If muffins and bagels are substitutes, a higher price for bagels would result in a(n)
a. increase in the demand for bagels.
b. decrease in the demand for bagels.
c. increase in the demand for muffins.
d. decrease in the demand for muffins.
Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles
values this service at $100 per hour, while the opportunity cost of Diana’s time is $75
per hour. The government places a tax of $10 per hour on personal trainers. After the
tax, what is likely to happen in the market for personal training?
a. Diana and Charles will agree to a new price somewhere between $85 and $100.
b. Diana and Charles will agree to a new price somewhere between $70 and $110.
c. Diana will no longer offer personal training services to Charles because she must
charge more than $100 in order to cover her opportunity costs and pay the tax.
d. The price will remain at $80, and Diana will pay the $10 tax.
If a study by medical researchers finds that eating brown rice causes weight loss while
eating white rice causes weight gain, then we likely would see
a. an increase in demand for brown rice and a decrease in demand for white rice.
b. a decrease in demand for brown rice and an increase in demand for white rice.
c. an increase in demand for both brown and white rice.
d. no change in demand for either type of rice because weight loss is not a determinant
of demand.
Table 3-4
Assume that the farmer and the rancher can switch between producing meat and
producing potatoes at a constant rate.
Labor Hours Needed
to Make 1 Pound of Pounds Produced
in 24 Hours
Refer to Table 3-4. The opportunity cost of 1 pound of potatoes for the rancher is
a. 1/2 pound of meat.
b. 1/2 hour of labor.
c. 2 pounds of meat.
d. 6 hours of labor.
Figure 3-7
Bintu’s Production Possibilities Frontier Juba’s Production Possibilities Frontier
Refer to Figure 3-7. If Bintu and Juba both spend all of their time making bowls, then
total production is
a. 2 bowls.
b. 3 bowls.
c. 4 bowls.
d. 6 bowls.
The price of DVD players increases dramatically, causing a 1 percent increase in the
CPI. The price increase will most likely cause the GDP deflator to increase by
a. more than 1 percent.
b. less than 1 percent.
c. 1 percent.
d. None of the above is correct; this particular price increase will not affect the GDP
deflator.
Which of the following shifts the short-run aggregate supply curve to the right?
a. a decrease in the actual price level
b. an increase in the actual price level
c. a decrease in the expected price level
d. an increase in the expected price level
If a decrease in income increases the demand for a good, then the good is a(n)
a. substitute good.
b. complementary good.
c. normal good.
d. inferior good.
When a country allows international trade and becomes an exporter of a good,
a. domestic producers of the good become better off.
b. domestic consumers of the good become worse off.
c. the gains of the winners exceed the losses of the losers.
d. All of the above are correct.
When an economist points out that you and millions of other people are interdependent,
he or she is referring to the fact that we all
a. rely upon the government to provide us with the basic necessities of life.
b. rely upon one another for the goods and services we consume.
c. have similar tastes and abilities.
d. are concerned about one another’s well-being.
Market failure is the inability of
a. buyers to interact harmoniously with sellers in the market.
b. a market to establish an equilibrium price.
c. buyers to place a value on the good or service.
d. some unregulated markets to allocate resources efficiently.
Table 7-7
The following table represents the costs of five possible sellers.
Refer to Table 7-7. If the price is $1,000,
a. Bobby is an eager supplier.
b. Dianne is an eager supplier.
c. Abby’s producer surplus is $500.
d. All of the above are correct.
Suppose a central bank announced that it was going to make a serious effort to fight
inflation. A few years later the inflation rate is lower, but there had been a serious
recession. We could conclude with certainty that
a. the rational expectations hypothesis is false.
b. the rational expectations hypothesis is true.
c. the policymakers lacked credibility.
d. None of the above is certain.
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. Suppose Perry is willing to trade 4 poems to Jordan for each novel
that Jordan writes and sends to Perry. Which of the following combinations of novels
and poems could Jordan then consume, assuming Jordan specializes in novel
production and Perry specializes in poem production?
a. 1 novel and 14 poems
b. 2 novels and 8 poems
c. 3 novels and 6 poems
d. 4 novels and 2 poems
Figure 6-23
Refer to Figure 6-23. How much tax revenue does this tax produce for the
government?
a. $480
b. $600
c. $800
d. $1120
An increase in a country’s budget surplus shifts its
a. demand for loanable funds right and decreases investment spending.
b. supply of loanable funds right and increases investment spending.
c. supply of loanable funds left and decreases investment spending.
d. None of the above is correct.
Which of the following is not correct?
a. The consumer price index gives economists a way of turning dollar figures into
meaningful measures of purchasing power.
b. The consumer price index is used to monitor changes in the cost of living over time.
c. The consumer price index is used by economists to measure the inflation rate.
d. The consumer price index is used to measure the quantity of goods and services that
the economy is producing.
If the short-run Phillips curve were stable, which of the following would be unusual?
a. an increase in government spending and a fall in unemployment
b. an increase in inflation and a decrease in output
c. a decrease in the inflation rate and a rise in the unemployment rate
d. a decrease in the money supply and a rise in the unemployment rate.
If the government instituted an investment tax credit, then which of the following
would be higher in equilibrium?
a. saving and the interest rate
b. saving but not the interest rate
c. the interest rate but not saving
d. neither saving nor the interest rate
Economists use the word “money” to refer to
a. income generated by the production of goods and services.
b. those assets regularly used to buy goods and services.
c. fianncial assets such as stocks and bonds.
d. any type of wealth.
Figure 3-9
Uzbekistan’s Production Possibilities Frontier Azerbaijan’s Production
Possibilities Frontier
Refer to Figure 3-9. Without trade, Uzbekistan produced and consumed 12 bolts and
36 nails and Azerbaijan produced and consumed 14 bolts and 24 nails. Then, each
country agreed to specialize in the production of the good in which it has a comparative
advantage and trade 16 bolts for 38 nails. As a result, Uzbekistan gained
a. 2 bolts and 2 nails and Azerbaijan gained 2 bolts and 18 nails.
b. 4 bolts and 2 nails and Azerbaijan gained 2 bolts and 14 nails.
c. 14 bolts and 38 nails and Azerbaijan gained 16 bolts and 42 nails.
d. 16 bolts and 38 nails and Azerbaijan gained 16 bolts and 38 nails.
A U.S. firm buys wool from Australia with U.S. currency. The Australian firm then uses
this money to buy electric shears from a U.S. firm. Which of the following increases?
a. Australian net capital outflow and Australian net exports
b. only Australian net exports
c. only Australian net capital outflow
d. neither Australian net exports nor Australian capital outflow
Figure 9-12
Refer to Figure 9-12. With trade allowed, this country
a. exports 200 units of the good.
b. exports 400 units of the good.
c. imports 200 units of the good.
d. exports 800 units of the good.
For a number of years country A had inflation of 3% but for the last five years has had
inflation of 6%. Country B had inflation of 4% for many years, but very recently
inflation unexpectedly rose to 9%. Other things the same, in which of the countries
would the higher inflation rate be more likely to reduce unemployment?
a. both country A and country B
b. neither country A nor country B
c. country A but not country B
d. country B but not country A
Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
Labor Hours
Needed to Make 1
Refer to Table 3-2. Aruba has a comparative advantage in the production of
a. coolers and Iceland has a comparative advantage in the production of radios.
b. radios and Iceland has a comparative advantage in the production of coolers.
c. both goods and Iceland has a comparative advantage in the production of neither
good.
d. neither good and Iceland has a comparative advantage in the production of both
goods.
Which of the following is correct?
a. If developing countries limit career and educational opportunities for women, birth
rates are likely to be lower.
b. Growth rates in developed and developing countries are nearly the same.
c. Historically, in periods where the rate of population growth was high, so was the rate
of growth in world real GDP per person.
d. None of the above is correct.
The nominal interest rate is 3.5 percent and the inflation rate is 2 percent. What is the
real interest rate?
a. 7 percent
b. 5.5 percent
c. 1.75 percent
d. 1.5 percent
In 1979 when the Fed was deciding how aggressively to fight inflation, the typical
estimate of the sacrifice ratio was
a. 1.
b. 5.
c. 7.
d. 10.
Classical economist David Hume observed that as the money supply expanded after
gold discoveries
a. prices and output both increased immediately.
b. prices increased immediately while output remained unchanged.
c. it took time for prices to rise; in the meantime output was lower.
d. it took time for prices to rise; in the meantime output was higher.
Suppose that an economy produces 30,000 units of good A which sells at $3 a unit and
60,000 units of good B which sells at $2 per unit. Production of good A contributes
a. 1/2 times as much to GDP as the production of good B.
b. 3/2 times as much to GDP as the production of good B.
c. 3/4 times as much to GDP as the production of good B.
d. 4/3 times as much to GDP as production of good B.