Figure 13-1. The figure depicts a demand-for-loanable-funds curve and two
supply-of-loanable-funds curves.
Refer to Figure 13-1. Which of the following events would shift the supply curve from
S1 to S2?
a. In response to tax reform, firms are encouraged to invest more than they previously
invested.
b. In response to tax reform, households are encouraged to save more than they
previously saved.
c. Government goes from running a balanced budget to running a budget deficit.
d. Any of the above events would shift the supply curve from S1 to S2.
Figure 9-13
Refer to Figure 9-13. Producer surplus before trade is
a. $3,600.
b. $4,400.
c. $5,200.
d. $6,600.
The economy goes into recession. Which of the following lists contains things
policymakers could do to try to end the recession?
a. increase the money supply, increase taxes, increase government spending
b. increase the money supply, increase taxes, decrease government spending
c. increase the money supply, decrease taxes, increase government spending
d. decrease the money supply, increase taxes, decrease government spending
According to the efficient markets hypothesis, worse-than-expected news about a
corporation will
a. have no effect on its stock price.
b. raise the price of the stock.
c. lower the price of the stock.
d. change the price of the stock in a random direction.
If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to
a. $5,500 of new money.
b. $5,000 of new money.
c. $4,000 of new money.
d. None of the above is correct.
Other things the same, an increase in the price level makes the dollars people hold
worth
a. more, so they can buy more.
b. more, so they can buy less.
c. less, so they can buy more.
d. less, so they can buy less.
When the supply of a good increases and the demand for the good remains unchanged,
consumer surplus
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.
In the small closed economy of San Lucretia, the currency is the denar. Statistics for last
year show that private saving was 60 billion denars, taxes were 70 billion denars,
government purchases of goods and services were 80 billion denars, there were no
transfer payments by the government, and GDP was 400 billion denars. What were
consumption and investment in San Lucretia?
a. 270 billion denars, 50 billion denars
b. 260 billion denars, 60 billion denars
c. 250 billion denars, 70 billion denars
d. None of the above is correct.
Which of the following is correct?
a. The word economy comes from the Greek word for “rational thinker.”
b. Economists study the management of scarce resources.
c. Because economists believe that people pursue their best interests, they are not
interested in how people interact.
d. All of the above are correct.
If the cost of transportation increases by 20 percent, then, other things the same, the CPI
is likely to increase by about
a. 0.3 percent.
b. 1.7 percent.
c. 3.4 percent.
d. 10 percent.
If a nonbinding price ceiling is imposed on a market, then the
a. quantity sold in the market will decrease.
b. quantity sold in the market will stay the same.
c. price in the market will increase.
d. price in the market will decrease.
Which of these events would cause the consumer price index to overstate the increase
in the cost of living?
a. Car makers benefit from a new technology that allows them to sell higher-quality
cars to consumers with no increase in price.
b. Energy prices decrease, and consumers respond by buying more gas and electricity.
c. A new good is introduced that renders cellular telephones inferior and obsolete.
d. All of the above are correct.
Which of the following demonstrates the law of demand?
a. After Jon got a raise at work, he bought more pretzels at $1.50 per pretzel than he did
before his raise.
b. Melissa buys fewer muffins at $0.75 per muffin than at $1 per muffin, other things
equal.
c. Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things
equal.
d. Kendra buys fewer Snickers at $0.60 per Snickers after the price of Milky Ways falls
to $0.50 per Milky Way.
In the United States in the early 1980s, there was a government budget
a. surplus and a trade surplus.
b. deficit and a trade deficit.
c. surplus and a trade deficit.
d. deficit and a trade surplus.
GDP
a. is used to monitor the performance of the overall economy but is not the single best
measure of a society’s economic well-being.
b. is used to monitor the performance of the overall economy and is the single best
measure of a society’s economic well-being.
c. is not used to monitor the performance of the overall economy but is the single best
measure of a society’s economic well-being.
d. is not used to monitor the performance of the overall economy and is not the single
best measure of a society’s economic well-being.
Which of the following would not be associated with a favorable supply shock?
a. the short-run Phillips curve shifts left
b. unemployment falls
c. the price level rises
d. output rises.
Suppose the government has imposed a price ceiling on cellular phones. Which of the
following events could transform the price ceiling from one that is binding to one that is
not binding?
a. Cellular phones become more popular.
b. Traditional land line phones become more expensive.
c. The components used to produce cellular phones become more expensive.
d. A technological advance makes cellular phone production less expensive.
Josh is willing to pay $40 for a haircut, but he is able to pay $25 at the local salon. His
consumer surplus is
a. $0 because the cost exceeds his maximum willingness to pay.
b. $15.
c. $25.
d. $65.
Suppose the quality of televisions changes over time, but the quality change goes
unmeasured for the purpose of computing the consumer price index. In which of the
following instances would the bias resulting from the unmeasured quality change be
most severe?
a. The quality of televisions deteriorates and televisions become more expensive
relative to other goods.
b. The quality of televisions improves and televisions become less expensive relative to
other goods.
c. The quality of televisions improves and televisions become more expensive relative
to other goods.
d. The quality of televisions deteriorates and the price of televisions relative to other
prices remains unchanged.
Indexing the tax system to take into account the effects of inflation would by itself
a. mean that only real interest earnings are taxed.
b. mean an end to taxing capital gains.
c. mean an increase in average tax rates.
d. All of the above are correct.
In which case can we be sure that real GDP rises in the short run?
a. foreign economies expand and the money supply increases
b. foreign economies expand and the money supply decreases
c. foreign economies contract and the money supply decreases
d. None of the above are correct.
A table that shows the relationship between the price of a good and the quantity
demanded of that good is called a
a. price-quantity schedule.
b. buyer schedule.
c. demand schedule.
d. demand curve.
Over time, people have come to rely more on market-produced goods and services and
less on goods and services they produce for themselves. For example, busy people with
high incomes, rather than cleaning their own houses, hire people to clean their houses.
By itself, this change has
a. caused measured GDP to fall.
b. not caused any change in measured GDP.
c. caused measured GDP to rise.
d. probably changed measured GDP, but in an uncertain direction; the direction of the
change depends on the difference in the quality of the cleaning that has resulted.
Figure 7-12
Refer to Figure 7-12. When the price rises from P1 to P2, which area represents the
increase in producer surplus to existing producers?
a. A
b. A+B
c. A+B+C
d. G
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. If 2007 is the base year, then the consumer price index was
a. 74.1 in 2006, 100 in 2007, and 114.8 in 2008.
b. 74.1 in 2006, 270 in 2007, and 310 in 2008.
c. 200 in 2006, 100 in 2007, and 114.8 in 2008.
d. 200 in 2006, 270 in 2007, and 310 in 2008.
Suppose that demand for a good decreases and, at the same time, supply of the good
decreases. What would happen in the market for the good?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.
Figure 14-1. The figure shows a utility function.
Refer to Figure 14-1. Which distance along the vertical axis represents the marginal
utility of an increase in wealth from $600 to $800?
a. the distance between the origin and point B
b. the distance between the origin and point C
c. the distance between point A and point C
d. the distance between point B and point C
The long-run aggregate supply curve shows that by itself a permanent change in
aggregate demand would lead to a long-run change
a. in the price level and output.
b. in the price level, but not output.
c. in output, but not the price level.
d. in neither the price level nor output.
Automatic stabilizers
a. increase the problems that lags cause in using fiscal policy as a stabilization tool.
b. are changes in taxes or government spending that increase aggregate demand without
requiring policy makers to act when the economy goes into recession.
c. are changes in taxes or government spending that policy makers quickly agree to
when the economy goes into recession.
d. All of the above are correct.
A U.S. Treasury bond is a
a. store of value and common medium of exchange.
b. store of value, but not a common medium of exchange.
c. a common medium of exchange, but not a store of value.
d. neither a store of value nor a common medium of exchange.