The argument that purchases of minivans cause large families is an example of
a. omitted variables.
b. normative statements.
c. reverse causality.
d. bias.
Figure 3-9
Uzbekistan’s Production Possibilities Frontier Azerbaijan’s Production
Possibilities Frontier
Refer to Figure 3-9. Suppose Uzbekistan decides to increase its production of bolts by
What is the opportunity cost of this decision?
a. 1/2 nail
b. 2 nails
c. 5 nails
d. 20 nails
John buys a used car for $5,400 and spends $600 on new parts, made in the U.S., to fix
the car. The end result of these two transactions is
a. U.S. consumption purchases increase by $5,400 and U.S. GDP increases by $5,400.
b. U.S. consumption purchases increase by $6,000 and U.S. GDP increases by $6,000.
c. U.S. consumption purchases increase by $600 and U.S. GDP increases by $600.
d. U.S. consumption purchases increase by $600 and U.S. GDP increases by $6,000.
Figure 8-17
The vertical distance between points A and B represents the original tax.
Refer to Figure 8-17. The original tax can be represented by the vertical distance AB.
Suppose the government is deciding whether to lower the tax to CD or raise it to FG.
Which of the following statements is not correct?
a. Compared to the original tax, the larger tax will increase tax revenue.
b. Compared to the original tax, the smaller tax will decrease deadweight loss.
c. Compared to the original tax, the smaller tax will decrease tax revenue.
d. Compared to the original tax, the larger tax will increase deadweight loss.
Suppose your college institutes a new policy requiring you to pay for a permit to park
your car in a campus parking lot.
a. The cost of the parking permit is not part of the opportunity cost of attending college
if you would not have to pay for parking otherwise.
b. The cost of the parking permit is part of the opportunity cost of attending college if
you would not have to pay for parking otherwise.
c. Only half of the cost of the parking permit is part of the opportunity cost of attending
college.
d. The cost of the parking permit is not part of the opportunity cost of attending college
under any circumstances.
Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is
$10, the cost of mowing the second lawn is $12, and the cost of mowing the third lawn
is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges
all customers the same price for lawn mowing, that price is
a. $25.
b. $30.
c. $36.
d. $45.
If Thailand has a trade surplus, then
a. foreign countries purchase more Thai assets than Thailand purchases from them. This
makes Thai saving greater than Thai domestic investment.
b. foreign countries purchase more Thai assets than Thailand purchases from them. This
makes Thai saving smaller then Thai domestic investment.
c. foreign countries purchase fewer Thai assets than Thailand purchases from them.
This makes Thai saving greater than Thai domestic investment.
d. foreign countries purchase fewer Thai assets than Thailand purchases from them.
This makes Thai saving greater than Thai domestic investment.
Which of the following is an example of a normative, as opposed to positive,
statement?
a. The price of gasoline came down sharply during the second half of 2006.
b. If the government were to set a maximum legal price on gasoline, then there would
be a shortage of gasoline.
c. Income taxes should be reduced.
d. The federal government obtains much of its revenue from income taxes.
If the Mexican nominal exchange rate does not change, but prices rise faster abroad
than in Mexico, then the Mexican real exchange rate
a. does not change.
b. rises.
c. declines.
d. None of the above is necessarily correct.
When OPEC raised the price of crude oil in the 1970s, it caused the
a. supply of gasoline to decrease.
b. quantity of gasoline demanded to decrease.
c. equilibrium price of gasoline to increase.
d. All of the above are correct.
To determine whether a good is considered normal or inferior, one could examine the
value of the
a. income elasticity of demand for that good.
b. price elasticity of demand for that good.
c. price elasticity of supply for that good.
d. cross-price elasticity of demand for that good.
Which of the following is not correct?
a. When developing economic theories, graphs offer a way to visually express ideas that
might be less clear if described with equations or words.
b. Graphs are one way of expressing the relationships among variables.
c. When studying the relationship between two economic variables, graphs allow
economists to draw indisputable conclusions about causes and effects.
d. When analyzing economic data, graphs provide a powerful way of finding and
interpreting patterns.
The CPI is a measure of the overall cost of
a. the inputs purchased by a typical producer.
b. the goods and services purchased by a typical consumer.
c. the goods and services produced in the economy.
d. the stocks on the New York Stock Exchange.
When a tax is levied on the buyers of a good, the
a. supply curve shifts upward by the amount of the tax.
b. quantity supplied increases for all conceivable prices of the good.
c. buyers of the good will send tax payments to the government.
d. demand curve shifts to the right by the horizontal distance of the tax.
Denise decides to spend three hours working overtime rather than watching a video
with her friends. She earns $10 an hour. Her opportunity cost of working is
a. the $30 she earns working.
b. the $30 minus the enjoyment she would have received from watching the video.
c. the enjoyment she would have received had she watched the video.
d. nothing, since she would have received less than $30 of enjoyment from the video.
According to liquidity preference theory, if there were a shortage of money, then
a. the interest rate would be above equilibrium and the quantity of money demanded
would be too large for equilibrium.
b. the interest rate would be above equilibrium and the quantity of money demanded
would be too small for equilibrium.
c. the interest rate would be below equilibrium and the quantity of money demanded
would be too small for equilibrium.
d. the interest rate would be below equilibrium and the quantity of money demanded
would be too large for equilibrium.
When the relative price of a good increases, consumers respond by buying
a. a larger quantity of that good and a larger quantity of substitutes for that good.
b. a larger quantity of that good and a smaller quantity of substitutes for that good.
c. a smaller quantity of that good and a larger quantity of substitutes for that good.
d. a smaller quantity of that good and a smaller quantity of substitutes for that good.
Suppose a country begins to allow international trade in steel. Which of the following
outcomes will be observed regardless of whether the country finds itself importing steel
or exporting steel?
a. The sum of consumer surplus and producer surplus for domestic traders of steel
increases.
b. The quantity of steel demanded by domestic consumers increases.
c. Domestic producers of steel receive a higher price for steel.
d. The losses of the losers exceed the gains of the winners.
If a market is allowed to move freely to its equilibrium price and quantity, then an
increase in supply will
a. increase consumer surplus.
b. reduce consumer surplus.
c. not affect consumer surplus.
d. Any of the above are possible.
A country has national saving of $80 billion, government expenditures of $40 billion,
domestic investment of $60 billion, and net capital outflow of $20 billion. What is its
demand for loanable funds?
a. $40 billion
b. $60 billion
c. $80 billion
d. $120 billion
Economists speaking like scientists make
a. normative statements.
b. prescriptive statements.
c. claims about how the world is.
d. claims about how the world should be.
For a college student who wishes to calculate the true costs of going to college, the
costs of room and board
a. should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b. should be counted only to the extent that they are more expensive at college than
elsewhere.
c. usually exceed the opportunity cost of going to college.
d. plus the cost of tuition, equals the opportunity cost of going to college.
The demand curve for textbooks shifts
a. only when income changes.
b. when a determinant of the demand for textbooks other than the price of textbooks
changes.
c. whenthe price of textbooks changes.
d. Both b) and c) are correct.
Figure 8-9
The vertical distance between points A and C represent a tax in the market.
Refer to Figure 8-9. The loss of consumer surplus as a result of the tax is
a. $2,000.
b. $4,000.
c. $6,000.
d. $8,000.
The interest rate the Fed charges on loans it makes to banks is called
a. the prime rate.
b. the federal funds rate.
c. the discount rate.
d. the LIBOR.
Figure 8-3
The vertical distance between points A and C represents a tax in the market.
Refer to Figure 8-3. The price that sellers effectively receive after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
The value of the goods and services Australia purchases from the U.S. are greater than
the value of goods and services the U.S. purchases from Australia. The U.S. has
a. positive net exports with Australia and a trade surplus with Australia.
b. positive net exports with Australia and a trade deficit with Australia.
c. negative net exports with Australia and a trade surplus with Australia.
d. negative net exports with Australia and a trade deficit with Australia.
Figure 4-22
Panel (a) Panel (b)
Panel (c) Panel (d)
Refer to Figure 4-22. Which of the four panels illustrates an increase in quantity
supplied?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
According to the classical dichotomy, which of the following is affected by monetary
factors?
a. nominal wages
b. the price level
c. nominal GDP
d. All of the above are correct.
Figure 4-6
Refer to Figure 4-6. The movement from D” to D could be caused by
a. a decrease in price.
b. a decrease in income, assuming the good is inferior.
c. buyers expecting the price of the good to fall in the near future.
d. an increase in the price of a complement.
Treasury Bonds are
a. both a store of value and a medium of exchange.
b. a store of value, but not a medium of exchange
c. a medium of exchange, but not a store of value.
d. neither a store of value nor a medium of exchange.
Consternation Corporation has an agreement with its workers to index completely the
wage of its employees using the CPI. Consternation Corporation currently pays its
production line workers $7.50 an hour and is scheduled to index their wages today. If
the CPI is currently 130 and was 125 a year ago, the firm should increase the hourly
wages of its workers by
a. $0.04.
b. $0.29.
c. $0.30.
d. $0.50.
Table 3-18
Chris and Tony’s Production Opportunities
Refer to Table 3-18 Chris and Tony both produce tomatoes and pasta sauce. The table
shows their possible production per month if both work the same number of 8 hour
days. Which of the following statements is correct?
a. Tony has a comparative advantage in the production of sauce.
b. Chris has a comparative advantage in the production of tomatoes.
c. Tony has an absolute advantage in the production of tomatoes.
d. Chris has an absolute advantage in the production of tomatoes.
The adult population must equal the sum of the employed, the unemployed, and those
not in the labor force.
As the size of a tax increases, the government’s tax revenue rises, then falls.
Other things the same, when a Canadian company imports bicycles from the U.S., the
open-economy macroeconomic model treats this transaction as an increase in the
quantity of dollars demanded in the U.S. foreign-currency exchange market.
GDP is adjusted to reflect changes in the quality of the environment such as changes in
air and water quality.
A rightward shift of the short-run aggregate-supply curve results in a more favorable
trade-off between inflation and unemployment.
Are credit cards and debit cards money? What’s the difference between credit and debit
cards?
The CPI is a measure of the overall cost of the goods and services bought by a typical
consumer.
Capital flight shifts the NCO curve to the left.
To produce 100 bushels of wheat, Farmer A requires fewer inputs than does Farmer B.
We can conclude that Farmer A has an absolute advantage over Farmer B in producing
wheat.
The results of a 2008 Los Angeles Times poll suggest that the percentage of Americans
who believe trade is harmful to the economy exceeds the percentage of Americans who
believe trade is beneficial to the economy.
When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a
month. Now that the couple makes $4,500 a month, they eat out 10 times a month.
Compute the couple’s income elasticity of demand using the midpoint method. Explain
your answer. Is a restaurant meal a normal or inferior good to the couple?
The law of demand is true for most goods in the economy.
Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A
year later, Bob withdraws his $105. If inflation was 7 percent during the year the money
was deposited, then Bob’s purchasing power has increased by 2 percent.
A large majority of economists favor eliminating the minimum wage.
If Wrex can produce more math problems per hour and more book reports per hour than
Maxine can, then Wrex cannot gain from trading math problems and book reports with
Maxine.
Long-run unemployment arises from a single problem that has a single solution.