The model of purchasing power parity is the only way to determine whether a country’s
currency is undervalued or overvalued.
If the demand for a product increases and the supply of the same product decreases, the
equilibrium price will increase.
A positive technological change will cause the supply of a good to increase.
If a firm experiences positive technological change, it is able to produce more output
using the same inputs.
The United States would gain from the elimination of tariffs and quotas even if other
countries do not reduce their tariffs and quotas.
According to new growth theory, firms accumulate the efficient level of both physical
and knowledge capital.
If the price of peaches, a substitute for plums, increases, the demand for plums will
decrease.
The dynamic aggregate demand and aggregate supply model assumes that potential
GDP increases over time.
If the rate of productivity growth in the United States exceeds the rate of productivity
growth in Great Britain we would expect the U.S. dollar to depreciate in value against
the British pound.
College education tends to result in a positive externality because the recipient receives
the full benefit of the education.
At a short-run macroeconomic equilibrium, real GDP is always equal to potential GDP.
If marginal revenue is negative, then the revenue lost from receiving a lower price on
all the units that could have been sold at the original price is smaller than the additional
revenue from selling one more unit of the good.
If a firm is experiencing diseconomies of scale, its long-run average cost curve is
increasing.
Article Summary. Roberto Azevedo, director-general of the World Trade
Organization (WTO), reported that global trade growth estimates will be lowered
for 2013 and 2014 because of increasing global protectionism. The current
protectionism is based primarily in regulations rather than the more common
tariffs and subsidies. Since 2008, almost 700 new trade restrictions have
materialized – over 150 of those in 2012 alone – with Russia being singled out as
one of the primary offenders.
Source: Kiran Moodley, “WTO warns of trade slowdown due to protectionism,”
CNBC, September 6, 2013. The protectionism being granted to Russian firms will
cause the greatest harm to
A) Russian manufacturers.
B) the Russian government.
C) manufacturers who export to Russia.
D) Russian consumers.
Figure 4-4
The figure above represents the market for iced tea. Assume that this is a competitive
market. If the price of iced tea is $1, what changes in the market would result in an
economically efficient output?
A) The price would increase, the quantity supplied would increase, and the quantity
demanded would decrease.
B) The quantity supplied would increase, the quantity demanded would decrease and
the equilibrium price would increase.
C) The price would increase, the demand would increase and the supply would
decrease.
D) The price would increase, quantity demanded would increase and quantity supplied
would decrease.
Assume that price is greater than average variable cost. If a perfectly competitive seller
is producing at an output where price is $11 and the marginal cost is $14.54, then to
maximize profits the firm should
A) continue producing at the current output.
B) produce a larger level of output.
C) produce a smaller level of output.
D) There is not enough information given to answer the question.
Peet’s Coffee and Teas produces some flavorful varieties of Peet’s brand coffee. Is Peet’s
a monopoly?
A) Yes, there are no substitutes to Peet’s coffee.
B) No, although Peet’s coffee is a unique product, there are many different brands of
coffee that are very close substitutes.
C) Yes, Peet’s is the only supplier of Peet’s coffee in a market where there are high
barriers to entry.
D) No, Peet’s is not a monopoly because there are many branches of Peet’s.
Generally with bond ratings, the lower the rating, the ________ the interest rate an
investor will receive and the ________ the risk that the issuer of the bond will default.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower
If inflation in the United States is lower than inflation in other countries, what will be
the effect on net exports for the United States?
A) Net exports will rise as U.S. exports increase.
B) Net exports will rise as U.S. imports increase.
C) Net exports will decrease as U.S. exports decrease.
D) Net exports will decrease as U.S. imports decrease.
The business cycle ________ on FedEx since the company’s inception over 40 years
ago.
A) has had virtually no effect
B) has always had a negative effect
C) has had a large effect
D) has always had a positive effect
The first example of comparative advantage appeared in a book that was published in
1817. This example showed that mutually beneficial trade between two countries
(England and Portugal) was possible. The example assumed that two goods (wine and
cloth) could be produced by both countries. Which of the following describes the
conclusion of this example?
A) Portugal had a comparative advantage in wine and England had a comparative
advantage in cloth.
B) Portugal had a comparative advantage in both wine and cloth, but its advantage in
cloth was greater.
C) England had a comparative advantage in both wine and cloth, but its advantage in
cloth was greater.
D) England had an absolute advantage in both wine and cloth, but a comparative
advantage in wine.
Which of the following does not describe governmental policy actions that are helpful
in supporting growth in an economy? Governmental policies that
A) avoid playing any role in developing communication systems.
B) provide secure rights to private property.
C) establish an independent court system that enforces contracts.
D) facilitate the development of an efficient financial system.
The Congressional Budget Office estimates that ________ account(s) for less than 1
percent of health care costs in the United States.
A) the aging population
B) uninsured patients receiving treatment in hospital emergency rooms that could have
been provided less expensively at doctor’s offices
C) the payments to settle malpractice lawsuits and the premiums doctors pay for
malpractice insurance
D) advances in medical technology
Donnie’s Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit
costs. The bakery earns $800,000 in revenues and has $2 million in net worth. Based on
this information, what is the accounting profit for Donnie’s Donuts?
A) $150,000
B) $350,000
C) $600,000
D) $1.2 million
Figure 23-3
Suppose that investment spending increases by $10 million, shifting up the aggregate
expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what
is the change in GDP?
A) $9 million
B) $10 million
C) $90 million
D) $100 million
What actions should the Fed take if it believes the economy is about to experience a
high rate of inflation?
What is the difference between goods and services?
If workers accurately predict the rate of inflation, is there a short-run trade-off between
inflation and unemployment, as predicted by the Phillips curve? Why or why not?
What is a Giffen good?
What do reports that the dollar is “overvalued” mean? How will foreign exchange
markets respond to this information? Support your answer graphically.
What are the five most important variables that shift the market supply curve?
Suppose the current inflation rate and the expected inflation rate are both 3 percent. The
current unemployment rate and the natural rate of unemployment are both 4 percent.
Use a Phillips curve graph to show the effect on the economy of a severe supply shock.
If the Federal Reserve keeps monetary policy unchanged, what will eventually happen
to the unemployment rate? Show this on your Phillips curve graph.
Starting from long-run equilibrium, use the basic aggregate demand and aggregate
supply diagram to show what happens in both the long run and the short run when there
is a decline in wealth.