Refer to Table 2-5. Table 2-5 shows one set of production possibilities. What is the
opportunity cost of an increase in the production of coffee from 350 pounds to 650
pounds?
a. 400 dozen cookies
b. 300 dozen cookies
c. 200 dozen cookies
d. 200 pounds of coffee
Suppose you know the value of the consumer price index (CPI) in year 2 as well as the
inflation rate in year 2. Which of the following equations is valid for the CPI in year 1?
a. CPI in year 1 =
b. CPI in year 1 =
c. CPI in year 1 =
d. CPI in year 1 =
If the price elasticity of demand for a good is 0.8, then which of the following events is
consistent with a 4 percent decrease in the quantity of the good demanded?
a. a 0.2 percent increase in the price of the good
b. a 3.2 percent increase in the price of the good
c. a 4.8 percent increase in the price of the good
d. a 5 percent increase in the price of the good
If M = 10,000, P = 2, and Y = 20,000, then velocity =
a. 4. Velocity will rise if money changes hands more frequently.
b. 4. Velocity will rise if money changes hands less frequently.
c. 8. Velocity will rise if money changes hands more frequently.
d. 8. Velocity will rise if money changes hands less frequently.
By not taking into account the possibility of consumer substitution, the CPI
a. understates the cost of living.
b. overstates the cost of living.
c. may overstate or understate the cost of living, depending on how quickly prices rise.
d. may overstate or understate the cost of living, regardless of how quickly prices rise.
Figure 8-17
The vertical distance between points A and B represents the original tax.
Refer to Figure 8-17. The original tax can be represented by the vertical distance AB.
Suppose the government is deciding whether to lower the tax to CD or raise it to FG.
Which of the following statements is correct?
a. Compared to the original tax, the larger tax will decrease both tax revenue and
deadweight loss.
b. Compared to the original tax, the smaller tax will increase both tax revenue and
deadweight loss.
c. Compared to the original tax, the larger tax will decrease tax revenue and increase
deadweight loss.
d. Both a and b are correct.
Haley discovers a new way to design automobile engines so that they use less gasoline.
Haley’s finding is an example of
a. physical capital. If Haley’s discovery leads to lower gasoline prices, it has made
gasoline less scarce.
b. physical capital. If Haley’s discovery leads to lower gasoline prices, it has made
gasoline scarcer.
c. technological knowledge. If Haley’s discovery leads to lower gasoline prices, it has
made gasoline less scarce.
d. technological knowledge. If Haley’s discovery leads to lower gasoline prices, it has
made gasoline scarcer.
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. Without trade, the farmer produced and consumed 2 pounds of
meat and 4 pounds of potatoes and the rancher produced and consumed 4 pounds of
meat and 2 pounds of potatoes. Then, each person agreed to specialize in the production
of the good in which they have a comparative advantage and trade 3 pounds of meat for
6 pounds of potatoes. As a result, the farmer gained
a. 1 pound of meat and 2 pounds of potatoes and the rancher gained 0 pounds of meat
and 5 pounds of potatoes.
b. 1 pound of meat and 2 pounds of potatoes and the rancher gained 1 pound of meat
and 4 pounds of potatoes.
c. 3 pounds of meat and 6 pounds of potatoes and the rancher gained 5 pounds of meat
and 6 pounds of potatoes.
d. 4 pounds of meat and 12 pounds of potatoes and the rancher gained 6 pounds of meat
and 8 pounds of potatoes.
Which of the following should be held constant when calculating an income elasticity
of demand?
a. the price of the good
b. prices of related goods
c. tastes
d. All of the above should be held constant.
Economic variables are most often expressed in
a. nominal terms, and that’s what’s important.
b. nominal terms, but real variables are what’s important.
c. real terms, and that’s what’s important.
d. real terms, but nominal variables are what’s important.
When two variables have a negative correlation,
a. they tend to move in opposite directions.
b. they tend to move in the same direction.
c. one variable will move while the other remains constant.
d. the variables’ values are never positive.
Which of the following statements is correct?
a. A large, well-known corporation such as Proctor and Gamble would generally use
financial intermediation to finance expansion of its factories.
b. On average, indexed funds outperform managed funds.
c. Unlike corporate bonds and stocks, checking accounts are a store of value.
d. Financial intermediaries are institutions through which savers can directly provide
funds to borrowers.
When the money market is drawn with the value of money on the vertical axis, as the
price level increases the quantity of money
a. demanded increases.
b. demanded decreases.
c. supplied increases.
d. supplied decreases.
According to the assumptions of the quantity theory of money, if the money supply
decreases by 7 percent, then
a. nominal and real GDP would fall by 7 percent.
b. nominal GDP would fall by 7 percent; real GDP would be unchanged.
c. nominal GDP would be unchanged; real GDP would fall by 7 percent.
d. neither nominal GDP nor real GDP would change.
When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day.
When the price falls to $0.40, the quantity demanded increases to 600. Given this
information and using the midpoint method, we know that the demand for bubble gum
is
a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.
Figure 5-13
Refer to Figure 5-13. Over which range is the supply curve in this figure the least
elastic?
a. $16 to $40
b. $40 to $100
c. $100 to $220
d. $220 to $430
Which of the following is not included in M1?
a. currency
b. demand deposits
c. traveler’s checks
d. credit cards
Figure 2-15
Relationship between Price and Cups of Coffee
Refer to Figure 2-15. A movement from point A to point B is called
a. a shift in demand.
b. a movement along the demand curve.
c. a shift in supply.
d. a movement along the supply curve.
When a buyer’s willingness to pay for a good is equal to the price of the good, the
a. buyer’s consumer surplus for that good is maximized.
b. buyer will buy as much of the good as the buyer’s budget allows.
c. price of the good exceeds the value that the buyer places on the good.
d. buyer is indifferent between buying the good and not buying it.
Table 7-3
The only four consumers in a market have the following willingness to pay for a good:
Refer to Table 7-3. If the price is $20, then consumer surplus in the market is
a. $20, and Wilbur and Ming-la purchase the good.
b. $45, and Carlos and Quilana purchase the good.
c. $45, and Quilana, Wilbur, and Ming-la purchase the good.
d. $55, and Carlos, Wilbur, and Ming-la purchase the good.
Figure 3-8
Chile’s Production Possibilities Frontier Colombia’s Production Possibilities
Frontier
Refer to Figure 3-8. Chile’s opportunity cost of one pound of soybeans is
a. 3/4 pound of coffee and Colombia’s opportunity cost of one pound of soybeans is 1/2
pound of coffee.
b. 3/4 pound of coffee and Colombia’s opportunity cost of one pound of soybeans is 2
pounds of coffee.
c. 4/3 pounds of coffee and Colombia’s opportunity cost of one pound of soybeans is
1/2 pound of coffee.
d. 4/3 pounds of coffee and Colombia’s opportunity cost of one pound of soybeans is 2
pounds of coffee.
Table 10-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2009.
Prices and Quantities
Refer to Table 10-6. In 2009, this country’s real GDP was
a. $100.
b. $390.
c. $400.
d. $540.
In the short run,
a. the price level alone adjusts to balance the supply and demand for money.
b. output responds to changes in the aggregate demand for goods and services.
c. changes in the money supply cause a proportional change in the price level.
d. increases in the money supply shift the aggregate supply curve causing output to rise.
Aggregate demand includes
a. only the quantity of goods and services households want to buy.
b. only the quantity of goods and services households and firms want to buy.
c. only the quantity of goods and services households, firms, and the government want
to buy.
d. the quantity of goods and services households, firms, the government, and customer
abroad want to buy.
We would expect the interest rate on Bond A to be higher than the interest rate on Bond
B if the two bonds have identical characteristics except that
a. the credit risk associated with Bond A is lower than the credit risk associated with
Bond B.
b. Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat
Corporation.
c. Bond A has a term of 20 years and Bond B has a term of 2 years.
d. All of the above are correct.
During wars the public tends to hold relatively more currency and relatively fewer
deposits. This decision makes reserves
a. and the money supply increase.
b. and the money supply decrease.
c. increase, but leaves the money supply unchanged.
d. decrease, but leaves the money supply unchanged.
People can write checks against
a. demand deposits and money market mutual funds
b. demand deposits but not money market mutual funds
c. money market mutual funds but not demand deposits
d. neither demand deposits nor money market mutual funds
The costs of changing price tags and price listings are known as
a. inflation-induced tax distortions.
b. relative-price variability costs.
c. shoeleather costs.
d. menu costs.
Other things the same, bonds are likely to have higher interest rates if they have
a. tax exemptions and short terms.
b. tax exemptions and long terms.
c. no tax exemptions and short terms.
d. no tax exemptions and long terms.
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.
If the world thought that many banks in a certain country were at or near the point of
bankruptcy, then that country’s real exchange rate
a. and net exports would rise.
b. would rise and net exports would fall.
c. would fall and net exports would rise.
d. and net exports would fall.