The price elasticity of demand measures how much
a. quantity demanded responds to a change in price.
b. quantity demanded responds to a change in income.
c. price responds to a change in demand.
d. demand responds to a change in supply.
Figure 8-10
Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity
sold in the market after the tax to Q2. The tax revenue is
a. (P0-P2) x Q2.
b. (P2-P8) x Q2.
c. (P2-P5) x Q5.
d. (P5-P8) x Q5.
In 2002, the United States placed higher tariffs on imports of steel. According to the
open-economy macroeconomic model this policy should have
a. reduced imports into the United States and made U.S. net exports rise.
b. reduced imports into the United States and made the net supply of dollars in the
foreign exchange market shift right.
c. reduced imports of steel into the United States, but reduced U.S. exports of other
goods by an equal amount.
d. reduced imports of steel into the United States and increased U.S. exports of other
goods by an equal amount.
Figure 8-10
Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity
sold in the market after the tax to Q2. With the tax, the producer surplus is
a. (P5-0) x Q5.
b. x (P5-0) x Q5.
c. (P8-0) x Q2.
d. x (P8-0) x Q2.
The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real
interest rate?
a. 6 percent
b. 5 percent
c. 1.5 percent
d. 1 percent
Which of the following is the most correct statement about the relationship between
inflation and unemployment?
a. In the short run, falling inflation is associated with falling unemployment.
b. In the short run, falling inflation is associated with rising unemployment.
c. In the long run, falling inflation is associated with falling unemployment.
d. In the long run, falling inflation is associated with rising unemployment.
If there is a shortage of loanable funds, then
a. the demand for loanable funds will shift right so the real interest rate rises.
b. the supply of loanable funds will shift left so the real interest rate falls.
c. there will be no shifts of the curves, but the real interest rate rises.
d. there will be no shifts of the curves, but the real interest rate falls.
Figure 3-9
Uzbekistan’s Production Possibilities Frontier Azerbaijan’s Production
Possibilities Frontier
Refer to Figure 3-9. If Uzbekistan and Azerbaijan switch from each country dividing
its time equally between the production of bolts and nails to each country spending all
of its time producing the good in which it has a comparative advantage, then total
production will increase by
a. 5 bolts and 10 nails.
b. 15 bolts and 40 nails.
c. 20 bolts and 50 nails.
d. 30 bolts and 80 nails.
What is the present value of a payment of $250 one year from today if the interest rate
is 4 percent?
a. $240.38
b. $242.24
c. $244.40
d. None of the above are correct to the nearest cent.
Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year
and a real growth rate of about 1 percent per year. Suppose also that it has nominal GDP
of about 200 billion units of currency and current nominal national debt of 150 billion
units of domestic currency. Which of the following government spending and taxation
figures will not raise the debt-to-income ratio?
a. government spending equal to 20 billion units and tax collections equal to 16 billion
units
b. government spending equal to 20 billion units and tax collections equal to 14 billion
units
c. government spending equal to 20 billion units and tax collections equal to 10 billion
units
d. government spending equal to 20 billion units and tax collections equal to 8 billion
units
Which of the following statements about inflation is correct?
a. Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less
frequently than other economic terms, such as unemployment and productivity.
b. People believe the inflation fallacy because they tend to believe too strongly in the
principle of monetary neutrality.
c. Nominal incomes are determined by nominal factors; they are not affected by real
factors.
d. Inflation does not in itself reduce people’s real purchasing power.
If purchasing power parity holds, when a country’s central bank decreases the money
supply, its
a. price level rises and its currency appreciates relative to other currencies in the world.
b. price level falls and its currency appreciates relative to other currencies in the world.
c. price level rises and its currency depreciates relative to other currencies in the world.
d. price level falls and its currency depreciates relative to other currencies in the world.
Whip-It manufactures blenders. In 2009 it had $50,000 of blenders in inventory. In
2010 it sold $300,000 of blenders to consumers and had $40,000 of blenders in
inventory. How much did blenders produced by Whip-it add to GDP in 2010?
a. $340,000
b. $310,000
c. $300,000
d. $290,000
Which of the following is an example of U.S. foreign direct investment?
a. A U.S. based mutual fund buys stock in Eastern European companies.
b. A U.S. citizen builds and operates a coffee shop in the Netherlands.
c. A Swiss bank buys a U.S. government bond.
d. A German tractor factory opens a plant in Waterloo, Iowa.
Which of the following shifts aggregate demand to the left?
a. an increase in the price level
b. a decrease in the money supply
c. an increase in net exports
d. Congress passes a new investment tax credit
The economy is in long-run equilibrium when Senator Soldout argues that the Fed
should do more to fight unemployment. He argues that if the Fed increased the money
supply faster, more workers would find jobs. The Senator’s argument
a. is completely correct.
b. is completely wrong.
c. is true for the short run but not the long run.
d. is true for the long run but not the short run.
Dividends
a. are the rates of return on mutual funds.
b. are cash payments that companies make to shareholders.
c. are the difference between the price and present value per share of a stock.
d. are the rates of return on a company’s capital stock.
In the short run, which of the following is not correct?
a. Increasing the money supply increases the demand for goods and services.
b. Increasing the money supply encourages firms to hire more workers.
c. Lowering the money supply leads to a higher level of unemployment.
d. Policies that encourage higher employment will also induce a lower rate of inflation.
Economists speaking like policy advisers make
a. positive statements.
b. descriptive statements.
c. claims about how the world is.
d. claims about how the world should be.
The consumer price index was 225 in 2006 and 234 in 2007. The nominal interest rate
during this period was 6.5 percent. What was the real interest rate during this period?
a. 2.5 percent
b. 4.0 percent
c. 6.76 percent
d. 10.5 percent
If the Korean steel industry subsidizes the steel that it sells to the United States, the
a. United States should protect its domestic steel industry from this unfair competition.
b. harm done to U.S. steel producers from this unfair competition exceeds the gain to
U.S. consumers of cheap Korean steel.
c. harm done to U.S. steel producers is less than the benefit that accrues to U.S.
consumers of steel.
d. United States should subsidize the products it sells to Korea.
Compounding refers directly to
a. finding the present value of a future sum of money.
b. finding the future value of a present sum of money.
c. changes in the interest rate over time on a bank account or a similar savings vehicle.
d. interest being earned on previously-earned interest.
You bake cookies. One day you double the time you spend, double the number of
chocolate chips, flour, eggs, and all your other inputs, and bake twice as many cookies.
Your cookie production function has
a. decreasing returns to scale.
b. zero returns to scale.
c. constant returns to scale.
d. increasing returns to scale.
Other things the same, if the price level falls, domestic interest rates
a. rise, so domestic residents will want to hold more foreign bonds.
b. rise, so domestic residents will want to hold fewer foreign bonds.
c. fall, so domestic residents will want to hold more foreign bonds.
d. fall, so domestic residents will want to hold fewer foreign bonds.
Figure 9-16. The figure below illustrates a tariff. On the graph, Q represents quantity
and P represents price.
Refer to Figure 9-16. The deadweight loss created by the tariff is represented by the
area
a. B.
b. D + F.
c. D + E + F.
d. B + D + E + F.
A shortage exists in a market if
a. there is an excess supply of the good.
b. quantity supplied exceeds quantity demanded.
c. the current price is below its equilibrium price.
d. All of the above are correct.
In a fractional-reserve banking system, a decrease in reserve requirements
a. increases both the money multiplier and the money supply.
b. decreases both the money multiplier and the money supply.
c. increases the money multiplier, but decreases the money supply.
d. decreases the money multiplier, but increases the money supply.
Figure 5-6
Refer to Figure 5-6. Using the midpoint method, the price elasticity of demand
between point A and point B is
a. 1.
b. 1.5.
c. 2.
d. 2.5.
If the tax on a good is increased from $1 per unit to $3 per unit, the deadweight loss
from the tax increases by a factor of
a. 2.
b. 3.
c. 9.
d. 18.
If the real exchange rate for the dollar is above the equilibrium level, the quantity of
dollars supplied in the market for foreign-currency exchange is
a. greater than the quantity demanded and the dollar will appreciate.
b. greater than the quantity demanded and the dollar will depreciate.
c. less than the quantity demanded and the dollar will appreciate.
d. less than the quantity demanded and the dollar will depreciate.
One of the basic principles of economics is that markets are usually a good way to
organize economic activity. This principle is explained by the study of
a. factor markets.
b. energy markets.
c. welfare economics.
d. labor economics.
If 2004 is the base year, then the inflation rate for 2005 equals
a.
b.
c.
d.