Table 4-9
The demand schedule below pertains to sandwiches demanded per week.
Refer to Table 4-9. Regarding Harry and Darby, whose demand for sandwiches
conforms to the law of demand?
a. only Harry’s
b. only Darby’s
c. both Harry’s and Darby’s
d. neither Harry’s nor Darby’s
If a $1,000 increase in income leads to a $750 increase in consumption expenditures,
then the marginal propensity to consume is
a. 0.75 and the multiplier is 1 1/3.
b. 0.75 and the multiplier is 4.
c. 0.25 and the multiplier is 1 1/3.
d. 0.25 and the multiplier is 4.
Which of the following would likely increase private saving?
a. Both expansion of IRA type accounts and a consumption tax.
b. Expansion of IRA type accounts, but not a consumption tax.
c. A consumption tax, but not expansion of IRA type accounts.
d. Neither expansion of IRA type accounts nor a consumption tax.
Which of the following is not correct?
a. Most people who become unemployed will soon find jobs.
b. In an ideal labor market, wages would adjust to ensure that all workers are always
fully employed.
c. The unemployment rate occasionally falls to zero.
d. There are always some workers without jobs, even when the overall economy is
doing well.
Table 3-7
Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
Hours Needed
to Make 1 Quantity Produced
in 2400 Hours
Refer to Table 3-7. Suppose Japan decides to increase its production of cars by 45.
What is the opportunity cost of this decision?
a. 9 airplanes
b. 15 airplanes
c. 135 airplanes
d. 225 airplanes
Scenario 11-4
Quinn has job offers in Wrexington and across the country in Charlieville. The
Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would
pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in
Charlieville is
Refer to Scenario 11-4. If Quinn only cares about maximizing her purchasing power,
then she should
a. take the Charlieville job.
b. take the Wrexington job.
c. take either job because they both have the same purchasing power.
d. The answer cannot be determined from the information given because a salary is not
the same as purchasing power.
In the U.S., from the early 1980s through the early 1990s,
a. both inflation and nominal interest rates rose.
b. both inflation and nominal interest rates fell.
c. the inflation rate fell and the nominal interest rate rose.
d. the inflation rate rose and the nominal interest rate fell.
If a price floor is not binding, then
a. the equilibrium price is above the price floor.
b. the equilibrium price is below the price floor.
c. there will be a surplus in the market.
d. Both a) and c) are correct.
If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the
inflation rate is
a. -2 percent.
b. 0.4 percent.
c. 2 percent.
d. 12 percent.
Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $1, and
retained earnings of $2 a share. What was the price of a share of Mallard stock?
a. $15
b. $30
c. $45
d. None of the above is correct.
Equilibrium quantity must increase when demand
a. increases and supply does not change, when demand does not change and supply
increases, and when both demand and supply increase.
b. increases and supply does not change, when demand does not change and supply
increases, and when both demand and supply decrease.
c. decreases and supply does not change, when demand does not change and supply
decreases, and when both demand and supply increase.
d. decreases and supply does not change, when demand does not change and supply
decreases, and when both demand and supply decrease.
Gina, a U.S. citizen, works only in Bermuda. The value of Gina’s production is included
in
a. U.S. GDP and Bermudan GDP.
b. U.S. GDP and Bermudan GNP.
c. U.S. GNP and Bermudan GDP.
d. U.S. GNP and Bermudan GNP.
Generally, a firm is more willing and able to increase quantity supplied in response to a
price change when
a. the relevant time period is short rather than long.
b. the relevant time period is long rather than short.
c. supply is inelastic.
d. the firm is experiencing capacity problems.
Suppose today’s CPI is 134.85, and suppose one must spend $580 today to purchase the
same basket of goods and services that could be bought for $400 in 1989. Then the CPI
in 1989 was
a. 24.27.
b. 60.68.
c. 93.00.
d. 195.53.
The invisible hand works to promote general well-being in the economy primarily
through
a. government intervention.
b. the political process.
c. people’s pursuit of self-interest.
d. altruism.
The most common data for testing economic theories come from
a. carefully controlled and conducted laboratory experiments.
b. computer models of economies.
c. historical episodes of economic change.
d. centrally planned economies.
Megan is a landscaper. Which of the following are included in her human capital?
a. her knowledge of landscaping learned in college and her landscaping equipment
b. her knowledge of landscaping learned in college, but not her landscaping equipment
c. her landscaping equipment, but not her knowledge of landscaping learned in college
d. neither her knowledge of landscaping learned in college nor her landscaping
equipment
The idea that the long-run Phillips curve is
a. vertical stems from the analysis of Samuelson and Solow.
b. vertical stems from the analysis of Friedman and Phelps.
c. vertical was disproved by the experiment that monetary and fiscal policymakers
inadvertently created in the 1970s.
d. downward-sloping can be correct if unemployment responds very quickly to
unexpected inflation.
If a 15% change in price results in a 20% change in quantity supplied, then the price
elasticity of supply is about
a. 1.33, and supply is elastic.
b. 1.33, and supply is inelastic.
c. 0.75, and supply is elastic.
d. 0.75, and supply is inelastic.
When the overall level of prices in the economy is increasing, economists say that the
economy is experiencing
a. economic growth.
b. stagflation.
c. inflation.
d. deflation.
Which of the following is human capital?
a. a student loan
b. understanding how to use a company’s accounting software
c. training videos for new corporate employees
d. All of the above are correct.
If output is above its natural rate, then according to sticky-wage theory
a. workers and firms will strike bargains for higher wages. This increase in wages shifts
the short-run aggregate supply curve right.
b. workers and firms will strike bargains for higher wages. This increase in wages shifts
the short-run aggregate supply curve left.
c. workers and firms will strike bargains for lower wages. This decrease in wages shifts
the short-run aggregate supply curve right.
d. workers and firms will strike bargains for lower wages. This decrease in wages shifts
the short-run aggregate supply curve left.
People had been expecting the price level to be 220 but it turns out to be 223. In
response Green Leaf Paper Company increases the number of workers it employs. What
could explain this?
a. both sticky price theory and sticky wage theory
b. sticky price theory but not sticky wage theory
c. sticky wage theory but not sticky price theory
d. neither sticky wage theory nor sticky price theory
In 2008, CDZ Corporation had total earnings of $500 million and CDZ retained 30
percent of its earnings for future investments. If the price of a share of CDZ stock is
$70 and if 80 million shares of its stock were outstanding, then what is the
price-earnings ratio?
a. 0.14
b. 11.2
c. 16.0
d. 37.3
During recessions declines in investment account for about
a. 1/6 of the decline in real GDP.
b. 1/3 of the decline in real GDP.
c. 1/2 of the decline in real GDP.
d. 2/3 of the decline in real GDP.
If there are constant returns to scale, the production function can be written as
a. xY = 2xAF(L, K, H, N).
b. Y/L = A F(xL, xK, xH, xN).
c. Y/L = A F( 1, K/L, H/L, N/L).
d. L = AF(Y, K, H, N).
Suppose the government changed the tax laws, with the result that people were
encouraged to consume more and save less. Using the loanable funds model, a
consequence would be
a. lower interest rates and lower investment.
b. lower interest rates and greater investment.
c. higher interest rates and lower investment.
d. higher interest rates and higher investment.
Suppose the price level rises, but the number of dollars you are paid per hour stays the
same. This means that your
a. nominal wage is higher.
b. nominal wage is lower.
c. real wage is higher.
d. real wage is lower.
According to a recent study of Chilean bus drivers, drivers who are paid by the number
of passengers they transport have higher productivity than drivers who are paid by the
hour. This result is an example of which principle of economics?
a. People face tradeoffs.
b. The cost of something is what you give up to get it.
c. Rational people think at the margin.
d. People respond to incentives.
Figure 7-3
Refer to Figure 7-3. Which area represents the increase in consumer surplus when the
price falls from P1 to P2?
a. ABD
b. ACG
c. DFG
d. BCGD
Which of the following results in higher inflation and higher unemployment in the short
run?
a. a more expansionary monetary policy
b. a more contractionary monetary policy
c. a decrease in the minimum wage
d. an adverse supply shock such as an increase in the price of oil
If aggregate demand shifts right, then eventually price level expectations rise. The
increase in price level expectations causes the short-run aggregate-supply curve to shift
to the left.
When some dollar amount is automatically corrected for inflation by law or contract,
the amount is said to be indexed for inflation.
Tax revenue equals the size of the tax multiplied by the quantity sold in the market after
the tax is levied.
The Social Security tax, and to a large extent, the federal income tax, are labor taxes.
Economists try to address their subject with a scientist’s objectivity.
Other things the same, if foreigners desire to purchase more U.S. bonds then the
demand for loanable funds shifts left.
Government policy can do nothing about the natural rate of unemployment.
The normal rate of unemployment around which the unemployment rate fluctuates is
called cyclical unemployment.
The area below the demand curve and above the supply curve measures the producer
surplus in a market.
The Bureau of Labor Statistics divides the adult population into three categories:
employed, unemployed, and not in the labor force.
The adult population must equal the sum of the employed and the unemployed.
If the world price of a good is greater than the domestic price in a country that can
engage in international trade, then that country becomes an importer of that good.
Unemployment insurance causes workers to be less likely to seek guarantees of job
security when they negotiate with employers over the terms of employment.
Buyers and sellers rarely share the burden of a tax equally.
A production possibilities frontier is a graph that shows the combination of outputs that
an economy should produce.
The government’s purchases of goods but not its purchases of services are included in
GDP.