One of the widely acknowledged problems with using the consumer price index as a
measure of the cost of living is that the CPI
a. fails to measure all changes in the quality of goods.
b. displays a housing bias.
c. accounts for changes in prices of some goods, but prices of certain goods are
assumed to remain constant.
d. All of the above are correct.
What would happen in the market for loanable funds if the government were to
decrease the tax rate on interest income?
a. The supply of and demand for loanable funds would shift right.
b. The supply of and demand for loanable funds would shift left.
c. The supply of loanable funds would shift right and the demand for loanable funds
would shift left.
d. None of the above is correct.
Which of the following is not correct?
a. The producer who requires a smaller quantity of inputs to produce a good is said to
have an absolute advantage in producing that good.
b. The producer who gives up less of other goods to produce Good X has the smaller
opportunity cost of producing Good X.
c. The producer who has the smaller opportunity cost of producing a good is said to
have a comparative advantage in producing that good.
d. The gains from specialization and trade are based not on comparative advantage but
on absolute advantage.
Table 7-5
For each of three potential buyers of oranges, the table displays the willingness to pay
for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three
buyers of oranges, and only three oranges can be supplied per day.
Refer to Table 7-5. If the market price of an orange is $0.70, then the market quantity
of oranges demanded per day is
a. 5.
b. 6.
c. 7.
d. 9.
Suppose in some country that the first $5,000 of interest income is exempt from income
tax. If the government then removed this exemption
a. the interest rate and investment would rise.
b. the interest rate would rise and investment would fall.
c. the interest rate would fall and investment would rise.
d. the interest rate and investment would fall.
When computing the cost of the basket of goods and services purchased by a typical
consumer, which of the following changes from year to year?
a. the quantities of the goods and services purchased
b. the prices of the goods and services
c. the goods and services making up the basket
d. All of the above are correct.
According to the efficient markets hypothesis, which of the following would increase
the price of stock in the Gerhardt Corporation?
a. Gerhardt announces, just as everyone had expected, that it has hired a new highly
respected CEO.
b. Gerhardt announces that its profits were low, but not as low as the market had
expected.
c. Analysis by a column in a business weekly indicates that Gerhardt is overvalued.
d. All of the above would increase the price.
Policies that reduce the time it takes unemployed workers to find new jobs
a. can reduce both frictional unemployment and the natural rate of unemployment.
b. can reduce frictional unemployment, but it cannot reduce the natural rate of
unemployment.
c. cannot reduce frictional unemployment, but it can reduce the natural rate of
unemployment.
d. cannot reduce either frictional unemployment or the natural rate of unemployment.
The term price takers refers to buyers and sellers in
a. perfectly competitive markets.
b. monopolistic markets.
c. markets that are regulated by the government.
d. markets in which buyers cannot buy all they want and/or sellers cannot sell all they
want.
An increase in the number of corporations in a portfolio from 1 to 10 reduces
a. market risk by more than an increase from 110 to 120.
b. market risk by less than an increase from 110 to 120.
c. firm-specific risk by more than an increase from 110 to 120.
d. firm-specific risk by less than an increase from 110 to 120.
Figure 6-24
Suppose the government imposes a $2 on this market.
Refer to Figure 6-24. Suppose D1 represents the demand curve for paperback novels,
D2 represents the demand curve for gasoline, and S1 represents the supply curve for
paperback novels and gasoline. After the imposition of the $2 on paperback novels and
on gasoline, the
a. buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback
novels.
b. sellers of gasoline bear a higher burden of the $2 tax than sellers of paperback
novels.
c. buyers of gasoline bear an equal burden of the $2 tax as buyers of paperback novels.
d. Both a) and b) are correct.
If the cross-price elasticity of two goods is negative, then the two goods are
a. necessities.
b. complements.
c. normal goods.
d. inferior goods.
Kevin is the CEO of a large firm and a homeowner who pays a landscaper to maintain
his lawn rather than do it himself. Kevin has determined that he can earn more in the
hour it would take him to work on his lawn than he must pay his landscaper. This
scenario is an example of which principle of economics?
a. Trade can make everyone better off.
b. Markets are usually a good way to organize economic activity.
c. Governments can sometimes improve market outcomes.
d. Prices rise when the government prinst too much money.
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 producer surplus for those sellers of the good who
continue to sell it after the tax is imposed is
a. $0.
b. $1.
c. $2.
d. $3.
When the interest rate is above the equilibrium level,
a. the quantity of money that people want to hold is less than the quantity of money that
the Federal Reserve has supplied.
b. people respond by buying interest-bearing bonds or by depositing money in
interest-bearing bank accounts.
c. bond issuers and banks respond by lowering the interest rates they offer.
d. All of the above are correct.
Which of the following is not an argument in favor of reforming the tax laws to
encourage saving?
a. Saving is a key determinant of long-run prosperity.
b. Current tax laws discourage saving for the purpose of leaving a large bequest.
c. The substitution effect of a higher return to saving may be about equal to the income
effect of a higher return to saving.
d. The tax code currently taxes some forms of capital income twice.
If an increase in income results in a decrease in the quantity demanded of a good, then
for that good, the
a. cross-price elasticity of demand is negative.
b. price elasticity of demand is elastic.
c. income elasticity of demand is negative.
d. income elasticity of demand is positive.
The aggregate quantity of goods and services demanded changes as the price level falls
because
a. real wealth falls, interest rates rise, and the dollar appreciates.
b. real wealth falls, interest rates rise, and the dollar depreciates.
c. real wealth rises, interest rates fall, and the dollar appreciates.
d. real wealth rises, interest rates fall, and the dollar depreciates.
On a bank’s T-account, which are part of the banks assets?
a. both deposits made by its customers and reserves
b. deposits made by its customers but not reserves
c. reserves but not deposits made by its customers
d. neither deposits made by its customers nor reserves
Which of the following are currently provisions of the U.S. tax system and discourage
saving?
a. some forms of capital income are taxed twice
b. if they are large enough, bequests are taxed
c. both a and b
d. neither a nor b
Investment is a
a. small part of real GDP, so it accounts for a small share of the fluctuation in real GDP.
b. small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
c. large part of real GDP, so it accounts for a large share of the fluctuation in real GDP.
d. large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP.
The world price of a simple electronic calculator is $5.00. Before Zimbabwe allowed
trade in calculators, the price of a calculator there was $7.50. Once Zimbabwe began
allowing trade in calculators with other countries, Zimbabwe began
a. importing calculators and the price of a calculator in Zimbabwe decreased to $5.00.
b. importing calculators and the price of a calculator in Zimbabwe remained at $7.50.
c. exporting calculators and the price of a calculator in Zimbabwe decreased to $5.00.
d. exporting calculators and the price of a calculator in Zimbabwe remained at $7.50.
Figure 6-4
Refer to Figure 6-4. A government-imposed price of $6 in this market is an example of
a
a. binding price ceiling that creates a shortage.
b. non-binding price ceiling that creates a shortage.
c. binding price floor that creates a surplus.
d. non-binding price floor that creates a surplus.
From 1980 to 1987
a. foreigners were buying more capital assets from the United States than Americans
were buying abroad. The United States was going into debt.
b. Americans were buying more capital assets abroad than foreigners were buying from
the United States. The United States was going into debt.
c. foreigners were buying more capital assets from the United States than Americans
were buying abroad. The United States was moving into surplus.
d. Americans were buying more capital assets abroad than foreigners were buying from
the United States. The United States was moving into surplus.
An adverse supply shock will cause output
a. and prices to rise.
b. and prices to fall.
c. to rise and prices to fall.
d. to fall and prices to rise.
Shifts in the aggregate-demand curve can cause fluctuations in
a. neither the level of output nor the level of prices.
b. the level of output, but not in the level of prices.
c. the level of prices, but not in the level of output.
d. the level of output and in the level of prices.
Suppose researchers at the University of Wisconsin discover a new vitamin that
increases the milk production of dairy cows. If the demand for milk is relatively
inelastic, the discovery will
a. raise both price and total revenues.
b. lower both price and total revenues.
c. raise price and lower total revenues.
d. lower price and raise total revenues.
When the money market is drawn with the value of money on the vertical axis, as the
price level increases, the value of 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 decreases.
d. decreases, so the quantity of money demanded increases.
Which of the following causes a surplus of a good?
a. a binding price floor
b. a binding price ceiling
c. a tax on the good
d. More than one of the above is correct.
Figure 8-6
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-6. The amount of the tax on each unit of the good is
a. $6.
b. $8.
c. $10.
d. $12.
Charisse is of the opinion that the interest rate depends on the economy’s saving
propensities and investment opportunities. Most economists would say that Charisse’s
opinion is
a. Keynesian in nature, and that her view is more valid for the long run than for the
short run.
b. classical in nature, and that her view is more valid for the long run than for the short
run.
c. Keynesian in nature, and that her view is more valid for the short run than for the
long run.
d. classical in nature, and that her view is more valid for the short run than for the long
run.
Of the following countries, which grew most slowly, in terms of real GDP per person,
over the last 100 years?
a. Brazil
b. Mexico
c. China
d. United States
An increase in supply is represented by a
a. movement downward and to the left along a supply curve.
b. movement upward and to the right along a supply curve.
c. rightward shift of a supply curve.
d. leftward shift of a supply curve.
If a stock or bond is risky
a. risk averse people may be willing to hold it as part of a diversified portfolio.
b. risk averse people may be willing to hold it if the expected return is high enough.
c. both A and B are correct.
d. risk averse people will not hold it.
If the United States changed its laws to allow for the legal sale of a kidney, which of the
following is likely to occur?
a. The price of kidneys would rise to balance supply and demand.
b. The gains from trade would make both buyers and sellers better off.
c. Thousands of lives would be saved.
d. All of the above are correct.