Survey of Economics
Midterm Exam
Course Introduction
Survey of Economics provides a comprehensive introduction to the fundamental concepts and principles of both microeconomics and macroeconomics. The course explores topics such as supply and demand, market structures, consumer behavior, production costs, national income, economic growth, inflation, unemployment, and fiscal and monetary policy. Emphasis is placed on understanding how economic theories apply to real-world issues and decision-making processes at both individual and societal levels. By the end of the course, students will have a broad understanding of economic systems and their impact on everyday life, equipping them with analytical tools to interpret current economic events.
Recommended Textbook
Economics 4th Edition by Paul Krugman
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Chapter 1: First Principles
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Q1) Alison is offered two jobs. One pays $45,000 per year and offers three weeks of vacation, while the other offer provides two weeks of vacation and a salary of $54,000. What is the opportunity cost for Alison if she chooses the job offer of $54,000?
A) $45,000 plus the three weeks of vacation
B) $45,000 per year
C) one week of vacation
D) two weeks of vacation
Answer: C
Q2) Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. Marla's choice indicates that she:
A) values an additional hour of studying more than the $10 she would earn tutoring.
B) values an hour of studying less than the $10 she would earn tutoring.
C) does not understand that there is no benefit from studying.
D) doesn't need the money.
Answer: A
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Chapter 2: Economic Models- Trade-Offs and Trade
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Sample Questions
Q1) A mortgage-backed security is an asset that:
A) only homeowners are allowed to purchase.
B) provides earnings to its owner based on payments made by people on their home loans.
C) the Federal Reserve uses to implement monetary policy.
D) is an important part of the circular-flow diagram.
Answer: B
Q2) On any given production possibility frontier, we see the minimum quantity of one good that can be produced for any given production of the other.
A)True
B)False
Answer: False
Q3) "The rate of unemployment is 9%." This statement:
A) is positive.
B) is normative.
C) involves a value judgment.
D) is a personal reflection and has no value in economics.
Answer: A
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Chapter 3: Supply and Demand
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Sample Questions
Q1) (Figure: The Demand and Supply of Wheat) Look at the figure The Demand and Supply of Wheat. A temporary price of $4 in this market would result in a _____ of _____ bushels.
A) surplus; 4,000
B) shortage; 2,000
C) shortage; 4,000
D) surplus; 2,000
Q2) Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If Harley-Davidson raises the price of its motorcycles, we can expect:
A) a shift to the right in the supply curve of Hondas and lower prices for Hondas.
B) a shift to the left in the supply curve of Hondas and higher prices for Hondas.
C) a shift to the right in the demand curve for Hondas and higher prices for Hondas.
D) a shift to the left in the demand curve for Hondas and lower prices for Hondas.
Q3) Explain the law of demand. What does it tell us about the shape of a demand curve?
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Chapter 4: Consumer and Producer Surplus
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Sample Questions
Q1) Well-defined property rights:
A) can allow for mutually beneficial trades.
B) will result in government regulation.
C) often result in more market failures.
D) lead to more centralized decision making.
Q2) If the supply curve of ice cream is upward-sloping and demand for it decreases, there will be _____ in producer surplus.
A) an increase
B) a decrease
C) no change
D) It's impossible to tell what will happen to producer surplus.
Q3) (Table: Willingness to Pay for Peanuts) Using the table Willingness to Pay for Peanuts, if the price of a bag of peanuts is $3, the total value of consumer surplus is equal to:
A) $12.
B) $26.
C) $10.
D) $21.
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Chapter 5: Price Controls and Quotas- Meddling With Markets
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Sample Questions
Q1) Governments continue to impose price controls. Which of the following is NOT a valid reason for this?
A) Some people do benefit from such price controls.
B) People fear that prices will change dramatically if the price controls are removed.
C) It is politically expedient to enact regulations that benefit influential voting groups.
D) Price controls are always effective.
Q2) The quota rent is:
A) the difference between the demand price and the supply price at the quota limit.
B) the rent received by landlords who own rent-controlled apartments.
C) the opportunity cost of using a quota-controlled service or of buying a good that is subject to an import quota.
D) the minimum rent that the owner of a building must receive before he or she is willing to rent out the building.
Q3) A price ceiling benefits all consumers.
A)True
B)False
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Chapter 6: Elasticity
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Sample Questions
Q1) The price of a gallon of gasoline increases 10% this year. As a result, which of the following events is MOST likely to occur?
A) More people will drive their cars.
B) Public transportation usage will decrease.
C) Gasoline expenditures will increase if gasoline is an inelastic good.
D) Fewer people will ride bicycles, a substitute for car travel.
Q2) All else equal, when the demand for oil increases, the price will increase. Some economists say that this is only a short-run worry because in the long run a more elastic supply curve will benefit consumers. Do you agree? Explain.
Q3) (Figure: The Demand for e-Books) Look at the figure The Demand for e-Books. What is the price elasticity of demand (by the midpoint method) when the price decreases from $6 to $4?
A) 0.55
B) 0.5
C) 1
D) 0.67
Q4) Suppose the income elasticity for cross-country bus trips is -2 and the income elasticity for cross-country plane trips is +2. Does this make sense? Explain your answer.
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Page 8
Chapter 7: Taxes
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Sample Questions
Q1) (Scenario: The Market for Good X) Look at the scenario The Market for Good X. If a $1 per unit tax is imposed, the price of good X will increase by:
A) $20.00.
B) $0.60.
C) $1.00.
D) $1.50.
Q2) State governments levy excise taxes on alcohol because:
A) they want to subsidize alcohol production.
B) they want to encourage individuals to produce their own alcohol.
C) it discourages drinking alcohol while raising revenue for the government.
D) it is politically popular with religious groups.
Q3) Suppose price elasticity of demand is relatively inelastic for good X. If the price elasticity of supply for good X is elastic and an excise tax is imposed on good X, who will bear the greater burden of the tax?
A) consumers
B) producers
C) both consumers and producers equally
D) government
Q4) How does an excise tax impose a cost on society?
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Chapter 9: The Rational Consumer
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Sample Questions
Q1) (Figure: Budget Lines for Tea and Scones) Look at the figure Budget Lines for Tea and Scones. For months now, Agnes has had $20 per month to spend on tea and scones. The price of each cup of tea and each scone has been $1. Which of the charts shows what will happen to her budget line if her income decreases to $10?
A) A
B) B
C) C
D) D
Q2) Which of the following best describes the principle of diminishing marginal utility? As an individual consumes more of a good:
A) the total utility obtained will eventually fall.
B) the total utility obtained will eventually become negative.
C) the addition to total utility obtained from the nth unit of the good will be less than that obtained from the immediately preceding unit of the good.
D) the marginal utility will eventually become negative.
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Chapter 8: International Trade
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Sample Questions
Q1) The job creation argument for protection against free trade:
A) is that keeping out foreign imports allows the goods and services to be produced by domestic workers.
B) is frequently put forward by economists.
C) is mostly that we need full employment to defend the security of the nation.
D) is that we need full employment to prevent currency depreciation.
Q2) Import protections are often imposed because:
A) import protections increase total surplus, even though some groups are harmed.
B) groups representing import-competing industries are more cohesive than consumers.
C) benefits to producers outweigh the costs to the consumer.
D) the loss in consumer surplus is usually quite small.
Q3) Saudi Arabia has a tremendous comparative advantage in petroleum. Which of the following is a source of this comparative advantage?
A) mild temperatures
B) large reserves of crude oil
C) no opportunity cost associated with oil production
D) high tariffs on oil from other nations
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Chapter 10: Decision Making by Individuals and Firms
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Sample Questions
Q1) In economics, the assumption is that consumers and firms will make choices that maximize the _____ of each activity.
A) total profit
B) total benefit
C) sum of total benefit and total cost
D) product of total benefit and total cost
Q2) According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____.
A) more than; an activity should be reduced
B) less than; an activity should be reduced
C) equal to; an activity should be reduced
D) more than; net benefit is maximized
Q3) (Figure: The Marginal Benefit Curve) Look at the figure The Marginal Benefit Curve. The total benefit of mowing six lawns is approximately:
A) $19.
B) $35.
C) $154.
D) $200.
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Chapter 11: Perfect Competition and the Supply Curve
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Q1) (Figure: Revenues, Costs, and Profits for Tomato Producers II) Look at the figure Revenues, Costs, and Profits for Tomato Producers II. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $10. At the farmer's profit-maximizing output, total revenue is _____, total cost is _____, and profit is
A) $90; $72; $18
B) $56; $56; $0
C) $30; $48; -$18
D) $48; $56; -$8
Q2) A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases, in the long run and the short run:
A) positive economic profits will result for all firms.
B) higher prices will result.
C) output will increase.
D) negative economic profits will result for some firms.
Q3) A perfectly competitive firm's demand curve is perfectly elastic at the market-determined price.
A)True
B)False
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Page 13
Chapter 12: Monopoly
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Sample
Questions
Q1) When firms price-discriminate, people with _____ price elasticity of demand will pay _____ prices relative to those purchasing the same product who have a _____ price elasticity of demand.
A) higher; higher; lower
B) lower; lower; higher
C) lower; higher; higher
D) higher; the same; lower
Q2) A monopoly's short-run marginal cost is constant at $10. This implies that its average variable cost is also constant and equal to $10.
A)True
B)False
Q3) (Figure: Computing Monopoly Profit) Look at the figure Computing Monopoly Profit. To obtain maximum profits, the monopoly should produce the output determined by point:
A) G.
B) N.
C) H.
D) K.
Q4) Explain why the marginal revenue curve lies below the monopolist's demand curve.
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Chapter 13: Oligopoly
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Sample Questions
Q1) The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline. Which of the following will INCREASE the chances that the cartel will fail because of cheating by the owners?
A) All of the gas stations face the same costs.
B) There are only a few gas stations.
C) The gas stations are producing as much as they can.
D) The gas stations vary in terms of the services that they provide.
Q2) (Figure: Monopoly Profits in Duopoly) Look at the figure Monopoly Profits in Duopoly. Each firm faces an identical demand curve, D<sub>1</sub>,<sub> </sub>and the market demand curve is D<sub>2</sub>. The figure illustrates how firms can reap monopoly profits even in an industry with:
A) free entry and exit.
B) two firms.
C) monopolistic competition.
D) a four-firm concentration ratio of 50.
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Sample Questions
Q1) Monopolistic competition is similar to perfect competition because firms in both market structures:
A) are price takers.
B) produce goods that are perfect substitutes.
C) find it beneficial to advertise.
D) do not face any barriers to entry to the industry in the long run.
Q2) (Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. Zero economic profit will be earned if the profit-maximizing price is _____ in panel _____.
A) F; (A)
B) G; (A)
C) H; (B)
D) I; (C)
Q3) Monopolistic competition describes an industry characterized by a _____ number of firms producing _____ products with _____ entry.
A) small; identical; barriers to
B) small; similar; relatively easy
C) large; similar; relatively easy
D) large; identical; relatively easy
Page 16
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Chapter 15: Externalities
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Sample Questions
Q1) All of the following are examples of an external cost EXCEPT:
A) the smoke nuisance of a factory.
B) zoning restrictions on your property.
C) land defilement from strip mining.
D) weeds on your next-door neighbor's lawn.
Q2) Assume the federal government determines the total level of pollutants that can be discharged by city industries. A city is able to buy and sell the rights to this total discharge level with other cities. This is an:
A) emissions tax.
B) Pigouvian tax.
C) tradable emissions permit.
D) environmental standard.
Q3) (Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this market, whose sulfur emission is a result of production, too much pollution is found when the price is _____ and the quantity is _____.
A) $5; 15
B) $5; 40
C) $25; 20
D) $5; 30
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Page 17
Chapter 16: Public Goods and Common Resources
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Q1) An individual is MOST likely to be a free rider when a good is:
A) private.
B) nonexcludable.
C) nonrival.
D) artificially scarce.
Q2) National defense and clean air are similar in that both are _____, but they differ in that national defense is _____, while clean air is not.
A) rival in consumption; excludable
B) nonrival in consumption; excludable
C) excludable; rival in consumption
D) nonexcludable; nonrival in consumption
Q3) Josh has an iPhone, and he frequently downloads songs from the iTunes website. He pays a small fee for each download, but downloading a song does not remove it from the iTunes inventory. Other consumers can also pay the fee and download a song that Josh might have already accessed. The iTunes service is best described as(n):
A) private good.
B) public good.
C) artificially scarce good.
D) common resource.
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Page 18
Chapter 17: The Economics of the Welfare State
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Sample Questions
Q1) The percentage of the population that falls below the poverty line is called the:
A) poor rate.
B) poverty rate.
C) homeless rate.
D) absolute number of people in poverty.
Q2) Private health insurance is funded by:
A) the government.
B) tax contributions to Medicare.
C) extremely ill people, who pay very high premiums.
D) members of a large pool of individuals, each paying a fixed premium to a private company that agrees to pay some portion of the medical expenses of the members.
Q3) A popular explanation for the most important cause of the increase in income inequality in recent years is:
A) the elimination of many income redistribution programs.
B) rapid technological change.
C) the failing education system.
D) the failing education system and rapid technological change.
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Chapter 18: Factor Markets and the Distribution of Income
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Q1) At Hamill Manufacturing of Pennsylvania highly skilled senior machinists are paid $70,000, excluding benefits, but the average skilled machinist generates approximately $137,000 in value added. This difference is due to the fact that:
A) the marginal productivity theory of income distribution does not apply in this case.
B) the equilibrium wage rate includes other costs, such as employee benefits, that have to be subtracted from the $70,000 salary.
C) the equilibrium wage rate includes other costs, such as employee benefits, that have to be added to the $70,000 salary.
D) the value of the marginal product of the last machinist hired is equal to the average of all machinists employed.
Q2) If the hourly wage increases from $8 to $10 an hour and in response Jim increases the number of hours that he works from 44 to 46, the substitution effect is dominant. A)True B)False
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Chapter 19: Uncertainty, Risk, and Private Information
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Q1) As a result of frequent flooding, the insurance market has noted a positive correlation between flooding and the amount of insurance monies paid out for such floods. Holding demand for insurance constant, if flooding is expected to continue to be a problem, flood insurance premiums will most likely:
A) rise.
B) fall.
C) stay the same.
D) rise, fall, or stay the same.
Q2) (Table: Income and Utility for Whitney) Look at the table Income and Utility for Whitney. Whitney's income next year is uncertain: there is a 40% probability she will make $40,000 and a 60% probability she will make $80,000. The expected value of Whitney's income is:
A) $64,000.
B) $80,000.
C) $40,000.
D) $56,000.
Q3) You have one ticket for a raffle with a grand prize of $1,000. There are two prizes worth $100 and five prizes worth $20. If only 100 tickets have been distributed, what is the expected value of your winnings?
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Page 21
Chapter 20: Macroeconomics- the Big Picture
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Q1) The peak of the business cycle provides evidence that the recession is over.
A)True
B)False
Q2) If an economy is open:
A) anyone can immigrate to the country.
B) trading with other countries makes up a portion of its economy.
C) it does not trade with other countries.
D) Its real GDP will drop.
Q3) An independent panel of economic experts at the _____ analyzes the macroeconomy and determines when recessions begin and end.
A) Bureau of the Census
B) President's Council of Economic Advisers
C) Treasury Department
D) National Bureau of Economic Research
Q4) Long-run growth is the sustained upward trend in:
A) aggregate output per person over several decades.
B) the unemployment rate over time.
C) interest rates over time.
D) aggregate output per person over the business cycle.
Q5) What are Keynesian policies?
22
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Chapter 21: Gdp and the Consumer Price Index
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Q1) In the circular-flow diagram, firms:
A) supply goods and services.
B) demand goods.
C) supply resources.
D) demand services.
Q2) (Table: Measuring GDP) Look at the table Measuring GDP. Government purchases of goods and services are:
A) $50 billion.
B) $100 billion.
C) $200 billion.
D) $300 billion.
Q3) If nominal GDP increases from one year to the next, _____ must have risen.
A) prices
B) real GDP
C) prices and real GDP
D) output or prices or both
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23
Chapter 22: Unemployment and Inflation
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Q1) Radhika just graduated from college. She recently quit her part-time job to focus on finding a full-time job that better uses the skills she acquired in college. Radhika is considered to be:
A) structurally unemployed.
B) frictionally unemployed.
C) cyclically unemployed.
D) employed, since she is focusing on finding a full-time job.
Q2) The costs that arise from the way inflation makes money a less reliable unit of measurement are:
A) shoe-leather costs.
B) menu costs.
C) unit-of-account costs.
D) medium of exchange costs.
Q3) To be classified as unemployed, a person must be:
A) not working.
B) not working and actively looking for a job in the past four weeks.
C) not working or working part-time but wishing to be working full-time.
D) not working and actively looking for a job in the past four weeks or discouraged and not actually looking for a job.
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Page 24
Chapter 23: Long-Run Economic Growth
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Q1) Which country had the lowest growth rate of real GDP per capita between 1980 and 2010?
A) Ireland
B) France
C) Argentina
D) Zimbabwe
Q2) The rule of 70 tells us that:
A) it takes most countries 70 years to increase real GDP growth.
B) the number of years it takes for a variable to double is equal to 70 divided by the annual growth rate of the variable.
C) the number of years for real GDP per capita to double is the current growth rate plus 70.
D) only 70 countries can have real GDP growth at any given time.
Q3) Physical capital consists of man-made resources like machines and buildings.
A)True
B)False
Q4) When tracking economic growth, why do economists prefer real GDP per capita over:
a. real GDP?
b. nominal GDP per capita?
Page 25
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Chapter 24: Savings, Investment Spending
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Q1) The _____ money paid back after borrowing money, the _____ the interest rate.
A) more; higher
B) less; higher
C) more; lower
D) There is not enough information to determine the answer.
Q2) Investment spending contributes to economic growth.
A)True
B)False
Q3) Owners of stock may receive income in the form of:
A) interest.
B) dividends and profit from selling the stock for more than its purchase price.
C) transfer payments.
D) rent.
Q4) Your grandmother has promised you $1,000 when you graduate in one year. At a 6% annual interest rate, you can borrow $943.40 and pay it back with your grandmother's gift at graduation.
A)True
B)False
Q5) Explain how a commercial bank meets both the short-term and long-term needs of its customers.
26
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Chapter 25: Fiscal Policy
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Q1) The fact that tax receipts fall during a recession:
A) makes the multiplier stronger.
B) has no impact on the multiplier.
C) reduces the adverse effect of the initial fall in aggregate demand.
D) acts as an automatic contractionary fiscal policy.
Q2) Suppose the government increases spending more than is necessary to close a recessionary gap. What is the most likely result?
A) Inflation will increase.
B) The price level will decline.
C) The equilibrium real GDP will fall.
D) The equilibrium real GDP will fall short of potential GDP.
Q3) (Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. Which of the following measures a recessionary gap?
A) Y<sub>3</sub> - Y<sub>1</sub>
B) Y<sub>3</sub> - Y<sub>2</sub>
C) Y<sub>2</sub> - Y<sub>1</sub>
D) Y<sub>3</sub> - Y<sub>0</sub>
Q4) Why does a $1,000 tax cut generate a smaller multiplier effect than a $1,000 increase in government purchases?
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Chapter 26: Money, Banking, and the Federal Reserve System
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Q1) The financial crisis of 2008 in the United States required:
A) the Fed to solve the problem independent of government assistance.
B) more government involvement and funding for troubled industries.
C) tighter supervision by the Federal Reserve Bank of New York.
D) the Treasury to solve the problems independently, since the Fed was unwilling to help.
Q2) Under the Glass-Steagall Act, commercial banks, which accept deposits and are covered by deposit insurance, were not allowed to trade in financial assets, such as stocks and bonds.
A)True
B)False
Q3) Deposit insurance:
A) is essentially the same as a bank's required reserves.
B) provides depositors with assurances that they will receive their deposits up to $250,000 even if there are questions about a bank's soundness.
C) can be used only if depositors lose deposits in excess of $250,000.
D) encourages banks to carefully consider to whom they lend funds.
Q4) Explain how an increase in the reserve requirement by the Federal Reserve can lead to a decrease in real GDP.
Page 28
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Chapter 27: Monetary Policy
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Q1) (Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E<sub>2</sub> and the central bank chooses to sell Treasury bills_____ shift to _____ a(n) _____ gap.
A) AD<sub>2</sub> will; right, causing; inflationary
B) AD<sub>2</sub> may; AD<sub>1</sub>, causing; recessionary
C) AD<sub>1</sub> may; AD<sub>2</sub>, closing; recessionary
D) AD<sub>1</sub> will; left, increasing; recessionary
Q2) (Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS<sub>2</sub> and the Fed conducts contractionary monetary policy, in the short run the interest rate increases to r<sub>1</sub>. In the long run: the demand for money will _____, and the interest rate will_____.
A) increase; increase to r<sub>1</sub>
B) increase; remain at r<sub>2</sub>.
C) decrease; decrease to r<sub>2</sub>.
D) decrease; remain at r<sub>1</sub>.
Q3) The interest rate is determined in the money market in the short run.
A)True
B)False
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Chapter 28: Inflation, Disinflation, and Deflation
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Q1) Explain why the classical model of the price level is more accurate during high inflation than low inflation.
Q2) To bring disinflation to an economy, policy makers must:
A) slow down labor productivity growth.
B) increase the money supply to release the economy from the liquidity trap.
C) keep unemployment below its natural rate for an extended period.
D) lower expectations about inflation.
Q3) Okun's law suggests that a _____ increase in a positive output gap _____ the unemployment rate by _____.
A) 1%; increases; 0.5%
B) 1%; decreases; 0.5%
C) 0.5% ; increases; 1%
D) 0.5%; decreases; 1%
Q4) Historically, governments have turned to seignorage to pay their bills when:
A) the economy is growing.
B) the government lacks the will to reduce the budget deficit by raising taxes or reducing spending.
C) the inflation rate is low.
D) the unemployment rate is low.
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Chapter 29: Crises and Consequences
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Q1) If a financial institution is systemically important:
A) it is an important part of the Federal Reserve banking system.
B) the business cycle affects it more than it affects the average financial institution.
C) its activities have the potential to cause a banking crisis.
D) it is not allowed to engage in maturity transformation.
Answer Key
Q2) Following the banking crises of the 1930s, both real GDP and the price level increased immediately.
A)True
B)False
Q3) The asset bubble that caused the savings and loan crisis of the 1980s was in:
A) gold.
B) oil futures.
C) stocks of Internet companies.
D) commercial real estate.
Q4) One problem with holding money as an asset is that it doesn't earn any income.
A)True
B)False
Q5) Why are banking-crisis recessions so bad?
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Chapter 30: Macroeconomics- Events and Ideas
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Q1) The economic view that reducing tax rates will increase the incentives to work and invest and will ensure a high growth rate of the potential output is known as _____ economics.
A) supply-side
B) demand-side
C) new classical
D) new Keynesian
Q2) The Great Moderation consensus is the school of thought that monetary policy should be the main tool of stabilization policy and is skeptical about the use of fiscal policy.
A)True
B)False
Q3) If the Fed funds rate is only 1%, the economy is dangerously close to:
A) an inflationary spiral.
B) a liquidity trap.
C) very high unemployment.
D) another recession.
Q4) Why did the adoption of Keynesian economics come out of the Great Depression?
Q5) Explain the rational expectations theory and how it predicts the usefulness of fiscal and monetary policy.
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Chapter 31: Open-Economy Macroeconomics
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Q1) The Venezuelan bolivar trades at a fixed exchange rate. If Venezuela uses monetary policy to change the exchange rate of the bolivar from $0.16 to $0.20, the bolivar has:
A) depreciated.
B) been devalued.
C) appreciated.
D) been revalued.
Q2) Included in the financial account is the income U.S. residents earn on assets owned in other countries.
A)True
B)False
Q3) A system in which exchange rates are set by government policy is a ____ system.
A) universal exchange
B) floating exchange rate
C) commodity standard
D) fixed exchange rate
Q4) All other things equal, an appreciation of the domestic currency will cause aggregate demand to increase.
A)True
B)False
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Chapter 32: Graphs in Economics
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Q1) The ______ of a curve shows the point at which the curve intersects an axis.
A) slope
B) steepness
C) intercept
D) origin
Q2) (Figure: Seasonally Adjusted Unemployment Rate) Look at the figure Seasonally Adjusted Unemployment Rate. The distance between each labeled point on the horizontal axis is one year. Unemployment was ______ between 1/2001 and 1/2002 and ______ between 1/1999 and 1/2000.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing
Q3) (Table: Price, Quantity Demanded, and Quantity Supplied) Look at the table Price, Quantity Demanded, and Quantity Supplied. The data in the figure suggest a nonlinear relation between:
A) price and quantity demanded.
B) price and quantity supplied.
C) quantity demanded and quantity supplied.
D) The table does not show a nonlinear relation.
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Chapter 33: Toward a Fuller Understanding
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Q1) Your friend wants to borrow $2,000 and pay it back in one year. She is someone who keeps her word. She agrees to repay you $2,080 in one year. The bank annual interest rate is 5%. Which of the following statements is TRUE?
A) You will be financially worse off if you make the loan rather than deposit $2,000 in the bank.
B) You will be financially better off if you make the loan rather than deposit $2,000 in the bank.
C) The present value of $2,080 payable in one year with an interest rate of 5% is $1,904.76, which is less than the value of the $2,000 you have been asked to lend.
D) None of the statements is true.
Q2) The present value of a future payment decreases if the:
A) period between the present and the future increases.
B) future payment increases.
C) interest rate decreases.
D) stock market rises.
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Chapter 34: Consumer Preferences and Consumer Choice
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Q1) The slope of a(n) _____ curve shows the rate at which two goods can be exchanged _____.
A) indifference; without changing the total budget
B) utility; without changing the total budget
C) indifference; without changing total utility
D) marginal utility; to increase the consumer's marginal utility
Q2) Consumption bundles that yield equal levels of total utility are shown on the same:
A) budget line.
B) marginal utility curve.
C) indifference curve.
D) utility maximizing curve.
Q3) Greater levels of utility are represented by:
A) indifference curves that are farther from the origin.
B) indifference curves that are closer to the origin.
C) moving up to the left on the same indifference curve.
D) moving down to the right on the same indifference curve.
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Chapter 35: Indifference Curve Analysis of Labor Supply
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Q1) An increase in the wage rate will:
A) normally generate a small income effect.
B) generate a significant decrease in after-tax income.
C) possibly lead people to choose more leisure rather than work more, since leisure is a normal good.
D) cause businesses to increase the number of employees to reduce costs.
Q2) (Figure: Income and Leisure Opportunities) Given Keisha's preferences and opportunities for income and leisure shown in the figure Income and Leisure Opportunities, Keisha sees leisure as:
A) a normal good.
B) an inferior good.
C) a complement to working.
D) The answer is impossible to determine with the information given.
Q3) If an individual's wage rate decreases, the substitution effect will cause the individual to work fewer hours.
A)True
B)False
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