Figure 6-2
Refer to Figure 6-2. The price ceiling
a. is binding.
b. causes a shortage.
c. causes the quantity demanded to exceed the quantity supplied.
d. All of the above are correct.
If aggregate demand shifts left, then in the short run
a. the price level and real GDP both rise.
b. the price level rises and real GDP falls.
c. the price level falls and real GDP rises.
d. the price and real GDP both fall.
If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect, but no
crowding out and no investment accelerator, then
a. aggregate demand falls by 3 x $40 billion.
b. aggregate demand falls by 11/3 x $40 billion.
c. aggregate demand falls by 11/8 x $40 billion.
d. None of the above is correct.
According to the definitions of national saving and public saving, if Y, C, and G
remained the same, an increase in taxes would
a. raise national saving and public saving.
b. raise national saving and raise public saving.
c. leave national saving and public saving unchanged.
d. leave national saving unchanged and raise public saving.
Assume, for the U.S., that the domestic price of pineapples without international trade
is lower than the world price of pineapples. This suggests that, in the production of
pineapples,
a. the U.S. has a comparative advantage over other countries and the U.S. will export
pineapples.
b. the U.S. has a comparative advantage over other countries and the U.S. will import
pineapples.
c. other countries have a comparative advantage over the U.S. and the U.S. will export
pineapples.
d. other countries have a comparative advantage over the U.S. and the U.S. will import
pineapples.
Workers displaced by trade eventually find jobs in
a. another country.
b. the government sector.
c. the industries in which the country has a comparative advantage.
d. a different company in the same industry.
Monetary neutrality means that a change in the money supply
a. does not change real GDP. Most economists think this is a good description of the
economy in the short run and in the long run.
b. does not change real GDP. Most economists think this is a good description of the
economy in the long run but not the short run.
c. does change real GDP. Most economists think this is a good description of the
economy in the short-run and the long run.
d. does change real GDP. Most economists think this is a good description of the
economy in the long run but not the short run.
In a market economy,
a. supply determines demand and demand, in turn, determines prices.
b. demand determines supply and supply, in turn, determines prices.
c. the allocation of scarce resources determines prices and prices, in turn, determine
supply and demand.
d. supply and demand determine prices and prices, in turn, allocate the economy’s
scarce resources.
Figure 3-10
Alice and Betty’s Production Possibilities in one 8-hour day.
Alice’s Production Possibilities Frontier Betty’s Production Possibilities Frontier
Refer to Figure 3-10. What are Alice and Betty’s opportunity costs of 1 pitcher of
lemonade?
a. Alice’s opportunity cost of 1 pitcher of lemonade is 1/2 of a pizza and Betty’s
opportunity cost of 1 pitcher of lemonade is 2/3 of a pizza.
b. Alice’s opportunity cost of 1 pitcher of lemonade is 2 pizzas and Betty’s opportunity
cost of 1 pitcher of lemonade is 1.5 pizzas.
c. Alice’s opportunity cost of 1 pitcher of lemonade is 10 pizzas and Betty’s opportunity
cost of 1 pitcher of lemonade is 10 pizzas.
d. Alice’s opportunity cost of 1 pitcher of lemonade is 200 pizzas and Betty’s
opportunity cost of 1 pitcher of lemonade is 300 pizzas.
Explain how each of the following changes the money supply.
a. the Fed buys bonds
b. the Fed auctions credit
c. the Fed raises the discount rate
d. the Fed raises the reserve requirement
You are tearing down a building and find $1 in change that someone lost when working
on the building 140 years ago. If, instead of being careless with the $1 in change, this
person had deposited it into a bank and earned 2 percent interest every year for 140
years, how much would be in the account today according to the rule of 70?
a. $4
b. $8
c. $16
d. $32
When economists refer to intangible items, they are referring to such things as
a. illegal goods, and the value of such items is included in GDP.
b. illegal goods, and the value of such items is excluded from GDP.
c. hair styling and dental care, and the value of such items is included in GDP.
d. hair styling and dental care, and the value of such items is excluded from GDP.
A person who believes strongly in the use of fundamental analysis to choose a portfolio
of stocks
a. has a better chance of outperforming the market if stock prices follow a random walk
than if they do not follow a random walk.
b. almost always chooses to hold index funds in his or her portfolio rather than
actively-managed funds.
c. is spending his or her time wisely if the efficient markets hypothesis is correct.
d. is interested in the likely ability of a corporation to pay dividends in the future.
A tariff is a
a. limit on how much of a good can be exported.
b. limit on how much of a good can be imported.
c. tax on an exported good.
d. tax on an imported good.
Which of the following statements is correct regarding a tax on a good and the resulting
deadweight loss?
a. The greater are the price elasticities of supply and demand, the greater is the
deadweight loss.
b. The greater is the price elasticity of supply and the smaller is the price elasticity of
demand, the greater is the deadweight loss.
c. The smaller are the decreases in quantity demanded and quantity supplied, the greater
the deadweight loss.
d. The smaller is the wedge between the effective price to sellers and the effective price
to buyers, the greater is the deadweight loss.
As the price level rises, the interest rate
a. falls, so the supply of dollars in the market for foreign currency exchange shifts left.
b. falls, so the supply of dollars in the market for foreign currency exchange shifts right.
c. rises, so the supply of dollars in the market for foreign currency exchange shifts left.
d. rises, so the supply of dollars in the market for foreign currency exchange shifts
right.
The Federal Reserve
a. was created in 1913.
b. is the U.S.’s central bank.
c. has other duties in addition to controlling the money supply.
d. All of the above are correct.
As a rationing mechanism, discrimination according to seller bias is
a. efficient and fair.
b. efficient, but potentially unfair.
c. inefficient, but fair.
d. inefficient and potentially unfair.
If the price elasticity of demand for a good is 1.5, then a 3 percent decrease in price
results in a
a. 0.5 percent increase in the quantity demanded.
b. 2 percent increase in the quantity demanded.
c. 4.5 percent increase in the quantity demanded.
d. 5 percent increase in the quantity demanded.
If two goods are substitutes, their cross-price elasticity will be
a. positive.
b. negative.
c. zero.
d. equal to the difference between the income elasticities of demand for the two goods.
A simultaneous increase in both the demand for MP3 players and the supply of MP3
players would imply that
a. both the value of MP3 players to consumers and the cost of producing MP3 players
has increased.
b. both the value of MP3 players to consumers and the cost of producing MP3 players
has decreased.
c. the value of MP3 players to consumers has decreased, and the cost of producing MP3
players has increased.
d. the value of MP3 players to consumers has increased, and the cost of producing MP3
players has decreased.
The nominal interest rate is 5 percent and the real interest rate is 2 percent. What is the
inflation rate?
a. 10 percent
b. 7 percent
c. 3 percent
d. 2.5 percent
Friedman and Phelps argued
a. that in the long run, monetary growth did not influence those factors that determine
the economy’s unemployment rate.
b. that the Phillips curve could be exploited in the long run by using monetary, but not
fiscal policy.
c. that the short-run Phillips curve was very steep, but not vertical.
d. that there was neither a short-run nor long-run tradeoff between inflation and
unemployment.
The introduction of a new good
a. increases the cost of maintaining the same level of economic well-being.
b. decreases the cost of maintaining the same level of economic well-being.
c. has no impact on the cost of maintaining the same level of economic well-being.
d. may increase or decrease the cost of maintaining the same level of economic
well-being, depending on how expensive the new good is.
Which of the following is human capital?
a. textbooks
b. hand held power tools
c. understanding how to repair cars
d. All of the above are correct.
Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where
the CPI is 125. Arlo’s job offer in Des Moines is for $42,000. How much does the New
York job have to pay in order for the two salaries to represent the same purchasing
power?
a. $42,000
b. $65,625
c. $68,880
d. $189,000
Which of the following is vertical?
a. both the long-run Phillips curve and the long-run aggregate supply curve
b. neither the long-run Phillips curve nor the long-run aggregate supply curve
c. the long-run Phillips curve, but not the long-run aggregate supply curve
d. the long-run Phillips curve, but not the long-run aggregate supply curve
An increase in the budget deficit
a. makes investment spending fall.
b. makes investment spending rise.
c. does not affect investment spending.
d. may increase, decrease, or not affect investment spending.
Assume a central bank follows a rule that requires it to take steps to keep the price level
constant. If the price level fell because of a decrease in aggregate demand and an
increase in aggregate supply that kept output unchanged, then
a. the central bank would have to decrease the money supply which would decrease
output.
b. the central bank would have to decrease the money supply which would increase
output.
c. the central bank would have to increase the money supply which would decrease
output.
d. the central bank would have to increase the money supply which would increase
output.
A decrease in supply will cause the largest increase in price when
a. both supply and demand are inelastic.
b. both supply and demand are elastic.
c. demand is elastic and supply is inelastic.
d. demand is inelastic and supply is elastic.
Wealth is redistributed from creditors to debtors when inflation was expected to be
a. high and it turns out to be high.
b. low and it turns out to be low.
c. low and it turns out to be high.
d. high and it turns out to be low.
Which of the following events would cause the price of oranges to fall?
a. There is a shortage of oranges.
b. The FDA announces that bananas cause strokes, and oranges and bananas are
substitutes.
c. The price of land throughout Florida decreases, and Florida produces a significant
proportion of the nation’s oranges.
d. All of the above are correct.
The interest-rate effect
a. depends on the idea that increases in interest rates increase the quantity of money
demanded.
b. depends on the idea that increases in interest rates increase the quantity of money
supplied.
c. is the most important reason, in the case of the United States, for the downward slope
of the aggregate-demand curve.
d. is the least important reason, in the case of the United States, for the downward slope
of the aggregate-demand curve.