In the loanable funds model, an increase in an investment tax credit would create a
a. shortage at the former equilibrium interest rate. This shortage would lead to a rise in
the interest rate.
b. shortage at the former equilibrium interest rate. This shortage would lead to a fall in
the interest rate.
c. surplus at the former equilibrium interest rate. This surplus would lead to a rise in the
interest rate.
d. surplus at the former equilibrium interest rate. This surplus would lead to a fall in the
interest rate.
According to liquidity preference theory, a decrease in the price level causes the interest
rate to
a. increase, which increases the quantity of goods and services demanded.
b. increase, which decreases the quantity of goods and services demanded.
c. decrease, which increases the quantity of goods and services demanded.
d. decrease, which decreases the quantity of goods and services demanded.
Demand is inelastic if the price elasticity of demand is
a. less than 1.
b. equal to 1.
c. greater than 1.
d. equal to 0.
The production possibilities frontier provides an illustration of the principle that
a. trade can make everyone better off.
b. governments can sometimes improve market outcomes.
c. people face trade-offs.
d. people respond to incentives.
When a tax is placed on the sellers of energy drinks, the
a. sellers bear the entire burden of the tax.
b. buyers bear the entire burden of the tax.
c. burden of the tax will be always be equally divided between the buyers and the
sellers.
d. burden of the tax will be shared by the buyers and the sellers, but the division of the
burden is not always equal.
To increase living standards, public policy should
a. ensure that workers are well educated and have the necessary tools and technology.
b. make unemployment benefits more generous.
c. move workers into jobs directly from high school.
d. ensure a greater degree of equality, taking all income-earners into account.
In the 1980s, the U.S. government budget deficit rose. At the same time the U.S. trade
deficit grew larger, the real exchange rate of the dollar appreciated, and U.S. net capital
outflow decreased. Which of these events is contrary to what the open-economy
macroeconomic model predicts concerning the effects of an increase in the budget
deficit?
a. The U.S. trade deficit grew.
b. The real exchange rate of the dollar appreciated.
c. U.S. net capital outflow fell.
d. None of the above is contrary to the predictions of the model.
Figure 8-9
The vertical distance between points A and C represent a tax in the market.
Refer to Figure 8-9. The producer surplus with the tax is
a. $3,000.
b. $6,000.
c. $9,000.
d. $12,000.
Figure 19-2
Refer to Figure 19-2. If the real exchange rate is .6, then there is a
a. surplus of 100 so the real exchange rate will fall.
b. surplus of 100 so the real exchange rate will rise.
c. shortage of 100 so the real exchange rate will fall.
d. shortage of 100 so the real exchange rate will rise.
In which of the following circumstances would a buyer be indifferent about buying a
good?
a. The amount of consumer surplus the buyer would experience as a result of buying the
good is zero.
b. The price of the good is equal to the buyer’s willingness to pay for the good.
c. The price of the good is equal to the value the buyer places on the good.
d. All of the above are correct.
If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the
inflation rate is
a. -3 percent.
b. 0.75 percent.
c. 3 percent.
d. 11 percent.
Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk.
What is the least amount a person would need to have a 50% chance of winning to be
willing to face a 50% chance of losing $1,000 today and be considered risk averse?
a. $907.03 to be paid in two years
b. $1,000.01 to be paid in two years
c. $1,100.01 to be paid in two years
d. $1,102.51 to be paid in two years
The “unfair-competition” argument might be cited by an American who believes that
a. almost every country has a comparative advantage, relative to the United States, in
producing almost all goods.
b. young industries should be protected against foreign competition until they become
profitable.
c. the American automobile industry should be protected against Japanese firms that are
able to produce automobiles at relatively low cost.
d. the French government’s subsidies to French farmers justify restrictions on American
imports of French agricultural products.
In the open-economy macroeconomic model, the supply of loanable funds equals
a. national saving. The demand for loanable funds comes from domestic investment +
net capital outflow.
b. national saving. The demand for loanable funds comes only from domestic
investment.
c. private saving. The demand for loanable funds comes from domestic investment +
net capital outflow.
d. private saving. The demand for loanable funds comes only from domestic
investment.
Figure 8-19. The figure represents the relationship between the size of a tax and the tax
revenue raised by that tax.
Refer to Figure 8-19. If the economy is at point A on the curve, then a decrease in the
tax rate will
a. increase the deadweight loss of the tax and increase tax revenue.
b. increase the deadweight loss of the tax and decrease tax revenue.
c. decrease the deadweight loss of the tax and increase tax revenue.
d. decrease the deadweight loss of the tax and decrease tax revenue.
Consider the exhibit below for the following questions.
Figure 20-1
Refer to Figure 20-1. If the economy starts at C, an increase in the money supply
moves the economy
a. to A in the long run.
b. to B in the long run.
c. back to C in the long run.
d. to D in the long run.
According to the Phillips curve, unemployment and inflation are negatively related in
a. the short run and in the long run.
b. the short run, but not in the long run.
c. the long run, but not in the short run.
d. neither the long run nor the short run.
Which of the following are human capital and physical capital, respectively?
a. for a brick layer: her bricks and her tools
b. for a gas station: the pumps and the cash register
c. for a restaurant: the chefs’ knowledge about preparing food and the equipment in the
kitchen
d. for a medical office: the building and the doctors’ knowledge of medicine
Which of the following effects results from the change in the interest rate created by an
increase in government spending?
a. the investment accelerator and crowding out
b. the investment accelerator but not crowding out
c. crowding out but not the investment accelerator
d. neither crowding out nor the investment accelerator
A farmer sells $50,000 of apples to individuals who take them home to eat and $75,000
of apples to a company that uses them all to produce cider. How much of the farmer’s
sales will be included as apples in GDP?
a. $0
b. $50,000
c. $75,000
d. $125,000
When the price level rises, the number of dollars needed to buy a representative basket
of goods
a. increases, and so the value of money rises.
b. increases, and so the value of money falls.
c. decreases, and so the value of money rises.
d. decreases, and so the value of money falls
If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is
a. 80, and this indicates that the price level has decreased by 20 percent since the base
year.
b. 80, and this indicates that the price level has increased by 80 percent since the base
year.
c. 125, and this indicates that the price level has increased by 25 percent since the base
year.
d. 125, and this indicates that the price level has increased by 125 percent since the base
year.
Which of the following statements is correct about the extent of disagreement among
economists?
a. There is a great deal of agreement among economists on virtually every economic
issue.
b. There is a great deal of agreement among economists on many important economic
issues.
c. All disagreements among economists are attributable to differences in their values.
d. All disagreements among economists are attributable to the fact that different
economists have different degrees of faith in the validity of alternative economic
theories.
Suppose banks decide to hold more excess reserves relative to deposits. Other things
the same, this action will cause the
a. money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds.
b. money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds.
c. money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds.
d. money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.
If the multiplier is 2.5, then the MPC is
a. 0.2.
b. 0.6.
c. 0.75.
d. 1.00.
Which of the following statements is correct?
a. The CPI can be used to compare dollar figures from different points in time.
b. The percentage change in the CPI is a measure of the inflation rate, but the
percentage change in the GDP deflator is not a measure of the inflation rate.
c. Compared to the consumer price index (CPI), the GDP deflator is the more common
gauge of inflation.
d. The GDP deflator better reflects the goods and services bought by consumers than
does the CPI.
All else equal, what happens to consumer surplus if the price of a good increases?
a. Consumer surplus increases.
b. Consumer surplus decreases.
c. Consumer surplus is unchanged.
d. Consumer surplus may increase, decrease, or remain unchanged.
In the 1970s, long lines at gas stations in the United States were primarily a result of the
fact that
a. OPEC raised the price of crude oil in world markets.
b. U.S. gasoline producers raised the price of gasoline.
c. the U.S. government maintained a price ceiling on gasoline.
d. Americans typically commuted long distances.
Babe Ruth’s 1931 salary was $80,000. Government statistics show a consumer price
index of 15.2 for 1931 and 214.5 for 2009. Ruth’s 1931 salary was equivalent to a 2009
salary of about
a. $5,874.
b. $822,566.
c. $1,128,947.
d. $13,560,020.
If a government has a budget surplus, then public saving
a. is positive and increases national saving.
b. is positive but decreases national saving.
c. is negative and decreases national saving.
d. is negative but increases national saving.
Figure 9-6
Refer to Figure 9-6. The imposition of a tariff on carnations
a. increases the number of carnations imported by 100.
b. increases the number of carnations imported by 200.
c. decreases the number of carnations imported by 200.
d. decreases the number of carnations imported by 400.
Define opportunity cost. What is the opportunity cost to you of attending college? What
was your opportunity cost of coming to class today?
Why does a nation’s standard of living depend on property rights?
If Belgium exports chocolate to the rest of the world, then Belgian chocolate producers
benefit from higher producer surplus, Belgian chocolate consumers are worse off
because of lower consumer surplus, and total surplus in Belgium increases because of
the exports of chocolate.
Today, the four industries with the largest employment in the United States are autos,
aircraft, communications, and electrical components.
Unemployment insurance and welfare programs work as automatic stabilizers.
Price will rise to eliminate a surplus.
When a free market for a good reaches equilibrium, anyone who is willing and able to
sell at the market price can sell the good.
If the income elasticity of demand for a good is negative, then the good must be an
inferior good.
Social Security transfers wealth from younger generations to older generations.
In the long run, the inflation rate depends primarily on the growth rate of the money
supply.
In the 1940s and 1950s, about one-third of U.S. workers belonged to unions, but today,
only about one-fifth of U.S. workers belong to unions.
Figure 6-27
Refer to Figure 6-27. If the government places a $2 tax in the market, the buyer pays
$4.
According to the efficient markets hypothesis, at any moment in time, the market price
is the best estimate of the company’s value based on publicly available information.
Economists argue that rent control is a highly efficient way to help the poor raise their
standard of living.
If the size of a tax doubles, the deadweight loss doubles.