Survey of Economics
Midterm Exam
Course Introduction
Survey of Economics provides a comprehensive introduction to the fundamental principles of both microeconomics and macroeconomics. The course explores topics such as supply and demand, market structures, consumer behavior, production decisions, and the role of government in the economy. Students will also examine key macroeconomic concepts including gross domestic product, unemployment, inflation, fiscal policy, and monetary policy, with an emphasis on how these forces affect individuals, businesses, and society as a whole. Throughout the course, real-world examples and current events are used to illustrate economic theories and equip students with the skills to analyze economic issues and policies critically.
Recommended Textbook Principles of Economics 4th Edition by N.
Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Trade with any nation can be mutually beneficial.
A)True
B)False
Answer: True
Q2) Your professor loves her work,teaching economics.She has been offered other positions in the corporate world that would increase her income by 25 percent,but she has decided to continue working as a professor.Her decision would not change unless the marginal
A)cost of teaching increased.
B)benefit of teaching increased.
C)cost of teaching decreased.
D)cost of a corporate job increased.
Answer: A
Q3) Most economists believe that an increase in the quantity of money results in A)an increase in the demand for goods and services.
B)lower unemployment in the short run.
C)higher inflation in the long run.
D)All of the above are correct.
Answer: D
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Page 3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) A production possibilities frontier is a graph that shows the various combinations of outputs the economy can produce given its factors of production and its technology.
A)True
B)False
Answer: True
Q2) When an economy is operating inside its production possibilities frontier we know that
A)there are unused resources or inefficiencies in the economy.
B)all of the economy's resources are fully employed.
C)economic growth would have to occur in order for the economy to move to a point on the frontier.
D)in order to produce more of one good, the economy would have to give up some of the other good.
Answer: A
Q3) Normative statements describe how the world is,while positive statements prescribe how the world should be.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) For two individuals who engage in the same two productive activities,it is impossible for one of the two individuals to
A)have a comparative advantage in both activities.
B)have an absolute advantage in both activities.
C)be more productive per unit of time in both activities.
D)All of the above are correct.
Answer: A
Q2) Refer to Figure 3-2.Suppose Ben and Jerry have both decided to produce at point A on their respective production possibilities frontiers.We know that
A)neither Ben's well-being nor Jerry's well-being could be improved as a result of trade between the two.
B)trade between the two could benefit Ben but not Jerry.
C)trade between the two could benefit Jerry but not Ben.
D)Ben and Jerry are both allocating 1/2 of their time to the production of each good.
Answer: D
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Suppose that demand for a good increases and,at the same time,supply of the good decreases.What would happen in the market for the good?
A)Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
B)Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
C)Both equilibrium price and quantity would increase.
D)Both equilibrium price and quantity would decrease.
Q2) In a perfectly competitive market,buyers and sellers are price setters.
A)True
B)False
Q3) What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive,digital cameras become cheaper,the cost of the resources needed to manufacture traditional film falls and more firms decide to manufacture traditional film?
A)Price will fall and the effect on quantity is ambiguous.
B)Price will rise and the effect on quantity is ambiguous.
C)Quantity will fall and the effect on price is ambiguous.
D)The effect on both price and quantity is ambiguous.
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Page 6
Chapter 5: Elasticity and Its Applications
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Sample Questions
Q1) Refer to Figure 5-2.Sellers' total revenue would increase if the price
A)increased from $6 to $8.
B)decreased from $18 to $16.
C)decreased from $16 to $15.
D)All of the above are correct.
Q2) Refer to Figure 5-7.If rectangle D is larger than rectangle A,then
A)demand is elastic between prices P and P .
B)a decrease in price from P to P will cause an increase in total revenue.
C)the magnitude of the percent change in price between P and P is smaller than the magnitude of the corresponding percent change in quantity demanded.
D)All of the above are correct.
Q3) Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
A)True
B)False
Q4) The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.
A)True
B)False
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) Refer to Figure 6-4.Suppose a price floor of $7.00 is imposed.As a result,
A)buyers' total expenditure on the good decreases by $20.00.
B)the supply curve will shift to the left so as to now pass through the point (Q = 40, P = $7.00).
C)the quantity of the good demanded decreases by 20 units.
D)the price of the good continues to serve as the rationing mechanism.
Q2) How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
Q3) The Earned Income Tax Credit is an example of
A)a minimum-wage policy.
B)a price ceiling.
C)a wage subsidy.
D)a rent subsidy.
Q4) Which of the following characterizations is correct?
A)Rent control and the minimum wage are both examples of price ceilings.
B)Rent control is an example of a price ceiling and the minimum wage is an example of a price floor.
C)Rent control is an example of a price floor and the minimum wage is an example of a price ceiling.
D)Rent control and the minimum wage are both examples of price floors.
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Table 7-5.As the table suggests,the demand curve is a straight line and so is the supply curve.Taking this into account,when there is equilibrium,producer surplus is
A)$16.
B)$24.
C)$32.
D)$48.
Q2) Which of the following is not true when the price of a good or service falls?
A)Buyers who were already buying the good or service are better off.
B)Some new buyers, who are now willing to buy, enter the market.
C)The total consumer surplus in the market increases.
D)The total value of purchases before and after the price change is the same.
Q3) Brock is willing to pay $400 for a new suit,but he is able to buy the suit for $350.His consumer surplus is
A)$50.
B)$150.
C)$350.
D)$400.
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Page 9
Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) Refer to Figure 8-2.Which of the following equations is valid for the loss in consumer surplus caused by the tax?
A)Loss of consumer surplus = (1/2)(P - P )(Q - Q ).
B)Loss of consumer surplus = (1/2)(P - P )(Q + Q ).
C)Loss of consumer surplus = (1/2)(P + P )(Q - Q ).
D)Loss of consumer surplus = (1/2)(P + P )(Q + Q ).
Q2) If the size of a tax increases,tax revenue
A)definitely increases.
B)definitely decreases.
C)definitely remains the same.
D)may increase, decrease, or remain the same.
Q3) Oliver Wendell Holmes once said taxes
A)are the price we pay for a civilized society.
B)are a fact of life.
C)cannot be escaped unless you are in jail.
D)can be avoided only by the rich.
Q4) The deadweight loss of a tax rises even more rapidly than the size of the tax.
A)True
B)False
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Refer to Figure 9-5.Without trade,the equilibrium price of carnations is
A)$8 and the equilibrium quantity is 300.
B)$6 and the equilibrium quantity is 200.
C)$6 and the equilibrium quantity is 400.
D)$4 and the equilibrium quantity is 500.
Q2) Refer to Figure 9-3.Consumer surplus in Jamaica without trade is
A)$375.
B)$2,000.
C)$2,250.
D)$8,700.
Q3) Deadweight loss measures the decrease in total surplus that results from a tariff or quota.
A)True
B)False
Q4) Refer to Figure 9-10.Producer surplus plus consumer surplus in this market before trade is
A)A + B.
B)A + B + C.
C)A + B + C + D.
D)B + C + D.
11
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Chapter 10: Externalities
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Sample Questions
Q1) Refer to Figure 10-6.Which quantity represents the social optimum for this market?
A)Q .
B)Q .
C)Q .
D)Q .
Q2) Refer to Figure 10-1.This graph represents the tobacco industry.If the government uses a pollution tax,how much of a tax must be imposed on each unit of production?
A)$1.90
B)$1.80
C)$1.60
D)$0.30
Q3) A local cafe that allowed patrons to smoke was forced to stop serving customers because it did not comply with local clean air standards.This decision provides an example of
A)a direct regulation of an externality.
B)corrective taxes.
C)a Coase theorem solution to an externality.
D)the misuse of a subsidy.
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Which of the following is a disadvantage of government provision of a public good?
A)The government lacks information about what people are willing to pay for the good.
B)The government does not provide enough of any public good.
C)The private sector can provide all public goods at a lower cost.
D)None of the above is a disadvantage.
Q2) In some cases the government can make everyone better off by raising taxes to pay for certain goods that the market fails to provide.
A)True
B)False
Q3) Using a toll to reduce traffic when congestion is greatest is an example of a A)regulation solution.
B)command-and-control policy.
C)corrective tax.
D)Coase theorem solution.
Q4) When one person enjoys the benefit of national defense,she reduces the benefit to others.
A)True
B)False
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) In order to construct a more complete picture of the economic burden of government across income classes,economists usually
A)include both tax payments as well as transfer payments received.
B)focus only on the tax payments of wealthy tax payers.
C)limit their analysis to taxes based on the ability-to-pay principle.
D)focus their analysis on issues of tax efficiency.
Q2) Refer to Table 12-7.What is the marginal tax rate for a person who makes $37,000?
A)9.25%
B)20%
C)25%
D)40%
Q3) Suppose that in 2012 the average citizen's federal tax bill is $4,872,and total federal spending is $6,532 per person.In 2012,the federal government will have A)a budget surplus.
B)a budget deficit.
C)horizontal equity.
D)vertical equity.
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14
Chapter 13: The Costs of Production
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Sample Questions
Q1) Which of the following is not a property of a firm's cost curves?
A)Marginal cost must eventually rise as a result of diminishing marginal product.
B)Average total cost is U-shaped.
C)Economies of scale will exist when average total cost falls as output rises.
D)Average total cost will cross marginal cost at the minimum of marginal cost.
Q2) Refer to Figure 13-7.Which of the figures represents the production function for a firm?
A)Figure 1
B)Figure 2
C)Figure 3
D)Figure 4
Q3) In setting the production level,a firm's cost curves
A)by themselves do not tell us what decisions the firm will make.
B)dictate what decisions the firm will make.
C)have no bearing on what decisions the firm will make.
D)None of the above is correct.
Q4) Implicit costs are costs that do not require an outlay of money by the firm.
A)True
B)False
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) Refer to Table 14-2.Consumers are willing to pay $120 per unit of port wine.What is Soper's Port Vineyard's economic profit at their profit maximizing point?
A)$78
B)$243
C)$278
D)$375
Q2) Refer to Figure 14-3.Which line segment best reflects the long-run supply curve for this firm?
A)ABCD
B)BC
C)ABC
D)None of the above, the long-run supply curve requires knowledge of the average variable cost structure.
Q3) Which of these types of costs can be ignored when an individual or a firm is making decisions?
A)Sunk costs
B)Marginal costs
C)Variable costs
D)Information costs
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Page 16
Chapter 15: Monopoly
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Sample Questions
Q1) A monopoly market
A)always maximizes total economic well-being.
B)always minimizes consumer surplus.
C)generally fails to maximize total economic well-being.
D)generally fails to maximize producer surplus.
Q2) Refer to Figure 15-2.The marginal revenue curve for a monopoly firm is depicted by curve
A)a.
B)B.
C)C.
D)D.
Q3) Refer to Figure 15-2.Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at (i) Q .
(ii) Q .
(iii) Q .
(iv) Q .
A)(i) or (ii)
B)(i), (ii) or (iii)
C)(iii) or (iv)
D)(iv) only
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Chapter 16: Oligopoly
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Sample Questions
Q1) A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called
A)a competitive equilibrium.
B)an open-market solution.
C)a socially-optimal solution.
D)a Nash equilibrium.
Q2) Total profit for an oligopolist is less than that of a perfectly competitive firm.
A)True
B)False
Q3) Individual profit earned by Dave,the oligopolist,depends on which of the following? (i) The quantity of output that Dave produces (ii) The quantities of output that the other firms in the market produce (iii) The extent of collusion between Dave and the other firms in the market
A)(i) and (ii)
B)(ii) and (iii)
C)(iii) only
D)(i), (ii), and (iii)
Q4) Explain the practice of tying and discuss why it is controversial.
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Page 18
Chapter 17: Monopolistic Competition
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Sample Questions
Q1) How does advertising signal to consumers that the product is a good one?
A)By seeing famous people using the product, consumers infer that they too can be famous.
B)By being willing to spend money on advertising, firms let consumers know the product is likely a good one since firms would not likely advertise a poor product.
C)By making consumers laugh during commercials, firms are associating positive experiences with the product.
D)It is not possible, without allowing consumers to actually use the product, for firms to signal to consumers the product's quality.
Q2) Refer to Table 17-3.What is the profit-maximizing output for Traci's Hairstyling?
A)3 hair treatments
B)4 hair treatments
C)5 hair treatments
D)6 hair treatments
Q3) Why does a typical monopolistically competitive firm face a downward-sloping demand curve?
Q4) List five goods that are likely sold in a monopolistically competitive market.
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Chapter 18: The Markets for the Factors of Production
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Q1) Dan owns one of the many bakeries in New York City.Which of the following events will lead to an increase in Dan's demand for the services of bakers? (i) The price of muffins increases.(Muffins are Dan's specialty.)
(ii) Dan adds three new ovens to the kitchen area to help the bakers work faster.
(iii) Local bakers form a union to protect themselves from low wages.
A)(i) and (ii)
B)(ii) and (iii)
C)(i) and (iii)
D)All of the above are correct.
Q2) Describe the process by which the market for capital and the market for land reach equilibrium.As part of your description,elaborate on the role of the stock of the resource versus the flow of services from the resource.
Q3) Capital income does not include income paid to households for the use of their capital.
A)True
B)False
Q4) Using the theory of wage determination,explain why wages in developing countries are typically quite low.
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Page 20
Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) One reason why better-looking workers may have higher earnings is that physical attractiveness is correlated with intelligence.
A)True
B)False
Q2) The wage difference between jobs that require education and those that don't
A)is not likely to be related to productivity differences.
B)is a barrier to obtaining an education.
C)does not affect the supply of workers in the different labor markets.
D)encourages workers to bear the cost of acquiring education.
Q3) Economists who attempt to explain the increasing earnings gap between skilled and unskilled workers offer two main hypotheses:
A)One hypothesis emphasizes education, and the other emphasizes random influences.
B)One hypothesis emphasizes education, and the other emphasizes supply and demand.
C)One hypothesis emphasizes international trade, and the other emphasizes technology.
D)One hypothesis emphasizes signaling, and the other emphasizes education.
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21
Chapter 20: Income Inequality and Poverty
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Q1) Government programs that take money from high-income people and give it to low-income people typically
A)improve economic efficiency by reducing poverty.
B)reduce economic efficiency because they distort incentives.
C)have no effect on economic efficiency because they both reduce poverty and distort incentives.
D)sometimes improve, sometimes reduce, and sometimes have no effect on economic efficiency.
Q2) Economic mobility contributes to
A)society's ills through making the rich richer.
B)society's ills through making the poor poorer.
C)society's prosperity because the children of millionaires are likely to become multimillionaires.
D)None of the above is correct.
Q3) Robert Nozick criticizes Rawls' concept of justice by using an example of A)minimum wage laws.
B)the grade distribution in an economics class.
C)a leaky bucket.
D)All of the above are correct.
Q4) Explain the relationship between labor earnings and the distribution of income.
Page 22
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Chapter 21: The Theory of Consumer Choice
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Q1) Assume that a college student purchases only coffee and Snickers.If both coffee and Snickers are normal goods,then the income effect associated with a decrease in the price of a Snickers will result in
A)a decrease in the consumption of Snickers and an increase in the consumption of coffee.
B)a decrease in the consumption of Snickers and a decrease in the consumption of coffee.
C)an increase in the consumption of Snickers and a decrease in the consumption of coffee.
D)an increase in the consumption of Snickers and an increase in the consumption of coffee.
Q2) Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?
A)Budget effect
B)Preference effect
C)Substitution effect
D)Income effect
Q3) List and briefly explain each of the four properties of indifference curves.
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Chapter 22: Frontiers of Microeconomics
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Q1) The Arrow impossibility theorem shows that
A)democracy should be abandoned as a form of government.
B)it is impossible to improve upon democratic voting methods as a mechanism for social choice.
C)all voting systems are flawed as a mechanism for social choice.
D)the median voter's preferences will always win in a two-way vote.
Q2) The Latin term caveat emptor,meaning "let the buyer beware," brings to mind the problem of
A)hidden actions.
B)adverse selection.
C)principals and agents.
D)moral hazard.
Q3) The problem of moral hazard is a problem of hidden action.
A)True
B)False
Q4) Explain how the presence of asymmetric information in car insurance markets may lead people who are good drivers or even average drivers to choose not to buy car insurance unless the law requires it.
Q5) Explain the Condorcet paradox.To which type of voting system does it apply?
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Chapter 23: Measuring a Nations Income
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Q1) A transfer payment is
A)a payment for moving expenses a worker receives when he or she is transferred by an employer to a new location.
B)a payment that is automatically transferred from your bank account to pay a bill or some other obligation.
C)a form of government spending that is not made in exchange for a currently produced good or service.
D)the benefit that a person receives from an expenditure by government minus the taxes that were collected by government to fund that expenditure.
Q2) Real GDP is the production of final goods and services valued at A)current year prices.
B)constant prices.
C)expected future prices.
D)the ratio of current year prices to constant year prices.
Q3) New home construction is included in the consumption component of GDP.
A)True
B)False
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Chapter 24: Measuring the Cost of Living
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Q1) The primary purpose of measuring the overall level of prices in the economy is to
A)allow for the measurement of GDP.
B)allow consumers to know what kinds of prices to expect in the future.
C)allow for the comparison of dollar figures from different points in time.
D)allow for the comparison of dollar figures from the same point in time.
Q2) Although they sometimes diverge,generally the CPI and the GDP deflator move in the same direction.
A)True
B)False
Q3) Tiffany is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Memphis that pays $64,000.Which set of CPIs would make the two salaries have almost the same purchasing power?
A)90 in Minneapolis and 80 in Memphis
B)90 in Minneapolis and 72 in Memphis
C)90 in Minneapolis and 66 in Memphis
D)None of the above is correct.
Q4) Which is likely to have the larger effect on the CPI,a 2 percent increase in food or a 3 percent increase in diamond rings? Explain.
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Page 26
Chapter 25: Production and Growth
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Q1) Senator Noitall says that in order to help poor countries develop,the United States should: 1.Prevent U.S.corporations from investing in poor countries because they take profits that the poor countries should have;2.Not import goods from poor countries that use child labor;3.Work to promote political stability in poor countries;and 4.Reduce poor countries reliance on market forces in their economies.How many of these ideas are likely to help poor countries grow?
A)1
B)2
C)3
D)4
Q2) Compare and contrast the population theories of Malthus and Kremer.
Q3) Which of the following is a determinant of productivity?
A)human capital per worker
B)physical capital per worker
C)natural resources per worker
D)All of the above are correct.
Q4) At first patents might seem like a deterrent to growth because in effect they restrict the use of new technology.Yet many economists believe that patents generate growth.Explain why.
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Chapter 26: Saving, investment, and the Financial System
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Q1) Which of the following is not correct?
A)When a country saves more, it has more capital.
B)A supplier of loanable funds borrows money.
C)The interest rate adjusts to balance the quantity supplied of and the quantity demanded of loanable funds.
D)If Mary buys equipment for her factory, Mary is engaging in capital investment.
Q2) When the government runs a budget deficit,
A)interest rates are lower than they would be if the budget were balanced.
B)national saving is higher than it would be if the budget were balanced.
C)investment is lower than it would be if the budget were balanced.
D)All of the above are correct.
Q3) Fred sells newly issued bonds.Ethel sells newly issued stocks.Who uses direct finance?
A)Only Fred.
B)Only Ethel.
C)Both Fred and Ethel.
D)Neither Fred nor Ethel.
Q4) What are the basic differences between bonds and stocks?
Q5) Draw and label a graph showing equilibrium in the market for loanable funds.
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Chapter 27: The Basic Tools of Finance
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Q1) Fundamental analysis shows that stock in FaceIt! Cosmetics Corporation has a present value that is higher than its price.
A)This stock is overvalued; you should consider adding it to your portfolio.
B)This stock is overvalued; you shouldn't consider adding it to your portfolio.
C)This stock is undervalued; you should consider adding it to your portfolio.
D)This stock is undervalued; you shouldn't consider adding it to your portfolio.
Q2) The future value of a deposit in a savings account will be larger
A)the longer a person waits to withdraw the funds.
B)the higher the interest rate is.
C)the larger the initial deposit is.
D)All of the above are correct.
Q3) Fundamental analysis shows that stock in Wallace Electronics Corporation has a present value that is higher than its price.
A)This stock is overvalued; you should consider adding it to your portfolio.
B)This stock is overvalued; you shouldn't consider adding it to your portfolio.
C)This stock is undervalued; you should consider adding it to your portfolio.
D)This stock is undervalued; you shouldn't consider adding it to your portfolio.
Q4) Give two conditions that are important to the efficient market theory.List one implication of the efficient market theory.
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Chapter 28: Unemployment
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Questions
Q1) Sally is on a temporary layoff from her factory job.If Sally participates in the BLS survey,she will be classified as
A)unemployed and in the labor force.
B)unemployed and out of the labor force.
C)employed and in the labor force.
D)employed and out of the labor force.
Q2) The BLS reported in 2005 that there were 53.23 million people over age 25 who had at least a bachelor's degree 40.59 million of them were employed and .98 million of them were unemployed.What were the labor-force participation rate and the unemployment rate for this group?
A)76.3% and 1.8%
B)76.3% and 2.4%
C)78.1% and 1.8%
D)78.1% and 2.4%
Q3) If an unemployed person quits looking for work,ceteris paribus,the unemployment rate
A)decreases, and the participation rate increases.
B)decreases, and the participation rate decreases.
C)stays the same, and the participation rate decreases.
D)and the labor-force participation rate stay the same.
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Chapter 29: The Monetary System
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Q1) The Fed can directly protect a bank during a bank run by
A)increasing reserve requirements.
B)selling government bonds to the bank.
C)lending reserves to the bank.
D)Doing any of the above.
Q2) Refer to Table 29-3.If the Last Bank of Cedar Bend is holding $10,000 in excess reserves,then the reserve requirement is
A)2 percent.
B)5 percent.
C)7 percent.
D)10 percent.
Q3) An increase in the money supply might indicate that the Fed had
A)purchased bonds in an attempt to increase the federal funds rate.
B)purchased bonds in an attempt to reduce the federal funds rate.
C)sold bonds in an attempt to increase the federal funds rate.
D)sold bonds in an attempt to reduce the federal funds rate.
Q4) The Federal Reserve is a privately operated commercial bank.
A)True
B)False
Q5) What makes the New York Federal Reserve regional bank so important?
Page 31
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Chapter 30: Money Growth and Inflation
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Q1) If a country had deflation,
A)the nominal interest rate would be greater than the real interest rate.
B)the real interest rate would be greater than the nominal interest rate.
C)the real interest rate would equal the nominal interest rate.
D)None of the above is necessarily correct.
Q2) On income tax forms,people are required to report
A)nominal interest earnings.
B)real interest earnings.
C)real capital gains.
D)All of the above.
Q3) The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the
A)velocity concept.
B)Fisher effect.
C)classical dichotomy.
D)Mankiw effect.
Q4) Define each of the symbols and explain the meaning of M × V = P × Y.
Q5) Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.
Page 32
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) Sonya,a citizen of Denmark,produces boots and shoes that she sells to department stores in the United States.Other things the same,these sales
A)increase U.S.net exports and have no effect on Danish net exports.
B)decrease U.S.net exports and have no effect on Danish net exports.
C)increase U.S.net exports and decrease Danish net exports.
D)decrease U.S.net exports and increase Danish net exports.
Q2) You buy a new car built in Sweden.Other things the same,your purchase by itself
A)raises both U.S.exports and U.S.net exports.
B)raises U.S.exports and lowers U.S.net exports.
C)raises both U.S.imports and U.S.net exports.
D)raises U.S.imports and lowers U.S.net exports.
Q3) A country has $200 billion of domestic investment and net capital outflow of $100 billion.What is saving?
A)$100 billion
B)$300 billion
C)-$200 billion
D)-$300 billion
Q4) How do we find the real exchange rate from the nominal exchange rate?
Q5) How do the nominal exchange rate and the real exchange rate differ?
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) When Mexico suffered from capital flight in 1994,Mexico's net exports
A)decreased.
B)did not change.
C)increased.
D)decreased until the peso appreciated, then increased.
Q2) If a government started with a budget deficit and moved to a surplus,domestic investment
A)and the real exchange rate would rise.
B)and the real exchange rate would fall.
C)would rise and the real exchange rate would fall.
D)would fall and the real exchange rate would rise.
Q3) Which of the following will decrease U.S.net capital outflow?
A)capital flight from the United States
B)the government budget deficit increases
C)the U.S.imposes import quotas
D)None of the above is correct.
Q4) Suppose that U.S.investors decide that investment opportunities in African countries have improved.What happens to U.S.net capital outflow? What happens to the U.S.real interest rate?
Page 34
Q5) Why do higher real interest rates lead to lower net capital outflow?
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) An increase in the interest rate causes investment to
A)rise and the exchange rate to appreciate.
B)fall and the exchange rate to depreciate.
C)rise and the exchange rate to depreciate.
D)fall and the exchange rate to appreciate.
Q2) If people want to save more for retirement
A)or if the government raises taxes, aggregate demand shifts right.
B)or if the government raises taxes, aggregate demand shifts left.
C)aggregate demand shifts right.If the government raises taxes, aggregate demand shifts left.
D)aggregate demand shifts left.If the government raises taxes, aggregate demand shifts right.
Q3) An increase in the price level causes the interest rate to
A)increase, the dollar to depreciate, and net exports to increase.
B)increase, the dollar to appreciate, and net exports to decrease.
C)decrease, the dollar to depreciate, and net exports to increase.
D)decrease, the dollar to appreciate, and net exports to decrease.
Q4) A change in the money supply changes only nominal variables in the long run.
A)True
B)False
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) In liquidity preference theory,an increase in the interest rate,other things the same,decreases the quantity of money demanded,but does not shift the money demand curve.
A)True
B)False
Q2) Which of the following correctly explains the crowding-out effect?
A)An increase in government expenditures decreases the interest rate and so increases investment spending.
B)An increase in government expenditures increases the interest rate and so reduces investment spending.
C)A decrease in government expenditures increases the interest rate and so increases investment spending.
D)A decrease in government expenditures decreases the interest rate and so reduces investment spending.
Q3) If the Fed conducts open-market sales,the money supply
A)increases and aggregate demand shifts right.
B)increases and aggregate demand shifts left.
C)decreases and aggregate demand shifts right.
D)decreases and aggregate demand shifts left.
Page 36
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Chapter 35: The Short Run Trade Off Between Inflation and Unemployment
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Q1) The natural rate of unemployment
A)is constant over time.
B)varies over time, but can't be changed by the government.
C)is the unemployment rate that the economy tends to move to in the long run.
D)depends on the rate at which the Fed increases the money supply.
Q2) In 1980,the U.S.economy had an inflation rate of
A)about 1 percent and an unemployment rate of about 7 percent.
B)less than 4 percent and an unemployment rate of less than 6 percent.
C)less than 7 percent and an unemployment rate of about 9 percent.
D)more than 9 percent and an unemployment rate of about 7 percent.
Q3) For a number of years Canada and many European countries have had higher average unemployment rates than the United States.This suggests that these countries
A)have higher average inflation rates than the United States.
B)have long-run Phillips curves to the right of the United States'.
C)may have less generous unemployment compensation or lower minimum wages.
D)All of the above are consistent with the evidence on unemployment rates.
Q4) Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.
Q5) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model
A)both the tax cut and the increase in government expenditures would tend to increase output.
B)only the tax cut would tend to increase output.
C)only the increase in government expenditures would tend to increase output.
D)neither the tax cut nor the increase in government expenditures would tend to increase output.
Q2) In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.
A)True
B)False
Q3) In essence,a consumption tax puts all saving into tax-advantaged savings accounts.
A)True
B)False
Q4) Explain why policy lags could make stabilization policies counterproductive.
Q5) What's the basis for arguing that deficits are likely to lead to lower living standards in the future?
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