Microeconomics is the study of
a. how money affects the economy.
b. how individual households and firms make decisions.
c. how government affects the economy.
d. how the economy as a whole works.
A basic principle of economics is that a country’s standard of living depends on its
a. quantity of physical capital.
b. abundance of natural resources.
c. ability to produce goods and services.
d. ability to thrive economically without having to interact with other countries.
You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar
appreciates relative to the Chilean peso, then other things the same
a. it takes fewer dollars to build the factory. By itself building the factory increases U.S.
net capital outflow.
b. it takes fewer dollars to build the factory. By itself building the factory decreases
U.S. net capital outflow.
c. it takes more dollars to build the factory. By itself building the factory increases U.S.
net capital outflow.
d. it takes more dollars to build the factory. By itself building the factory decreases U.S.
net capital outflow.
Petroleum is an example of a nonrenewable resource.
a. True
b. False
Which of the following lists correctly identifies the four expenditure categories of
GDP?
a. consumption, government purchases, investment, net-exports
b. consumption, investment, depreciation, net-exports
c. consumption, saving, investment, depreciation,
d. consumption, government purchases, investment, savings
Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and
sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000
worth of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and
sells it for $2,600. Neither firm had any inventory at the beginning of 2015. During that
year, Cowhide produced enough leather for 25 couches. Couches, Inc. bought 80% of
that leather for $20,000 and promised to buy the remaining 20% for $5,000 in 2016.
Couches, Inc. produced 20 couches during 2015 and sold each one during that year for
$2,600. What was the economy’s GDP for 2015?
a. $25,000
b. $52,000
c. $57,000
d. $65,000
Other things the same, an increase in the price level makes consumers feel
a. less wealthy, so the quantity of goods and services demanded falls.
b. less wealthy, so the quantity of goods and services demanded rises.
c. more wealthy, so the quantity of goods and services demanded rises.
d. more wealthy, so the quantity of goods and services demanded falls.
In the United States, a three-pound can of coffee costs about $5. If the exchange rate is
0.8 euros per dollar and a three-pound can of coffee in Belgium costs 7 euros. What is
the real exchange rate?
a. 7/4 cans of Belgian coffee per can of U.S. coffee
b. 5.6/5 cans of Belgian coffee per can of U.S. coffee
c. 5/5.6 cans of Belgian coffee per can of U.S. coffee
d. 4/7 cans of Belgian coffee per can of U.S. coffee
When deciding how much to save, people care most about
a. after-tax nominal interest rates.
b. after-tax real interest rates.
c. before-tax real interest rates.
d. before-tax nominal interest rates.
Among the following countries, which one has the highest growth rate of real GDP per
person over about the last 100 years?
a. Argentina
b. Mexico
c. the United Kingdom
d. the United States
What does the Fed auction at the Term-Auction Facility?
a. government bonds of a quantity it sets
b. government bonds with the quantity determined at the auction
c. loans of a quantity it sets
d. loans with the quantity determined at the auction
Home is a country that produces two goods, pears and cellular phones. Last year, Home
produced 450 bushels of pears and 1050 cellular phones. This year it produced 450
bushels of pears and 2000 cellular phones. Given no other information, which of the
following events could explain this change?
a. Home experienced increased unemployment.
b. Home experienced a decline in pear-producing technology.
c. Home experienced an improvement in cellular phone-making technology.
d. Home experienced a reduction in resources.
You have been asked by your economics professor to graph the market for lumber and
then to analyze the change that would occur in equilibrium price as a result of recent
forest fires in the west. Your first step would be to
a. decide which direction to shift the curve.
b. decide whether the fires affected demand or supply.
c. graph the shift to see the effect on equilibrium.
d. None of the above is correct.
If textbooks and study guides are complements, then an increase in the price of
textbooks will result in
a. more textbooks being sold.
b. more study guides being sold.
c. fewer study guides being sold.
d. no difference in the quantity sold of either good.
In a simple economy, people consume only 2 goods, food and clothing. The market
basket of goods used to compute the CPI consists of 50 units of food and 10 units of
clothing.
a. What are the percentage increases in the price of food and in the price of clothing?
b. What is the percentage increase in the CPI?
c. Do these price changes affect all consumers to the same extent? Explain.
If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal
interest rate is 7 percent.
a. True
b. False
Which of the following could explain a decrease in the equilibrium interest rate and in
the equilibrium quantity of loanable funds?
a. The demand for loanable funds shifted rightward.
b. The demand for loanable funds shifted leftward.
c. The supply of loanable funds shifted rightward.
d. The supply of loanable funds shifted leftward.
A decrease in the expected price level shifts
a. only the long-run aggregate supply curve right.
b. only the short-run aggregate supply curve right.
c. both the short-run and the long-run aggregate supply curve right.
d. Neither the short-run nor the long-run aggregate supply curve right.
Over the past three decades, the United States has
a. generally had, or been very near to a trade balance.
b. had trade deficits in about as many years as it has trade surpluses.
c. persistently had a trade deficit.
d. persistently had a trade surplus.
If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment
is 5.7 percent, then by definition there is
a. cyclical unemployment amounting to 0.5 percent of the labor force.
b. frictional unemployment amounting to 0.5 percent of the labor force.
c. structural unemployment amounting to 0.5 percent of the labor force.
d. search unemployment amounting to 0.5 percent of the labor force.
Frictional unemployment is often thought to explain relatively long spells of
unemployment.
a. True
b. False
An increase in government spending shifts aggregate demand
a. to the right. The larger the multiplier is, the farther it shifts.
b. to the right. The larger the multiplier is, the less it shifts.
c. to the left. The larger the multiplier is, the farther it shifts.
d. to the left. The larger the multiplier is, the less it shifts.
Which of the following played a role in depressing aggregate demand in 2001?
a. the end of a stock-market bubble
b. corporate accounting scandals
c. the terrorist attacks on September 11 of that year
d. All of the above are correct.
Other things the same, in the open-economy macroeconomic model, which of the
following would make China’s net capital outflow increase?
a. an increase in U.S. interest rates
b. an increase in Chinese interest rates
c. an appreciation of the Chinese yuan
d. None of the above is correct.
There is an adverse supply shock. In response the Federal Reserve pursues an
expansionary monetary policy. Taking into account both the shock and the Federal
Reserve’s policy, which of the following are we sure of?
a. unemployment will be higher
b. unemployment will be lower
c. inflation will be higher
d. inflation will be lower
A relatively flat demand curve indicates that
a. quantity demanded will adjust only slightly to a price change.
b. quantity demanded will adjust significantly to a price change.
c. quantity demanded will not adjust to a price change.
d. the change in quantity demanded will exactly equal a change in price.
The misperceptions theory of the short-run aggregate supply curve says that the
quantity of output supplied will increase if the price level
a. increases by less than expected so that firms believe the relative price of their output
has increased.
b. increases by less than expected so that firms believe the relative price of their output
has decreased.
c. increases by more than expected so that firms believe the relative price of their output
has increased.
d. increases by more than expected so that firms believe the relative price of their
output has decreased.
Other things the same, an increase in domestic prices raises the real exchange rate.
a. True
b. False
The market demand curve shows how the total quantity demanded of a good varies as
the income of buyers varies, while all the other factors that affect how much consumers
want to buy are held constant.
a. True
b. False
Suppose the Federal Reserve makes monetary policy more expansionary. In the long
run
a. both inflation and the unemployment rate are higher than they were prior to the
change in policy.
b. inflation is higher and the unemployment rate is the same as it was prior to the
change in policy.
c. inflation is lower and the unemployment rate is lower than it was prior to the change
in policy.
d. inflation is lower and unemployment is the same as it was prior to the change in
policy.
The classical dichotomy argues that changes in the money supply
a. affect both nominal and real variables.
b. affect neither nominal nor real variables.
c. affect nominal variables, but not real variables.
d. do not affect nominal variables, but do affect real variables.