The possibility of speculative bubbles in the stock market arises in part because
a. stock prices may not depend at all on psychological factors.
b. fundamental analysis may be the correct way to evaluate the value of stocks.
c. future streams of dividend payments are very hard to estimate.
d. the value of shares of stock depends not only on the future stream of dividend
payments but also on the price at which the stock will be sold.
Producer surplus equals
a. Value to buyers – Amount paid by buyers.
b. Amount received by sellers – Costs of sellers.
c. Value to buyers – Costs of sellers.
d. Value to buyers – Amount paid by buyers + Amount received by sellers – Costs of
sellers.
As compared to government spending, spending generated by a tax cut is likely to
affect aggregate demand
a. more quickly and more likely to be spent on projects with little benefit.
b. more quickly but less likely to be spent on projects with little benefit.
c. less quickly but more likely to be spent on projects with little benefit.
d. less quickly and more likely to be spent on projects with little benefit.
A checking deposit functions as
a. a medium of exchange and as a store of value.
b. a medium of exchange, but not as a store of value.
c. a store of value, but not as a medium of exchange.
d. neither a medium of exchange nor as a store of value.
Noah, the owner of an electronics factory, decides to raise the wages of his workers
even though he faces an excess supply of labor. His decision
a. might increase profits if it attracts a better pool of workers to apply for his firm’s jobs.
b. will increase the excess supply of labor.
c. may increase the quality of his work force.
d. All of the above are correct.
In 2009, the U.S. minimum wage according to federal law was
a. $4.25 per hour.
b. $5.15 per hour.
c. $5.75 per hour.
d. $7.25 per hour.
Which of the following is correct?
a. U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S.
currently has a trade surplus.
b. U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S.
currently has a trade deficit.
c. U.S. exports as a percentage of GDP have increased, but have not nearly doubled
since 1950. The U.S. currently has a trade surplus.
d. U.S. exports as a percentage of GDP have increased, but have not nearly doubled
since 1950. The U.S. currently has a trade deficit.
Figure 6-13
Refer to Figure 6-13. In this market, a minimum wage of $2.75 is
a. binding and creates a labor shortage.
b. binding and creates unemployment.
c. nonbinding and creates a labor shortage.
d. nonbinding and creates neither a labor shortage nor unemployment.
The Bureau of Labor Statistics reported in 2005 that there were 98 million people over
age 25 whose highest level of education was a high school degree or equivalent, 36.40
million of whom were employed and 1.93 million of whom were unemployed. What
were the labor-force participation rate and the unemployment rate for this group?
a. 60.7% and 3.2%
b. 60.7% and 5.0%
c. 63.9% and 3.2%
d. 63.9% and 5.0%
Suppose that a country that has a high average wage level agrees to trade with a country
that has a low average wage level. Which country can benefit?
a. only the one with a low level of output per person.
b. only the one with a high level of output per person.
c. both
d. neither
Which of the following is not correct?
a. The slope of a line will be a small positive number for a fairly flat upward-sloping
line.
b. The slope of a line will be a large positive number for a steep upward-sloping line.
c. The slope of a line will be a negative number for a downward-sloping line.
d. The slope of a line will be infinite for a horizontal line.
The economy’s two most important financial markets are
a. the investment market and the saving market.
b. the bond market and the stock market.
c. banks and the stock market.
d. financial markets and financial institutions.
Figure 8-10
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 deadweight loss of the tax is
a. [ x (P0-P5) x Q5] + [ x (P5-0) x Q5].
b. [ x (P0-P2) x Q2] +[(P2-P8) x Q2] + [ x (P8-0) x Q2].
c. (P2-P8) x Q2.
d. x (P2-P8) x (Q5-Q2).
Figure 19-2
Refer to Figure 19-2. What are the equilibrium values of the real exchange rate and net
exports?
a. 1.4, 100
b. 1, 200
c. 0.6, 300
d. None of the above are correct.
Suppose there are five suppliers of ice cream in the town of Summerville. If we add the
respective quantities that each firm would produce at each of the five ice cream parlors
when the price of ice cream is $2 per scoop, $2.50 per scoop, and $3 per scoop, and so
forth, we have found the
a. market demand curve.
b. market supply curve.
c. equilibrium curve.
d. surplus or shortage depending on market conditions.
Svetlana is risk averse. Which of the following is correct about Svetlana?
a. Her marginal utility of wealth increases as her income increases.
b. She will always accept a bet if the probability of winning a dollar is the same as the
probability of losing a dollar.
c. Her utility function is a straight line.
d. None of the above are correct.
Which of the following statements is correct concerning the burden of a tax imposed on
take-out food?
a. Buyers bear the entire burden of the tax.
b. Sellers bear the entire burden of the tax.
c. Buyers and sellers share the burden of the tax.
d. We have to know whether it is the buyers or the sellers that are required to pay the
tax to the government in order to make this determination.
According to liquidity preference theory, the opportunity cost of holding money is
a. the interest rate on bonds.
b. the inflation rate.
c. the cost of converting bonds to a medium of exchange.
d. the difference between the inflation rate and the interest rate on bonds.
Table 16-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
Metropolis National Bank
Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is
currently holding 2% of deposits as excess reserves. What is the reserve requirement?
a. 12 percent
b. 10 percent
c. 8 percent
d. 6 percent
Which of the following might cause the demand curve for an inferior good to shift to
the left?
a. a decrease in income
b. an increase in the price of a substitute
c. an increase in the price of a complement
d. None of the above is correct.
Opponents of using policy to stabilize the economy generally believe that
a. neither fiscal nor monetary policy have much impact on aggregate demand.
b. attempts to stabilize the economy decrease the magnitude of economic fluctuations.
c. unemployment and inflation are not cause for much concern.
d. economic conditions can easily change between the start of policy action and when it
takes effect.
The diagram below represents the market for loanable funds and the market for
foreign-currency exchange in Mexico. Use the diagram to answer the following
questions.
Figure 19-7
Refer to Figure 19-7. Supposing that the Mexican economy starts at r0 and E1. Which
of the following is consistent with the effects of capital flight?
a. the shift from D0 to D1 in Panel A
b. the shift from NCO0 to NCO1 in Panel B
c. the shift from S0 to S1 in Panel C
d. All of the above shifts are consistent with the effects of capital flight.
In effect, an annuity provides insurance
a. against the risk of dying and leaving one’s family without a regular income.
b. against the risk of living too long.
c. to people who are not risk-averse.
d. to people whose utility functions do not display the usual properties.
Changes in the price level affect which components of aggregate demand?
a. only consumption and investment
b. only consumption and net exports
c. only investment
d. consumption, investment, and net exports
If companies from foreign countries build and operate factories in China, then China’s
productivity
a. and the wages of Chinese workers increase.
b. increases but the wages of Chinese workers decrease.
c. decreases but the wages of Chinese workers increase.
d. and the wages of Chinese workers decrease.
Assume the MPC is 0.75. Assume there is a multiplier effect and that the total
crowding-out effect is $6 billion. An increase in government purchases of $10 billion
will shift aggregate demand to the
a. left by $24 billion.
b. left by $36 billion.
c. right by $34 billion.
d. right by $36 billion.
Mark is refinishing an antique china cabinet and has already spent $180 on the
restoration. He expects to be able to sell the cabinet for $360. Mark discovers that he
needs to do an additional $200 of work to make the cabinet worth $360 to potential
buyers. He could also sell the cabinet now, without completing the additional work, for
$100. What should he do?
a. He should sell the cabinet now for $100.
b. He should keep the cabinet since it wouldn”t be rational to spend $380 restoring a
cabinet and then sell it for only $360.
c. He should complete the additional work and sell the cabinet for $360.
d. It does not matter which action he takes since the outcome will be the same either
way.
Which of the following is an observation made by economist Michael Kremer?
a. World growth rates increased as the population increased.
b. Technological progress allows for increasing population because of advances in
agriculture.
c. World population is growing so rapidly that soon it will outstrip natural resources and
our standard of living will decline.
d. All of the above are observations made by Kremer.
Suppose there were a large increase in net exports. If the Fed wanted to stabilize output,
it could
a. buy bonds to increase the money supply.
b. buy bonds to decrease the money supply.
c. sell bonds to increase the money supply.
d. sell bonds to decrease the money supply.
In the circular-flow diagram,
a. factors of production flow from government to firms.
b. goods and services flow from households to firms.
c. income paid to the factors of production flows from firms to households.
d. spending on goods and services flows from firms to households.
You are thinking of buying a bond from Bluestone Corporation. You know that this
bond is long term and you know that Bluestone’s business ventures are risky and
uncertain. You then consider another bond with a shorter term to maturity issued by a
company with good prospects and an established reputation. Which of the following is
correct?
a. The longer term would tend to make the interest rate on the bond issued by Bluestone
higher, while the higher risk would tend to make the interest rate lower.
b. The longer term would tend to make the interest rate on the bond issued by Bluestone
lower, while the higher risk would tend to make the interest rate higher.
c. Both the longer term and the higher risk would tend to make the interest rate lower
on the bond issued by Bluestone.
d. Both the longer term and the higher risk would tend to make the interest rate higher
on the bond issued by Bluestone.