Accumulated over a long span of time, the tax rate on interest income
a. removes all benefits from saving.
b. reduces the benefits from saving by a small amount.
c. reduces the benefits from saving by a large amount.
d. does nor reduce any of the benefits from saving.
Alfonso has noticed that increases in unemployment insurance claims are associated
with recessions, and therefore he advocates limits on unemployment insurance so as to
prevent recessions. Mary has noticed that most drug addicts once attended schools, and
therefore she advocates getting rid of schools so as to prevent drug addiction.
a. The reasoning of both Alfonso and Mary suffers from the omitted variable problem.
b. The reasoning of both Alfonso and Mary suffers from the reverse causality problem.
c. Alfonso’s reasoning suffers from the reverse causality problem, and Mary’s reasoning
suffers from the omitted variable problem.
d. Mary’s reasoning suffers from the reverse causality problem, and Alfonso’s reasoning
suffers from the omitted variable problem.
Figure 7-22
Refer to Figure 7-22. At the quantity Q2, the marginal value to buyers
a. and the marginal cost to sellers are both P2.
b. is P2, and the marginal cost to sellers is P3.
c. and the marginal cost to sellers are both P3.
d. is P3, and the marginal cost to sellers is P2.
Suppose Ashley needs a dog sitter so that she can travel to her sister’s wedding. Ashley
values dog sitting for the weekend at $200. Cami is willing to dog sit for Ashley so long
as she receives at least $175. Ashley and Cami agree on a price of $185. Suppose the
government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?
a. the maximum value that Ashley would pay for dog sitting
b. the $30 tax
c. the lost benefit to Ashley and Cami because after the tax, Cami will not dog sit for
Ashley
d. the lost benefit to Ashley of being unable to hire a dog sitter because Ashley is the
one who would pay the tax
When the “invisible hand” guides economic activity, prices of products reflect
a. only the values that society places on those products.
b. only the costs to society of producing those products.
c. both the values that society places on those products and the costs to society of
producing those products.
d. none of the above; when the “invisible hand” guides economic activity, prices of
products are set by the government in a manner that is thought to be “fair.”
Table 3-1
Assume that Andia and Zardia can switch between producing wheat and producing beef
at a constant rate.
Minutes Needed to Make 1
Refer to Table 3-1. At which of the following prices would both Andia and Zardia gain
from trade with each other?
a. 6 bushels of wheat for 10.5 pounds of beef
b. 12 bushels of wheat for 19 pounds of beef
c. 24 bushels of wheat for 34 pounds of beef
d. Andia and Zardia could not both gain from trade with each other at any price.
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. Regard the position of the Supply curve as fixed, as on the graph.
If the real interest rate is 4 percent, the inflation rate is 2 percent, and the market for
loanable funds is in equilibrium, then the position of the demand-for-loanable-funds
curve must be
a. .
b. .
c. between and .
d. to the left of .
Which of the following is an example of a market?
a. a gas station
b. a garage sale
c. a barber shop
d. All of the above are examples of markets.
If the demand for textbooks is inelastic, then an increase in the price of textbooks will
a. increase total revenue of textbook sellers.
b. decrease total revenue of textbook sellers.
c. not change total revenue of textbook sellers.
d. There is not enough information to answer this question.
With respect to their impact on aggregate demand for the U.S. economy, which of the
following represents the correct ordering of the wealth effect, interest-rate effect, and
exchange-rate effect from most important to least important?
a. wealth effect, exchange-rate effect, interest-rate effect
b. exchange-rate effect, interest-rate effect, wealth effect
c. interest-rate effect, wealth effect, exchange-rate effect
d. interest-rate effect, exchange-rate effect, wealth effect
Industrial machinery is an example of
a. a factor of production that in the past was an output from the production process.
b. physical capital.
c. something that influences productivity.
d. All of the above are correct.
Table 11-4
The table below pertains to Wrexington, an economy in which the typical consumer’s
basket consists of 20 pounds of meat and 10 toys.
Refer to Table 11-4. If the base year is 2006, then the inflation rate in 2005 was
a. -44.5%.
b. -30.8%.
c. 7.7%.
d. 12.5%.
According to purchasing power parity, if over the course of a year the price level in the
U.S. rises more than in Japan, then which of the following falls?
a. the U.S. real exchange rate, but not the U.S. nominal exchange rate
b. the U.S. nominal exchange rate, but not the U.S. real exchange rate
c. the U.S. nominal exchange rate and the U.S. real exchange rate
d. neither the real exchange rate nor the nominal exchange rate
Countries that pursued outward-oriented policies in the 20th century
a. experienced lower rates of economic growth than did countries that pursued
inward-oriented policies.
b. experienced higher levels of political instability than did countries that pursued
inward-oriented policies.
c. include Singapore, South Korea, and Taiwan.
d. All of the above are correct.
To fully understand how taxes affect economic well-being, we must compare the
a. consumer surplus to the producer surplus.
b. price paid by buyers to the price received by sellers.
c. reduced welfare of buyers and sellers to the revenue raised by the government.
d. consumer surplus to the deadweight loss.
Suppose the Fed decreased the growth rate of the money supply. Which of the
following would be lower in the long run?
a. both the natural rate of unemployment and the inflation rate
b. the natural rate of unemployment, but not the inflation rate
c. the inflation rate, but not the natural rate of unemployment
d. neither the natural unemployment rate nor the inflation rate
Figure 5-6
Refer to Figure 5-6. Sellers’ total revenue would increase if the price
a. increased from $4 to $6.
b. increased from $16 to $18.
c. decreased from $8 to $6.
d. All of the above are correct.
Economists typically measure efficiency using
a. the price paid by buyers.
b. the quantity supplied by sellers.
c. total surplus.
d. profits to firms.
When all market participants are price takers who have no influence over prices, the
markets have
a. only a few buyers and sellers.
b. numerous sellers but only a few buyers.
c. numerous buyers but only a few sellers.
d. numerous buyers and sellers.
A rightward shift of a demand curve is called a(n)
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
A central bank sets out to reduce unemployment by changing the money supply growth
rate. The long-run Phillips curve shows that in comparison to their original rates, this
policy will eventually lead to
a. an increase in both the inflation rate and the unemployment rate.
b. an increase in the inflation rate and a reduction in the unemployment rate.
c. no change in either the inflation rate or the unemployment rate.
d. an increase in the inflation rate and no change in the unemployment rate.
Figure 5-10
Refer to Figure 5-10. When price falls from $50 to $40, demand is
a. inelastic, since total revenue decreases from $8,000 to $5,000.
b. inelastic, since total revenue increases from $5,000 to $8,000.
c. elastic, since total revenue increases from $5,000 to $8,000.
d. unit elastic, since total revenue does not change.
Suppose that the inflation rate is higher in Turkey than in the U.S. for the next six
months. Then according to purchasing power parity, if exchange rates are given in
terms of how many Turkish lira or how many Turkish goods a U.S. dollar buys,
a. the nominal exchange rate rises but the real exchange rate does not.
b. the nominal exchange rate does not rise, but the real exchange rate does.
c. both the nominal and real exchange rates rise.
d. neither the nominal nor the real exchange rate rises.
Other things the same, which of the following could explain a rise in Sweden’s net
capital outflow?
a. interest rates on Swedish bonds rise
b. the probability of default on Swedish bonds rises
c. Sweden enacts a law reducing taxes on income earned by foreign-owned businesses
operating in Sweden
d. None of the above are correct.
A friend of yours asks you why market prices are better than government-determined
prices. Because you understand economic principles, you say that market-determined
prices are better because they generally reflect
a. the value of a good to society, but not the cost of making it.
b. the cost of making a good to society, but not its value.
c. both the value of a good to society and the cost of making it.
d. neither the value of a good to society nor the cost of making it.
Table 3-12
Labor Hours Needed to
Make 1 Pound of: Amount
Produced in 40 hours
Refer to Table 3-12. Relative to the rancher, the farmer has
a. a comparative advantage in the production of meat, because the farmer’s opportunity
cost of a pound of meat is lower than the rancher’s opportunity cost of a pound of meat.
b. a comparative advantage in the production of potatoes, because the rancher requires
less time than the farmer to produce a pound of potatoes.
c. a comparative advantage in the production of potatoes; relative to the farmer, the
rancher has a comparative advantage in the production of meat.
d. an absolute advantage in the production of both meat and potatoes.
Figure 4-21
Refer to Figure 4-21. Which of the following movements would illustrate the effect in
the market for ballroom dancing lessons resulting from the introduction of a popular
new television show called “Dancing with the Stars”?
a. Point A to Point B
b. Point C to Point B
c. Point C to Point D
d. Point A to Point D
John Maynard Keynes observed that during rare times of deep financial and economic
crisis, when the “invisible hand” has temporarily ceased to function,
a. there is a more urgent need for government to play an active role in restoring markets
to their healthy function.
b. government should avoid intervening in the market and wait patiently for proper
market function to return.
c. economists need to re-evaluate all of their basic principles.
d. the economy can rely on entrepreneurs to take creative actions to end the crisis.
Suppose that Firms A and B each produce high-resolution computer monitors, but Firm
A can do so at a lower cost. Cassie and David each want to purchase a high-resolution
computer monitor, but David is willing to pay more than Cassie. If Firm B produces a
monitor that David buys, then the market outcome illustrates which of the following
principles?
(i) Free markets allocate the supply of goods to the buyers who value them most highly,
as measured by their willingness to pay.
(ii) Free markets allocate the demand for goods to the sellers who can produce them at
the least cost.
a. (i) only
b. (ii) only
c. both (i) and (ii)
d. neither (i) nor (ii)
Saddle shoes are not popular right now, so very few are being produced. If saddle shoes
become popular, then how will this affect the market for saddle shoes?
a. The supply curve for saddle shoes will shift right, which will create a shortage at the
current price. Price will increase, which will decrease quantity demanded and increase
quantity supplied. The new market equilibrium will be at a higher price and higher
quantity.
b. The supply curve for saddle shoes will shift right, which will create a surplus at the
current price. Price will decrease, which will increase quantity demanded and decrease
quantity supplied. The new market equilibrium will be at a lower price and higher
quantity.
c. The demand curve for saddle shoes will shift right, which will create a shortage at the
current price. Price will increase, which will decrease quantity demanded and increase
quantity supplied. The new market equilibrium will be at a higher price and higher
quantity.
d. The demand curve for saddle shoes will shift right, which will create a surplus at the
current price. Price will decrease, which will increase quantity demanded and decrease
quantity supplied. The new market equilibrium will be at a lower price and higher
quantity.
When looking at a graph of aggregate demand, which of the following is correct?
a. There are nominal variables on both the vertical and the horizontal axes.
b. There are real variables on both the vertical and horizontal axes.
c. The variable on the vertical axis is nominal; the variable on the horizontal axis is real
d. The variable on the vertical axis is real; the variable on the horizontal axis is nominal
The Bureau of Labor Statistics reported in 2005 that there were 19 million people over
age 25 who had no high school degree or its equivalent, 11.73 million of whom were
employed and 1.04 million of whom were unemployed. What were the labor-force
participation rate and the unemployment rate for this group?
a. 45.3% and 3.7%
b. 45.3% and 8.1%
c. 41.6% and 3.7%
d. 41.6% and 8.1%