Sonya, a citizen of Denmark, produces boots and shoes that she sells to department
stores in the United States. Other things the same, these sales
a. increase U.S. net exports and have no effect on Danish net exports.
b. decrease U.S. net exports and have no effect on Danish net exports.
c. increase U.S. net exports and decrease Danish net exports.
d. decrease U.S. net exports and increase Danish net exports.
The decrease in total surplus that results from a market distortion, such as a tax, is
called a
a. wedge loss.
b. revenue loss.
c. deadweight loss.
d. consumer surplus loss.
You have a choice among three options. Option 1: receive $900 immediately. Option 2:
receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The
interest rate is 15 percent. Rank these three options from highest present value to lowest
present value.
a. Option 1; Option 2; Option 3
b. Option 3; Option 2; Option 1
c. Option 2; Option 3; Option 1
d. Option 3; Option 1; Option 2
Dobson Construction has an investment project that would cost $150,000 today and
yield a one-time payoff of $167,000 in three years. Among the following interest rates,
which is the highest one at which Dobson would find this project profitable?
a. 5 percent
b. 4 percent
c. 3 percent
d. 2 percent
Figure 7-7
Refer to Figure 7-7. If the price of the good is $14, then producer surplus is
a. $17.
b. $22.
c. $25.
d. $28.
Figure 3-8
Chile’s Production Possibilities Frontier Colombia’s Production Possibilities
Frontier
Refer to Figure 3-8. Chile should specialize in the production of
a. coffee and import soybeans.
b. soybeans and import coffee.
c. both goods and import neither good.
d. neither good and import both goods.
Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds
in buying one for $425. Billie Jo’s willingness to pay for the dishwasher is
a. $150.
b. $425.
c. $500.
d. $850.
In the economy of Ukzten in 2010, consumption was $500, exports were $200, GDP
was $1200, government purchases were $250, and investment was $300. What were
Ukzten’s imports in 2010?
a. -$150
b. -$50
c. $50
d. $150
The catch-up effect refers to the idea that
a. saving will always catch-up with investment spending.
b. it is easier for a country to grow fast and so catch-up if it starts out relatively poor.
c. population eventually catches-up with increased output.
d. if investment spending is low, increased saving will help investment to “catch-up.”
Compute how much each of the following items is worth in terms of today’s dollars
using 177 as the price index for today.
a. In 1926, the CPI was 17.7 and the price of a movie ticket was $0.25.
b. In 1932, the CPI was 13.1 and a cook earned $15.00 a week.
c. In 1943, the CPI was 17.4 and a gallon of gas cost $0.19.
Fiat money
a. has no intrinsic value.
b. is backed by gold.
c. is a medium of exchange but not a unit of account.
d. is any close substitute for currency such as checkable deposits.
Figure 21-3.
Refer to Figure 21-3. For an economy such as the United States, what component of
the demand for goods and services is most responsible for the decrease in output from
Y1 to Y2?
a. consumption
b. investment
c. net exports
d. government spending
Other things the same, which bond would you expect to pay the lowest interest rate?
a. a bond issued by a state with a very good credit rating
b. a bond issued by the U.S. government
c. a bond issued by a fairly new company doing genetic research
d. a bond issued by Nabisco
Other things the same, an increase in the price level causes the interest rate to
a. increase, the dollar to depreciate, and net exports to increase.
b. increase, the dollar to appreciate, and net exports to decrease.
c. decrease, the dollar to depreciate, and net exports to increase.
d. decrease, the dollar to appreciate, and net exports to decrease.
The federal funds rate is the
a. percentage of face value that the Federal Reserve is willing to pay for Treasury
Securities.
b. percentage of deposits that banks must hold as reserves.
c. interest rate at which the Federal Reserve makes short-term loans to banks.
d. interest rate at which banks lend reserves to each other overnight.
If a dollar buys more potatoes in the U.S. than in France, then
a. the real exchange rate is greater than 1; a profit might be made by buying potatoes in
the U.S. and selling them in France.
b. the real exchange rate is greater than 1; a profit might be made by buying potatoes in
France. and selling them in the U.S.
c. the real exchange rate is less than 1; a profit might be made by buying potatoes in the
U.S. and selling them in France.
d. the real exchange rate is less than 1; a profit might be made by buying potatoes in
France and selling them in the U.S.
Economists agree that
a. neither high inflation nor moderate inflation is very costly.
b. both high and moderate inflation are quite costly.
c. high inflation is costly, but they disagree about the costs of moderate inflation.
d. moderate inflation is as costly as high inflation.
If the reserve ratio is 12.5 percent, the money multiplier is
a. 6.25.
b. 8.
c. 12.5.
d. 25.
Reforming tax laws to encourage saving is motivated by which of the Ten Principles of
Economics from Chapter 1?
a. The cost of something is what you give up to get it (Principle 2).
b. Trade can make everyone better off (Principle 5).
c. Markets are usually a good way to organize economic activity (Principle 6).
d. A country’s standard of living depends on its ability to produce goods and services
(Principle 8).
If the size of a tax increases, tax revenue
a. increases.
b. decreases.
c. remains the same.
d. may increase, decrease, or remain the same.
The banking system currently has $100 billion of reserves, none of which are excess.
People hold only deposits and no currency, and the reserve requirement is 10 percent. If
the Fed lowers the reserve requirement to 8 percent and at the same time buys $10
billion worth of bonds, then by how much does the money supply change?
a. It rises by $225 billion.
b. It rises by $375 billion.
c. It rises by $675 billion.
d. None of the above is correct.
For the purpose of analyzing the gains and losses from a tax on a good, we use tax
revenue as a direct measure of the
a. government’s benefit from the tax.
b. government’s loss from the tax.
c. deadweight loss of the tax.
d. overall net gain to society of the tax.
If a firm sells a total of 100 shares of stock, then
a. the supply of, and demand for, those shares determine the price per share.
b. each share represents ownership of 1 percent of the firm.
c. the firm is engaging in equity finance.
d. All of the above are correct.
Most of the change from 1980 to 1987 in U.S. net capital outflow as a percent of GDP
was due to a(n)
a. decrease in U.S. investment.
b. decrease in U.S. national saving.
c. increase in U.S. investment.
d. increase in U.S. national saving.
If one wants to know how the material well-being of the average person has changed
over time in a given country, one should look at the
a. level of real GDP.
b. growth rate of nominal GDP.
c. growth rate of real GDP.
d. growth rate of real GDP per person.
Most economists believe that an increase in the quantity of money results in
a. an increase in the demand for goods and services.
b. lower unemployment in the short run.
c. higher inflation in the long run.
d. All of the above are correct.
Which of the following pairs of portfolios exemplifies the risk-return tradeoff?
a. For Portfolio A, the average return is 6 percent and the standard deviation is 15
percent; for Portfolio B, the average return is 6 percent and the standard deviation is 25
percent.
b. For Portfolio A, the average return is 5 percent and the standard deviation is 15
percent; for Portfolio B, the average return is 8 percent and the standard deviation is 15
percent.
c. For Portfolio A, the average return is 5 percent and the standard deviation is 25
percent; for Portfolio B, the average return is 8 percent and the standard deviation is 15
percent.
d. For Portfolio A, the average return is 5 percent and the standard deviation is 15
percent; for Portfolio B, the average return is 8 percent and the standard deviation is 25
percent.
Suppose you win a small lottery and you are given the following choice: You can
receive (1) an immediate payment of $5,000 or (2) two annual payments, each in the
amount of $2,700, with the first payment coming one year from now, and the second
payment coming two years from now. You would choose to take the two annual
payments if the interest rate is
a. 2 percent, but not if the interest rate is 3 percent.
b. 3 percent, but not if the interest rate is 4 percent.
c. 4 percent, but not if the interest rate is 5 percent.
d. 5 percent, but not if the interest rate is 6 percent.
Total surplus is equal to
a. value to buyers – profit to sellers.
b. value to buyers – cost to sellers.
c. consumer surplus x producer surplus.
d. (consumer surplus + producer surplus) x equilibrium quantity.
Deadweight loss measures the decrease in total surplus that results from a tariff or
quota.
Which of the following depends primarily on the growth rate of the money supply?
a. inflation and the natural rate of unemployment
b. inflation but not the natural rate of unemployment
c. the natural rate of unemployment but not inflation
d. neither inflation nor the natural rate of unemployment
You have been promised a payment of $400 in the future. In which of the following
cases is the present value of this payment the lowest?
a. You receive the payment 4 years from now and the interest rate is 4 percent.
b. You receive the payment 4 years from now and the interest rate is 5 percent.
c. You receive the payment 5 years from now and the interest rate is 4 percent.
d. You receive the payment 5 years from now and the interest rate is 5 percent.
A tax cut shifts the aggregate demand curve the farthest if
a. the MPC is large and if the tax cut is permanent.
b. the MPC is large and if the tax cut is temporary.
c. the MPC is small and if the tax cut is permanent.
d. the MPC is small and if the tax cut is temporary.
The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is
considering two potential programs: Operation Methbust would increase the number of
sheriffs’ deputies to search out and destroy methamphetamine labs. Operation Say No to
Meth would increase the training required of public school teachers so that they could
better educate students about the health risks of using meth. Assuming that each
program were successful, which of the following statements is correct?
a. Both Operation Methbust and Say No would reduce the demand for meth.
b. Both Operation Methbust and Say No would reduce the supply of meth.
c. Operation Methbust would reduce the demand for meth; Operation Say No would
reduce the supply of meth.
d. Operation Methbust would reduce the supply of meth; Operation Say No would
reduce the demand for meth.