The difference between consumer surplus and producer surplus in a market is equal to
the deadweight loss.
Most U.S. currency held outside the U.S. banking system is held by foreigners.
Examining the conditions that could lead to inflation in an economy is an example of
microeconomics topic.
The Federal Reserve’s performance in the mid-to-late 1980s, 1990s, and early 2000s has
received high marks from economists, even without inflation targeting.
One reason purchasing power parity does not exactly hold is that many goods are not
traded internationally.
The additional cost to a firm of producing one more unit of a good or service is equal to
producer surplus.
If inflation is anticipated, some effects of inflation on the redistribution of income can
be avoided.
If Abigail can make more candles in one day than Pierre, then Abigail has an absolute
advantage in making candles.
If planned investment is equal to actual investment, then aggregate expenditure is equal
to GDP.
Accounting profit is the difference between a firm’s revenue and its opportunity costs.
Expansionary fiscal policy crowds out both domestic investment and net exports.
A stand of redwood trees is not an example of a factor of production but the harvested
and processed redwood is a factor of production.
An increase in exports decreases aggregate demand.
To complement actions by the Fed to reduce inflation, Congress and the President can
cut spending and/or raise taxes.
________ shows that if all resources are fully and efficiently utilized, more of one good
can be produced only by producing less of another good.
A) Comparative advantage
B) Absolute advantage
C) The mixed market system
D) The production possibilities frontier model
If the consumption function is defined as C = 5,500 + 0.9Y, what is the marginal
propensity to consume?
A) 0.1
B) 0.9
C) 5.5
D) 6.1
Which of the following countries had the lowest GDP per capita in 2012?
A) France
B) Mexico
C) Democratic Republic of the Congo
D) Argentina
If the price of train tickets decreases, what will be the impact in the market for bus
travel ?
A) The demand curve for bus travel shifts to the right.
B) The quantity of bus travel demanded increases.
C) The demand curve for bus travel shifts to the left.
D) The quantity of bus travel demanded decreases.
Figure 2-8
Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala.
Each country produces two goods, pineapples and coconuts.
Refer to Figure 2-8. If the two countries have the same amount of resources and the
same technological knowledge, which country has an absolute advantage in the
production of both pineapples and coconuts?
A) Guatemala
B) neither country
C) Costa Rica
D) cannot be determined
If the price of toothpaste is represented by equation P = 40 – .5QD, then the
corresponding quantity of toothpaste demanded is represented by the equation
A) QD = 20 – .5P.
B) QD = 40 – P.
C) QD = 80 – 2P.
D) QD = -20 + P.
When housing prices fell as they did beginning in 2006 following the housing market
bubble, most banks and other lenders ________ the requirement for borrowers, making
it ________ for potential home buyers to obtain mortgages.
A) tightened; easier
B) tightened; harder
C) eased; easier
D) eased; harder
A tax is imposed on employers and workers that are used to fund Social Security and
Medicare. This tax is sometimes referred to as
A) the Income Security Tax.
B) the federal income tax.
C) the ACIF.
D) the payroll tax.
Figure 7-1
Figure 7-1 shows the U.S. demand and supply for leather footwear.
Refer to Figure 7-1. Under autarky, the producer surplus is area
A) S + V.
B) T + W+ X.
C) V.
D) S + T + V + W + X.
If the current account is in surplus and the capital account is zero, then
A) the financial account must be in deficit.
B) the balance of trade must be in deficit.
C) the balance of payments must be in deficit.
D) there is a capital inflow.
E) the balance of services must be in deficit.
A bank’s assets are
A) things owned by or owed to the bank.
B) things the bank owes to someone else.
C) a measure of the bank’s net worth.
D) always greater than the bank’s liabilities.
The drawback to calculating real GDP using base-year prices is that
A) real GDP in one year is not comparable to real GDP in another year.
B) relative prices change over time and these are not reflected in base-year prices, and
this distorts GDP.
C) relative prices change over time and these changes are reflected in base-year prices.
D) quality changes are reflected in base-year prices.
In a typical year, ________ of new jobs are created by small firms.
A) less than 5 percent
B) 10 percent
C) 40 percent
D) 75 percent
If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is
A) 12.5.
B) 80.
C) 125.
D) 800.
Article Summary
Over the past two years, the Indian rupee has fallen 26 percent in value against the
U.S. dollar, reaching a record low of 61.80 rupees per dollar in August 2013. The
decline reflects increasing capital outflows and pessimism regarding the
government’s attempts to reverse this trend. The Indian government was expected
to announce potential measures to increase the inflow of capital, including the
possibility of raising debt abroad, raising money from Indians who live abroad,
easing restrictions on overseas borrowing, and raising interest rates. Critics argue
that current and well-entrenched policies deter capital inflow from investors and
corporations, and raising interest rates may reduce confidence in the economy,
which experienced a decade-low growth rate of 5 percent in 2013.
Source: Rafael Nam, “Rupee over 60: Why Indian currency weakness may be here
to stay,” Reuters, August 8, 2013.
Refer to the Article Summary. All else equal, a depreciation of the Indian rupee relative
to a currency such as the U.S. dollar should ________ Indian exports and ________
imports to India.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
What is the difference between physical capital and human capital?
If net taxes rise by $150 billion, would you expect household saving to fall by $150
billion, by more than $150 billion, or by less than $150 billion?
The owner of a firm wants some advice on how to increase productivity. Suggest three
ways the entrepreneur could increase labor productivity through improving technology.
What three real-world complications keep purchasing power parity from being a
complete explanation of exchange rate fluctuations in the long run? Explain.
Figure 5-2
Figure 5-2 shows the effect of a positive externality on the market for vaccinations.
Refer to Figure 5-2 On the above graph, identify the market equilibrium price and
quantity, the efficient equilibrium price and quantity, and the value of the deadweight
loss resulting from too few people receiving vaccinations.
Why is the aggregate demand curve downward sloping while the aggregate expenditure
line is upward sloping?
Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in
a long-run macroeconomic equilibrium. For Year 2, graph aggregate demand, long-run
aggregate supply, and short-run aggregate supply such that the condition of the
economy will induce the president and the Congress to conduct expansionary fiscal
policy. Briefly explain the condition of the economy and what the president and the
Congress are attempting to do.
President Bush lowered income taxes for individuals in 2001. Explain how lower
income taxes affect the aggregate demand curve.