Survey of Economics
Exam Materials
Course Introduction
Survey of Economics provides an overview of fundamental economic principles and concepts, introducing students to both microeconomics and macroeconomics. The course examines how individuals, businesses, and governments make decisions regarding resource allocation, production, distribution, and consumption of goods and services. Topics include supply and demand, market structures, the role of government in the economy, measures of economic performance, monetary and fiscal policy, international trade, and current economic issues. This course is designed to give students a broad understanding of how economic forces shape everyday life and the world around them.
Recommended Textbook Principles of Economics 5th Edition by
Joshua Gans
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36 Chapters
4743 Verified Questions
4743 Flashcards
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Page 2
Chapter 1: Ten Lessons From Economics
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Sample Questions
Q1) Monopoly power and income inequality are examples of market failure.
A)True
B)False
Answer: False
Q2) Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short run.
Answer: To lower inflation, the government may choose to reduce the money supply in the economy. When the money supply is reduced, prices don't adjust immediately. Lower spending combined with prices that are too high reduces sales and causes workers to be laid off. Hence, the lower price level is associated with higher unemployment.
Q3) Adam Smith used the term 'invisible hand' in his 1776 book The Wealth of Nations. Prices are the instrument with which the 'invisible hand' directs economic activity in a market economy. Explain.
Answer: Because households and firms look at prices when deciding what to buy and sell, they subconsciously take into account the social benefits and costs of their actions. As a result, prices guide these individual decision makers to reach outcomes that maximise the welfare of society as a whole.
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Refer to Graph 2-1. In the graph shown, points A, B and D represent efficient outcomes for society.
A)True
B)False
Answer: False
Q2) A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce, given its factors of production and technology.
A)True
B)False
Answer: True
Q3) Given a two-good production possibilities frontier, a technological improvement in the production of one good will cause the frontier to pivot outward.
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) Imports are:
A) football players who switch the club they play for
B) an example of absolute advantage
C) goods produced domestically and sold in foreign countries
D) goods produced in foreign countries and sold domestically
Answer: D
Q2) According to Graph 3-2:
A) Amy has an absolute advantage in both goods, and Jim has a comparative advantage in coffee
B) Amy has an absolute advantage in both goods, and Jim has a comparative advantage in doughnuts
C) Amy has an absolute advantage in coffee, and Jim has a comparative advantage in doughnuts
D) Amy has an absolute advantage in doughnuts, and Jim has a comparative advantage in coffee
Answer: B
Q3) The central argument for free trade has changed a lot in the past two centuries. A)True
B)False
Answer: False
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Suppose we are analysing the market for hot chocolate. What will be the impact on the equilibrium price and quantity of each of the following events affecting the hot chocolate market?
a. winter starts and the weather turns sharply colder
b. the price of coffee falls
c. the price of whipped cream falls
d. the price of cocoa beans increases
e. consumer income falls because of a recession
f. the Health Department of Australia announces that hot chocolate cures acne
g. the population increases
h. a better method of harvesting cocoa beans is introduced
Q2) A market with many sellers offering slightly different products is called a monopoly.
A)True
B)False
Q3) The supply curve has a negative slope.
A)True
B)False
Q4) Why would Qantas be interested in the cost of fuel?
Q5) What are the determinants of individual demand and individual supply?
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) The cross-price elasticity of demand measures how the quantity demanded of a good changes:
A) as its price changes
B) as the price of a related good changes
C) as income changes
D) as the slope of the demand curve changes
Q2) The midpoint method is used to calculate elasticity because it gives the same answer regardless of the direction of the change between two points.
A)True
B)False
Q3) If two demand curves with different slopes pass through the same point, which demand curve will have the greater price elasticity of demand if the price falls from that point?
Q4) Income elasticity of demand measures how:
A) the quantity demanded changes as consumer income changes
B) consumer purchasing power is affected by a change in the price of a good
C) the price of a good is affected when there is a change in consumer income
D) many units of a good a consumer can buy given a certain income level
Q5) What is the price elasticity of supply?
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Chapter 6: Supply, Demand and Government Policies
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Sample Questions
Q1) According to Graph 6-8, the amount of the tax imposed in this market is:
A) $1.00
B) $1.50
C) $2.50
D) $3.50
Q2) In Graph 6-10, the per-unit burden of the tax on the sellers is:
A) P<sub>2</sub> minus P<sub>0</sub>
B) P<sub>2</sub> minus P<sub>1</sub>
C) P<sub>1</sub> minus P<sub>0</sub>
D) Q<sub>1</sub> minus Q<sub>0</sub>
Q3) A tax of $0.20 per cup on the sellers of coffee will cause the:
A) supply curve of coffee to shift down by $0.20 per cup
B) supply curve of coffee to shift up by $0.20 per cup
C) supply curve of coffee to shift left by $0.20 per cup
D) supply curve of right to shift right by $0.20 per cup
Q4) A tax on the sellers of popcorn will cause the price the buyers pay:
A) and the effective price the sellers receive to rise
B) and the effective price the sellers receive to fall
C) to rise and the effective price the sellers receive to fall
D) to fall and the price the sellers receive to rise
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Chapter 7: Consumers, Producers and the Efficiency of Markets
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Sample Questions
Q1) How does consumer surplus differ from the market price?
Q2) Ticket scalping leads to a reduction in economic efficiency and therefore to a reduction in economic wellbeing.
A)True
B)False
Q3) Peter owns a sawmill and produces timber for construction. He sells the timber for $300 per cubic metre. His production costs are $140 per cubic metre. His producer surplus is:
A) $140 per cubic metre
B) $300 per cubic metre
C) $160 per cubic metre
D) none of the above
Q4) Total surplus in a market is:
A) the total costs to sellers of providing the goods less the total value to buyers of the goods
B) always less than consumer surplus plus producer surplus
C) the total value to buyers of the goods less the costs to sellers of providing those goods
D) always greater than consumer surplus plus producer surplus
Q5) What is the relationship between the willingness to sell and the supply curve?
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Chapter 8: Application: The Costs of Taxation
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Sample Questions
Q1) A tax on land will distort economic incentives unless the tax applies only to raw (unimproved) land.
A)True
B)False
Q2) According to Graph 8-3, after the tax is levied, consumer surplus is:
A) $2400
B) $1600
C) $800
D) $400
Q3) What is the relationship between a change in the size of a tax and the change in the deadweight loss from the tax?
Q4) As the size of a tax decreases:
A) the deadweight loss from the tax declines
B) the deadweight loss from the tax remains constant
C) the deadweight loss from the tax increases
D) the deadweight loss could increase or decrease depending on the relative elasticities of demand and supply
Q5) Which economic tool that can predict whether reducing a tax in a market will increase or decrease tax revenue?
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Chapter 9: Application: International Trade
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Sample Questions
Q1) A multilateral approach to free trade has the potential to increase the gains from trade more than a unilateral approach does, because the multilateral approach can reduce trade restrictions abroad as well as at home.
A)True
B)False
Q2) While it is true that some jobs may be lost in the short run because of free trade, jobs are also created because of trade and free trade allows a country as a whole to enjoy a higher standard of living.
A)True
B)False
Q3) According to Graph 9-2, the equilibrium price and the equilibrium quantity of saddles in Argentina before trade would be:
A) P<sub>1</sub>, Q<sub>2</sub>
B) P<sub>1</sub>, Q<sub>1</sub>
C) P<sub>0</sub>, Q<sub>0</sub>
D) P<sub>0</sub>, Q<sub>1</sub>
Q4) Import quotas and tariffs both cause the quantity of imports to fall.
A)True
B)False
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Chapter 10: Externalities
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Sample Questions
Q1) Private owners of restored historical buildings are not likely to capture the full benefit of restoration so they tend to discard them too quickly. Many local governments respond to this problem by: (i) condemning historic buildings to make room for new development (ii) regulating the destruction of historic buildings (iii) providing tax breaks to owners of historic buildings who restore them.
A) (i), (ii) and (iii) are all used
B) only (i) and (iii) are used
C) only (ii) and (iii) are used
D) only (i) and (ii) are used
Q2) A local cafe that allowed patrons to smoke was recently forced to close its doors because it did not comply with local clean air standards. This decision provides an example of:
A) direct regulation of an externality
B) Pigovian taxes
C) a Coase theorem solution to an externality
D) unjustified discrimination against smokers
Q3) Externalities are generated by the consumption of goods.
A)True
B)False
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Page 12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) A lighthouse might be considered a private good if:
A) lighthouses were provided by private charities
B) the government taxes ship owners to provide them the lighthouses they need
C) the owner of the lighthouse refuses to be subsidised by the government
D) the owner of the lighthouse can charge nearby port authorities a fee for the lighthouse service
Q2) The profit motive that stems from private ownership has proven to be detrimental to elephant populations.
A)True
B)False
Q3) Common resource goods are:
A) rival and non-excludable
B) rival and excludable
C) non-rival and excludable
D) non-rival and non-excludable
Q4) Prices are the signals that guide the decisions of buyers and sellers in the markets.
A)True
B)False
Q5) Explain the difference between a common resource and a public good.
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Which of the following is a tax system in which higher income taxpayers have lower tax rates, even though they pay a larger amount of tax than lower income taxpayers?
A) a proportional tax system
B) a progressive tax system
C) a regressive tax system
D) none of the above
Q2) Why might a tax on luxury yachts that are purchased only by the wealthy fail to satisfy the condition of vertical equity?
Q3) A lump-sum tax imposes a minimal administrative burden on taxpayers because:
A) everyone can easily compute the amount of tax they owe
B) there is no benefit to hiring an accountant to do your taxes
C) everyone owes the same amount of tax, regardless of earnings
D) all of the above are true
Q4) When a tax does not have a deadweight loss, the reduction in surplus is exactly offset by tax revenue collected by the government.
A)True
B)False
Q5) Explain the difference between vertical equity and horizontal equity.
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Which of the following is an implicit cost of owning a business? (i) forgone savings account interest when personal money is invested in the business
(ii) interest expense on existing business loans
(iii) damaged or lost inventory
A) (i) only
B) (ii) only
C) (i) and (ii)
D) (i), (ii) and (iii)
Q2) Refer to Table 13-2. What is the total cost associated with making 890 boxes of premium chocolates per week?
A) $975
B) $1100
C) $1250
D) $1375
Q3) The efficient scale of the firm is the quantity of output that:
A) maximises marginal product
B) maximises average fixed cost
C) minimises average total cost
D) minimises average variable cost
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Page 15
Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) When a perfectly competitive firm makes a decision to shut down, it is most likely that:
A) price is below the minimum of average variable cost
B) marginal cost is above average variable cost
C) fixed costs exceed variable costs
D) average fixed costs are rising
Q2) A firm in a competitive market produces and sells 500 door knobs at a price of $10 each. It then chooses to increase its output to 1000 door knobs. After the increase in output, its average revenue will:
A) decrease
B) increase
C) equal $10
D) fall below marginal revenue
Q3) The exit of existing firms from a competitive market will:
A) increase market supply and increase market prices
B) increase market supply and decrease market prices
C) decrease market supply and decrease market prices
D) decrease market supply and increase market prices
Q4) Explain the relationship between a firm's supply curve and its costs.
Q5) What are the three assumptions that are made about a competitive market?
Page 16
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Chapter 15: Monopoly
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Sample Questions
Q1) Refer to Graph 15-6. What is the deadweight loss equal to when the monopolist engages in perfect price discrimination?
A) ABC
B) ADF
C) CEF
D) deadweight loss will equal zero
Q2) If a monopolist sells 500 units at $20 per unit and realises an average total cost of $8 per unit, what is the monopolist's profit?
A) $600
B) $6000
C) $10000
D) none of the above
Q3) A profit-maximising monopolist will choose a level of output at where:
A) marginal revenue equals the price
B) average revenue is equal to average total cost
C) marginal revenue is equal to marginal cost
D) average total cost is at a minimum
Q4) Describe how government is involved in creating a monopoly. Why might the government create one? Give an example.
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Chapter 16: Business Strategy
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Sample Questions
Q1) When an oligopoly market is in Nash equilibrium, firms will not act as profit maximisers.
A)True
B)False
Q2) Monopolistic competition describes a market structure in which there is one firm.
A)True
B)False
Q3) A prisoners' dilemma game demonstrates how cooperative action is often not rational even though:
A) cooperation would make everyone worse off
B) cooperation would make everyone better off
C) prisoners are not capable of individual choice
D) all of the above can be demonstrated with a prisoners' dilemma game
Q4) Refer to Table 16-4. If both firms follow a dominant strategy, firm B's profits (losses) will be:
A) -$10
B) -$12
C) $20
D) $24
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Chapter 17: Competition Policy
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Sample Questions
Q1) Transparent pricing may help a cartel to sustain high prices.
A)True
B)False
Q2) Price cap regulations are intended to let monopolists keep some of the profits they generate if they lower their costs.
A)True
B)False
Q3) Reduced competition through merging of companies:
A) may raise social welfare if the benefit from the synergies exceeds the social cost of increased market power
B) may raise social welfare if the cost from the synergies exceeds the benefit of increased market power
C) will always benefit society as a whole
D) will never benefit society as a whole
Q4) Why might economists prefer private ownership of monopolies over public ownership of monopolies?
Q5) Why do economists usually prefer private ownership to public ownership of natural monopolies?
Q6) Explain the practice of tying and discuss why it is controversial.
Page 19
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Chapter 18: Monopolistic Competition
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Q1) In the long run, the profit for a monopolistically competitive firm moves to the competitive level due to:
A) moving demand for its product
B) rising average total cost
C) rising average variable cost
D) the cost of advertising
Q2) Brand names that existed in communist countries were typically associated with:
A) the name of the firm that manufactured the product
B) very isolated products
C) products that were largely homogeneous
D) private manufacturers only
Q3) What is the similarity between a long-run equilibrium in a monopolistically competitive market with a monopoly? What is the difference?
Q4) Refer to Graph 17-4. Panel b in the set of figures shown is consistent with a firm in a monopolistically competitive market that is:
A) incurring economic gains
B) in a short-run equilibrium, but not a long-run equilibrium
C) in both a short-run and a long-run equilibrium
D) in a long-run equilibrium, but not a short-run equilibrium
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Chapter 19: The Markets for the Factors of Production
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Sample Questions
Q1) The demand curve for land can be thought of as:
A) (marginal product of land)×(marginal product of labour)
B) (marginal product of land)/(marginal product of labour)
C) (marginal product of land)×(rental price of land)
D) (marginal product of land)/(rental price of land)
Q2) The value of the marginal product of labour is equal to the change in:
A) total revenue with the addition of the last worker
B) total cost with the addition of the last worker
C) total profit with the addition of the last worker
D) marginal cost with the addition of the last worker
Q3) The x-axis of the production function typically measures:
A) revenue
B) inputs
C) outputs
D) marginal product
Q4) The market wage is:
A) unaffected by the stock of labour
B) the purchase price of a labourer
C) the rental price of labour services
D) a payment to labour stock
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Chapter 20: Earnings, Unions and Discrimination
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Q1) List the productivity factors that may explain the difference in pay between men and women in similar occupations. Do any of these factors arise as a result of cultural or social traditions? If so, describe how changes in social relationships affect the pay gap over time.
Q2) Suppose a forestry firm has just two types of jobs. One requires an education and the other does not. The differences in the wages is high enough to provide workers with a reasonable return on their investment in education. It is likely that:
A) the firm will increase the wage rate for the job that requires an education
B) the supply of workers for the job that requires an education will rise
C) the firm's demand for workers for the job that an requires education will rise
D) all of the above will occur
Q3) Explain the role of job experience in explaining the difference between the average wages of men and women.
Q4) The theory of efficiency wages explains above-equilibrium wages by assuming that workers get a rise in wage when they prove they are increasing their productivity.
A)True
B)False
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Chapter 21: Income Inequity and Poverty
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Q1) Outline the possible work disincentives created by anti-poverty programs. Is there a way to solve this problem without causing other forms of inefficiency to arise? Explain your answer.
Q2) Assume that the government proposes a negative income tax that calculates taxes owed by the formula TAXES OWED = (1/3 * INCOME) - $10 000. Compute the tax that would be owed given each of the following levels of income.
a. $120 000
b. $90 000
c. $60 000
d. $30 000
e. zero
Q3) In general, which of the following would libertarians conclude is more important than equality?
A) income
B) entrepreneurial compensation
C) capital compensation
D) opportunity
Q4) Are there problems in using an absolute scale to measure poverty? If so, carefully explain what these problems are.
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Chapter 22: The Theory of Consumer Choice
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Q1) When two goods are perfect substitutes, the marginal rate of substitution: A) increases as the abundance of one good increases B) increases as the scarcity of one good increases C) decreases as the scarcity of one good increases D) is constant
Q2) An optimising consumer will select a consumption bundle in which utility is maximised:
A) and prices are minimised B) and income is maximised C) and indifference curves are linear D) subject to constraints imposed by her budget
Q3) Use a diagram to demonstrate the circumstances under which a consumer is indifferent between an in-kind transfer and a cash transfer of equal dollar value. If a cash transfer is always at least as preferred as an in-kind transfer, what do you think are the reasons for maintaining programs that rely on in-kind transfers? Explain your answer.
Q4) Using indifference curves and budget constraints, graphically illustrate the substitution and income effect that would result from a change in the price of one good.
Q5) Which measure of elasticity can be weakly linked to Giffen goods?
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Chapter 23: Frontiers of Microeconomics
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Q1) In the moral hazard problem the:
A)agent tends to undertake more effort than the principal considers desirable
B)agent tends to undertake less effort than the principle considers desirable
C)problem of asymmetric information is absent
D)agent does not exhibit any 'undesirable' behaviour
Q2) Studies suggest that:
A)the passage of time makes no difference to individuals' choices between two options
B)individuals' choices may be inconsistent over time
C)individuals' choices are always consistent over time
D)none of the above
Q3) An implication of the median voter theorem is that, in a democratic voting system, minority views are given significant weight.
A)True
B)False
Q4) What are two implications of the Condorcet paradox?
Q5) In the moral hazard problem the principal performs some task on behalf of the agent.
A)True
B)False
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Chapter 24: Measuring a Nations Income
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Q1) If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is:
A) 0.8
B) 1.25
C) 80
D) 125
Q2) Since black market and non-market measures are excluded from measures of GDP, the GDP measure tends to:
A) overestimate the total production of an economy
B) underestimate the total production in an economy
C) not make a significant difference in determining the total production of an economy
D) lead one to the conclusion that GDP measures are not very useful to anyone but market economists
Q3) The difference between the values of final production and value of the inputs is called:
A) the surplus of the final goods and services
B) the profit of the final goods and services
C) the value added of the final goods and services
D) the gross product of the final goods and services
Q4) Define GDP and explain why some products are excluded.
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Chapter 25: Measuring the Cost of Living
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Q1) An important difference between the GDP deflator and the CPI is that:
A) the GDP deflator reflects the prices of all goods and services produced domestically, whereas the CPI reflects the prices of goods and services bought by consumers
B) the GDP deflator reflects the prices of goods and services bought by producers, whereas the CPI reflects the prices of goods and services bought by consumers
C) the GDP deflator reflects the prices of all goods and services produced by a nation's resources, whereas the CPI reflects the prices of goods and services bought by consumers
D) the GDP deflator reflects the prices of goods and services bought by producers and consumers, whereas the CPI reflects the prices of goods and services bought by consumers
Q2) The CPI is a perfect measure of the cost of living.
A)True
B)False
Q3) The GDP deflator is the ratio of nominal GDP to real GDP.
A)True
B)False
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Chapter 26: Production and Growth
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Q1) The rule of 70 refers to the compulsory retirement age of employees, as they are no longer as productive as they once were.
A)True
B)False
Q2) The level of GDP is a good gauge of economic prosperity, and the growth of GDP is a good gauge of economic progress.
A)True
B)False
Q3) Natural resources:
Natural resources:
A) are inputs provided by nature
B) are inputs such as land, rivers and mineral deposits
C) take two forms - renewable and non-renewable
D) all of the above
E) only B and C
Q4) The amount that a nation trades with others is determined by:
A) geography
B) the availability of natural sea ports
C) government policy
D) all of the above
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Chapter 27: Saving, Investment and the Financial System
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Q1) Dean Martin's income was $1000 in 1950. If the annual interest rate was 5 per cent, then the present value of his 1950 income in the year 2000 would be:
A) $9524
B) $10 500
C) $70 400
D) $114 674
Q2) The P/E ratio is the price of the share divided by the amount the corporation earned in the last financial year.
A)True
B)False
Q3) Shares enable firms to raise debt financing as the firm is in debt to its owners.
A)True
B)False
Q4) Government policies are incapable of influencing interest rates and, therefore, cannot affect society's allocation of scarce resources.
A)True
B)False
Q5) Discuss whether the Rudd stimulus package to shield the economy was successful.
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Chapter 28: The Natural Rate of Unemployment
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Q1) In Graph 28-1, without a minimum wage law, the equilibrium market wage is:
A) W<sub>0</sub>, and the equilibrium market quantity of labour hired is L<sub>0</sub>
B) W<sub>0</sub>, and the equilibrium market quantity of labour hired is L<sub>1</sub>
C) W<sub>1</sub>, and the equilibrium market quantity of labour hired is L<sub>1</sub>
D) W<sub>1</sub>, and the equilibrium market quantity of labour hired is L<sub>0</sub>
E) W<sub>1</sub>, and the equilibrium market quantity of labour hired is L<sub>2</sub>
Q2) Which of the following causes of unemployment would most likely be affected by more accessible information about job opportunities?
A) Collective bargaining
B) Minimum wage laws
C) Job search
D) Efficiency wages
Q3) What is the theory of efficiency wages?
Q4) Explain the worker-effort variant of efficiency wage theory with moral hazard.
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Chapter 29: The Monetary System
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Q1) If the reserve ratio is 20 per cent and a bank receives a new deposit of $100, then this bank:
A) must increase its required reserves by $20
B) will initially see its total reserves increase by $100
C) will be able to make a new loan of $80
D) all of the above
Q2) Under what circumstances can banks not influence the supply of money?
Q3) In spite of bank runs and inflation, money has proven to be a very useful social convention.
A)True
B)False
Q4) Discuss the problems the RBA has controlling the money supply in a system of fractional-reserve banking.
Q5) The value of money:
A) increases when prices rise
B) increases when the price of bonds falls C) increases when prices fall
D) decreases when prices fall
Q6) What are the problems facing the RBA in its management of the money supply?
Q7) What is the difference between a medium of exchange and a store of value?
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Chapter 30: Inflation: Its Causes and Costs
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Q1) An extraordinarily high rate of inflation is called:
A) disinflation
B) hyperinflation
C) hyperdisinflation
D) adverse inflation
Q2) The velocity of money measures how many times per year the typical dollar coin is used to pay for a newly produced good or service.
A)True
B)False
Q3) The supply of money is determined by:
A) the value of money
B) the price level
C) the Reserve Bank
D) the demand for money
Q4) If the price level is above the equilibrium level, then:
A) money demand will be greater than money supply
B) money demand will be smaller than money supply
C) money supply will be equal to money demand
D) the price level will rise
Q5) Why does the demand for money curve slope downwards to the right?
Page 32
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) If purchasing-power parity holds, and a tonne of rice costs $200 in Australia and 15 000 yen in Japan, then the nominal exchange rate is:
A) 300 yen/$
B) 30 $/yen
C) 75 yen/$
D) 750 yen/$
Q2) Balanced trade is:
A) a situation in which the value of a country's exports equals the value of its production
B) a situation in which the value of a country's exports equals the value of its imports
C) a situation in which the value of a country's imports equals the value of its consumption
D) none of the above
Q3) An open economy's GDP is shown by:
A) Y = C + I + G + S
B) Y = C + I + G - NX
C) Y - C = I + G + NX
D) Y = C + I + G + T
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) In the market for foreign-currency exchange, E1 is:
A) the price of goods and services in the present relative to goods and services in the future
B) the price of goods and services in the future relative to goods and services in the present
C) the price of foreign goods and services relative to domestic goods and services
D) the price of domestic goods and services relative to foreign goods and services
Q2) The price of imports will increase on the domestic market if two conditions are fulfilled: a strong local currency and a shortage of supply.
A)True
B)False
Q3) When capital flows out of Country A to Country B, Country A's net foreign investment will:
A) fall, and Country B's net investment will rise
B) rise, and Country B's net investment will rise
C) rise, and Country B's net investment will fall
D) fall, and Country B's net investment will fall
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) Most economists believe that in the short run:
A) real and nominal variables are highly interrelated
B) only real variables are highly interrelated
C) only nominal variables are highly interrelated
D) none of the above
Q2) When firms cut back production:
A) they employ more people, so unemployment rises
B) they employ more people, so unemployment falls
C) they employ fewer people, so unemployment rises
D) they employ fewer people, so unemployment falls
Q3) If resources become more productive:
A) neither the short-run aggregate curve nor the long-run supply curve shifts
B) the short-run aggregate-supply curve is not affected but the long-run aggregate curve shifts
C) the aggregate-demand curve shifts
D) both the short-run and the long-run aggregate-supply curves shift
Q4) The long run aggregate supply curve is the summation of the short-run aggregate supply curves.
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) The lag problem associated with monetary policy is due to:
A) the fact that firms make investment plans far in advance
B) the political process
C) the time it takes for monetary policy to affect the interest rate
D) none of the above
Q2) Keynes's theory that the interest rate adjusts to bring money supply and money demand into balance is called:
A) the theory of sticky wages
B) the theory of sticky prices
C) the classical dichotomy theory
D) the theory of liquidity preference
Q3) At a higher price level, the demand for money increases, the interest rate increases, and the demand for business and residential investment falls. Hence the aggregate-demand curve slopes downward.
A)True
B)False
Q4) Why could there be a great deal of frustration for policy makers when the long-term effects of their decisions do not seem to flow through, as they wanted?
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Q5) Define expansionary and contractionary fiscal policy, giving examples of each.
Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) The equation by Friedman and Phelps of a relationship between the unemployment rate and its natural rate can be summarised as:
A) Unemployment rate = Natural rate of unemployment /(Actual inflation - Expected inflation)
B) Unemployment rate = Natural rate of unemployment - a(Actual inflation - Expected inflation)
C) Unemployment rate = Natural rate of unemployment - Actual inflation
D) Unemployment rate = Natural rate of unemployment - Expected inflation
Q2) Using the theory of rational expectations of inflation, identify how statements made by the government and RBA, could affect the rate of inflation.
Q3) A typical estimate of the sacrifice ratio is five. According to Sargent, the sacrifice ratio could be much smaller than suggested by previous estimates.
A)True B)False
Q4) When the RBA contracts monetary policy, what is the effect on the Phillips curve in the short-run?
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) The budget deficit is a major piece of how the government chooses to raise and spend money.
A)True
B)False
Q2) Which of the following is not the cost of inflation?
A) Menu costs
B) Tax distortions
C) Arbitrary redistributions of wealth
D) All of the above
Q3) Fiscal policy works with a lag because of the long political process that governs changes in spending and tax
A)True
B)False
Q4) Discretion in the conduct of monetary policy does not limit incompetence and abuse of power.
A)True
B)False
Q5) A nation's saving rate is a key determinant of its long-run economic prosperity.
A)True
B)False
38
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