You put money into an account that earns a 5 percent nominal interest rate. The
inflation rate is 3 percent, and your marginal tax rate is 20 percent. What is your
after-tax real rate of interest?
a. 3.4 percent
b. 1.6 percent
c. 1.0 percent
d. None of the above is correct.
Which of the following policies would Keynes’s followers support when an increase in
business optimism shifts the aggregate demand curve away from long-run equilibrium?
a. decrease taxes
b. increase government expenditures
c. increase the money supply
d. None of the above is correct.
Assume, for the U.S., that the domestic price of tea without international trade is higher
than the world price of tea. This suggests that
a. other countries have a comparative advantage over the U.S. in producing tea.
b. the U.S. has an absolute advantage over other countries in producing tea.
c. the U.S. will export tea if international trade is allowed.
d. American tea buyers will become worse off if international trade is allowed.
Other things the same, if a country raises its saving rate, then in the long run
a. both the level and growth rate of real GDP are unchanged.
b. the level of real GDP is higher but the growth rate of real GDP is unchanged.
c. both the level and growth rate of real GDP are higher.
d. None of the above are correct.
Table 10-5
A hypothetical country of Lahland produces only movies and popcorn. Quantities and
prices of these goods for the last several years are shown below. The base year is 2009.
Prices and Quantities
Refer to Table 10-5 In which year was this country’s nominal GDP highest?
a. 2008
b. 2009
c. 2010
d. 2011
Table 11-12. Will’s expenditures on food for three consecutive years, along with other
values, are presented in the table below.
Refer to Table 11-12. Suppose Will’s 2009 food expenditures in 2011 dollars amounted
to $5,670. Suppose also that the real interest rate in 2011 was 3 percent. Then, in 2011,
a. the inflation rate was 8 percent and the nominal interest rate was 5 percent.
b. the inflation rate was 9 percent and the nominal interest rate was 6 percent.
c. the inflation rate was 8 percent and the nominal interest rate was 11 percent.
d. the inflation rate was 9 percent and the nominal interest rate was 12 percent.
A tariff is a tax placed on
a. an exported good and it lowers the domestic price of the good below the world price.
b. an exported good and it ensures that the domestic price of the good stays the same as
the world price.
c. an imported good and it lowers the domestic price of the good below the world price.
d. an imported good and it raises the domestic price of the good above the world price.
Figure 2-14
Refer to Figure 2-14. The slope of the curve between points A and B is
a. -5
b. -1/5
c. 1/5
d. 5
Assume for the United States that the opportunity cost of each airplane is 100 cars.
Which of these pairs of points could be on the United States’ production possibilities
frontier?
a. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars)
b. (200 airplanes, 10,000 cars) and (150 airplanes, 20,000 cars)
c. (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars)
d. (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars)
Suppose the banking system currently has $400 billion in reserves, the reserve
requirement is 10 percent, and excess reserves are $3 billion. What is the level of loans?
a. $3,603 billion
b. $3,600 billion
c. $3,573 billion
d. $3,570 billion
Other things the same, a government budget deficit
a. reduces public saving, but not national saving.
b. reduces national saving, but not public saving.
c. reduces both public and national saving.
d. reduces neither public saving nor national saving.
The misperceptions theory of the short-run aggregate supply curve says that the
quantity of output supplied will increase if the price level
a. increases by less than expected so that firms believe the relative price of their output
has increased.
b. increases by less than expected so that firms believe the relative price of their output
has decreased.
c. increases by more than expected so that firms believe the relative price of their output
has increased.
d. increases by more than expected so that firms believe the relative price of their
output has decreased.
Consider a small economy in which consumers buy only two goods: pretzels and
cookies. In order to compute the consumer price index for this economy for two or
more consecutive years, we assume that
a. the percentage change in the price of pretzels is equal to the percentage change in the
price of cookies from year to year.
b. the number of pretzels bought by the typical consumer is equal to the number of
cookies bought by the typical consumer in each year.
c. neither the number of pretzels nor the number of cookies bought by the typical
consumer changes from year to year.
d. neither the price of pretzels nor the price of cookies changes from year to year.
Suppose the government increases the size of a tax by 40 percent. The deadweight loss
from that tax
a. increases by 40 percent.
b. increases by more than 40 percent.
c. increases but by less than 40 percent.
d. decreases by 40 percent.
Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the
stock market combined with a significant increase in immigration of skilled workers,
then in the short run
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.
Suppose that the market price for pizzas increases. The increase in producer surplus
comes from the benefit of the higher prices to
a. only existing sellers who now receive higher prices on the pizzas they were already
selling.
b. only new sellers who enter the market because of the higher prices.
c. both existing sellers who now receive higher prices on the pizzas they were already
selling and new sellers who enter the market because of the higher prices.
d. Producer surplus does not increase; it decreases.
When a bank loans out $1,000, the money supply
a. does not change.
b. decreases.
c. increases.
d. may do any of the above.
The economy of Mainland uses gold as its money. If the government discovers a large
reserve of gold on their land
a. the supply of money decreases and the value of money rises.
b. the supply of money increases and the value of money falls.
c. the demand for money increases and the value of money rises.
d. the demand for money decreases and the value of money falls.
Some individuals would like to have a job, but they have given up looking for a job
after an unsuccessful search. These individuals are called
a. detached workers, and they are classified by the Bureau of Labor Statistics as
unemployed.
b. detached workers, and they are not classified by the Bureau of Labor Statistics as
unemployed.
c. discouraged workers, and they are classified by the Bureau of Labor Statistics as
unemployed.
d. discouraged workers, and they are not classified by the Bureau of Labor Statistics as
unemployed.
According to research by Robert Fogel, what proportion of the British population in
1780 was so malnourished that they could not perform manual labor?
a. 40 percent
b. 20 percent
c. 10 percent
d. 5 percent
If the U.S. government went from a budget deficit to a budget surplus then
a. the interest rate and the real exchange rate would increase.
b. the interest rate and the real exchange rate would decrease.
c. the interest rate would increase and the real exchange rate would decrease.
d. the interest rate would decrease and the real exchange rate would increase.
When a minimum-wage law forces the wage to remain above the level that balances
supply and demand, the result is a
a. shortage of labor and a shortage of jobs.
b. shortage of labor and a surplus of jobs.
c. surplus of labor and a shortage of jobs.
d. surplus of labor and a surplus of jobs.
Almost all economists agree that rent control
a. has no effect on the rental income of landlords.
b. allows the market for housing to work more efficiently.
c. adversely affects the availability and quality of housing.
d. is a very inexpensive way to help the most needy members of society.
Gary and Diane must prepare a presentation for their marketing class. As part of their
presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It
would take Gary 10 hours to do the required calculation and 10 hours to prepare the
slides. It would take Diane 12 hours to do the calculations and 20 hours to prepare the
slides.
a. How much time would it take the two to complete the project if they divide the
calculations equally and the slides equally?
b. How much time would it take the two to complete the project if they use comparative
advantage and specialize in calculating or preparing slides?
c. If Diane and Gary have the same opportunity cost of $5 per hour, is there a better
solution than for each to specialize in calculating or preparing slides?
Table 11-2
The table below pertains to Iowan, an economy in which the typical consumer’s basket
consists of 3 pounds of pork and 4 bushels of corn.
Refer to Table 11-2. The cost of the basket in 2009 was
a. $108.
b. $147.
c. $160.
d. $301.
After a country goes from disallowing trade in coffee with other countries to allowing
trade in coffee with other countries,
a. the domestic price of coffee will be greater than the world price of coffee.
b. the domestic price of coffee will be lower than the world price of coffee.
c. the domestic price of coffee will equal the world price of coffee.
d. The world price of coffee does not matter; the domestic price of coffee prevails.
A likely example of complementary goods for most people would be
a. butter and margarine.
b. lawnmowers and automobiles.
c. chips and salsa.
d. cola and lemonade.
The 2005 Boston Globe article discussing ticket scalping points out that the price
people will pay for tickets will rise when
a. supply and demand are both limited.
b. supply is limited and demand is not limited.
c. supply is limited and demand is not limited.
d. supply and demand are both not limited.
In a market economy, supply and demand are important because they
a. are direct policy tools used by government agencies to regulate the economy.
b. illustrate when an market is in equilibrium, but they are not helpful when a market is
out of equilibrium.
c. can be used to predict the impact on the economy of various events and policies.
d. All of the above are correct.
Refer to Table 2-3. Which of the following statements is correct?
a. The opportunity cost of an additional 100 books is constant at 50 magazines.
b. The opportunity cost of an additional 100 books is constant at 100 magazines.
c. Libraryland’s production possibilities frontier is a straight, downward-sloping line.
d. The opportunity cost of an additional 100 books increases as more books are
produced.
If people become less optimistic about the future earnings of Hyde Park Jazz Studio,
then the price of the company’s stock will fall.
Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin. Fred and Barney both
gain from the exchange. We can conclude that, for Barney, the opportunity cost of
producing 1 pumpkin is greater than 2 tomatoes.
Adults who were waiting to be recalled to a job from which they had been laid off are
included in the Bureau of Labor Statistics’ “employed” category.
If prices and wages adjusted rapidly and producers could quickly distinguish the
difference between a change in the price level and a change in the relative price of their
products, then an increase in the money supply growth rate would have at most a very
short-lived affect on unemployment.
Bank runs and the accompanying increase in the money multiplier caused the U.S.
money supply to rise by 28 percent from 1929 to 1933.
If Congress instituted an investment tax credit, the demand for loanable funds would
shift rightward.
Many economists believe the bias in the CPI is now only about half as large as it once
was.
Give an example of adverse selection and an example of moral hazard using
homeowners insurance.
If there is an improvement in the technology used to produce a good, then the supply
curve for that good will shift to the left.
Can purchasing-power parity be used to explain the fact that the U.S. dollar has
depreciated by more than 50 percent against the German mark between 1970 and 1998,
but appreciated by more than 100 percent against the Italian lira during the same
period? Defend your answer.
What are the basic differences between bonds and stocks?
If the government imposes a binding price floor in a market, then the consumer surplus
in that market will decrease.
An increase in capital increases productivity only if it is purchased and operated by
domestic residents.
A tax on sellers reduces the size of a market.
The economy contains many labor markets for different types of workers.
More than 3 percent of U.S. workers leave their jobs in a typical month.
Investment in human capital has opportunity costs, but investment in physical capital
does not.