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 farmer should specialize in the production of
a. meat and the rancher should specialize in the production of potatoes.
b. potatoes and the rancher should specialize in the production of meat.
c. both goods and the rancher should specialize in the production of neither good.
d. neither good and the rancher should specialize in the production of both goods.
The risk of a portfolio
a. increases as the number of stocks in the portfolio increases.
b. is usually measured using a statistic called the standard diversification.
c. is positively related to the average return of the portfolio.
d. bears no relationship to the average return of the portfolio.
When supply is perfectly elastic, the value of the price elasticity of supply is
a. 0.
b. 1.
c. greater than 0 and less than
d. infinity.
For an imaginary economy, when the real interest rate is 5 percent, the quantity of
loanable funds demanded is $100,000 and the quantity of loanable funds supplied is
$100,000. Currently, the nominal interest rate is 6 percent and the inflation rate is 2
percent. Currently,
a. the market for loanable funds is in equilibrium.
b. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will rise.
c. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will fall.
d. the quantity of loanable funds demanded exceeds the quantity of loanable funds
supplied, and as a result the real interest rate will rise.
The effects of a decline in the value of financial assets, such as stocks, on consumption
and the economy might be offset by
a. increasing government spending.
b. decreasing the money supply.
c. increasing taxes.
d. undertaking no policy action.
Figure 4-21
Refer to Figure 4-21. Which of the following movements would illustrate the effect in
the market for doctor’s visits of an increase in the number of medical students
graduating from medical school and successfully completing their residency programs?
a. Point A to Point B
b. Point C to Point B
c. Point C to Point D
d. Point A to Point D
People can reduce the inflation tax by
a. reducing savings.
b. increasing deductions on their income tax.
c. reducing cash holdings.
d. None of the above is correct.
Table 10-1
The table below contains data for Bahkan for the year 2010.
Refer to Table 10-1. Gross national product for Bahkan in 2010 is
a. $95.
b. $100.
c. $110.
d. $115.
If a tax is imposed on a market with inelastic supply and elastic demand, then
a. buyers will bear most of the burden of the tax.
b. sellers will bear most of the burden of the tax.
c. the burden of the tax will be shared equally between buyers and sellers.
d. it is impossible to determine how the burden of the tax will be shared.
Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and
sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 of
leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for
$3,000. Neither firm had any inventory at the beginning of 2009. During that year,
Cowhide produced enough leather for 20 couches. Couches, Inc. bought 80% of that
leather for $16,000 and promised to buy the remaining 20% for $4,000 in 2010.
Couches, Inc. produced 16 couches during 2009 and sold each one during that year for
$3,000. What was the economy’s GDP for 2009?
a. $48,000
b. $52,000
c. $64,000
d. $68,000
Figure 15-1
Refer to Figure 15-1. If the government imposes a minimum wage of $4, then how
many workers will be employed?
a. 3000
b. 4000
c. 5000
d. 7000
Efficiency wages
a. create a shortage of labor, and so reduce unemployment.
b. create a shortage of labor, and so raise unemployment.
c. create a surplus of labor, and so reduce unemployment.
d. create a surplus of labor, and so raise unemployment.
One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The
growth that arises from capital accumulation is not a free lunch. It requires that society
a. conserve resources for future generations.
b. sacrifice consumption goods and services now in order to enjoy more consumption in
the future.
c. recycle resources so that future generations can produce goods and services with the
accumulated capital.
d. None of the above is correct.
Figure 9-2
Refer to Figure 9-2. Without trade, consumer surplus is
a. $210.
b. $245.
c. $455.
d. $490.
During the last half of 1980, the U.S. unemployment rate was about 7.5 percent.
Historical experience suggests that this is
a. above the natural rate, so real GDP growth was likely low.
b. above the natural rate, so real GDP growth was likely high.
c. below the natural rate, so real GDP growth was likely low.
d. below the natural rate, so real GDP growth was likely high.
A movie company makes 500,000 DVDs of one of its latest releases. It sells 300,000 of
them before the end of the second quarter, and holds the others in its warehouse. How
will the 200,000 unsold DVDs be treated in the GDP statistics?
a. Since the DVDs eventually will be bought by consumers, they will be included as
consumption in the second quarter.
b. Since the DVDs were not purchased in the second quarter, they will be counted as an
increase in third-quarter GDP.
c. The DVDs will be counted as a change in inventory in the second quarter and so will
be included in second-quarter GDP.
d. The DVDs will be counted as a change in inventory in the second quarter, and when
sold in the third quarter will raise third-quarter GDP.
If people believe that the central bank is going to reduce inflation
a. the short-run Phillips curve shifts right and the sacrifice ratio will rise.
b. the short-run Phillips curve shifts right and the sacrifice ratio will fall.
c. the short-run Phillips curve shifts left and the sacrifice ratio will rise.
d. the short-run Phillips curve shifts left and the sacrifice ratio will fall.
Unemployment compensation is
a. part of GDP because it represents income.
b. part of GDP because the recipients must have worked in the past to qualify.
c. not part of GDP because it is a transfer payment.
d. not part of GDP because the payments reduce business profits.
Other things the same, an unexpected fall in the price level results in some firms having
a. lower than desired prices which increases their sales.
b. lower than desired prices which depresses their sales.
c. higher than desired prices which increases their sales.
d. higher than desired prices which depresses their sales.
If there is inflation, then a firm that has kept its price fixed for some time will have a
a. high relative price. Relative-price variability rises as the inflation rate rises.
b. high relative price. Relative-price variability falls as the inflation rate rises.
c. low relative price. Relative-price variability rises as the inflation rate rises.
d. low relative price. Relative-price variability falls as the inflation rate rises.
Which of the following would cause the real exchange rate of the U.S. dollar to
depreciate?
a. the U.S. government budget deficit increases
b. capital flight from the United States
c. the U.S. imposes import quotas
d. None of the above is correct.
In the circular-flow diagram, which of the following is not a factor of production?
a. labor
b. land
c. capital
d. money
When economists make
a. positive statements, they are speaking not as scientists but as policy advisers.
b. positive statements, they are speaking not as scientists but as forecasters.
c. normative statements, they are speaking not as scientists but as policy advisers.
d. normative statements, they are speaking not as policy advisers but as model-builders.
In markets, prices move toward equilibrium because of
a. the actions of buyers and sellers.
b. government regulations placed on market participants.
c. increased competition among sellers.
d. buyers’ ability to affect market outcomes.
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. The tax revenue
is measured by the area
a. K+L.
b. I+Y.
c. J+K+L+M.
d. I+J+K+L+M+Y.
In the circular-flow diagram, which of the following items does not flow from
households to firms?
a. revenue
b. land, labor, and capital
c. factors of production
d. profit
If the interest rate increases
a. or if the price level increases, then people will want to hold more money.
b. or if the price level increases, then people will want to hold less money.
c. or if the price level decreases, then people will want to hold more money.
d. or if the price level decreases, then people will want to hold less money.
Figure 8-7
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-7. As a result of the tax, buyers effectively pay
a. $16 for each unit of the good, and sellers effectively receive $12 for each unit of the
good.
b. $16 for each unit of the good, and sellers effectively receive $8 for each unit of the
good.
c. $12 for each unit of the good, and sellers effectively receive $8 for each unit of the
good.
d. $14 for each unit of the good, and sellers effectively receive $10 for each unit of the
good.
Figure 2-7
Refer to Figure 2-7. Which point on the graph best represents the fact that, because
resources are scarce, not every conceivable outcome is feasible?
a. point J
b. point K
c. point L
d. point M
If when the money supply changes, real output and velocity do not change, then a 2
percent increase in the money supply
a. decreases the price level by 2 percent.
b. decreases the price level by less than 2 percent.
c. increases the price level by less than 2 percent.
d. increases the price level by 2 percent.
Table 10-1
The table below contains data for Bahkan for the year 2010.
Refer to Table 10-1. Net national product for Bahkan in 2010 is
a. $96
b. $104
c. $106
d. $116
Which among the following assets is the most liquid?
a. capital goods
b. stocks and bonds with a low risk
c. real estate
d. funds in a checking account
Figure 6-15
Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. Which of
the following is correct?
a. One-fourth of the burden of the tax will fall on buyers, and three-fourths of the
burden of the tax will fall on sellers.
b. One-third of the burden of the tax will fall on buyers, and two-thirds of the burden of
the tax will fall on sellers.
c. One-half of the burden of the tax will fall on buyers ,and one-half of the burden of
the tax will fall on sellers.
d. Two-thirds of the burden of the tax will fall on buyers, and one-third of the burden of
the tax will fall on sellers.
Ivana produces cookies. Her production cost is $6 per dozen. She sells the cookies for
$8 per dozen. Her producer surplus per dozen cookies is
a. $2.
b. $6.
c. $8.
d. $14.
If, at the current price, there is a surplus of a good, then
a. sellers are producing more than buyers wish to buy.
b. the market must be in equilibrium.
c. the price is below the equilibrium price.
d. quantity demanded equals quantity supplied.