In which of the following cases is it most likely that an increase in the size of a tax will
decrease tax revenue?
a. The price elasticity of demand is small, and the price elasticity of supply is large.
b. The price elasticity of demand is large, and the price elasticity of supply is small.
c. The price elasticity of demand and the price elasticity of supply are both small.
d. The price elasticity of demand and the price elasticity of supply are both large.
Paper dollars
a. are commodity money and gold coins are fiat money.
b. are fiat money and gold coins are commodity money.
c. and gold coins are both commodity monies.
d. and gold coins are both fiat monies.
Table 11-3
The table below pertains to Studious, an economy in which the typical consumer’s
basket consists of 5 books and 10 calculators.
Refer to Table 11-3. The cost of the basket
a. increased by $10 from 2006 to 2007.
b. increased by $42 from 2006 to 2007.
c. increased by $70 from 2006 to 2007.
d. increased by $150 from 2006 to 2007.
You know an economist has crossed the line from policy adviser to scientist when he or
she
a. claims that the problem at hand is widely misunderstood by non-economists.
b. makes positive statements.
c. talks about values.
d. makes a claim about how the world should be.
If taxes
a. increase, then consumption increases, and aggregate demand shifts rightward.
b. increase, then consumption decreases, and aggregate demand shifts leftward.
c. decrease, then consumption increases, and aggregate demand shifts leftward.
d. decrease, then consumption decreases, and aggregate demand shifts rightward.
Table 11-4
The table below pertains to Wrexington, an economy in which the typical consumer’s
basket consists of 20 pounds of meat and 10 toys.
Refer to Table 11-4. If the base year is 2006, then the CPI
a. increased from 2004 to 2005 and increased from 2005 to 2006.
b. increased from 2004 to 2005 and decreased from 2005 to 2006.
c. decreased from 2004 to 2005 and increased from 2005 to 2006.
d. decreased from 2004 to 2005 and decreased from 2005 to 2006.
Figure 5-2
Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand
curves to calculate three different values of the price elasticity of demand. Which of the
three demand curves would produce the smallest elasticity?
a. D1
b. D2
c. D3
d. All of the above are equally elastic.
During the economic downturn of 2008-2009, the Federal Reserve
a. used open-market operations to purchase mortgages and corporate debt, just as it
frequently does even when the economy is functioning normally.
b. took the unusual step of using open-market operations to purchase mortgages and
corporate debt.
c. explicitly set its target rate of inflation at zero.
d. explicitly set its target rate of inflation well above zero.
For an imaginary closed economy, T = $5,000; S = $11,000; C = $50,000; and the
government is running a budget deficit of $1,000. Then
a. private saving = $10,000 and GDP = $54,000.
b. private saving = $10,000 and GDP = $58,000.
c. private saving = $12,000 and GDP = $67,000.
d. private saving = $12,000 and GDP = $72,000.
Which of the following increases when the Fed makes open-market sales?
a. currency and reserves
b. currency but not reserves
c. reserves but not currency
d. neither currency nor reserves
Which of the following is not among the four industries with the largest employment in
the United States today?
a. lumber
b. aircraft
c. communications
d. electrical components
Which of the following is included in both M1 and M2?
a. currency
b. demand deposits
c. other checkable deposits
d. All of the above are correct.
The demand for Hubba Bubba bubble gum is likely
a. elastic because gum is expensive relative to other snacks.
b. elastic because there are many close substitutes for Hubba Bubba.
c. elastic because bubble gum is regarded as a necessity by many people.
d. inelastic because it is consumed quickly, making the relevant time horizon short.
Other things the same, higher population growth
a. raises the amount of physical capital per worker and there is some evidence that it
raises the pace of technological progress.
b. raises the amount of physical capital per worker, but there is some evidence that it
reduces the pace of technological progress.
c. reduces the amount of physical capital per worker, but there is some evidence that it
raises the pace of technological progress.
d. reduces the amount of physical capital per worker and there is some evidence that it
reduces the pace of technological progress.
Figure 9-7. The figure applies to the nation of Wales and the good is cheese.
Refer to Figure 9-7. The equilibrium price and the equilibrium quantity of cheese in
Wales before trade are
a. P1 and Q2.
b. P1 and Q1.
c. P0 and Q0.
d. P0 and Q1.
At the broadest level, the financial system moves the economy’s scarce resources from
a. the rich to the poor.
b. financial institutions to business firms and government.
c. households to financial institutions.
d. savers to borrowers.
When inflation causes relative-price variability,
a. consumer decisions are distorted and the ability of markets to efficiently allocate
factors of production is impaired.
b. consumer decisions are distorted, but markets are still able to efficiently allocate
factors of production.
c. consumer decisions are not distorted, but the ability of markets to efficiently allocate
factors of production is impaired.
d. consumer decisions are not distorted and markets are still able to efficiently allocate
factors of production.
Which of the following events would shift money demand to the right?
a. an increase in the interest rate or an increase in the price level
b. an increase in the interest rate, but not an increase in the price level
c. an increase in the price level, but not an increase in the interest rate
d. neither an increase in the interest rate nor an increase in the price level
Other things the same, a fall in an economy’s overall level of prices tends to
a. raise both the quantity demanded and supplied of goods and services.
b. raise the quantity demanded of goods and services, but lower the quantity supplied.
c. lower the quantity demanded of goods and services, but raise the quantity supplied.
d. lower both the quantity demanded and the quantity supplied of goods and services.
In the circular-flow diagram, another name for goods and services produced by firms is
a. factors of production.
b. output.
c. inputs.
d. resources.
In order to maintain stable prices, a central bank must
a. maintain low interest rates.
b. keep unemployment low.
c. tightly control the money supply.
d. sell indexed bonds.
Figure 5-5
Refer to Figure 5-5. Using the midpoint method, between prices of $30 and $36, price
elasticity of demand is about
a. 0.5.
b. 0.82.
c. 1.22.
d. 2.
When the money market is drawn with the value of money on the vertical axis, if the
Federal Reserve sells bonds, then the money supply curve
a. shifts right, causing the price level to rise.
b. shifts right, causing the price level to fall.
c. shifts left, causing the price level to rise.
d. shifts left, causing the price level to fall.
You are in charge of the local city-owned aquatic center. You need to increase the
revenue generated by the aquatic center in order to meet expenses. The mayor advises
you to decrease the price of a day pass. The city manager recommends increasing the
price of a day pass. You realize that
a. the mayor thinks demand is elastic, and the city manager thinks demand is inelastic.
b. both the mayor and the city manager think that demand is elastic.
c. both the mayor and the city manager think that demand is inelastic.
d. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.
The long-run aggregate supply curve shifts right if
a. either immigration from abroad increases or technology improves.
b. immigration from abroad increases, but not if technology improves.
c. technology improves, but not if immigration from abroad increases.
d. None of the above are correct.
Using the graph shown, in which the vertical distance between points A and B
represents the tax in the market, answer the following questions.
a. What was the equilibrium price and quantity in this market before the tax?
b. What is the amount of the tax?
c. How much of the tax will the buyers pay?
d. How much of the tax will the sellers pay?
e. How much will the buyer pay for the product after the tax is imposed?
f. How much will the seller receive after the tax is imposed?
g. As a result of the tax, what has happened to the level of market activity?
Figure 8-2
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who
continue to buy it after the tax is imposed is
a. $0.
b. $1.50.
c. $3.
d. $4.50.
In 2001, the United States was in recession. Which of the following things would you
not expect to have happened?
a. increased layoffs and firings
b. a higher rate of bankruptcy
c. increased claims for unemployment insurance
d. increased investment spending
Labor taxes may distort labor markets greatly if
a. labor supply is highly inelastic.
b. many workers choose to work 40 hours per week regardless of their earnings.
c. the number of hours many part-time workers want to work is very sensitive to the
wage rate.
d. “underground” workers do not respond to changes in the wages of legal jobs because
they prefer not to pay taxes.
If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would
a. cost 1 percent of annual output.
b. cost 4 percent of annual output.
c. imply that unemployment would rise by 1%.
d. imply that unemployment would rise by 4%.
The fact that different countries experience different standards of living is largely
explained by differences in those countries’
a. populations.
b. productivity levels.
c. locations.
d. None of the above is correct. Economists are puzzled by differences in standards of
living around the world.
Figure 4-17
Refer to Figure 4-17. At a price of $20, which of the following statements is not
correct?
a. The market is in equilibrium.
b. Equilibrium price is equal to equilibrium quantity.
c. There is no pressure for price to change.
d. The quantity of the good that is bought and sold is 600 units.
Some firms eventually experience problems with their capacity to produce output as
their output levels increase. For these firms,
a. market power is substantial.
b. supply is perfectly inelastic.
c. supply is more elastic at low levels of output and less elastic at high levels of output.
d. supply is less elastic at low levels of output and more elastic at high levels of output.