to maintain
A) an increasing standard of living.
B) a constant standard of living.
C) a decreasing standard of living.
D) the highest standard of living possible.
Q3) The U.S.economy has never experienced deflation.
A)True
B)False
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Chapter 25: Production and Growth
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Q1) Investment from abroad
A) is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries.
B) is viewed by economists as a way to increase growth.
C) often requires removing restrictions that governments have imposed on foreign ownership of domestic capital.
D) All of the above are correct.
Q2) Human capital is
A) the same thing as technological knowledge.
B) the same thing as labor.
C) the tools and equipment operated by humans.
D) knowledge and skills that workers have acquired.
Q3) The return to schooling for society is higher than the return to schooling for the individual if
A) the concept of diminishing returns applies to education.
B) the concept of constant returns to scale applies to education.
C) human capital conveys positive externalities.
D) investment in human capital involves no opportunity costs.
Q4) Why does a nation's standard of living depend on property rights?
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Chapter 26: Saving, investment, and the Financial System
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Q1) In the national income accounting identity showing the equality between national saving and investment,what are the algebraic expressions for private saving and public saving?
Q2) When a country saves a larger portion of its GDP than it did before,it will have
A) more capital and higher productivity.
B) more capital and lower productivity.
C) less capital and higher productivity.
D) less capital and lower productivity.
Q3) Alberta buys a paint sprayer and a lift for her car customizing shop.A macroeconomist would refer to these purchases as investment.
A)True
B)False
Q4) When the U.S.government is in debt during a given year,it follows that its budget is in deficit for that year.
A)True B)False
Q5) The term loanable funds refers to all income that is not used for consumption. A)True B)False
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Chapter 27: The Basic Tools of Finance
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Q1) The financial system
A) involves bank accounts,mortgages,stock prices,and many other items.
B) involves decisions and actions undertaken by people at a point in time that affect their lives in the future.
C) coordinates the economy's saving and investment.
D) All of the above are correct.
Q2) Heart's Restaurants considered building a restaurant in a new location.The owners and their accountants decided that this was not the profitable thing to do.However,soon after they made this decision,both the interest rate and the cost of building the restaurant changed.In which case do these changes both make it more likely that they will now build the restaurant?
A) Interest rates rise and the cost of building the restaurant rises.
B) Interest rates rise and the cost of building the restaurant falls.
C) Interest rates fall and the cost of building the restaurant rises.
D) Interest rates fall and the cost of building the restaurant falls.
Q3) If you believe the stock market is informationally efficient,then it is a waste of time to engage in fundamental analysis.
A)True
B)False
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Chapter 28: Unemployment
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Q1) Why have labor-force participation rates for women in the United States increased since World War II while labor-force participation rates for men have decreased?
Q2) The Bureau of Labor Statistics defines the unemployment rate as the percentage of A) those unemployed relative to those employed.
B) the labor force that is unemployed.
C) the adult population that is unemployed.
D) the adult population that is unemployed or not in the labor force.
Q3) Data on unemployment indicate that most people who become unemployed will soon find jobs.
A)True B)False
Q4) The Bureau of Labor Statistics defines marginally attached workers as persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.
A)True B)False
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Chapter 29: The Monetary System
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Q1) Which of the following is included in M2 but not in M1?
A) demand deposits
B) corporate bonds
C) large time deposits
D) money market mutual funds
Q2) Which of the following is not included in M1?
A) a $5 bill in your wallet
B) $100 in your checking account
C) $500 in your savings account
D) All of the above are included in M1.
Q3) Money
A) is more efficient than barter.
B) makes trades easier.
C) allows greater specialization.
D) All of the above are correct.
Q4) The Federal Reserve primarily uses open-market operations to change the money supply.
A)True
B)False
Q5) Compare the Board of Governors and the Federal Open Market Committee.
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Chapter 30: Money Growth and Inflation
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Q1) Which of the following is correct?
A) If the Fed purchases bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve.
B) If the Fed sells bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve.
C) If the Fed purchases bonds,then the money supply curve shifts right.An increase in the price level shifts the money supply curve right.
D) If the Fed sells bonds,then the money supply curve shifts right.A decrease in the price level shifts the money supply curve right.
Q2) Explain how inflation affects savings.
Q3) Suppose the money market,drawn with the value of money on the vertical axis,is in equilibrium.If the money supply increases,then at the old value of money there is an
A) excess demand for money that will result in an increase in spending.
B) excess demand for money that will result in a decrease in spending.
C) excess supply of money that will result in an increase in spending.
D) excess supply of money that will result in a decrease in spending.
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) International trade
A) raises the standard of living in all trading countries.
B) lowers the standard of living in all trading countries.
C) leaves the standard of living unchanged.
D) raises the standard of living for importing countries and lowers it for exporting countries.
Q2) Suppose that a country has $120 billion of national saving,and $80 billion of domestic investment.Is this possible? Where did the other $40 billion of national savings go?
Q3) Suppose that purchases of Irish assets by foreigners exceed Irish purchase of foreign assets.Ireland has
A) positive net capital outflow and a trade surplus.
B) positive net capital outflow and a trade deficit.
C) negative net capital outflow and a trade surplus.
D) negative net capital outflow and a trade deficit.
Q4) Which of the following is always correct?
A) Y - I = NCO
B) NCO = NX
C) NX = I
D) All of the above are correct.
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) Suppose that the U.S.imposed an import quota on beef.Sales of U.S.beef producers would
A) rise and exports of other industries would increase.
B) rise and exports of other industries would decline.
C) not change,exports of other industries would increase.
D) not change,exports of other industries would decline.
Q2) If the supply of dollars in the market for foreign-currency exchange shifts right,then the exchange rate
A) rises and the quantity of dollars exchanged falls.
B) rises and the quantity of dollars exchanged does not change.
C) falls and the quantity of dollars exchanged rises.
D) falls and the quantity of dollars exchanged does not change.
Q3) When the U.S.real interest rate falls,owning U.S.assets becomes
A) less attractive and so U.S.net capital outflow rises.
B) less attractive and so U.S.net capital outflow falls.
C) more attractive and so U.S.net capital outflow rises.
D) more attractive and so U.S.net capital outflow falls.
Q4) How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?
Q5) What effect do protectionist policies have on the trade deficit?
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) Keynes explained that recessions and depressions occur because of A) excess aggregate demand.
B) inadequate aggregate demand.
C) excess aggregate supply.
D) inadequate aggregate supply.
Q2) When looking at a graph of aggregate demand,which of the following is correct?
A) There are nominal variables on both the vertical and the horizontal axes.
B) There are real variables on both the vertical and horizontal axes.
C) The variable on the vertical axis is nominal;the variable on the horizontal axis is real
D) The variable on the vertical axis is real;the variable on the horizontal axis is nominal
Q3) The aggregate supply curve is upward sloping in
A) the short and long run.
B) neither the short nor long run.
C) the long run,but not the short run.
D) the short run,but not the long run.
Q4) Like real GDP,investment fluctuates,but it fluctuates much less than real GDP..
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) Which of the following properly describes the interest-rate effect?
A) A higher price level leads to higher money demand;higher money demand leads to higher interest rates;a higher interest rate increases the quantity of goods and services demanded.
B) A higher price level leads to higher money demand;higher money demand leads to lower interest rates;a higher interest rate reduces the quantity of goods and services demanded.
C) A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate reduces the quantity of goods and services demanded.
D) A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate increases the quantity of goods and services demanded.
Q2) If the multiplier is 7 and if there is no crowding-out effect,then a $50 billion increase in government expenditures causes aggregate demand to A) increase by $250 billion. B) increase by $175 billion. C) increase by $350 billion.
D) None of the above are correct.
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Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) Refer to figure 35-6.If the economy starts at 5% unemployment and 5% inflation then if the Federal Reserve pursues a contractionary monetary policy,in the short run the economy moves to
A) 3% unemployment and 5% inflation.In the long run the economy moves to 5% unemployment and 5% inflation.
B) 3% unemployment and 5% inflation.In the long run the economy moves to 5% unemployment and 3% inflation.
C) 7% unemployment and 3% inflation.In the long run the economy moves to 5% unemployment and 5% inflation.
D) 7% unemployment and 3% inflation.In the long run the economy moves to 5% unemployment and 3% inflation.
Q2) An increase in expected inflation shifts the
A) short-run Phillips curve right.
B) short-run Phillips curve left.
C) long-run Phillips curve right.
D) long-run Phillips curve left.
Q3) In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Which of the programs below would transfer wealth from the young to the old?
A) Taxes are raised to provide better education.
B) Taxes are raised to improve government infrastructure such as roads and bridges.
C) Taxes are raised to provide more generous Social Security benefits.
D) None of the above transfer wealth form the young to the old.
Q2) Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.
Q3) In the Summer of 2008,consumers indicated that they were less optimistic about the future of the economy.This change in sentiment would likely
A) shift aggregate demand to the right.
B) increase output.
C) increase unemployment.
D) increase prices.
Q4) Identify three government policies that discourage saving.
Q5) The major driver of future federal spending is rising energy costs.
A)True
B)False
Q6) Describe three costs of inflation.
Q7) Explain the time inconsistency of monetary policy.
Page 38
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