Table 3-9
Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim
can switch between setting up and testing computers at a constant rate. The following
table applies.
Minutes Needed to Number of Computers
Set Up or Tested in a
40-Hour Week
Refer to Table 3-9. Which of the following points would not be on Jim’s production
possibilities frontier, based on a 40-hour week?
a. (0 computers set up, 60 computers tested)
b. (40 computers set up, 30 computers tested)
c. (60 computers set up, 12 computers tested)
d. (72 computers set up, 6 computers tested)
Tom Brady should pay someone else to mow his lawn instead of mowing it himself,
unless
a. Brady has an absolute advantage over everyone else in mowing his lawn.
b. Brady has a comparative advantage over everyone else in mowing his lawn.
c. Brady’s opportunity cost of mowing his lawn is higher than it is for everyone else.
d. All of the above are correct.
If the best educated and most skilled persons leave a country, then in the short term this
country’s human capital per worker
a. and physical capital per worker will increase.
b. and physical capital per worker will decrease.
c. will increase but physical capital per worker will decrease.
d. will decrease but physical capital per worker will increase.
If a tax is imposed on a market with inelastic demand and elastic supply, then
a. buyers will bear most of the burden of the tax.
b. sellers will bear most of the burden of the tax.
c. the burden of the tax will be shared equally between buyers and sellers.
d. it is impossible to determine how the burden of the tax will be shared.
In conducting their research, economists often substitute historical events and historical
episodes for
a. theories and observations.
b. laboratory experiments.
c. models.
d. assumptions.
Which of the following would shift the demand curve for gasoline to the right?
a. a decrease in the price of gasoline
b. an increase in consumer income, assuming gasoline is a normal good
c. an increase in the price of cars, a complement for gasoline
d. a decrease in the expected future price of gasoline
In which of the following situations must national saving rise?
a. Both domestic investment and net capital outflow increase.
b. Domestic investment increases and net capital outflow decreases.
c. Domestic investment decreases and net capital outflow increases.
d. Both domestic investment and net capital outflow decrease.
When a tax is levied on buyers of a good,
a. government collects too little revenue to justify the tax if the equilibrium quantity of
the good decreases as a result of the tax.
b. there is an increase in the quantity of the good supplied.
c. a wedge is placed between the price buyers pay and the price sellers effectively
receive.
d. the effective price to buyers decreases because the demand curve shifts leftward.
If you deposit $900 into an account for two years and the interest rate is 4%, how much
do you have at the end of the two years?
a. $972.00
b. $973.44
c. $974.19
d. None of the above is correct.
The long-run aggregate supply curve shifts right if
a. immigration from abroad increases.
b. the capital stock increases.
c. technology advances.
d. All of the above are correct.
Suppose aggregate demand shifts to the left and policymakers want to stabilize output.
What can they do?
a. repeal an investment tax credit or increase the money supply
b. repeal an investment tax credit or decrease the money supply
c. institute an investment tax credit or increase the money supply
d. institute an investment tax credit or decrease the money supply
Taxes on labor encourage which of the following?
a. labor demand to be more inelastic
b. mothers to stay at home rather than work in the labor force
c. workers to work overtime
d. fathers to take on second jobs
If the long-run Phillips curve shifts to the left, then for any given rate of money growth
and inflation the economy has
a. higher unemployment and lower output.
b. higher unemployment and higher output.
c. lower unemployment and lower output.
d. lower unemployment and higher output.
Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had
earnings of $5 a share and a dividend yield of 5 percent. The dividend is
a. $0.25 and the price-earnings ratio is 5.
b. $.25 and the price-earnings ratio is 6.7.
c. $1.25 and the price-earnings ratio is 5.
d. $1.25 and the price-earnings ratio is 6.7.
Which of the following is not correct?
a. China allows only one child per family and couples that violate this rule are subject
to substantial fines.
b. In developed countries, population growth is consistently about 3 percent per year; in
developing countries it is consistently about 5 percent per year.
c. Educational attainment tends to be lowest in countries with the highest population
growth.
d. Economists generally believe that a country that decreases a high population growth
rate can increase its economic growth rate.
As the size of a tax rises, the deadweight loss
a. rises, and tax revenue first rises, then falls.
b. rises as does tax revenue.
c. falls, and tax revenue first rises, then falls.
d. falls as does tax revenue.
An increase in the budget deficit makes domestic interest rates
a. rise because the supply of loanable funds shifts left.
b. fall because the supply of loanable funds shifts left.
c. rise because the demand for loanable funds shifts right.
d. fall because the demand for loanable funds shifts right.
Which of the following functions of money is also a common function of most other
financial assets?
a. a unit of account
b. a store of value
c. medium of exchange
d. None of the above is correct.
According to the political business cycle theory, if the Fed wanted to see a President
re-elected, prior to the election it might
a. lower the discount rate and sell bonds.
b. lower the discount rate and buy bonds.
c. raise the discount rate and sell bonds.
d. raise the discount rate and buy bonds.
Assume the market for tennis balls is perfectly competitive. When one tennis ball
producer exits the market,
a. the price of tennis balls increases.
b. the price of tennis balls decreases.
c. the price of tennis balls does not change.
d. there is no longer a market for tennis balls.
The design of tax policy is one of the responsibilities of economists who work at the
a. Council of Economic Advisers.
b. Federal Reserve.
c. Department of the Treasury.
d. Congressional Budget Office.
Which of the following expressions can be used to compute the price elasticity of
demand?
a. Price elasticity of demand = .
b. Price elasticity of demand = .
c. Price elasticity of demand = .
d. Price elasticity of demand = .
In the long run, an increase in the money supply growth rate
a. shifts both the long-run and the short-run Phillips curves right.
b. shifts the long-run Phillips curve left and the short-run Phillips curve right.
c. shifts the long-run Phillips curve right and the short-run Phillips curve left.
d. None of the above is correct.
Figure 8-7
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-7. Suppose a 22nd unit of the good were sold by a seller to a buyer.
Which of the following statements is correct?
a. For the 22nd unit, the difference between the buyer’s value and the seller’s cost is less
than the tax per unit.
b. For the 22nd unit, the difference between the buyer’s value and the seller’s cost is
greater than the tax per unit.
c. For the 22nd unit, the difference between the buyer’s value and the seller’s cost is
equal to the tax per unit.
d. It makes sense for the buyer to buy and for the seller to sell the 22nd unit, with or
without the tax in place.
Which of the following would cause investment spending to increase and aggregate
demand to shift right?
a. an increase in the money supply, but not an investment tax credit
b. an investment tax credit, but not an increase in the money supply
c. both an increase in the money supply and an investment tax credit
d. None of the above are correct.
Unions contribute to
a. frictional but not structural unemployment.
b. structural but not frictional unemployment.
c. both frictional and structural unemployment.
d. neither frictional nor structural unemployment.
Both the production of goods and services and the unemployment rate are used to
measure
a. the business cycle.
b. productivity.
c. the interest rate.
d. inflation.
Other things the same, if the price level falls, people
a. increase foreign bond purchases, so the dollar appreciates.
b. increase foreign bond purchases, so the dollar depreciates.
c. increase domestic bond purchases, so the dollar appreciates.
d. increase domestic bond purchases, so the dollar depreciates.
In which of the following cases should the United States produce more noodles than it
wants for its own use and trade some of those noodles to Italy in exchange for wine?
a. Americans know less than Italians know about cooking noodles.
b. The United States has an absolute advantage over Italy in producing noodles.
c. Italy has a comparative advantage over the United States in producing wine.
d. The opportunity cost of producing a gallon of wine is the same for Italy as it is for the
United States.
GA wind farm in Iowa buys a large turbine generator from a Swedish-owned factory
located in Connecticut that uses workers who live in Connecticut. As a result,
a. U.S. investment, GDP, and GNP all increase by the same amount.
b. U.S. investment increases, but GDP and GNP are unaffected by the purchase.
c. U.S. investment and GDP increase by the same amount, but U.S. GNP increases by a
smaller amount.
d. U.S. investment and GNP increase by the same amount, but U.S. GDP increases by a
smaller amount.
The position of the long-run aggregate supply curve
a. is determined by the things that determine output in the classical model.
b. is at the point where the unemployment rate is zero.
c. shifts to the right when the price level increases.
d. is at the point where the economy would cease to grow.
Most entrepreneurs do not have enough money of their own to start their businesses.
When they acquire the necessary funds from someone else,
a. their consumption expenditures are being financed by someone else’s saving.
b. their consumption expenditures are being financed by someone else’s investment.
c. their investments are being financed by someone else’s saving.
d. their saving is being financed by someone else’s investment.
Table 15-1
Labor Data for Aridia
Refer to Table 15-1. The unemployment rate of Aridia
a. increased from 2010 to 2011 and increased from 2011 to 2012.
b. increased from 2010 to 2011 and decreased from 2011 to 2012.
c. decreased from 2010 to 2011 and increased from 2011 to 2012.
d. decreased from 2010 to 2011 and decreased from 2011 to 2012.
The idea that only the government can organize economic activity in a way that
promotes economic well-being for a country as a whole
a. is a basic principle regarding individual decisionmaking.
b. amounts to a denial of one of the basic principles regarding interactions among
people.
c. supports the idea that the “invisible hand” should guide economic activity.
d. was promoted by the economist Adam Smith in a well-known 1776 book.
An increase in the marginal cost of an activity necessarily means that people will no
longer engage in any of that activity.
The Phillips curve and the short-run aggregate supply curve are closely related, yet one
slopes downward and the other slopes upward. Discuss.
An increase in the price level shifts the money demand curve to the left, causing interest
rates to increase.
Supply tends to be more elastic in the short run and more inelastic in the long run.
A price ceiling set below the equilibrium price is nonbinding.
Persistent increases in the overall level of prices have been the norm.
During a recession unemployment benefits rise. This rise in benefits makes aggregate
demand higher than otherwise.
If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the
inflation rate is 11 percent for 2006.
If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is
$45.
Normative statements describe how the world is, while positive statements prescribe
how the world should be.
“Society would be better off if the welfare system were abolished” is a normative
statement, not a positive statement.
When the Fed announces a target for the federal funds rate, it essentially accommodates
the day-to-day fluctuations in money demand by adjusting the money supply
accordingly.
Forward-looking parents can reverse the adverse effects of government debt by saving
more and leaving a larger bequest to their children.
The source of all four classic hyperinflations was high rates of money growth.
According to the theory of efficiency wages, firms operate more efficiently if wages are
above the equilibrium level.