Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per
share, and retained earnings of $2.00 per share. The dividend yield on this stock is
a. 2.8 percent.
b. 2.0 percent.
c. 1.6 percent.
d. 0.4 percent.
A microeconomist as opposed to a macroeconomist might study
a. the effect of borrowing by the federal government on the inflation rate.
b. the effect of rising oil prices on employment in the airline industry.
c. changes in the nation’s unemployment rate over short periods of time.
d. alternative policies to promote higher living standards throughout the nation.
Figure 3-3
Arturo’s Production Possibilities Frontier Dina’s Production Possibilities Frontier
Refer to Figure 3-3. Without trade, Arturo produced and consumed 240 tacos and 120
burritos and Dina produced and consumed 100 tacos and 150 burritos. Then, each
person agreed to specialize in the production of the good in which they have a
comparative advantage and trade 260 tacos for 156 burritos. As a result, Arturo gained
a. 20 tacos and 24 burritos and Dina gained 40 tacos and 6 burritos.
b. 20 tacos and 36 burritos and Dina gained 160 tacos and 6 burritos.
c. 260 tacos and 144 burritos and Dina gained 140 tacos and 156 burritos.
d. 260 tacos and 156 burritos and Dina gained 260 tacos and 156 burritos.
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, if Boxland
goes from prohibiting international trade in cardboard to allowing international trade in
cardboard,
a. domestic producers of cardboard become better off and domestic consumers of
cardboard become better off.
b. domestic producers of cardboard become better off and domestic consumers of
cardboard become worse off.
c. domestic producers of cardboard become worse off and domestic consumers of
cardboard become better off.
d. domestic producers of cardboard become worse off and domestic consumers of
cardboard become worse off.
Assume that for good X the supply curve for a good is a typical, upward-sloping
straight line, and the demand curve is a typical downward-sloping straight line. If the
good is taxed, and the tax is tripled, the
a. base of the triangle that represents the deadweight loss triples.
b. height of the triangle that represents the deadweight loss triples.
c. deadweight loss of the tax increases by a factor of nine.
d. All of the above are correct.
When the Sykes Corporation (an American company) buys shares of Audi stock (a
German company) for its pension fund, U.S. net capital outflow
a. increases because an American company makes a portfolio investment in Germany.
b. declines because an American company makes a portfolio investment in Germany.
c. increases because an American company makes a direct investment in Germany.
d. declines because an American company makes a direct investment in Germany.
If sellers do not adjust their quantity supplied at all in response to a change in price, the
price elasticity of supply is
a. zero, and the supply curve is horizontal.
b. zero, and the supply curve is vertical.
c. infinity, and the supply curve is horizontal.
d. infinity, and the supply curve is vertical.
Table 7-3
The only four consumers in a market have the following willingness to pay for a good:
Refer to Table 7-3. If there is only one unit of the good and if the buyers bid against
each other for the right to purchase it, then the consumer surplus will be
a. $0 or slightly more.
b. $10 or slightly less.
c. $30 or slightly more.
d. $45 or slightly less.
In the Coen Brothers’ movie The Hudsucker Proxy the board of directors picks someone
to run the company who they believe will make poor decisions. If things turn out as
they plan,
a. the price of a share of stock in the Hudsucker corporation should decline as the
demand for shares falls.
b. the price of a share of stock in the Hudsucker corporation should rise as the demand
for shares rises.
c. the price of a share of stock in the Hudsucker corporation should decline as the
supply of existing shares falls.
d. the price of a share of stock in the Hudsucker corporation should rise as the supply of
existing shares rises.
When the nation of Duxembourg allows trade and becomes an importer of software,
a. residents of Duxembourg who produce software become worse off; residents of
Duxembourg who buy software become better off; and the economic well-being of
Duxembourg rises.
b. residents of Duxembourg who produce software become worse off; residents of
Duxembourg who buy software become better off; and the economic well-being of
Duxembourg falls.
c. residents of Duxembourg who produce software become better off; residents of
Duxembourg who buy software become worse off; and the economic well-being of
Duxembourg rises.
d. residents of Duxembourg who produce software become better off; residents of
Duxembourg who buy software become worse off; and the economic well-being of
Duxembourg falls.
You put money into an account and earn an after-tax real interest rate of 2.5 percent. If
the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent,
then what is the tax rate?
a. 28.00 percent
b. 36.25 percent
c. 43.75 percent
d. 67.50 percent
Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of
goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen.
Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the
real exchange rate would
a. appreciate which by itself would make U.S. net exports fall.
b. appreciate which by itself would make U.S. net exports rise.
c. depreciate which by itself would make U.S. net exports fall.
d. depreciate which by itself would make U.S. net exports rise.
The discovery of a large amount of previously-undiscovered oil in the U.S. would shift
a. the long-run aggregate-supply curve to the right.
b. the long-run aggregate-supply curve to the left.
c. the aggregate-demand curve to the left.
d. None of the above is correct.
According to the classical dichotomy, which of the following is not influenced by
monetary factors?
a. unemployment
b. the price level
c. nominal interest rates
d. All of the above are correct.
Other things the same, if the U.S. price level falls, then
a. U.S. residents want to buy more foreign bonds. The real exchange rate rises.
b. U.S. residents want to buy more foreign bonds. The real exchange rate falls.
c. U.S. residents want to buy fewer foreign bonds. The real exchange rate rises.
d. U.S. residents want to buy fewer foreign bonds. The real exchange rate falls.
In recent years, the Federal Reserve has conducted policy by setting a target for
a. bank reserves.
b. the monetary growth rate.
c. the exchange rate.
d. the federal funds rate.
Which of the following fall during a recession?
a. both retail sales and employment
b. retail sales but not employment
c. employment but not retail sales
d. neither employment nor retail sales
Figure 4-22
Panel (a) Panel (b)
Panel (c) Panel (d)
Refer to Figure 4-22. Panel (a) shows which of the following?
a. an increase in demand and an increase in quantity supplied
b. an increase in demand and an increase in supply
c. an increase in quantity demanded and an increase in quantity supplied
d. an increase in quantity demanded and an increase in supply
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. If the production possibilities frontier shown for Perry is for 6
months of writing, then how long does it take Perry to write one poem?
a. 1/3 month
b. 1/2 month
c. 2 months
d. 3 months
A binding minimum wage
a. alters both the quantity demanded and quantity supplied of labor.
b. affects only the quantity of labor demanded; it does not affect the quantity of labor
supplied.
c. has no effect on the quantity of labor demanded or the quantity of labor supplied.
d. causes only temporary unemployment because the market will adjust and eliminate
any temporary surplus of workers.
Which of the following is an illustration of the market for original paintings by
deceased artist Vincent Van Gogh?
a. c.
b. d.
a. A
b. B
c. C
d. D
One effect of the government-imposed seat belt law in the U.S. has been
a. a dramatic decrease in the number of pedestrian deaths.
b. safer driving.
c. an increase in the number of accidents.
d. a dramatic decrease in the number of driver deaths.
Market economies rely on which of the following to allocate scarce resources?
a. government
b. consumers
c. relative prices
d. real interest rates
The price level falls. This might be because the Federal Reserve
a. bought bonds which raised the money supply.
b. bought bonds which reduced the money supply.
c. sold bonds which raised the money supply.
d. sold bonds which reduced the money supply.
Which of the following is included in the demand for loanable funds?
a. investment and government borrowing
b. investment but not government borrowing
c. government borrowing but not investment
d. neither government borrowing nor investment
Scenario 16-2.
The Monetary Policy of Tazi is controlled by the country’s central bank known as the
Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show
that collectively the banks of Tazi hold 300 million tazes of required reserves, 75
million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold
225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits
and so all money is on deposit at the bank.
Refer to Scenario 16-2. Assuming the only other thing Tazian banks have on their
balance sheets is loans, what is the value of existing loans made by Tazian banks?
a. 6,900 million tazes
b. 7,125 million tazes
c. 7,350 million tazes
d. None of the above is correct.
A country has net capital outflow of $20 billion. Which of the following is consistent
with this net capital outflow?
a. It has $20 billion of net exports.
b. Purchases of domestic assets by foreigners exceed purchases of foreign assets by
domestic residents by $20 billion.
c. It’s saving is $15 billion and its domestic investment is $5 billion.
d. All of the above are consistent with a net capital outflow of $20 billion.
Figure 17-2. On the graph, MS represents the money supply and MD represents money
demand. The usual quantities are measured along the axes.
Refer to Figure 17-2. Suppose the relevant money-demand curve is the one labeled
MD1; also suppose the economy’s real GDP is 30,000 for the year. If the money market
is in equilibrium, then how many times per year is the typical dollar bill used to pay for
a newly produced good or service?
a. 4
b. 6
c. 8
d. 12
Economic models
a. are not useful because they omit many real-world details.
b. are usually composed of diagrams and equations.
c. are useful because they do not omit any real-world details.
d. are usually plastic representations of the economy.
Suppose an economy’s marginal propensity to consume (MPC) is 0.6. Then
a. 1 + MPC + MPC2 + MPC3 = 1.844 and, if we continued adding up terms in this
geometric series, we would get closer and closer to the multiplier value of 1.96.
b. 1 + MPC + MPC2 + MPC3 = 1.844 and, if we continued adding up terms in this
geometric series, we would get closer and closer to the multiplier value of 3.
c. 1 + MPC + MPC2 + MPC3 = 2.176 and, if we continued adding up terms in this
geometric series, we would get closer and closer to the multiplier value of 3.
d. 1 + MPC + MPC2 + MPC3 = 2.176 and, if we continued adding up terms in this
geometric series, we would get closer and closer to the multiplier value of 2.5.
Figure 7-20
Refer to Figure 7-20. At equilibrium, consumer surplus is measured by the area
a. ACG.
b. AFG.
c. KBG.
d. CFG.
Which of the following is a consistent response to an increase in the U.S. real interest
rate?
a. a London bank purchases a U.S. bond instead of a Japanese bond it had considered
purchasing.
b. U.S. firms decide to buy more capital goods
c. a U.S. citizen decides to put less money in his savings account than he had planned.
d. All of the above are consistent.
U.S. GDP excludes the production of most illegal goods.
The Bureau of Labor Statistics’ “employed” category includes those who worked as
paid employees, worked in their own business, or worked as unpaid workers in a family
member’s business.
When there are two people and each is capable of producing two goods, it is possible
for one person to have a comparative advantage over the other in both goods.
Inflation is the primary determinant of a country’s living standards.
Explain the adjustment process in the money market that creates a change in the price
level when the money supply increases.
The greater the elasticity of demand, the smaller the deadweight loss of a tax.
A price floor set above the equilibrium price is not binding.
Other things the same, an increase in the nominal exchange rate raises the real exchange
rate.
The Obama administration believed that transfer payments to the unemployed would
have a larger impact on aggregate demand than tax cuts.
Even though the difference in labor-force participation rates of U.S. males and females
has narrowed, the labor-force participation rate of males remains higher than that of
females.
Explain why policy lags could make stabilization policies counterproductive.
When the price level rises unexpectedly, some businesses may mistake part of the
increase for an increase in the price of their product relative to others and so decrease
their production.
Most people rely primarily on income other than their labor earnings to maintain their
standard of living.
When a tax of $1.00 per gallon is imposed on sellers of gasoline, the supply curve for
gasoline shifts upward, but by less than $1.00.
Almost nine-tenths of all spells of unemployment end when the unemployed person
finds a job.
If the Fed conducts open market sales, the equilibrium value of money decreases and
the equilibrium price level increases.
When a tax is imposed on sellers, producer surplus decreases but consumer surplus
increases.
In the open-economy macroeconomic model, the supply curve of currency is vertical
because the quantity of currency supplied does not depend on the real exchange rate.
Use the following graph shown to fill in the table that follows.
