If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and
abroad, then the Kenyan real exchange rate
a. does not change.
b. rises.
c. declines
d. None of the above is necessarily correct.
Which of the following statements best represents the principle represented by the
adage, “There is no such thing as a free lunch”?
a. Melissa can attend the concert only if she takes her sister with her.
b. Greg is hungry and homeless.
c. Brian must repair the tire on his bike before he can ride it to class.
d. Kendra must decide between going to Colorado or Cancun for spring break.
A policy that raised the natural rate of unemployment would shift
a. both the short-run and the long-run Phillips curves to the right.
b. the short-run Phillips curve right but leave the long-run Phillips curve unchanged.
c. the long-run Phillips curve right but leave the short-run Phillips curve unchanged.
d. neither the long-run Phillips curve nor the short-run Phillips curve right.
Suppose that the real exchange rate between the United States and Vietnam is defined in
terms of baskets of goods. Other things the same, which of the following will increase
the real exchange rate (that is increase the number of baskets of Vietnamese goods a
basket of U.S. goods buys)?
a. an increase in the quantity of Vietnamese currency that can be purchased with a
dollar
b. an increase in the price of U.S. baskets of goods
c. a decrease in the price in Vietnamese currency of Vietnamese goods
d. All of the above are correct.
When economists make normative statements, they are
a. speaking as scientists.
b. speaking as policy advisers.
c. making claims about how the world is.
d. revealing that they are very liberal in their views of how the world works.
In 2006 the U.S. had a large trade
a. surplus and a large net capital inflow.
b. surplus and a large net capital outflow.
c. deficit and a large net capital inflow.
d. deficit and a large net capital outflow.
If the quantity supplied is the same regardless of price, then supply is
a. elastic.
b. perfectly elastic.
c. perfectly inelastic.
d. inelastic.
Motor oil and gasoline are complements. If the price of motor oil increases, consumer
surplus in the gasoline market
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.
If the price elasticity of demand for a good is 1, then a 3 percent decrease in price
results in a
a. 0.1 percent increase in the quantity demanded.
b. 1 percent increase in the quantity demanded.
c. 3 percent increase in the quantity demanded.
d. 4 percent increase in the quantity demanded.
Which of the following is the correct way to compute the future value of $100 put into
an account that earns 4 percent interest for 10 years?
a. $100(1 + .0410)
b. $100(1 + .04 x10)
c. $100 x 10 x(1 + .04)
d. $100(1 + .04)10
A rational decision maker takes an action only if the
a. marginal benefit is less than the marginal cost.
b. marginal benefit is greater than the marginal cost.
c. average benefit is greater than the average cost.
d. marginal benefit is greater than both the average cost and the marginal cost.
As the number of stocks in a person’s portfolio increases,
a. the risk of the portfolio increases, as indicated by the increasing value of the standard
deviation of the portfolio.
b. the risk of the portfolio increases, as indicated by the decreasing value of the standard
deviation of the portfolio.
c. the risk of the portfolio decreases, as indicated by the increasing value of the standard
deviation of the portfolio.
d. the risk of the portfolio decreases, as indicated by the decreasing value of the
standard deviation of the portfolio.
Writing in the Wall Street Journal in 2009, economist Jeremy Siegel pointed out that the
efficient markets hypothesis
a. was responsible for the financial crisis of 2008-2009.
b. was responsible for the Great Depression of the 1930s.
c. claims that prices observed in financial markets are always “right.”
d. claims that prices observed in financial markets are mostly “wrong.”
In 2008, real GDP per person in Bangladesh was
a. about 3 times as high as it was in the U.S. in 1870.
b. about twice as high as it was in the U.S. in 1870.
c. about the same as it was in the U.S. in 1870.
d. less than it was in the U.S. in 1870.
If the real exchange rate between the U.S. and Argentina is 1, then
a. purchasing-power parity holds, and 1 U.S. dollar buys 1 Argentinean bolivar.
b. purchasing power parity holds, and the amount of dollars needed to buy goods in the
U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the
same goods in Argentina.
c. purchasing power parity does not hold, but 1 U.S. dollar buys 1 Argentinean bolivar.
d. purchasing power parity does not hold, but the amount of dollars needed to buy
goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars
to buy the same goods in Argentina.
Scenario 9-2
For a small country called Boxland, the equation of the domestic demand curve for
cardboard is
,
where represents the domestic quantity of cardboard demanded, in tons, and
represents the price of a ton of cardboard.
For Boxland, the equation of the domestic supply curve for cardboard is
,
where represents the domestic quantity of cardboard supplied, in tons, and again
represents the price of a ton of cardboard.
Refer to Scenario 9-2. Suppose the world price of cardboard is $60. Then, relative to
the no-trade situation, international trade in cardboard produces which of the following
results for Boxland?
a. It decreases consumer surplus, increases producer surplus, and decreases total
surplus.
b. It decreases consumer surplus, increases producer surplus, and increases total
surplus.
c. It decreases consumer surplus, decreases producer surplus, and decreases total
surplus.
d. It increases consumer surplus, increases producer surplus, and increases total surplus.
Inflation
a. causes people to spend more time reducing money balances. When inflation is
unexpectedly high it redistributes wealth from lenders to borrowers.
b. causes people to spend more time reducing money balances. When inflation is
unexpectedly high it redistributes wealth from borrowers to lenders.
c. causes people to spend less time reducing money balances. When inflation is
unexpectedly high it redistributes wealth from lenders to borrowers.
d. causes people to spend less time reducing money balances. When inflation is
unexpectedly high it redistributes wealth from borrowers to lenders.
Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
Labor Hours
Needed to Make 1
Iceland 1 4
Refer to Table 3-2. Which of the following represents Iceland’s production possibilities
frontier when 100 labor hours are available?
a. c.
b. d.
Which of the following defines an annuity?
a. For a fee, an insurance company provides you with regular income until you die.
b. A surcharge is added to life-insurance premiums paid by persons in dangerous
occupations.
c. Annuity is another name for stock funds managed by mutual fund managers.
d. Annuity is another name for any diversified portfolio.
Money is
a. the most liquid asset and a perfect store of value.
b. the most liquid asset but an imperfect store of value.
c. not the most liquid asset but a perfect store of value.
d. neither the most liquid asset and nor a perfect store of value.
Consider the following three items of spending by the government: (i) the federal
government pays a $500 unemployment benefit to an unemployed person; (ii) the
federal government makes a $2,000 salary payment to a Navy lieutenant; (iii) the city of
Bozeman, Montana makes a $10,000 payment to ABC Lighting Company for street
lights in Bozeman. Which of these payments contributes directly to government
purchases in the national income accounts?
a. only item (i)
b. only item (ii)
c. only items (i) and (ii)
d. only items (ii) and (iii)
Which of the following could explain an increase in the equilibrium interest rate and a
decrease in the equilibrium quantity of loanable funds?
a. The demand for loanable funds shifted right.
b. The demand for loanable funds shifted left.
c. The supply of loanable funds shifted right.
d. The supply of loanable funds shifted left.
Figure 8-9
The vertical distance between points A and C represent a tax in the market.
Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to
a. increase from $600 to $800.
b. increase from $300 to $800.
c. decrease from $600 to $300.
d. remain unchanged at $600.
A tax imposed on the sellers of a good will
a. raise both the price buyers pay and the effective price sellers receive.
b. raise the price buyers pay and lower the effective price sellers receive.
c. lower the price buyers pay and raise the effective price sellers receive.
d. lower both the price buyers pay and the effective price sellers receive.
If Saudi Arabia had positive net exports last year, then it
a. sold more abroad than it purchased abroad and had a trade surplus.
b. sold more abroad than it purchased abroad and had a trade deficit.
c. bought more abroad than it sold abroad and had a trade surplus.
d. bought more abroad than it sold abroad and had a trade deficit.
Figure 7-2
Refer to Figure 7-2. When the price rises from P1 to P2, which of the following
statements is not true?
a. The buyers who still buy the good are worse off because they now pay more.
b. Some buyers leave the market because they are not willing to buy the good at the
higher price.
c. Buyers place a higher value on the good after the price increase.
d. Consumer surplus in the market falls.
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. If Perry and Jordan switch from each person dividing their time
equally between the production of novels and poems to each person spending all of
their time producing the good in which they have a comparative advantage, then total
production of novels will increase by
a. 1.
b. 2.
c. 3.
d. 4.
Which of the following is not a nonsensical headline?
a. British perpetuities about to mature.
b. Disney issues new bonds with term of 7 percent.
c. Corporate bonds currently pay higher interest rates than government bonds.
d. Standard and Poor’s judges new junk bond to have very low credit risk.
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 equilibrium quantity and
increase the equilibrium price of meth.
b. Both Operation Methbust and Say No would increase the equilibrium quantity and
reduce the equilibrium price of meth.
c. Both Operation Methbust and Say No would reduce the equilibrium quantity of meth;
Operation Methbust would increase the equilibrium price, whereas Say No would
reduce the equilibrium price of meth.
d. Both Operation Methbust and Say No would reduce the equilibrium price of meth;
Operation Methbust would reduce the equilibrium quantity, whereas Say No would
increase the equilibrium quantity of meth.
Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she
sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on
nominal capital gains is 50 percent. What was the tax on Kaitlyn’s capital gain?
a. $50
b. $75
c. $100
d. $200
Which of the following statements about economic models is correct?
a. Economic models are built to mirror reality exactly.
b. Economic models are useful, but they should not be used for the purpose of
improving public policies.
c. Because economic models omit many details, they allow us to see what is truly
important.
d. Economic models seldom incorporate equations or diagrams.
Suppose the government imposes a 50-cent tax on the sellers of packets of chewing
gum. The tax would
a. shift the supply curve upward by less than 50 cents.
b. raise the equilibrium price by 50 cents.
c. create a 50-cent tax burden each for buyers and sellers.
d. discourage market activity.
Scenario 5-1
Suppose that the supply of aged cheddar cheese is inelastic, and the supply of bread is
elastic. Both goods are considered to be normal goods by a majority of consumers.
Suppose that a large income tax increase decreases the demand for both goods by 10%.
Refer to Scenario 5-1. The price elasticity of supply for aged cheddar cheese could be
a. -1.
b. 0.
c. 0.5.
d. 1.5.
In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in
1969 and the price index was 180 in 2009, then what is the price of the Firebird in 2009
dollars?
a. $509.72
b. $6,866.49
c. $9,761.58
d. $12,261.58
Table 15-1
Labor Data for Aridia
Refer to Table 15-1. The number of adults not in the labor force of Aridia
a. increased from 2010 to 2011 and increased from 2011 to 2012.
b. increased from 2010 to 2011 and decreased from 2011 to 2012.
c. decreased from 2010 to 2011 and increased from 2011 to 2012.
d. decreased from 2010 to 2011 and decreased from 2011 to 2012.