Survey of Economics
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Course Introduction
Survey of Economics provides a broad overview of fundamental economic principles and concepts, examining both microeconomics and macroeconomics. The course introduces students to key topics such as supply and demand, market structures, the role of government in the economy, monetary and fiscal policy, and measures of economic performance. It emphasizes real-world applications, helping students develop an understanding of how economic forces shape individual choices, business decisions, and public policy. Designed for students with diverse academic backgrounds, this course equips learners with analytical tools to interpret current economic events and make informed personal and professional decisions.
Recommended Textbook Principles of Economics Arab World Edition 2nd Edition by Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) Following the implementation of laws requiring automobiles to have seat belts,which of the following occurred?
A)An individual's probability of surviving an auto accident rose.
B)There was an increase in pedestrian deaths.
C)There was an increase in automobile accidents.
D)All of the above are correct.
Answer: D
Q2) Because resources are scarce,a society cannot give all individuals the standard of living to which each aspires.
A)True
B)False
Answer: True
Q3) An increase in the overall level of prices in an economy is referred to as A)the income effect.
B)inflation.
C)deflation.
D)the substitution effect.
Answer: B
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) The circular-flow diagram is a
A)visual model of the economy.
B)visual model of the relationships among money,prices,and businesses.
C)model that shows the effects of government on the economy.
D)mathematical model of how the economy works.
Answer: A
Q2) Refer to Figure 2-6.The movement from point A to point B is a(n)
A)shift of the demand curve.
B)indication of a change in preferences for grapes.
C)movement along the demand curve.
D)indication of an increase in income.
Answer: C
Q3) Economists use some familiar terms in specialized ways
A)to make the subject sound more complex than it is.
B)because every respectable field of study has its own language.
C)to provide a new and useful way of thinking about the world.
D)because it was too difficult to come up with new terms.
Answer: C
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Figure 3-1.The fact that the line slopes downward reflects the fact that
A)for Peru,it is more costly to produce emeralds than it is to produce rubies.
B)Peru will produce more emeralds and fewer rubies as time goes by.
C)Peru faces a tradeoff between producing emeralds and producing rubies.
D)Peru should specialize in producing rubies.
Answer: C
Q2) Absolute advantage is found by comparing different producers' A)opportunity costs.
B)payments to land,labor,and capital.
C)input requirements per unit of output.
D)locational and logistical circumstances.
Answer: C
Q3) The gains from specialization and trade are based on absolute advantage. A)True
B)False
Answer: False
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Refer to Figure 4-1.The movement from point A to point B on the graph shows
A)a decrease in demand.
B)an increase in demand.
C)a decrease in quantity demanded.
D)an increase in quantity demanded.
Q2) Equilibrium price must increase when demand
A)increases and supply does not change,when demand does not change and supply decreases,and when demand decreases and supply increases simultaneously.
B)increases and supply does not change,when demand does not change and supply decreases,and when demand increases and supply decreases simultaneously.
C)decreases and supply does not change,when demand does not change and supply increases,and when demand decreases and supply increases simultaneously.
D)decreases and supply does not change,when demand does not change and supply increases,and when demand increases and supply decreases simultaneously.
Q3) In a perfectly competitive market,buyers and sellers are price setters.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Q1) Which of the following is likely to have the most price inelastic demand?
A)laptop computers
B)MP3 players
C)designer jeans
D)college tuition for a junior or senior
Q2) Refer to Figure 5-13.Over which range is the supply curve in this figure the most elastic?
A)16 to 40
B)40 to 100
C)100 to 220
D)220 to 430
Q3) Which of the following statements is valid when supply is perfectly elastic at a price of $4?
A)The elasticity of supply approaches infinity.
B)The supply curve is vertical.
C)At a price below $4,quantity supplied is infinite.
D)At a price above $4,quantity supplied is zero.
Q4) If the price elasticity of demand is equal to 0,then demand is unit elastic.
A)True
B)False
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Chapter 6: Supply,demand,and Government Policies
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Q1) If a binding price floor is imposed on the video game market,then
A)the quantity of video games demanded will decrease.
B)the quantity of video games supplied will increase.
C)a surplus of video games will develop.
D)All of the above are correct.
Q2) A binding minimum wage creates a surplus of labor.
A)True
B)False
Q3) Unlike minimum wage laws,wage subsidies
A)discourage firms from hiring the working poor.
B)cause unemployment.
C)help only wealthy workers.
D)raise the living standards of the working poor without creating unemployment.
Q4) When a tax is placed on the buyers of cell phones,the size of the cell phone market
A)and the effective price received by sellers both decrease.
B)decreases,but the effective price received by sellers increases.
C)increases,but the effective price received by sellers decreases.
D)and the effective price received by sellers both increase.
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Market power and externalities are examples of market failures.
A)True
B)False
Q2) Welfare economics is the study of how
A)the allocation of resources affects economic well-being.
B)a price ceiling compares to a price floor.
C)the government helps poor people.
D)a consumer's optimal choice affects her demand curve.
Q3) Refer to Figure 7-12.Area A represents
A)producer surplus to new producers entering the market as the result of an increase in price from P1 to P2.
B)the increase in consumer surplus that results from an upward-sloping supply curve.
C)the increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2.
D)the increase in producer surplus to those producers already in the market when the price increases from P1 to P2.
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Chapter 8: Application: The Costs of Taxation
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Q1) Deadweight loss measures the loss
A)in a market to buyers and sellers that is not offset by an increase in government revenue.
B)in revenue to the government when buyers choose to buy less of the product because of the tax.
C)of equality in a market due to government intervention.
D)of total revenue to business firms due to the price wedge caused by the tax.
Q2) When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.
A)True
B)False
Q3) Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The tax revenue is
A)(P0-P2)x Q2.
B)(P2-P8)x Q2.
C)(P2-P5)x Q5.
D)(P5-P8)x Q5.
Q4) Illustrate on three demand-and-supply graphs how the size of a tax (small,medium and large)can alter total revenue and deadweight loss.
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Chapter 9: Application: International Trade
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Q1) Some goods can be produced at low cost only if they are produced in large quantities.This phenomenon is called
A)marginal cost of production.
B)marginal benefit of size.
C)economies of scale.
D)economies of production.
Q2) Import quotas and tariffs make domestic sellers better off and domestic buyers worse off.
A)True
B)False
Q3) Refer to Scenario 9-2.If Boxland prohibits international trade in cardboard,then the equilibrium price of a ton of cardboard is
A)36 dollars and the equilibrium quantity of cardboard is 74 tons.
B)44 dollars and the equilibrium quantity of cardboard is 88 tons.
C)52 dollars and the equilibrium quantity of cardboard is 96 tons.
D)60 dollars and the equilibrium quantity of cardboard is 100 tons.
Q4) Characterize the two different approaches a nation can take to achieve free trade.Does one approach have an advantage over the other?
Q5) How does an import quota differ from an equivalent tariff?
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Chapter 10: Externalities
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Q1) Which of the following is an example of a positive externality?
A)air pollution
B)a person littering in a public park
C)a nice garden in front of your neighbor's house
D)the pollution of a stream
Q2) According to the Coase theorem,in the presence of externalities
A)private parties can bargain to reach an efficient outcome.
B)government assistance is necessary to reach an efficient outcome.
C)the assignment of legal rights can prevent externalities.
D)the initial distribution of property rights will determine the efficient outcome.
Q3) Refer to Figure 10-10.The graph represents a market in which
A)there is no externality.
B)there is a positive externality.
C)there is a negative externality.
D)The answer cannot be determined from inspection of the graph.
Q4) Markets sometimes fail to allocate resources efficiently.
A)True
B)False
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Chapter 11: Public Goods and Common Resources
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Q1) Suppose that everyone prefers to live in a society without poverty.Further suppose that some private charities are successful in reducing poverty.People who do not contribute to the charities
A)receive no external benefit from private antipoverty programs.
B)decrease the reliance of individuals on antipoverty programs.
C)can free ride on the generosity of others.
D)are most likely to be in favor of government-sponsored programs.
Q2) Refer to Figure 11-1.The box labeled B represents A)private goods.
B)club goods.
C)common resources.
D)public goods.
Q3) Economists think that the best way to determine the value of a human life is to A)evaluate the value of a person's expected earnings in the labor market.
B)evaluate the risks people are willing to take and what they would have to be paid to take them.
C)determine a person's accumulated wealth at the time of death.
D)do nothing; human life is priceless.
Q4) Why do wild salmon populations face the threat of extinction while goldfish populations are in no such danger?
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Chapter 12: The Design of the Tax System
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Q1) Economists play an important role in the complex debates over tax policy by
A)identifying efficiency as the most important goal of tax policy.
B)identifying equity as the most important goal of tax policy.
C)shedding light on the tradeoff between efficiency and equity in tax policy.
D)None of the above is correct.
Q2) A lump sum tax can never have horizontal equity.
A)True
B)False
Q3) The concept that people should pay taxes based on the benefits they receive from government services is called
A)the ability-to-pay principle.
B)the benefits principle.
C)horizontal equity.
D)vertical equity.
Q4) Vertical equity in taxation refers to the idea that people
A)in unequal conditions should be treated differently.
B)in equal conditions should pay equal taxes.
C)should pay taxes based on the benefits they receive from the government.
D)should pay a proportional tax rather than a progressive tax.
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Chapter 13: The Costs of Production
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Q1) Refer to Table 13-13.What is the total fixed cost for this firm?
A)20
B)30
C)40
D)50
Q2) The production function depicts a relationship between which two variables?
Also,draw a production function that exhibits diminishing marginal product.
Q3) The difference between accounting profit and economic profit relates to
A)the manner in which revenues are defined.
B)how marginal revenue is calculated.
C)the manner in which costs are defined.
D)the price of the good in the market.
Q4) Which of the following would be an example of an implicit cost?
(i)forgone investment opportunities
(ii)wages of workers
(iii)raw materials costs
A)(i)only
B)(ii)only
C)(ii)and (iii)only
D)(i)and (iii)only
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Chapter 14: Firms in Competitive Markets
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Q1) When a profit-maximizing firm is earning profits,those profits can be identified by A)P * Q.
B)(MC - AVC) * Q.
C)(P - ATC) * Q.
D)(P - AVC) * Q.
Q2) A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average total cost; otherwise,the firm will shut down.
A)True
B)False
Q3) Suppose a firm is considering producing zero units of output.We call this shutting down in the short run and exiting an industry in the long run.
A)True
B)False
Q4) The long-run supply curve in a competitive market is more elastic than the short-run supply curve.
A)True
B)False
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Chapter 15: Monopoly
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Q1) A monopolist produces where P = MC = MR.
A)True
B)False
Q2) The practice of selling the same goods to different customers at different prices,but with the same marginal cost,is known as
A)price segregation.
B)price discrimination.
C)arbitrage.
D)monopoly pricing.
Q3) Refer to Figure 15-1.Considering the relationship between average total cost and marginal cost,the marginal cost curve for this firm
A)must lie entirely above the average total cost curve.
B)must lie entirely below the average total cost curve.
C)must be upward sloping.
D)does not exist.
Q4) The best solution to the problem of welfare loss from monopoly is public ownership. A)True
B)False
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Chapter 16: Monopolistic Competition
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Q1) In the short run,a firm in a monopolistically competitive market operates much like a
A)firm in a perfectly competitive market.
B)firm in an oligopoly.
C)monopolist.
D)monopsonist.
Q2) When McDonald's opens a store in Dhaka,Bangladesh,it has a strong incentive to enforce product quality consistent with stores in the United States.
A)True
B)False
Q3) When monopolistically competitive firms advertise,in the long run
A)they will still earn zero economic profit.
B)they can earn positive economic profit by increasing market share.
C)the market price must fall.
D)the market price must rise.
Q4) Assume the role of a critic of advertising.Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.
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Chapter 17: Oligopoly
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Q1) In a game,a dominant strategy is
A)the best strategy for a player to follow only if other players are cooperative.
B)the best strategy for a player to follow,regardless of the strategies followed by other players.
C)a strategy that must appear in every game.
D)a strategy that leads to one player's interests dominating the interests of the other players.
Q2) A tit-for-tat strategy,in a repeated game,is one in which a player starts by cooperating and then does whatever the other player did last time.
A)True
B)False
Q3) Outline the purpose of antitrust laws.What do they accomplish?
Q4) Describe the source of tension between cooperation and self-interest in a market characterized by oligopoly.Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels.
Q5) Explain the practice of tying and discuss why it is controversial.
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Chapter 18: The Market for the Factors of Production
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Q1) Refer to Figure 18-7.If the relevant labor supply curve is S<sub>2</sub> and the current wage is W<sub>1</sub>,
A)there is a surplus of labor.
B)the quantity of labor demanded exceeds the quantity of labor supplied.
C)an increase in the minimum wage could restore equilibrium in the market.
D)firms will need to raise the wage to restore equilibrium.
Q2) Consider the market for university economics professors.Suppose the opportunity cost of going to graduate school to get a Ph.D.in economics decreases for many individuals.Suppose it generally takes about five years to get a Ph.D.in economics.Holding all else constant,in five years the equilibrium wage for university economics professors will A)increase.
B)decrease.
C)not change.
D)It is not possible to determine what will happen to the equilibrium wage.
Q3) The inputs used to produce goods and services are called
A)Luddite factors.
B)marginal products.
C)labor demands.
D)factors of production.
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Chapter 19: Earnings and Discrimination
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Q1) A difference in wages that arises to offset the nonmonetary characteristics of different jobs is known as
A)a compensating differential.
B)an inefficiency wage.
C)the equilibrium difference.
D)a union wage.
Q2) As a result of an increase in the earnings gap between skilled and unskilled jobs,the incentive to get a college education has been declining.
A)True
B)False
Q3) Firms that operate in competitive product markets and choose to practice discrimination in hiring workers
A)will survive if they increase production and garner a larger market share.
B)will eventually earn zero economic profits.
C)will survive as long as they are willing to have a smaller market share.
D)are likely to eventually go out of business.
Q4) Consumers are often a primary source of discrimination in labor markets.
A)True
B)False
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Chapter 20: Income Inequality and Poverty
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Q1) Which of the following statements is correct?
A)The poverty line is a relative standard.
B)More families are pushed above the poverty line as economic growth pushes the entire income distribution upward.
C)Increasing income inequality reduces poverty.
D)Economic growth,by definition,affects all families equally.
Q2) Refer to Table 20-8.In 2008,the bottom 60% of families has
A)about 14% of total income in the U.S.
B)about 29% of total income in the U.S.
C)about 50% of total income in the U.S.
D)about 73% of total income in the U.S.
Q3) A utilitarian government has to balance the gains from greater income equality against the losses from distorted work incentives.To maximize total utility,therefore,the government
A)would never tax labor income.
B)must always achieve a fully egalitarian society.
C)enacts policies that only benefit the middle class.
D)stops short of a fully egalitarian society.
Q4) Explain the relationship between labor earnings and the distribution of income.
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Chapter 21: The Theory of Consumer Choice
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Q1) Which of the following equations corresponds to an optimal choice point? (i)MRS = P<sub>X</sub>/P<sub>Y</sub> (ii)MU<sub>X</sub>/MU<sub>Y</sub> = P<sub>X</sub>/P<sub>Y</sub> (iii)MU<sub>X</sub>/P<sub>X</sub> = MU<sub>Y</sub>/P<sub>Y</sub> (iv)MU<sub>X</sub>/P<sub>Y</sub> = MU<sub>Y</sub>/P<sub>X</sub> A)(i)only
B)(i),(ii),and (iii)only C)(ii)and (iv)only D)(i),(ii),(iii),and (iv)
Q2) When two goods are perfect substitutes,the marginal rate of substitution
A)is constant along the indifference curve.
B)decreases as the scarcity of one good increases.
C)increases as the scarcity of one good increases.
D)changes to reflect the consumer's changing preferences for the goods.
Q3) Good X is a Giffen good.When the price of X increases,the consumer will consume A)more X.
B)the same amount of X.
C)less X.
D)more or less X depending on the size of the income effect relative to the size of the substitution effect.
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Chapter 22: Frontiers of Microeconomics
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Q1) The field of behavioral economics applies the methods of economics to study how government works.
A)True
B)False
Q2) Your friend works at a coffee shop on campus and regularly gives away free coffee to you and your friends when you visit.In this example,your friend is the
A)principal and the owner of the coffee shop is the agent.
B)agent and the owner of the coffee shop is the principal.
C)signaler and the owner of the coffee shop is the screener.
D)screener and the owner of the coffee ship is the signaler.
Q3) In a vote between options A,B,and C,option C wins.When option B is eliminated and a vote is taken between option A and option C,option A wins.The voting system used fails to satisfy which of Arrow's properties of a desirable voting system?
A)Unanimity
B)Transitivity
C)Independence of irrelevant alternatives
D)No dictators
Q4) 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) Which of the following is included in GDP?
A)the market value of rental housing services,but not the market value of owner-occupied housing services.
B)the market value of owner-occupied housing services,but not the market value of rental housing services
C)both the market value of rental housing services and the market value of owner-occupied housing services
D)neither the market value of owner-occupied housing services nor the market value of rental housing services.
Q2) Transactions involving items produced in the past,such as the sale of a 5-year-old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale,are
A)included in current GDP because GDP measures the value of all goods and services sold in the current year.
B)included in current GDP but valued at their original prices.
C)not included in current GDP because it is difficult to determine their value.
D)not included in current GDP because GDP only measures the value of goods and services produced in the current year.
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Chapter 24: Measuring the Cost of Living
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Q1) The real interest rate tells you
A)how fast the number of dollars in your bank account rises over time.
B)how fast the purchasing power of your bank account rises over time.
C)the number of dollars in your bank account today.
D)the purchasing power of your bank account today.
Q2) Which of the following statements is true?
A)Even if we know the values of the consumer price index for the years 2009 and 2010,we cannot calculate the inflation rate for 2010 if we do not know which year is the base year.
B)If we know the base year is 1990,and if we know the value of the consumer price index for the year 2010,then we have all the information we need to calculate the inflation rate for 2010.
C)If we know the base year is 2000,and if we know the value of the consumer price index for the year 1995,then we have all the information we need to calculate the inflation rate for 1995.
D)If we know the base year is 2000,and if we know the value of the consumer price index for the year 1995,then we have all the information we need to calculate the percentage change in the cost of living between 1995 and 2000.
Q3) Why does the GDP deflator give a different rate of inflation than the CPI?
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Chapter 25: Production and Growth
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Q1) Country A experienced a growth rate of real GDP per person of 0.5 percent per year throughout the 1900's.In view of other countries' experiences,country A's growth was
A)exceptionally high.
B)moderately high.
C)moderately low.
D)exceptionally low.
Q2) Which of the following can be measured by the level of real GDP per person?
A)productivity and the standard of living
B)productivity but not the standard of living
C)the standard of living but not productivy
D)neither the standard of living nor productivity
Q3) If they could increase their growth rates slightly,countries with low income would catch up with rich countries in about ten years.
A)True
B)False
Q4) Compare and contrast the population theories of Malthus and Kremer.
Q5) What is the difference between human capital and technology?
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Chapter 26: Saving,investment,and the Financial System
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Q1) Other things the same,when the interest rate rises,
A)people would want to lend more,making the supply of loanable funds increase.
B)people would want to lend less,making the supply of loanable funds decrease.
C)people would want to lend more,making the quantity of loanable funds supplied increase.
D)people would want to lend less,making the quantity of loanable funds supplied decrease.
Q2) Which of the following would both make the interest rate on a bond higher than otherwise?
A)the interest it pays is taxed and it is long term
B)the interest it pays is taxed and it is short term
C)the interest it pays is tax exempt and it is long term
D)the interest it pays is tax exempt and it is short term
Q3) A mutual fund
A)is a financial institution that stands between savers and borrowers.
B)is a financial intermediary.
C)allows people with small amounts of money to diversify their holdings.
D)All of the above are correct.
Q4) Draw and label a graph showing equilibrium in the market for loanable funds.
Q5) What are the basic differences between bonds and stocks?
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Chapter 27: The Basic Tools of Finance
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Q1) If a person had increasing marginal utility,then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.
A)True
B)False
Q2) Suppose that interest rates unexpectedly rise and that Carter Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down.According to the efficient markets hypothesis,which of the these things make the price of Carter Corporation Stock fall?
A)both the interest rate rising and the revenue announcement
B)neither the interest rate rising nor the revenue announcement
C)only the interest rate rising
D)only the revenue announcement
Q3) Which of the following best illustrates moral hazard?
A)After a person obtains life insurance,she takes up skydiving.
B)A person obtains insurance knowing he is in poor health.
C)A person holds stock only in very risky corporations.
D)A person holds stocks from only a few corporations.
Q4) List three different ways that a risk-averse person can reduce financial risk.
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Chapter 28: Islamic Finance
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Q1) Islamic banks' losses in the first wave of the 2008 financial crisis were minimal and some Islamic banks remained profitable despite the decline in economic activity.One of the reasons put forward for this resilience is that Islamic financial institutions are prohibited from dealing in loans and debts and are not allowed to trade in the derivatives market.
A)True
B)False
Q2) Islamic financial instruments are quoted on the worlds securities indices.
A)True
B)False
Q3) In 2010 global assets held under Islamic financial management are estimated to total:
A)$500-$750 million.
B)$1-$2 billion.
C)$100 billion.
D)$1 trillion.
Q4) Zakat is imposed on corporate profits or upon reserves in the case of banks.
A)True
B)False
Q5) Explain in your own words the three key principles of Islamic finance.
Page 30
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Chapter 29: Unemployment
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Q1) Public policy
A)can reduce both frictional unemployment and the natural rate of unemployment.
B)can reduce frictional unemployment,but it cannot reduce the natural rate of unemployment.
C)cannot reduce frictional unemployment,but it can reduce the natural rate of unemployment.
D)cannot reduce either frictional unemployment or the natural rate of unemployment.
Q2) Refer to Labor Force Statistics by Age.Suppose that the natural rate of unemployment is 5% for those under 55 and 3% for those 55 and older.The cyclical unemployment rate for those under 55 is
A).88% which is greater than the cyclical unemployment rate for those 55 and older.
B).88% which is less than the cyclical unemployment rate for those 55 and older.
C)-.83% which is greater than the cyclical unemployment rate for those 55 and older.
D)-.83% which is less than the cyclical unemployment rate for those 55 and older.
Q3) What is the theory of efficiency wages?
Provide four reasons that employers might pay efficiency wages.
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Chapter 30: The Monetary System
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Q1) Credit cards
A)defer payments.
B)are a store of value.
C)have led to wider use of currency.
D)are part of the money supply.
Q2) When conducting an open-market sale,the Fed
A)buys government bonds,and in so doing increases the money supply.
B)buys government bonds,and in so doing decreases the money supply.
C)sells government bonds,and in so doing increases the money supply.
D)sells government bonds,and in so doing decreases the money supply.
Q3) Which of the following is not a tool of monetary policy?
A)open market operations
B)reserve requirements
C)changing the discount rate
D)increasing the government budget deficit
Q4) When we measure and record economic value,we use money as the A)liquid asset.
B)medium of exchange.
C)unit of account.
D)store of value.
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Chapter 31: Money Growth and Inflation
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Q1) If M = 4,000,P = 1.5,and Y= 6,000,what is velocity?
A)2.25
B)3.00
C)6.50
D)None of the above is correct.
Q2) High and unexpected inflation has a greater cost
A)for those who borrow than for those who save.
B)for those who hold a little money than for those who hold a lot of money.
C)for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation.
D)All of the above are correct.
Q3) As the price level falls,the value of money falls.
A)True
B)False
Q4) As the price level rises,the value of money
A)increases,so people want to hold more of it.
B)increases,so people want to hold less of it.
C)decreases,so people want to hold more of it.
D)decreases,so people want to hold less of it.
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Chapter 32: Open-Economy Macroeconomic Models
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Q1) If saving is greater than domestic investment,then
A)there is a trade deficit and Y > C + I + G.
B)there is a trade deficit and Y < C + I + G.
C)there is a trade surplus and Y > C + I + G.
D)there is a trade surplus and Y < C + I + G.
Q2) The ability to profit by purchasing wheat in Egypt and selling it in China implies that the
A)nominal exchange rate is less than 1.
B)nominal exchange rate is greater than 1.
C)real exchange rate is less than 1.
D)real exchange rate is greater than 1.
Q3) When making investment decisions,investors
A)compare the real interest rates offered on different bonds.
B)compare the nominal,but not the real,interest rates offered on different bonds.
C)purchase the highest-priced bond available.
D)All of the above are correct.
Q4) Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.
Q5) How do the nominal exchange rate and the real exchange rate differ?
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Chapter 33: A Macroeconomic Theory of the Open Economy
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Q1) The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.
A)True
B)False
Q2) Capital flight reduces a country's real exchange rate.
A)True
B)False
Q3) Which of the following is the most likely result from an increase in a country's government budget surplus?
A)higher interest rates
B)lower imports
C)lower net capital outflows
D)lower domestic investment
Q4) The open-economy macroeconomic model examines the determination of
A)the output growth rate and the real interest rate.
B)unemployment and the exchange rate.
C)the output growth rate and the inflation rate.
D)the trade balance and the exchange rate.
Q5) What effect do protectionist policies have on the trade deficit?
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Chapter 34: Aggregate Demand and Aggregate Supply
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Q1) From 2001 to 2005 there was a dramatic rise in the price of houses.If this rise made people feel wealthier,then it would have shifted
A)aggregate demand right.
B)aggregate demand left.
C)aggregate supply right.
D)aggregate supply left.
Q2) Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift
A)aggregate supply to the right.
B)aggregate supply to the left.
C)aggregate demand to the right.
D)aggregate demand to the left.
Q3) Other things the same,if the price level falls,people
A)increase foreign bond purchases,so the currency appreciates.
B)increase foreign bond purchases,so the currency depreciates.
C)increase domestic bond purchases,so the currency appreciates.
D)increase domestic bond purchases,so the currency depreciates.
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Chapter 35: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that,while those policies obviously work well in practice,they are not well understood on a theoretical level.
A)True
B)False
Q2) The interest-rate effect
A)depends on the idea that increases in interest rates increase the quantity of money demanded.
B)depends on the idea that increases in interest rates increase the quantity of money supplied.
C)is the most important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.
D)is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.
Q3) During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.
A)True B)False
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Chapter 36: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) For many years country A has had a lower unemployment rate than country
B.According to the long-run Phillips curve which of the following could explain this?
Country A has
A)maintained a higher money supply growth rate.
B)maintained a lower money supply growth rate.
C)a higher minimum wage than country B.
D)a lower minimum wage than country B.
Q2) If the central bank decreases the money supply,then in the short run prices
A)rise and unemployment falls.
B)fall and unemployment rises.
C)and unemployment rise.
D)and unemployment fall.
Q3) Just as the aggregate-supply curve slopes upward only in the short run,the trade-off between inflation and unemployment holds only in the short run.
A)True
B)False
Q4) In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?
Page 38
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Chapter 37: Six Debates Over Macroeconomic Policy
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Q1) Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?
A)Decrease the money supply.
B)Decrease taxes.
C)Decrease government expenditures.
D)Do nothing and let markets correct themselves.
Q2) Higher saving is associated with
A)a larger capital stock and a higher standard of living.
B)a larger capital stock but not a higher standard of living.
C)a higher standard of living but not a larger capital stock.
D)neither a higher standard of living nor a higher capital stock.
Q3) Tax policy changes that favor people who save will
A)favor low-income households.
B)favor people with high income.
C)create a more egalitarian society.
D)unambiguously increase national saving.
Q4) Explain the main arguments in favor of economic stabilization.
Q5) Tax cuts affect only aggregate demand not aggregate supply.
A)True
B)False
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