Table 3-1
Assume that Andia and Zardia can switch between producing wheat and producing beef
at a constant rate.
Minutes Needed to Make 1
Refer to Table 3-1. Which of the following combinations of wheat and beef could
Zardia not produce in one 10-hour day?
a. 10 bushels of wheat and 45 pounds of beef
b. 20 bushels of wheat and 30 pounds of beef
c. 25 bushels of wheat and 25 pounds of beef
d. 30 bushels of wheat and 15 pounds of beef
Imposing an import quota causes the domestic real exchange rate to
a. appreciate, which increases foreign demand for domestic goods.
b. appreciate, which decreases foreign demand for domestic goods.
c. depreciate, which increases foreign demand for domestic goods.
d. depreciate, which decreases foreign demand for domestic goods.
According to the short-run Phillips curve, if the central bank increases the money
supply, then
a. inflation and unemployment will both fall.
b. inflation and unemployment will both rise.
c. inflation will fall and unemployment will rise.
d. inflation will rise and unemployment will fall.
The long-run aggregate supply curve shifts left if
a. the capital stock increases.
b. there is a natural disaster.
c. the government removes some environmental regulations that limit production
methods.
d. None of the above is correct.
Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers
would
a. rise and exports of other industries would increase.
b. rise and exports of other industries would decline.
c. not change, exports of other industries would increase.
d. not change, exports of other industries would decline.
Exchange rates are 82 yen per dollar, 0.8 euro per dollar, and 10 pesos per dollar. A
bottle of beer in New York costs 6 dollars, 820 yen in Tokyo, 7.2 euro in Munich, and
50 pesos in Cancun. Where is the most expensive and the cheapest beer in that order?
a. Cancun, New York
b. New York, Tokyo
c. Tokyo, Cancun
d. Munich, New York
In the economy of Ukzten in 2010, consumption was $3000, exports were $400, GDP
was $5000, imports were $600, and investment was $1100. What were Ukzten’s
government purchases in 2010?
a. $300
b. $500
c. $700
d. $1100
Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than
she had expected it to be. The real interest rate she pays is
a. higher than she had expected, and the real value of the loan is higher than she had
expected.
b. higher than she had expected, and the real value of the loan is lower than she had
expected.
c. lower than she had expected, and the real value of the loan is higher than she had
expected.
d. lower then she had expected, and the real value of the loan is lower than she had
expected.
Some goods can be produced at low cost only if they are produced in large quantities.
This phenomenon is called
a. marginal cost of production.
b. marginal benefit of size.
c. economies of scale.
d. economies of production.
If the cost of food & beverages increases by 10 percent, then, other things the same, the
CPI is likely to increase by about
a. 1.5 percent.
b. 7.5 percent.
c. 10 percent.
d. 20 percent.
Which of the following is not correct?
a. The inflation rate is measured as the percentage change in a price index.
b. For the last 40 or so years, U.S. inflation hasn”t shown much variation from its
average rate of about 2 percent.
c. During the 19th century there were long periods of falling prices in the U.S.
d. Some economists argue that the costs of moderate inflation are not nearly as large as
the general public believes.
Which of the following is not a contention of advocates of unions?
a. Unions are a necessary antidote to the market power of the firms that hire workers.
b. In the case of a “company town,” a union may balance the firm’s market power and
protect the workers from being at the mercy of the firm’s owners.
c. The introduction of a union benefits all workers in a firm.
d. Unions are important for helping firms respond efficiently to workers’ concerns.
For which of the following goods is the income elasticity of demand likely lowest?
a. subscriptions to premium movie channels through the local cable television provider
b. hi-definition DVD players
c. champagne
d. housing
Figure 2-2
Refer to Figure 2-2. Boxes A and B of this circular-flow diagram represent
a. firms and households.
b. households and government.
c. the markets for goods and services and the markets for financial assets.
d. the markets for goods and the markets for services.
Figure 4-14
Refer to Figure 4-14. At a price of
a. $2, there is a surplus of 6 units.
b. $5, there is a surplus of 25 units.
c. $5, there is a shortage of $25.
d. $7, there is a surplus of 4 units.
Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500
consumption equals 7,500 and government purchases equal 2,000. What are private
saving, public saving, and national saving?
a. 1,500, 1,000, and 500, respectively
b. 1,000, 500, and 1,500, respectively
c. 500, 1,500, and 1,000, respectively
d. None of the above is correct.
U.S. GDP and U.S. GNP are related as follows:
a. GNP = GDP + Value of exported goods – Value of imported goods.
b. GNP = GDP – Value of exported goods + Value of imported goods.
c. GNP = GDP + Income earned by foreigners in the U.S. – Income earned by U.S.
citizens abroad.
d. GNP = GDP – Income earned by foreigners in the U.S. + Income earned by U.S.
citizens abroad.
If speculators lost confidence in foreign economies and so wanted to buy more U.S.
bonds
a. the dollar would appreciate which would cause aggregate demand to shift right.
b. the dollar would appreciate which would cause aggregate demand to shift left.
c. the dollar would depreciate which would cause aggregate demand to shift right.
d. the dollar would depreciate which would cause aggregate demand to shift left.
Table 3-8
Assume that Huang and Min can switch between producing parasols and producing
porcelain plates at a constant rate.
Labor Hours Needed
to Make 1 Quantity Produced
in 36 Hours
Refer to Table 3-8. The opportunity cost of 1 parasol for Huang is
a. 1/3 plate.
b. 1/2 plate.
c. 3 plates.
d. 6 plates.
If policymakers decrease aggregate demand, then in the long run
a. prices will be lower and unemployment will be higher.
b. prices will be lower and unemployment will be unchanged.
c. prices and unemployment will be unchanged.
d. None of the above is correct.
Adam is looking for a job in marketing. He has had some offers and his prospects are
promising but he’s not yet accepted a job. Amanda lost her job working for Mercury
Bicycles because many customers decided they prefer bicycles manufactured by
Ultimate Bicycles instead. Who is frictionally unemployed?
a. Adam but not Amanda
b. Amanda but not Adam
c. Adam and Amanda
d. neither Amanda nor Adam
Figure 2-4
Refer to Figure 2-4. Suppose this economy is producing at point W. Which of the
following statements would best explain this situation?
a. The economy lacks the resources to produce at a more desirable point.
b. The economy’s available technology prevents it from producing at a more desirable
point.
c. There is widespread unemployment in the economy.
d. Any of the above statements would be a legitimate explanation for this situation.
Market failure can be caused by
a. low consumer demand.
b. equilibrium prices.
c. externalities and market power.
d. high prices and foreign competition.
Tammy loves donuts. The table shown reflects the value Tammy places on each donut
she eats:
a. Use this information to construct Tammy’s demand curve for donuts.
b. If the price of donuts is $0.20, how many donuts will Tammy buy?
c. Show Tammy’s consumer surplus on your graph. How much consumer surplus would
she have at a price of $0.20?
d. If the price of donuts rose to $0.40, how many donuts would she purchase now?
What would happen to Tammy’s consumer surplus? Show this change on your graph.
You use U.S. currency to pay the owner of a restaurant for a delicious meal. The
currency
a. has no intrinsic value. The exchange is an example of barter.
b. has no intrinsic value. The exchange is not an example of barter.
c. has intrinsic value. The exchange is not an example of barter.
d. has intrinsic value. The exchange is not an example of barter.
Most economists believe that fiscal policy
a. only affects aggregate demand and not aggregate supply.
b. primarily affects aggregate demand.
c. primarily effects aggregate supply.
d. only affects aggregate supply and not aggregate demand.
Which of the following is not an example of a positive, as opposed to normative,
statement?
a. Higher gasoline prices will reduce gasoline consumption.
b. Equality is more important than efficiency.
c. Trade restrictions lower our standard of living.
d. If a nation wants to avoid inflation, it will restrict the growth rate of the quantity of
money.
Scenario 13-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $300; net exports = $100;
taxes = $230; private saving = $200; and national saving = $150.
Refer to Scenario 13-3. For this economy, government purchases amount to
a. $130.
b. $180.
c. $280.
d. $330.
According to the classical dichotomy, which of the following is influenced by monetary
factors?
a. nominal wages
b. unemployment
c. real GDP
d. All of the above are correct.
During recessions unemployment typically rises
a. little. As the recession ends, unemployment declines gradually.
b. little. As the recession ends, unemployment declines rapidly.
c. substantially. As the recession ends, unemployment declines gradually.
d. substantially. As the recession ends, unemployment declines rapidly.
Figure 6-3
Panel (a) Panel (b)
Refer to Figure 6-3. A nonbinding price floor is shown in
a. both panel (a) and panel (b).
b. panel (a) only.
c. panel (b) only.
d. neither panel (a) nor panel (b).
When a country experiences capital flight, which of the following rise?
a. its real interest rate and its real exchange rate
b. its real interest rate but not its real exchange rate
c. its real exchange rate but not its real interest rate
d. neither its real interest rate nor its foreign exchange rate
Which of the Ten Principles of Economics does welfare economics explain more fully?
a. The cost of something is what you give up to get it.
b. Rational people think at the margin.
c. Markets are usually a good way to organize economic activity.
d. People respond to incentives.
Figure 4-13
Refer to Figure 4-13. If the supply curves that are drawn represent supply curves for
single-family residential houses, then the movement from S to S” could be caused by
a(n)
a. increase in the price of apartments which are a substitute for single-family houses for
many people looking for a place to live.
b. newly-formed expectation by house-builders that prices of houses will increase
significantly in the next six months.
c. decrease in the price of lumber.
d. All of the above are correct.
The average U.S. citizens’ share of the government debt represents about 1 percent of a
person’s lifetime income.
Total surplus in a market does not change when the government imposes a tax on that
market because the loss of consumer surplus and producer surplus is equal to the gain
of government revenue.
The deviation of unemployment from its natural rate is called cyclical unemployment.
The price elasticity of demand is defined as the percentage change in quantity
demanded divided by the percentage change in price.
Illustrate the classical analysis of growth and inflation with aggregate demand and
long-run aggregate supply curves.
The Bureau of Labor Statistics’ U-1 measure of joblessness is larger than its U-6
measure of joblessness.
A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price
level by the 1908 price level, then multiplying by the 1908 dollar figure.
The consumer price index is used to monitor changes in an economy’s production of
goods and services over time.
When the market price is below the equilibrium price, suppliers are unable to sell all
they want to sell.
In addition to investment in physical and human capital, what other public policies
might a country adopt to increase productivity?
To be binding, a price floor must be set above the equilibrium price.
Supply is said to be inelastic if the quantity supplied responds substantially to changes
in the price and elastic if the quantity supplied responds only slightly to price.
Surpluses drive price up, while shortages drive price down.
Keynes thought that the behavior of the economy in the short run was influenced by
what he called “animal spirits.” By this he meant that business people sometimes felt
good about the economy, and carried out lots of investment, and at other times felt bad
about the economy, and so cut back on their investment spending. Explain how such
fluctuations in investment would lead to fluctuations in real GDP and prices.
Changes in the composition of demand among industries or regions are called sectoral
shifts.
Increased uncertainty and pessimism about the future of the economy lead firms to
desire less investment spending which shifts the aggregate-demand curve to the left.
The real interest rate measures the change in dollar amounts.
If a country allows free trade and imports cars, then it is the case that the gains to
domestic producers outweigh the losses to domestic consumers.
The result of the large tax cuts in the first Reagan Administration demonstrated very
convincingly that Arthur Laffer was correct when he asserted that cuts in tax rates
would increase tax revenue.