The risk of a portfolio
a. increases as the number of stocks in the portfolio increases.
b. is usually measured using a statistic called the standarddiversification.
c. is positively related to the average return of the portfolio.
d. bears no relationship to the average return of the portfolio.
Evidence from research studies by economists
a. shows that increased unemployment benefits decrease the job search efforts of the
unemployed.
b. shows that increased unemployment benefits have virtually no effect on the job
search efforts of the unemployed.
c. shows that increased unemployment benefits increase the job search efforts of the
unemployed.
d. is conflicting on what increased unemployment benefits do to the job search efforts
of the unemployed.
When the market price is below the equilibrium price, the quantity of the good
demanded exceeds the quantity supplied.
a. True
b. False
Table 3-27
Assume that Huang and Min can switch between producing parasols and producing
porcelain plates at a constant rate.
RefertoTable3-27. The opportunity cost of 1 plate for Huang is
a. 1/3 parasol.
b. 1/2 parasol.
c. 3 parasols.
d. 4 parasols.
Scenario34-2.The following facts apply to a small, imaginary economy.
Consumption spending is $6,720 when income is $8,000.
Consumption spending is $7,040 when income is $8,500.
RefertoScenario34-2.In response to which of the following events could aggregate
demand increase by $1,500?
a. A stock-market boom stimulates consumer spending by $300, and there is an
operative crowding-out effect.
b. A stock-market boom stimulates consumer spending by $550, and there is a small
operative crowding-out effect.
c. An economic boom overseas increases the demand for U.S. net exports by $550, and
there is no crowding- out effect.
d. An economic boom overseas increases the demand for U.S. net exports by $300, and
there is no crowding- out effect.
Which of the following rises during recessions?
a. layoffs and consumer spending
b. layoffs but not consumer spending
c. consumer spending but not layoffs
d. neither layoffs nor consumer spending
Which of the following is not correct?
a. Economists are generally united in their support of free trade.
b. The conclusions of Adam Smith and David Ricardo on the gains from trade have held
up well over time.
c. David Ricardo argued that Britain should not restrict imports of grain.
d. Economists’ opposition to trade restrictions is still based largely on the principle of
absolute advantage.
The behavior of market prices over time indicates that natural resources are
a. a limit to economic growth.
b. unrelated to economic growth.
c. not a limit to economic growth.
d. the major determinant of productivity.
Efficiency wages
a. increase frictional unemployment by keeping wages above equilibrium.
b. decrease frictional unemployment by keeping wages at equilibrium.
c. increase structural unemployment by keeping wages above equilibrium.
d. decrease structural unemployment by keeping wages at equilibrium.
Two individuals engage in the same two productive activities. In which of the following
circumstances would neither individual have a comparative advantage in either
activity?
a. One individual’s production possibilities frontier is steeper than the other individual’s
production possibilities frontier.
b. One individual is faster at both activities than the other individual.
c. One individual’s opportunity costs are the same as the other individual’s opportunity
costs.
d. None of the above is correct; one of the two individuals always will have a
comparative advantage in at least one of the two activities.
In the 1800s, Europeans purchased stock in American companies that used the funds to
build railroads and factories. The Europeans who did this engaged in
a. foreign portfolio investment.
b. indirect domestic investment.
c. foreign direct investment.
d. foreign indirect investment.
Suppose the government passes a law eliminating holidays and, as a result, the
production of goods and services increases because people work more days per year
(and thus enjoy less leisure per year). Based on this scenario, which of the following
statements is correct?
a. GDP would definitely increase, despite the fact that GDP includes leisure.
b. GDP would definitely increase because GDP excludes leisure.
c. GDP could either increase or decrease because GDP includes leisure.
d. GDP could either increase or decrease because GDP excludes leisure.
Suppose Hank and Tony can both produce corn. If Hank’s opportunity cost of producing
a bushel of corn is 2 bushels of soybeans and Tony’s opportunity cost of producing a
bushel of corn is 3 bushels of soybeans, then Hank has the comparative advantage in
the production of corn.
a. True
b. False
Adults who are waiting to be recalled to a job from which they had been laid off are
counted as “unemployed.”
a. True
b. False
Alexis is a lawyer. She bills her clients $100 an hour for her services. She can also mow
her lawn in 30 minutes. She can hire someone to mow her lawn who takes an hour. Of
the following prices, which is the highest Alexis would pay someone to mow her lawn?
a. $99
b. $49
c. $29
d. Alexis would always mow her own lawn because she can do it faster.
Rational people make decisions “at the margin” by comparing
a. average costs and benefits.
b. total costs and benefits.
c. additional costs and benefits.
d. opportunity costs and benefits.
Which of the following is correct?
a. If developing countries limit career and educational opportunities for women, birth
rates are likely to be lower.
b. Growth rates in developed and developing countries are nearly the same.
c. Historically, in periods where the rate of population growth was high, so was the rate
of growth in world real GDP per person.
d. None of the above is correct.
An individual would suffer higher losses from an unexpectedly higher inflation rate if
a. she held much currency and owned few bonds.
b. she held much currency and owned many bonds.
c. she held little currency and owned few bonds.
d. she held little currency and owned many bonds.
Which of the following is an example of an efficiency wage?
a. a higher wage paid to a more experienced worker
b. a below-equilibrium wage paid by a small business exempt from minimum-wage
laws
c. an above-equilibrium wage paid by a firm to reduce turnover costs
d. a wage tied to participation in a government-sponsored job training program
According to research by Robert Fogel, people in Britain grew taller because of
a. genetics. However this increase in height had no effect on productivity.
b. genetics. This increase in height is associated with higher productivity.
c. higher caloric intake. However, this increase in height had no effect on productivity.
d. higher caloric intake. This increase in height is associated with higher productivity.
Suppose a McDonalds Big Mac cost $4.40 in the United States and 3.30 euros in the
euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per
dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?
a. both the euro area and Australia
b. the euro area but not Australia
c. Australia but not the euro area
d. neither the euro area nor Australia
Table25-1.
Athens and Troy both produce only ribs and baked potatoes.
RefertoTable25-1. Which of the following is correct?
a. Both productivity and the standard of living are higher in Athens than Troy.
b. Productivity is higher in Athens while the standard of living is higher in Troy
c. Productivity is higher in Troy while the standard of living is higher in Athens.
d. Both productivity and the standard of living are higher in Troy than Athens.
Part of the lag in monetary policy effects is due to
a. the long political process of monetary policy decisions.
b. precise economic forecasts.
c. the time required for firms and households to alter their spending plans.
d. changes in the unemployment rate.
If saving is less 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.
A surplus or shortage in the money market is eliminated by adjustments in the price
level according to
a. both liquidity preference theory and classical theory.
b. neither liquidity preference theory nor classical theory.
c. liquidity preference theory, but not classical theory.
d. classical theory, but not liquidity preference theory.
In computing GDP, market prices are used to value final goods and services because
a. market prices do not change much over time, so it is easy to make comparisons
between years.
b. market prices reflect the values of goods and services.
c. market prices reflect the quantity sold.
d. None of the above is correct; market prices are not used in computing GDP.
If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy
experienced
a. 10 percent inflation between years 1 and 2, and 5 percent inflation between years 2
and 3.
b. 10 percent inflation between years 1 and 2, and 5 percent deflation between years 2
and 3.
c. 11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2
and 3.
d. 11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2
and 3.
Table 28-3
2009 Labor Data for Baltivia
RefetoTable28-3.How many people were unemployed in Baltivia in 2009?
a. 1,400
b. 1,600
c. 2,000
d. 2,780
If there is a shortage of loanable funds, then
a. the quantity demanded is greater than the quantity supplied and the interest rate will
rise.
b. the quantity demanded is greater than the quantity supplied and the interest rate will
fall.
c. the quantity supplied is greater than the quantity demanded and the interest rate will
rise.
d. the quantity supplied is greater than the quantity demanded and the interest rate will
fall.
In the U.S. a television costs $400. In South Africa the same television costs 3000 rand
(the currency of South Africa). The nominal exchange rate is 8 rand per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the television cheapest?
If Max experiences a decrease in his income, then we would expect Max’s demand for
a. each good he purchases to remain unchanged.
b. normal goods to decrease.
c. luxury goods to increase.
d. inferior goods to decrease.
If Faith attends college, it will take her four years, during which time she will earn no
income. She will pay $50,000 for tuition, $12,000 for room and board, and $5,000 for
books. If she spends the four years working rather than attending college, she will pay
$18,000 for room and board, pay no intuition, and buy no books. Based on this
information, Faith’s economic cost of attending college would be $67,000 if, over the
four years, she could earn
a. $12,000 instead of attending college.
b. $14,000 instead of attending college.
c. $16,000 instead of attending college.
d. $18,000 instead of attending college.
Table 3-24
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
RefertoTable3-24.England should specialize in the production of
a. cheese and Spain should specialize in the production of bread.
b. bread and Spain should specialize in the production of cheese.
c. both goods and Spain should specialize in the production of neither good.
d. neither good and Spain should specialize in the production of both goods.