When the price of a good is $5, the quantity demanded is 100 units per month; when the
price is $7, the quantity demanded is 80 units per month. Using the midpoint method,
the price elasticity of demand is about
a. 0.22.
b. 0.67.
c. 1.33.
d. 1.50.
Figure 2-8
Panel (a) Panel (b)
Figure 2-8
Panel (a) Panel (b)
Refer to Figure 2-8, Panel (a). The opportunity cost of one cup of coffee is highest
when the economy produces
a. 0 cups of coffee.
b. 2 cups of coffee.
c. 4 cups of coffee.
d. 6 cups of coffee.
Graphs such as bar graphs and pie charts are limited in that they
a. can only show variables that are positively related.
b. can only show variables that have a negative correlation.
c. provide information on only one variable.
d. provide information on no more than two variables.
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. The consumer
surplus before the tax is measured by the area
a. M.
b. L+M+Y.
c. J.
d. J+K+I.
If the actual price level is 165, but people had been expecting it to be 160, then
a. the quantity of output supplied rises, but only in the short run.
b. the quantity of output supplied rises in the short run and the long run.
c. the quantity of output supplied falls, but only in the short run.
d. the quantity of output supplied falls in the short run and the long run.
Perry accumulated a lot of mathematical skills while in high school, college, and
graduate school. Economists include these skills as part of Perry’s
a. standard of learning.
b. technological knowledge.
c. physical capital.
d. human capital.
Which of the following is not a tool of monetary policy?
a. open market operations
b. reserve requirements
c. changing the discount rate
d. increasing the government budget deficit
We would expect a macroeconomist, as opposed to a microeconomist, to be particularly
interested in
a. explaining how economic changes affect prices of particular goods.
b. devising policies to deal with market failures such as externalities and market power.
c. devising policies to promote low inflation.
d. identifying those markets that are competitive and those that are not competitive.
Other things the same, as the price level falls, which of the following increases?
a. lending and investment spending
b. lending, but not investment spending
c. investment spending, but not lending
d. neither investment spending nor lending
Friedman and Phelps concluded that
a. in the long run the Phillips curve is downward sloping, which is consistent with
classical theory.
b. in the long run the Philips curve is downward sloping, which is inconsistent with
classical theory.
c. in the long run the Phillips curve is vertical, which is consistent with classical theory.
d. in the long run the Phillips curve is vertical, which is inconsistent with classical
theory.
Figure 4-17
Refer to Figure 4-17. In this market, equilibrium price and quantity, respectively, are
a. $15 and 400 units.
b. $20 and 600 units.
c. $25 and 500 units.
d. $25 and 800 units.
Table 12-1.
Athens and Troy both produce only ribs and baked potatoes.
Refer to Table 12-1. Which of the following is correct?
a. Both real GDP and real GDP per person are higher in Athens than Troy.
b. Real GDP is higher in Athens while real GDP per person is higher in Troy
c. Real GDP is higher in Troy while real GDP per person is higher in Athens.
d. Both real GDP and real GDP per person are higher in Troy than Athens.
Suppose Ukraine subsidizes Ukrainian wheat farmers, while Russia offers no subsidy to
Russian wheat farmers. As a result of the Ukrainian subsidy, sales of Ukrainian wheat to
Russia
a. may prompt Russian farmers to invoke the infant-industry argument.
b. increase the consumer surplus of Russian buyers of wheat.
c. decrease the total surplus of the Russian people.
d. All of the above are correct.
According to the theory of liquidity preference, if output increases
a. people want to hold more money. This response is shown as a movement along the
money demand curve.
b. people want to hold more money. This response is shown as a shift of the money
demand curve.
c. people want to hold less money. This response is shown as a movement along the
money demand curve.
d. people want to hold less money. This response is shown as a shift of the money
demand curve.
Which of the following contains a list only of things that decrease when the budget
deficit of the U.S. increases?
a. U.S. net exports, U.S. domestic investment, U.S. net capital outflow
b. U.S. supply of loanable funds, U.S. interest rates, U.S. domestic investment
c. U.S. imports, U.S. interest rates, the real exchange rate of the dollar
d. None of the above is correct.
Table 3-5
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Labor Hours Needed
to Make 1 Unit of Number of Units
Produced in 40 Hours
Refer to Table 3-5. The opportunity cost of 1 unit of cheese for Spain is
a. 1/2 unit of bread.
b. 2 hours of labor.
c. 2 units of bread.
d. 4 hours of labor.
Figure 17-2. On the graph, MS represents the money supply and MD represents money
demand. The usual quantities are measured along the axes.
Refer to Figure 17-2. If the relevant money-demand curve is the one labeled MD1,
then the equilibrium value of money is
a. 5 and the equilibrium price level is 2.
b. 2 and the equilibrium price level is 0.5.
c. 0.5 and the equilibrium price level cannot be determined from the graph.
d. 2 and the equilibrium price level cannot be determined from the graph.
The slope of a fairly flat upward-sloping line will be a
a. small positive number.
b. large positive number.
c. small negative number.
d. large negative number.
The government increases both its expenditures and taxes by $400 billion. There is no
crowding out and no accelerator effect. Aggregate demand shifts by $400 billion.
Which of the following is consistent with how far aggregate demand shifts?
a. MPC = 1/2, and the effects of the increase in taxes is 1/2 as strong as the change in
government expenditures.
b. MPC = 2/3, and the effects of the increase in taxes is 2/3 as strong as the change in
government expenditures
c. MPC = 3/4, and the effects of the increase in taxes is 3/4 as strong as the change in
government expenditures
d. All of the above are correct.
Other things the same, a country that increases its savings rate will have
a. higher future capital and higher future real GDP per person.
b. higher future capital but not higher future real GDP per person.
c. higher future real GDP per person but not higher future capital.
d. neither higher future capital nor higher future real GDP per person.
Double taxation means that both
a. wage income and interest income are taxed, which is currently the case in the United
States.
b. wage income and interest income are taxed, which is not currently the case in the
United States.
c. the profits of corporations and the dividends shareholders receive are taxed, which is
currently the case in the United States.
d. the profits of corporations and the dividends shareholders receive are taxed, which is
not currently the case in the United States.
Which of the following will increase a country’s real GDP per person?
a. imposing restrictions on foreign trade and foreign investment
b. imposing restrictions on foreign trade and reducing restrictions on foreign investment
c. reducing restrictions on foreign trade and imposing restrictions on foreign investment
d. reducing restrictions on foreign trade and foreign investment
From time to time, the demand for workers has risen in one region of the United States
and fallen in another. This illustrates
a. frictional unemployment created by efficiency wages.
b. structural unemployment created by efficiency wages.
c. frictional unemployment created by sectoral shifts.
d. structural unemployment created by sectoral shifts.
Table 3-7
Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
Hours Needed
to Make 1 Quantity Produced
in 2400 Hours
Refer to Table 3-7. Korea has an absolute advantage in the production of
a. cars and a comparative advantage in the production of cars.
b. cars and a comparative advantage in the production of airplanes.
c. neither good and a comparative advantage in the production of cars.
d. neither good and a comparative advantage in the production of airplanes.
Other things the same, a decrease in the price level causes real wealth to
a. fall, interest rates to fall, and the dollar to appreciate.
b. fall, interest rates to rise, and the dollar to depreciate.
c. rise, interest rates to rise, and the dollar to appreciate.
d. rise, interest rates to fall, and the dollar to depreciate.
Figure 3-3
Arturo’s Production Possibilities Frontier Dina’s Production Possibilities Frontier
Refer to Figure 3-3. Arturo’s opportunity cost of one burrito is
a. 3/4 taco and Dina’s opportunity cost of one burrito is 1/2 taco.
b. 3/4 taco and Dina’s opportunity cost of one burrito is 2 tacos.
c. 4/3 tacos and Dina’s opportunity cost of one burrito is 1/2 taco.
d. 4/3 tacos and Dina’s opportunity cost of one burrito is 2 tacos.
Sometimes economists disagree because their values differ. Which of the following
instances best reflects this source of disagreement?
a. One economist believes the North American Free Trade Agreement (NAFTA) has led
to a loss of American jobs; another economist disputes this claim.
b. One economist believes that when income taxes are cut, people will increase their
spending; another economist believes that when income taxes are cut, people will
increase their saving.
c. One economist advises against increases in sales taxes because she thinks such
increases are unfair to low-income people; another economist disputes the idea that
increases in sales taxes are unfair to low-income people.
d. One economist believes that, prior to the Civil War, slavery contributed to economic
growth in the South; another economist believes that slavery held back the South’s
economic growth.
Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
Labor Hours
Needed to Make 1
Refer to Table 3-2. Aruba has an absolute advantage in the production of
a. coolers and Iceland has an absolute advantage in the production of radios.
b. radios and Iceland has an absolute advantage in the production of coolers.
c. both goods and Iceland has an absolute advantage in the production of neither good.
d. neither good and Iceland has an absolute advantage in the production of both goods.
An outcome that can result from either a price ceiling or a price floor is
a. an enhancement of efficiency.
b. undesirable rationing mechanisms.
c. a surplus.
d. a shortage.
A survey which sought the opinion of professional economists on fourteen propositions
about economic policy found that
a. the respondents were almost equally divided on the propositions.
b. the respondents favored the propositions by a slight margin.
c. the respondents disagreed with the propositions by a slight margin.
d. there was overwhelming endorsement of the propositions among the respondents.
Which of the following is not correct?
a. American families save a larger fraction of their incomes than their counterparts in
many other countries such as Germany and Japan.
b. Saving is an important long-run determinant of a nation’s standard of living.
c. A change in tax laws that encouraged greater saving would lower interest rates.
d. Taxes on interest income can substantially decrease the future value of current
saving.
ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company
is raising funds in financial markets?
a. only ABC
b. only JLG
c. both ABC and JLG
d. neither ABC nor JLG
In 1870, the richest country in the world was
a. the United States.
b. Spain.
c. the United Kingdom.
d. Germany.
Other things the same, an increase in government expenditures with no change in taxes
makes national saving
a. rise. The supply of loanable funds shifts right.
b. rise. The demand for loanable funds shifts right.
c. fall. The supply of loanable funds shifts left.
d. fall. The demand for loanable funds shifts left.
Which of the following likely occurs when households and firms are pessimistic?
a. Increased spending.
b. Increased aggregate demand.
c. Real GDP rises.
d. The unemployment rate increases.