State what, if anything, each of the following does to the supply or demand of loanable
funds.
a. net capital outflow increases at each interest rate
b. domestic investment increases at each interest rate
c. the government deficit increases
d. private saving increases
In the long run, a decrease in the money supply growth rate
a. increases inflation and shifts the short-run Phillips curve right.
b. increases inflation and shifts the short-run Phillips curve left.
c. decreases inflation and shifts the short-run Philips curve right.
d. decreases inflation and shifts the short-run Phillips curve left.
Compared to bondholders, stockholders
a. face higher risk and have the potential for higher returns.
b. face higher risk but receive a fixed payment.
c. face lower risk and have the potential for higher returns.
d. face lower risk but receive a fixed payment.
The BLS reports the U-6 measure of labor underutilization. Which of the following is
how it computes U-6?
a. (total unemployed + marginally attached workers)/adult population
b. (total unemployed + marginally attached workers + part-time employed for economic
reasons)/adult population
c. (total unemployed + marginally attached workers)/(labor force + marginally attached
workers)
d. (total unemployed + marginally attached workers + part time employed for economic
reasons)/(labor force + marginally attached workers)
Figure 22-2
Use the pair of diagrams below to answer the following questions.
Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease
in the money supply moves the economy to
a. E and 1.
b. D and 2.
c. D and 3.
d. None of the above is correct.
The before-trade price of fish in Germany is $8.00 per pound. The world price of fish is
$6.00 per pound. Germany is a price-taker in the fish market. If Germany allows trade
in fish, then Germany will become an
a. importer of fish and the price of fish in Germany will be $6.00.
b. importer of fish and the price of fish in Germany will be $8.00.
c. exporter of fish and the price of fish in Germany will be $6.00.
d. exporter of fish and the price of fish in Germany will be $8.00.
In which case(s) does(do) a country’s supply of loanable funds shift left?
a. both an increase in the budget deficit and capital flight
b. an increase in the budget deficit, but not capital flight
c. capital flight, but not an increase in the budget deficit
d. neither an increase in the budget deficit nor capital flight
Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable
funds in billions of dollars.
Refer to Figure 13-4. If the equilibrium quantity of loanable funds is $50 billion and if
the equilibrium nominal interest rate is 8 percent, then
a. there is an excess supply of loanable funds at a real interest rate of 6 percent.
b. there is an excess demand for loanable funds at a real interest rate of 8 percent.
c. the rate of inflation is approximately 2 percent.
d. the rate of inflation is approximately 14 percent.
If net exports is a negative number for a particular year, then
a. the value of firms’ inventories declined over the course of the year.
b. consumption exceeded the sum of investment and government purchases during the
year.
c. the value of goods sold to foreigners exceeded the value of foreign goods purchased
during the year.
d. the value of foreign goods purchased exceeded the value of goods sold to foreigners
during the year.
Which of the following is included in the investment component of GDP?
a. spending on new business equipment such as power tools and spending on stocks and
bonds
b. spending on new business equipment such as power tools but not spending on stocks
and bonds
c. spending on stocks and bonds but not spending on new business equipment such as
power tools
d. neither spending on new business equipment such as power tools nor spending on
stocks and bonds
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 has a comparative advantage in the production of
a. meat.
b. potatoes.
c. both goods.
d. neither good.
Which of the following is the most accurate statement?
a. Protection is necessary in order for young industries to grow up and be successful.
b. Protection is not necessary for an industry to grow.
c. Protection is necessary because if young industries are not protected, they may suffer
losses.
d. Protection may not always be necessary for infant industries, but it has proven to be
useful in most cases.
According to the theory of liquidity preference, a decrease in the price level causes the
a. interest rate and investment to rise.
b. interest rate and investment to fall.
c. interest rate to rise and investment to fall.
d. interest rate to fall and investment to rise.
Figure 4-3
Consumer 1 Consumer 2
Refer to Figure 4-3. If these are the only two consumers in the market, then the market
quantity demanded at a price of $10 is
a. 0 units.
b. 5 units.
c. 8.33 units.
d. 25 units.
Which of the following products would be considered scarce?
a. automobiles
b. baseballs autographed by Babe Ruth
c. pickles
d. All of the above are correct.
Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is
relatively elastic. When cigarettes are taxed, we would expect
a. most of the burden of the tax to fall on sellers of cigarettes, regardless of whether
buyers or sellers of cigarettes are required to pay the tax to the government.
b. most of the burden of the tax to fall on buyers of cigarettes, regardless of whether
buyers or sellers of cigarettes are required to pay the tax to the government.
c. the distribution of the tax burden between buyers and sellers of cigarettes to depend
on whether buyers or sellers of cigarettes are required to pay the tax to the government.
d. a large percentage of smokers to quit smoking in response to the tax.
Figure 6-8
Refer to Figure 6-8. When a certain price control is imposed on this market, the
resulting quantity of the good that is actually bought and sold is such that buyers are
willing and able to pay a maximum of P1 dollars per unit for that quantity and sellers
are willing and able to accept a minimum of P2 dollars per unit for that quantity. If P1 –
P2 = $3, then the price control is
a. a price ceiling of $2.00.
b. a price ceiling of $5.00.
c. a price floor of $5.00.
d. either a price ceiling of $2.00 or a price floor of $5.00.
Consumer surplus is
a. the amount a buyer is willing to pay for a good minus the amount the buyer actually
pays for it.
b. the amount a buyer is willing to pay for a good minus the cost of producing the good.
c. the amount by which the quantity supplied of a good exceeds the quantity demanded
of the good.
d. a buyer’s willingness to pay for a good plus the price of the good.
In the markets for the factors of production in the circular-flow diagram,
a. households are sellers and firms are buyers.
b. households are buyers and firms are sellers.
c. households and firms are both buyers.
d. households and firms are both sellers.
A supply curve can be used to measure producer surplus because it reflects
a. the actions of sellers.
b. quantity supplied.
c. sellers’ costs.
d. the amount that will be purchased by consumers in the market.
The real exchange rate measures the
a. price of domestic currency relative to foreign currency.
b. price of domestic goods relative to the price of foreign goods.
c. rate of domestic and foreign interest.
d. None of the above is correct.
Table 4-5
Refer to Table 4-5. If these are the only four sellers in the market, then the market
quantity supplied at a price of $8 is
a. 10 units.
b. 20 units.
c. 32 units.
d. 40 units.
Which of the following is correct according to the long-run Phillips curve?
a. No government policy, including changes in monetary growth, can change the natural
rate of unemployment.
b. Changes in the money supply growth rate is the only government policy that can
change the natural rate of unemployment.
c. Monetary policy cannot change the natural rate of unemployment, but other
government policies can.
d. Monetary policy and other government policies can both change the natural rate of
unemployment.
According to the circular-flow diagram GDP
a. can be computed as the total income paid by firms or as expenditures on final goods
and services.
b. can be computed as the total income paid by firms, but not as expenditures on final
goods and services.
c. can be computed as expenditures on final goods and services, but not as the total
income paid by firms.
d. cannot be computed as either total income paid by firms or expenditures on final
goods and services.
Suppose that demand is inelastic within a certain price range. For that price range,
a. an increase in price would increase total revenue because the decrease in quantity
demanded is proportionately less than the increase in price.
b. an increase in price would decrease total revenue because the decrease in quantity
demanded is proportionately greater than the increase in price.
c. a decrease in price would increase total revenue because the increase in quantity
demanded is proportionately smaller than the decrease in price.
d. a decrease in price would not affect total revenue.
Means-tested government benefits base benefits on
a. a household’s wealth and are an incentive to save.
b. a household’s wealth and are a disincentive to save.
c. the current interest rate and are an incentive to save.
d. the current interest rate and are a disincentive to save.
Figure 3-7
Bintu’s Production Possibilities Frontier Juba’s Production Possibilities Frontier
Refer to Figure 3-7. The opportunity cost of 1 bowl for Bintu is
a. 1/4 cup.
b. 1/2 cup.
c. 2 cups.
d. 4 cups.
Which among the following assets is the most liquid?
a. corporate bonds
b. fine art
c. deposits that can be withdrawn using ATMs
d. shares of stock
Country A and country B both increase their capital stock by one unit. Output in
country A increases by 15 while output in country B increases by 12. Other things the
same, diminishing returns implies that country A is
a. richer than Country B. If Country A adds another unit of capital, output will increase
by more than 15 units.
b. richer than Country B. If Country A adds another unit of capital, output will increase
by less than 15 units.
c. poorer than Country B. If Country A adds another unit of capital, output will increase
by more than 15 units.
d. poorer than Country B. If Country A adds another unit of capital, output will increase
by less than 15 units.
Figure 13-3. The figure shows two demand-for-loanable-funds curves and two
supply-of-loanable-funds curves.
Refer to Figure 13-3. What, specifically, does the label on the vertical axis, i,
represent?
a. the nominal interest rate
b. the real interest rate
c. the inflation rate
d. the dividend yield
Which of the following firms is most likely to have market power?
a. a grocery store in a metropolitan area
b. a gas station in a suburb
c. a pub in a college town
d. the only hotel in a rural area
Felix deposited $500 into an account two years ago. The first year he earned 3 percent
interest and the second year he earned 5 percent interest. How much money does Felix
have in his account now?
a. $540.75
b. $540.80
c. $540.85
d. None of the above are correct to the nearest cent.
Suppose the equilibrium price of a tube of toothpaste is $2, and the government
imposes a price floor of $3 per tube. As a result of the price floor, the
a. demand curve for toothpaste shifts to the left.
b. supply curve for toothpaste shifts to the right.
c. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms
want to supply increases.
d. quantity supplied of toothpaste stays the same.