A Texas household receives a Social Security check for $500, which it uses to purchase
a $460 television made in Korea by a Korean firm and a $40 dinner at a local
restaurant. As a result, U.S. GDP
a. does not change.
b. increases by $40.
c. increases by $540.
d. increases by $1000.
Who once said that taxes are the price we pay for a civilized society?
a. Milton Friedman
b. Theodore Roosevelt
c. Arthur Laffer
d. Oliver Wendell Holmes, Jr.
If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount
of goods and services as
a. $25.00 purchased in 1975.
b. $33.33 purchased in 1975.
c. $40.00 purchased in 1975.
d. $135.55 purchased in 1975.
A statement describing how the world should be
a. is a normative statement.
b. is a positive statement.
c. would only be made by an economist speaking as a scientist.
d. would only be made by an economist employed by the government.
Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.
Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area
a. A.
b. B+C.
c. A+B+C.
d. A+B+C+D+F.
In computing the consumer price index, a base year is chosen. Which of the following
statements about the base year is correct?
a. The base year is always the first year among the years for which computations are
being made.
b. It is necessary to designate a base year only in the simplest case of two goods; in
more realistic cases, it is not necessary to designate a base year.
c. The value of the consumer price index is always 100 in the base year.
d. The base year is always the year in which the cost of the basket was highest among
the years for which computations are being made.
Suppose a certain country imposes a tariff on a good. Which of the following results of
the tariff is possible?
a. Consumer surplus decreases by $100; producer surplus increases by $100; and
government revenue from the tariff amounts to $50.
b. Consumer surplus decreases by $200; producer surplus increases by $100; and
government revenue from the tariff amounts to $50.
c. Consumer surplus increases by $100; producer surplus decreases by $200; and
government revenue from the tariff amounts to $50.
d. Consumer surplus decreases by $50; producer surplus increases by $200; and
government revenue from the tariff amounts to $150.
A national chain of grocery stores wants to finance the construction of several new
stores. The firm has limited internal funds, so it likely will
a. demand the required funds by buying bonds.
b. demand the required funds by selling bonds.
c. supply the required funds by buying bonds.
d. supply the required funds by selling bonds.
What would happen in the market for loanable funds if the government were to increase
the tax on interest income?
a. Interest rates would rise.
b. Interest rates would be unaffected.
c. Interest rates would fall.
d. The effect on the interest rate is uncertain.
Figure 4-17
Refer to Figure 4-17. If the price is $25, then there would be an excess
a. supply of 100 units, and price would fall.
b. supply of 300 units, and price would fall.
c. demand of 100 units, and price would fall.
d. demand of 300 units, and price would fall.
Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price
index was 177 in 2001 and 5 in 2006. Henri’s 2001 salary in 2006 dollars is
a. $25,000.00.
b. $33,333.33.
c. $44,250.00
d. $75,000.00.
Figure 8-6
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue
is
a. $600.
b. $900.
c. $1,500.
d. $3,000.
Open-market purchases
a. increase investment and real GDP.
b. decrease investment and increase real GDP.
c. increase investment and decrease real GDP.
d. decrease investment and real GDP.
Economists make use of assumptions, some of which are unrealistic, for the purpose of
a. teaching economics to people who have never before studied economics.
b. advancing their political agendas.
c. developing models when the scientific method cannot be used.
d. focusing their thinking.
Guns and butter are used to represent the classic societal tradeoff between spending on
a. durable and nondurable goods.
b. imports and exports.
c. national defense and consumer goods.
d. law enforcement and agriculture.
Figure 4-1
Refer to Figure 4-1. It is apparent from the figure that the
a. good is inferior.
b. demand for the good decreases as income increases.
c. demand for the good conforms to the law of demand.
d. All of the above are correct.
Which of the following lists is included in what economists call “money”?
a. cash
b. cash and stocks and bonds
c. cash and stocks and bonds and real estate
d. cash and stocks and bonds and real estate and all other assets
Figure 4-22
Panel (a) Panel (b)
Panel (c) Panel (d)
Refer to Figure 4-22. Which of the four panels illustrates a decrease in quantity
demanded?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
Figure 9-12
Refer to Figure 9-12. Consumer surplus before trade is
a. $3,600.
b. $4,200.
c. $5,400.
d. $6,000.
We associate the term debt finance with
a. the bond market, and we associate the term equity finance with the stock market.
b. the stock market, and we associate the term equity finance with the bond market.
c. financial intermediaries, and we associate the term equity finance with financial
markets.
d. financial markets, and we associate the term equity finance with financial
intermediaries.
Good X and good Y are substitutes. If the price of good Y increases, then the
a. demand for good X will decrease.
b. quantity demanded of good X will decrease.
c. demand for good X will increase.
d. quantity demanded of good X will increase.
In a market economy, supply and demand are important because they
a. play a critical role in the allocation of the economy’s scarce resources.
b. determine how much of each good gets produced.
c. can be used to predict the impact on the economy of various events and policies.
d. All of the above are correct.
Tami knows that people in her family die young, and so she buys life insurance. Preston
knows he is a reckless driver and so he applies for automobile insurance.
a. These are both examples of adverse selection.
b. These are both examples of moral hazard.
c. The first example illustrates adverse selection, and the second illustrates moral
hazard.
d. The first example illustrates moral hazard, and the second illustrates adverse
selection.
Sellers of a good bear the larger share of the tax burden when a tax is placed on a
product for which the
(i) supply is more elastic than the demand.
(ii) demand in more elastic than the supply.
(iii) tax is placed on the sellers of the product.
(iv) tax is placed on the buyers of the product.
a. (i) only
b. (ii) only
c. (i) and (iv) only
d. (ii) and (iii) only
An increase in the overall level of prices in an economy is referred to as
a. the income effect.
b. inflation.
c. deflation.
d. the substitution effect.
Aggregate demand shifts left when the government
a. decreases taxes.
b. cuts military expenditures.
c. creates a new investment tax credit
d. None of the above is correct.
A management professor discovers a way for corporate management to operate more
efficiently. He publishes his findings in a journal. His findings are
a. proprietary and common knowledge.
b. neither proprietary nor common knowledge.
c. proprietary, but not common, knowledge.
d. common, but not proprietary, knowledge.
By raising aggregate demand more than anticipated, policymakers
a. reduce unemployment for awhile.
b. raise unemployment for awhile.
c. reduce unemployment permanently.
d. None of the above is correct.
Figure 7-1
Refer to Figure 7-1. If the price of the good is $200, then
a. consumer surplus is $150.
b. consumer surplus is $650.
c. producer surplus is $650.
d. producer surplus is $750.
Over the past three decades, the United States has
a. generally had, or been very near to a trade balance.
b. had trade deficits in about as many years as it has trade surpluses.
c. persistently had a trade deficit.
d. persistently had a trade surplus.
Consider three imaginary countries. In Aziria, saving amounts to $3,000 and
consumption amounts to $7,000; in Graniva, saving amounts to $2,000 and
consumption amounts to $8,000; and in Tanistan, saving amounts to $4,500 and
consumption amounts to $10,500. The saving rate is
a. higher in Aziria than in Tanistan, and it is higher in Tanistan than in Graniva.
b. higher in Graniva than in Tanistan, and it is higher in Tanistan than in Aziria.
c. higher in Tanistan than in Graniva, and it is the same in Graniva and Aziria.
d. higher in Aziria than in Graniva, and it is the same in Aziria and Tanistan.
It is likely that a constitutional amendment that required the government always to run a
balanced budget would
a. contribute to a more stable level of output.
b. mitigate the crowding-out effect.
c. eliminate the economy’s automatic stabilizers.
d. All of the above are correct.
If a tax is levied on the sellers of flour, then
a. buyers will bear the entire burden of the tax.
b. sellers will bear the entire burden of the tax.
c. buyers and sellers will share the burden of the tax.
d. the government will bear the entire burden of the tax.
At first patents might seem like a deterrent to growth because in effect they restrict the
use of new technology. Yet many economists believe that patents generate growth.
Explain why.
When Americans invest in Russia, the income of Russians (that is, Russian GNP) rises
by more than production in Russia (that is, Russian GDP).
Suppose that U.S. citizens start saving more. What does this imply about the supply of
loanable funds and the equilibrium real interest rate? What happens to the real exchange
rate?
Over the past several decades, the difference between the labor-force participation rates
of men and women in the U.S. has gradually decreased.
Goods with close substitutes tend to have more elastic demands than do goods without
close substitutes.
In a free market, the price of housing adjusts to eliminate the shortages that give rise to
undesirable landlord behavior.
If the Fed were to increase the money supply, inflation would increase and
unemployment would decrease in the short run.
Explain how unemployment insurance acts as an automatic stabilizer.
Figure 6-26
Refer to Figure 6-26. A price floor set at $60 would create a surplus of 20 units.
If the MPC is 4/5, the multiplier is 5/4.
When a tax is imposed on a good, consumer surplus decreases and producer surplus
remains unchanged.
What is the political business cycle and how does it relate to whether the central bank
should have discretion or use a rule?
Other things the same, an increase in taxes shifts aggregate demand to the left. In the
short run this makes output fall which makes the interest rate rise.
A government program that reduces land under cultivation hurts farmers but helps
consumers.
An adverse supply shock shifts the short-run Phillips curve right and the short-run
aggregate-supply curve left.
Economists generally believe that, although there may be advantages to society from
ticket-scalping, the costs to society of this activity outweigh the benefits.
A government may use deficit financing to smooth tax rates over time.
Other things the same, an economy’s factors of production are likely to be used more
effectively if there is an economywide respect for property rights.
If you are faced with the choice of receiving $500 today or $800 6 years from today,
you will be indifferent between the two possibilities if the interest rate is 8.148 percent.
If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000
yen costs $200.