Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal,
international tensions, and loss of confidence in policymakers, people become
pessimistic regarding the future and retain that level of pessimism for some time.
Refer to Pessimism. In the short run what happens to the price level and real GDP?
a. Both the price level and real GDP rise.
b. Both the price level and real GDP fall.
c. The price level rises and real GDP falls.
d. The price level falls and real GDP rises.
Which of the following is a tax on labor?
a. Medicare tax
b. Social Security tax
c. federal income tax
d. All of the above are labor taxes.
If over a short time there is an increase in the number of people retired and a decrease
in the number of people working, then productivity
a. and real GDP per person rise.
b. rises but real GDP per person falls.
c. falls and real GDP per person rises.
d. and real GDP per person fall.
When small changes in price lead to infinite changes in quantity demanded, demand is
perfectly
a. elastic, and the demand curve will be horizontal.
b. inelastic, and the demand curve will be horizontal.
c. elastic, and the demand curve will be vertical.
d. inelastic, and the demand curve will be vertical.
Figure 7-13
Refer to Figure 7-13. If the price of the good is $500, then producer surplus amounts to
a. $450.
b. $575.
c. $700.
d. $800.
Last year the imaginary nation of Freedonia had a population of 2,700 and real GDP of
16,200,000. This year it had a population of 2,500 and real GDP of 14,640,000. What
was the growth rate of real GDP per person between last year and this year?
a. -2.4 percent
b. -0.7 percent
c. 4.4 percent
d. 5.2 percent
Figure 2-15
Relationship between Price and Cups of Coffee
Refer to Figure 2-15. Which of the following could result in a movement from point B
to point Z?
a. a change in the price of coffee
b. a change in the number of cups of coffee demanded
c. a change in income
d. More than one of the above is correct.
The GDP deflator reflects the
a. level of prices in the base year relative to the current level of prices.
b. current level of prices relative to the level of prices in the base year.
c. level of real output in the base year relative to the current level of real output.
d. current level of real output relative to the level of real output in the base year.
In equilibrium a country has a net capital outflow of $200 billion and domestic
investment of $150 billion. What is the quantity of loanable funds demanded?
a. $50 billion
b. $150 billion
c. $200 billion
d. $350 billion
We interpret the meaning of “loanable funds” as the
a. flow of resources available from private saving.
b. flow of resources available to fund private investment.
c. resources borrowed by private investors and by government.
d. resources lent by private investors and by government.
The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good
in Barbados is 3 Barbados dollars and the price in the U.S. is 2 U.S. dollars, what is the
real exchange rate to the nearest 100th?
a. 3 Barbados goods per U.S. good
b. 1.33 Barbados goods per U.S. good
c. 0.75 Barbados goods per U.S. good
d. none of the above is correct
Figure 5-4
Refer to Figure 5-4. Assume, for the good in question, two specific points on the
demand curve are (Q= 2,000, P = $15) and (Q = 2,400, P = $12). Then which of the
following scenarios is possible?
a. Both of these points lie on section BC of the demand curve.
b. The vertical intercept of the demand curve is the point (Q = 0, P = $22).
c. The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0).
d. Any of these scenarios is possible.
In the long run, an increase in the money supply growth rate
a. increases inflation and shifts the short-run Phillips curve right.
b. increases inflation and shifts the short-run Phillips curve left.
c. decreases inflation and shifts the short-run Philips curve right.
d. decreases inflation and shifts the short-run Phillips curve left.
The national debt
a. exists because of past government budget deficits.
b. is the difference between the government’s spending and revenue in a given year.
c. is the amount households owe on credit cards, mortgages and other loans.
d. is the amount household and firms have borrowed minus the amount they have
saved.
If the price of natural gas rises, when is the price elasticity of demand likely to be the
highest?
a. immediately after the price increase
b. one month after the price increase
c. three months after the price increase
d. one year after the price increase
How did the influential economist John Maynard Keynes explain his remark that
though economics is an easy subject compared with the higher branches of philosophy
or pure science, it is a subject at which few excel?
a. Most people who study economics are not very bright.
b. Good economists must possess a rare combination of gifts.
c. Economics is quite boring; hence, people tend to lose interest in it before mastering
it.
d. Good thinkers become frustrated with economics because it does not make use of the
scientific method.
All else equal, which of the following would tend to cause real GDP per person to rise?
a. a change from inward-oriented policies to outward-oriented policies
b. an increase in investment in human capital
c. strengthening of property rights.
d. All of the above are correct.
Which of the following statements about comparative advantage is not true?
a. Comparative advantage is determined by which person or group of persons can
produce a given quantity of a good using the fewest resources.
b. The principle of comparative advantage applies to countries as well as to individuals.
c. Economists use the principle of comparative advantage to emphasize the potential
benefits of free trade.
d. A country may have a comparative advantage in producing a good, even though it
lacks an absolute advantage in producing that good.
If the consumer price index was 88 in 2009, 95 in 2010, and 100 in 2011, then the base
year must be
a. 2009.
b. 2010.
c. 2011.
d. The base year cannot be determined from the given information.
You pay for cheese and bread from the deli with currency. Which function of money
does this best illustrate?
a. medium of exchange
b. unit of account
c. store of value
d. liquidity
Jennifer took out a fixed-interest-rate loan when the CPI was She expected the CPI to
increase to 103 but it actually increased to 105. The real interest rate she paid is
a. higher than she had expected, and the real value of the loan is higher than she had
expected.
b. higher than she had expected, and the real value of the loan is lower than she had
expected.
c. lower than she had expected, and the real value of the loan is higher than she had
expected.
d. lower then she had expected, and the real value of the loan is lower than she had
expected.
Which of the following would cause stagflation?
a. rising government expenditures
b. rising oil prices
c. a falling money supply
d. technical progress
If the Federal Reserve increases the growth rate of the money supply, in the long run
a. inflation is higher and the unemployment rate is lower.
b. inflation is higher while the unemployment rate is unchanged.
c. inflation is unchanged while the unemployment rate is lower.
d. None of the above is correct.
Figure 13-3. The figure shows two demand-for-loanable-funds curves and two
supply-of-loanable-funds curves.
Refer to Figure 13-3. A shift of the demand curve from D1 to D2 is called
a. an increase in the demand for loanable funds, and that increase would originate from
people who had some extra income they wanted to lend.
b. an increase in the demand for loanable funds, and that increase would originate from
households and firms who wish to borrow to make investments.
c. a decrease in the demand for loanable funds, and that decrease would originate from
people who had some extra income they wanted to lend.
d. a decrease in the demand for loanable funds, and that decrease would originate from
households and firms who wish to borrow to make investments.
The city of Ann Arbor Michigan buys a police car manufactured in Germany. In the
GDP accounts this transaction is included in
a. in government expenditures and exports.
b. government expenditures and imports.
c. exports, but not government expenditures.
d. imports, but not government expenditures.
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.
Last summer when you went to Stockholm Sweden you exchanged $20 to get 16 kronas
to buy a meal. This summer you exchanged $25 to get 18 kronas to buy the same meal.
The nominal exchange rate
a. rose. If purchasing-power parity holds, than prices in the Sweden rose faster than
prices in the U.S.
b. rose. If purchasing-power parity holds, than prices in the U.S. rose faster than prices
in the Sweden.
c. fell. If purchasing-power parity holds, than prices in the Sweden rose faster than
prices in the U.S.
d. fell. If purchasing-power parity holds, than prices in the U.S. rose faster than prices
in the Sweden.
Figure 4-21
Refer to Figure 4-21. Which of the following movements would illustrate the effect in
the market for paper napkins as a result of a “Go Green” advertising campaign
encouraging people to use cloth napkins?
a. Point A to Point B
b. Point C to Point B
c. Point C to Point D
d. Point A to Point D
Table 4-9
The demand schedule below pertains to sandwiches demanded per week.
Refer to Table 4-9. Suppose Harry, Darby, and Jake are the only demanders of
sandwiches. Also suppose the following:
x = 2.
The current price of a sandwich is $5.00.
The market quantity supplied of sandwiches is 10.
The law of supply applies to the supply of sandwiches.
Then there is a
a. shortage of 5 sandwiches, and the price would be expected to rise from its current
level of $5.00.
b. shortage of 5 sandwiches, and the price would be expected to fall from its current
level of $5.00.
c. surplus of 5 sandwiches, and the price would be expected to rise from its current
level of $5.00.
d. surplus of 5 sandwiches, and the price would be expected to fall from its current level
of $5.00.
Figure 7-8
Refer to Figure 7-8. When the price rises from P1 to P2, which area represents the
increase in producer surplus to existing producers?
a. BCG
b. ACH
c. DGH
d. ABGD
Suppose that monetary neutrality and the Fisher effect both hold and the money supply
growth rate has been the same for a long time. Other things the same a higher money
supply growth would be associated with
a. both higher inflation and higher nominal interest rates.
b. a higher inflation rate, but not higher nominal interest rates.
c. a higher nominal interest rate, but not higher inflation.
d. neither a higher inflation rate nor a higher nominal interest rate.
Table 11-11. Megan’s salary for three consecutive years, along with other values, are
presented in the table below.
Refer to Table 11-11. Suppose the consumer price index for 2010 is not necessarily
233.2. If the nominal interest rate for 2010 is 7.3 percent , then the consumer price
index for 2010 is, in fact,
a. 210.00.
b. 216.06.
c. 220.48.
d. 226.26.