At which interest rate is the present value of $360 three years from today equal to about
$310 today?
a. 4.7 percent
b. 5.1 percent
c. 5.5 percent
d. 5.9 percent
Last year country A had a nominal GDP of $600 billion, a GDP deflator of 150 and a
population of 40 million. Country B had a nominal GDP of $720 billion, a GDP deflator
of 120 and a population of 50 million. From these numbers which country is likely to
have had the higher standard of living?
a. Country A because it had the higher nominal GDP per person.
b. Country B because it had the higher nominal GDP per person.
c. Country A because it had the higher real GDP per person.
d. Country B because it had the higher real GDP per person.
Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.
Refer to Figure 8-8. The deadweight loss of the tax is the area
a. B+D.
b. C+F.
c. A+C+F+J.
d. B+C+D+F.
The behavior of market prices over time indicates that natural resources are
a. a limit to economic growth.
b. unrelated to economic growth.
c. not a limit to economic growth.
d. the major determinant of productivity.
What do we call financial institutions through which savers can indirectly provide funds
to borrowers?
a. stock markets
b. financial institutions
c. financial markets
d. financial intermediaries
The prairie dog has always been considered a problem for American cattle ranchers.
They dig holes that cattle and horses can step in, and they eat grass necessary for cattle.
Recently, ranchers have discovered that there is a demand for prairie dogs as pets. In
some areas, prairie dogs can sell for as high as $150 each. Cattlemen are now fencing
off prairie dog towns on their land so these towns will not be disturbed by their cattle.
Draw a rancher’s production possibilities frontier showing increasing opportunity cost
of cattle production in terms of prairie dog production. Using a separate graph for each
situation, show what would happen to the initial production possibilities frontier in each
of the following situations:
a. The outcome is efficient, with ranchers choosing to produce equal numbers of cattle
and prairie dogs.
b. As a protest against the government introducing the gray wolf back into the wild in
their state, ranchers decide to withhold 25 percent of the available grassland for grazing.
c. The price of prairie dogs increases to $200 each, so ranchers decide to allot additional
land for prairie dogs.
d. The government grants new leases to ranchers, giving them 10,000 new acres of
grassland each for grazing.
e. A drought destroys most of the available grass for grazing of cattle, but not for prairie
dogs since they also eat plant roots.
In the economy of Ukzten in 2010, consumption was $5300, GDP was $8800,
government purchases were $1800, imports were $500, and investment was $2000.
What were Ukzten’s exports in 2010?
a. -$800
b. -$300
c. $200
d. $300
Taxes cause deadweight losses because they
a. lead to losses in surplus for consumers and for producers that, when taken together,
exceed tax revenue collected by the government.
b. distort incentives to both buyers and sellers.
c. prevent buyers and sellers from realizing some of the gains from trade.
d. All of the above are correct.
At the equilibrium real interest rate in the open-economy macroeconomic model
a. saving = domestic investment
b. saving = net capital outflow
c. net capital outflow = domestic investment
d. net capital outflow + domestic investment = saving
In 2009, the imaginary nation of Platland had a population of 10,000 and real GDP of
42,000,000. During the year its real GDP grew by about 1.98%. Which of the following
sets of growth rates is consistent with this growth in real GDP?
a. 1% population growth and 3% real GDP growth
b. 3% population growth and 1% real GDP growth
c. 3% population growth and 6% real GDP growth
d. 6% population growth and 3% real GDP growth
The problem with the protection-as-a-bargaining-chip argument for trade restrictions is
a. if it works consumer surplus will decline.
b. if it works producer surplus falls.
c. if it fails the country faces a choice between two bad options.
d. if it fails total surplus will increase.
A Japanese flour mill buys wheat from the United States and pays for it with pesos.
Other things the same, Japanese
a. net exports increase, and U.S. net capital outflow increases.
b. net exports increase, and U.S. net capital outflow decreases.
c. net exports decrease, and U.S. net capital outflow increases.
d. net exports decrease, and U.S. net capital outflow decreases.
When, in our analysis of the gains and losses from international trade, we assume that a
particular country is small, we are
a. assuming the domestic price before trade will continue to prevail once that country is
opened up to trade with other countries.
b. assuming there is no demand for that country’s domestically-produced goods by other
countries.
c. assuming international trade can benefit producers, but not consumers, in that
country.
d. making an assumption that is not necessary to analyze the gains and losses from
international trade.
The set of items that serve as media of exchange clearly includes
a. balances that lie behind debit cards.
b. demand deposits.
c. other checkable depositis.
d. All of the above are correct.
As aggregate demand shifts right along the aggregate supply curve,
a. inflation and unemployment are higher.
b. inflation is higher and unemployment is lower.
c. unemployment is higher and inflation is lower.
d. unemployment and inflation are lower.
Money is the most liquid asset available because
a. it is a store of value.
b. it is a medium of exchange.
c. it is a unit of account.
d. it has intrinsic value.
For the U.S. economy, which of the following helps explain the slope of the
aggregate-demand curve?
a. An increase in the price level decreases the interest rate.
b. An increase in the price level increases the interest rate.
c. An increase in the money supply decreases the interest rate.
d. An increase in the money supply increases the interest rate.
Which of the following is an example of U.S. foreign direct investment?
a. A Polish company opens a shipbuilding plant in the United States.
b. A Bolivian bank buys U.S. corporate bonds.
c. A U.S. bank buys Bolivian corporate bonds.
d. A U.S. furniture maker opens a plant in Mexico.
Kathleen is considering expanding her dress shop. If interest rates rise she is
a. less likely to expand. This illustrates why the supply of loanable funds slopes
downward.
b. more likely to expand. This illustrates why the supply of loanable funds slopes
upward.
c. less likely to expand. This illustrates why the demand for loanable funds slopes
downward.
d. more likely to expand. This illustrates why the demand for loanable funds slopes
upward.
The price elasticity of demand for bread
a. is computed as the percentage change in quantity demanded of bread divided by the
percentage change in price of bread.
b. depends, in part, on the availability of close substitutes for bread.
c. reflects the many economic, social, and psychological forces that influence
consumers’ tastes for bread.
d. All of the above are correct.
Travis can mow a lawn in two hours or he can trim a tree in one hour. Ricardo can mow
a lawn in three hours or he can trim a tree in two hours.
a. Travis has an absolute advantage over Ricardo in trimming trees.
b. Travis has a comparative advantage over Ricardo in mowing lawns.
c. Ricardo has a comparative advantage over Travis in trimming trees.
d. All of the above are correct.
The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase
in world prices of oil and foodstuffs were affecting the economy.
Refer to The Economy in 2008. In the short run the increased prices of world
commodities
a. raised both the price level and output.
b. raised the price level and reduced output.
c. reduced the price level and raised output.
d. reduced both the price level and output.
The economic boom of the early 1940s resulted mostly from
a. increased government expenditures.
b. falling prices of oil and other natural resources.
c. an increase in the growth rate of the money supply.
d. rapid developments in transportation, electronics, and communication.
When the dollar depreciates, each dollar buys
a. more foreign currency, and so buys more foreign goods.
b. more foreign currency, and so buys fewer foreign goods.
c. less foreign currency, and so buys more foreign goods.
d. less foreign currency, and so buys fewer foreign goods.
A quota is
a. a tax placed on imports.
b. a limit on the quantity of imports.
c. a tax on exports to other countries.
d. an excess of exports over imports.
Figure 9-9
Refer to Figure 9-9. Producer surplus in this market before trade is
a. A.
b. A + B.
c. B + C + D.
d. C.
Figure 9-18. On the diagram below, Q represents the quantity of peaches and P
represents the price of peaches. The domestic country is Isoland.
Refer to Figure 9-18. Suppose Isoland changes from a no-trade policy to a policy that
allows international trade. If the world price of peaches is $3, then the policy change
results in a
a. $15.00 decrease in producer surplus.
b. $45.00 increase in consumer surplus.
c. $20.00 increase in total surplus.
d. $12.50 increase in total surplus.
The interest-rate effect
a. depends on the idea that increases in interest rates decrease the quantity of goods and
services demanded.
b. depends on the idea that increases in interest rates decrease the quantity of goods and
services supplied.
c. is responsible for the downward slope of the money-demand curve.
d. is the least important reason, in the case of the United States, for the downward slope
of the aggregate-demand curve.
When a country imposes an import quota, its
a. imports fall and its net exports rise.
b. imports fall and its net exports are unchanged.
c. imports rise and its net exports are unchanged.
d. imports and exports are unchanged.
In the market for apples in a certain country, consumer surplus increases and total
surplus increases when that country
a. abandons a no-trade policy, adopts a free-trade policy, and becomes an importer of
apples.
b. abandons a no-trade policy, adopts a free-trade policy, and becomes an exporter of
apples.
c. abandons a free-trade policy, adopts a no-trade policy, and becomes an importer of
apples.
d. abandons a free-trade policy, adopts a no-trade policy, and becomes an exporter of
apples.
Table 7-9
The numbers reveal the opportunity costs of providing 10 piano lessons of equal
quality.
Refer to Table 7-9. You wish to purchase 10 piano lessons, so you take bids from each
of the sellers. You will not accept a bid below a seller’s cost because you are concerned
that the seller will not provide all 10 lessons. What bid will you accept?
a. $351
b. $251
c. $249
d. $199
Table 3-15
The following table contains some production possibilities for an economy for a given
month.
Refer to Table 3-15. If the production possibilities frontier is a straight line, then “?”
must be
a. 50.
b. 75.
c. 100.
d. 125.
Figure 2-6
Refer to Figure 2-6. If this economy devotes all of its resources to the production of
clocks, then it will produce
a. 0 clocks and 35 candles.
b. 10 clocks and 25 candles.
c. 16 clocks and 0 candles.
d. 16 clocks and 35 candles.
Currently, U.S. currency is
a. fiat money with intrinsic value.
b. fiat money with no intrinsic value.
c. commodity money with intrinsic value.
d. commodity money with no intrinsic value.
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. The area
measured by K+L represents
a. tax revenue.
b. consumer surplus before the tax.
c. producer surplus after the tax.
d. total surplus before the tax.