Other things the same, as the price level falls,
a. the money supply falls.
b. interest rates rise.
c. a dollar buys more domestic goods.
d. the aggregate-demand curve shifts right.
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. The opportunity cost of 1 poem for Perry is
a. 1/12 novel.
b. 1/6 novel.
c. 2 novels.
d. 6 novels.
When the interest rate increases, the opportunity cost of holding money
a. increases, so the quantity of money demanded increases.
b. increases, so the quantity of money demanded decreases.
c. decreases, so the quantity of money demanded increases.
d. decreases, so the quantity of money demanded decreases.
When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is
a. both a U.S. and French import.
b. a U.S. export and a French import.
c. a U.S. import and a French export.
d. neither an export nor an import for either country.
George has $300 in a bank account. Some years ago he put $213.20 into this account,
and it has earned 5 percent interest every year since then. How many years ago did he
open his account?
a. 4 years
b. 5 years
c. 6 years
d. 7 years
Real Foods produced 400,000 cans of diced tomatoes in 2009 and 460,000 cans of
diced tomatoes in 2010. It employed the same number of labor hours each year. Real
Foods’ productivity
a. decreased 13 percent.
b. was unchanged.
c. increased 13 percent.
d. increased 15 percent.
In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed
basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40
in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following
statements is correct?
a. When 2006 is chosen as the base year, the consumer price index is 90 in 2007.
b. When 2006 is chosen as the base year, the inflation rate is 150 percent in 2007.
c. When 2007 is chosen as the base year, the consumer price index is 100 in 2006.
d. When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.
When the money market is drawn with the value of money on the vertical axis,
a. money demand slopes upward and money supply is horizontal.
b. money demand slopes downward and money supply is horizontal.
c. money demand slopes upward and money supply is vertical.
d. money demand slopes downward and money supply is vertical.
At an annual interest rate of 10 percent, about how many years will it take $100 to
double in value?
a. 5
b. 7
c. 9
d. 11
In the open-economy macroeconomic model, if the supply of loanable funds shifts right
a. the interest rate rises and the demand for dollars in the market for foreign currency
exchange shifts right.
b. the interest rate rises and the demand for dollars in the market for foreign currency
exchange shifts left.
c. the interest rate falls and the supply of dollars in the market for foreign-currency
exchange shifts right.
d. the interest rate falls and the supply of dollars in the market for foreign currency
exchange shifts left.
Figure 5-15
Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply
between $4 and $6?
a. 0.75
b. 1.00
c. 1.20
d. 1.25
If purchasing power parity holds, a bushel of rice costs $10 in the U.S., and the nominal
exchange rate is 40 Thai baht per dollar, what is the price of rice in Thailand?
a. 400 baht
b. 200 baht
c. 100 baht
d. 40 baht
In the short run, rent control causes the quantity supplied
a. and quantity demanded to fall.
b. to fall and quantity demanded to rise.
c. to rise and quantity demanded to fall.
d. and quantity demanded to rise.
A minimum wage that is set below a market’s equilibrium wage will result in an excess
a. demand for labor, that is, unemployment.
b. demand for labor, that is, a shortage of workers.
c. supply of labor, that is, unemployment.
d. None of the above is correct.
An increase in the price of oranges would lead to
a. an increased supply of oranges.
b. a reduction in the prices of inputs used in orange production.
c. an increased demand for oranges.
d. a movement up and to the right along the supply curve for oranges.
If the government’s expenditures exceeded its receipts, it would likely
a. lend money to a bank or other financial intermediary.
b. borrow money from a bank or other financial intermediary.
c. buy bonds directly from the public.
d. sell bonds directly to the public.
In the simple circular-flow diagram,
a. households own the factors of production.
b. households buy all the goods and services that firms produce.
c. land, labor, and capital flow from households to firms.
d. All of the above are correct.
Table 5-3
The following table shows the demand schedule for a particular good.
Refer to Table 5-3. Using the midpoint method, when price falls from $6 to $3, the
price elasticity of demand is
a. 0.43
b. 0.67
c. 1.50
d. 2.33
A tax on a good
a. raises the price that buyers effectively pay and raises the price that sellers effectively
receive.
b. raises the price that buyers effectively pay and lowers the price that sellers effectively
receive.
c. lowers the price that buyers effectively pay and raises the price that sellers effectively
receive.
d. lowers the price that buyers effectively pay and lowers the price that sellers
effectively receive.
Figure 5-15
Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply
between $6 and $8?
a. 0.86
b. 1.00
c. 1.17
d. 1.25
In the early 1980s, which of the following countries had a marginal tax rate of about 80
percent?
a. United States
b. Canada
c. Japan
d. Sweden
The slope of a line that passes through the points (15, 10) and (7, 30) is
a. -5/2.
b. -2/5.
c. 2/5.
d. 5/2.
Once the supply curve for a product or service is drawn, it
a. remains stable over time.
b. can shift either rightward or leftward.
c. is possible to move along the curve, but the curve will not shift.
d. tends to become steeper over time.
Which of the following statements about GDP is correct?
a. GDP measures two things at once: the total income of everyone in the economy and
the unemployment rate of the economy’s labor force.
b. Money continuously flows from households to government and then back to
households, and GDP measures this flow of money.
c. GDP is to a nation’s economy as household income is to a household.
d. All of the above are correct.
Suppose televisions are a normal good and buyers of televisions experience a decrease
in income. As a result, consumer surplus in the television market
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.
If the U.S. has exports of $1.5 trillion and imports of $2.2 trillion, then the U.S.
a. sells more overseas then it buys from overseas; it has a trade deficit.
b. sells more overseas then it buys from overseas; it has a trade surplus.
c. buys more from overseas then it sells overseas; it has a trade deficit.
d. buys more from overseas then it sells overseas; it has a trade surplus.
Figure 3-5
Hosne’s Production Possibilities Frontier Merve’s Production Possibilities Frontier
Refer to Figure 3-5. If Hosne and Merve both spend all of their time making wallets,
then total production is
a. 7 wallets.
b. 8 wallets.
c. 14 wallets.
d. 28 wallets.
Other things the same, the aggregate quantity of output supplied will increase if the
price level
a. is lower than expected so that firms believe the relative price of their output has
increased.
b. is lower than expected so that firms believe the relative price of their output has
decreased.
c. is higher than expected so that firms believe the relative price of their output has
increased.
d. is higher than expected so that firms believe the relative price of their output has
decreased.
The basic principles of economics suggest that
a. markets are seldom, if ever, a good way to organize economic activity.
b. government should become involved in markets when trade between countries is
involved.
c. government should become involved in markets when those markets fail to produce
efficient or fair outcomes.
d. All of the above are correct.
Which of the following is the correct way to compute the future value of $X that earns r
percent interest for N years?
a. $X(1 + rN)N
b. $X(1 + r)N
c. $X(1 + rN)
d. $X(1 + r/N)N
At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real
GDP were to rise 3% and inflation was 2%, what is the largest deficit the government
could have run without raising the debt-to-GDP ratio?
a. about $94 billion
b. about $470 billion
c. about $540 billion
d. None of the above are correct.
Imagine that the government increases its spending by $75 billion. Which of the
following by itself would tend to make the change in aggregate demand different from
$75 billion?
a. both the multiplier effect and the crowding-out effect
b. the multiplier effect, but not the crowding-out effect
c. the crowding-out effect, but not the multiplier effect
d. neither the crowding out effect nor the multiplier effect
You hold bonds issued by the city of Sacramento, California. The interest you earn each
year on these bonds
a. is not subject to federal income tax and so these bonds pay a higher interest rate than
otherwise comparable bonds issued by the U.S. government.
b. is not subject to federal income tax and so these bonds pay a lower interest rate than
otherwise comparable bonds issued by the U.S. government.
c. is subject to federal income tax and so these bonds pay a higher interest rate than
otherwise comparable bonds issued by the U.S. government.
d. is subject to federal income tax and so these bonds pay a lower interest rate than
otherwise comparable bonds issued by the U.S. government.
Two countries are the same, except one is poorer. Assuming the traditional assumption
about the production function is made there are
a. diminishing returns to capital so the poor country grows slower.
b. increasing returns to capital so the poor country grows slower.
c. diminishing returns to capital so the poor country grows faster.
d. increasing returns to capital so the poor country grows faster.
Economists make assumptions to
a. provide issues for political discussion.
b. make a complex world easier to understand.
c. make it easier to teach economic concepts and analysis.
d. create policy alternatives that are incomplete or subject to criticism.
Retirees are included in the Bureau of Labor Statistics’ “not in the labor force” category.
When the value of money is on the vertical axis, the money supply curve is vertical and
shifts right if the Federal Reserve buys bonds.
Designers of the Federal Reserve System were concerned that the Fed might form
policy favorable to one part of the country or to a particular party. What are some ways
that the organization of the Fed reflects such concerns?
A market’s equilibrium is the point at which the supply and demand curves intersect.
Each seller of a product is willing to sell as long as the price he or she can receive is
greater than the opportunity cost of producing the product.
Normally, both buyers and sellers of a good become worse off when the good is taxed.
An increase in the actual price level does not shift the short-run aggregate supply curve,
but an expected increase in the price level shifts the short-run aggregate supply curve to
the left.
If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation
for 2010 is 39.2 percent.
Unions are exempt from U.S. antitrust laws.
If the producers of canned green beans expect the price of canned green beans to
increase in the future due to an increase in demand, they may put some of their current
production into storage and supply less in the market today.
A yard sale is an example of a market.
The Fed can influence the money supply by changing the interest rate it pays banks on
the reserves they are holding.
U.S. exports make up less than 20 percent of GDP.
In the 1990s, U.S. prices rose at about the same rate as in the 1970s.
In the circular-flow diagram, firms produce goods and services using the factors of
production.
The introduction of a union into a firm benefits all of that firm’s workers.
When a tax is imposed on buyers, consumer surplus and producer surplus both
decrease.
A binding minimum wage creates a shortage of labor.
Although wages, incomes, and interest rates are most often discussed in nominal terms,
what matters most are their real values.