In a particular country in 1999, the average worker had to work 20 hours to produce 55
units of output. In that same country in 2009, the average worker needed to work 28
hours to produce 77 units of output. In that country, the productivity of the average
worker
a. increased by 2 percent between 1999 and 2009.
b. increased by 5 percent between 1999 and 2009.
c. remained unchanged between 1999 and 2009.
d. decreased by 3 percent between 1999 and 2009.
Which of the following statements applies to economics, as well as to other sciences
such as physics?
a. Experiments are considered valid only when they are conducted in a laboratory.
b. Good theories do not need to be tested.
c. Real-world observations often lead to theories.
d. Economics, as well as other sciences, is concerned primarily with abstract concepts.
When the money supply decreases
a. interest rates fall and so aggregate demand shifts right.
b. interest rates fall and so aggregate demand shifts left.
c. interest rates rise and so aggregate demand shifts right.
d. interest rates rise and so aggregate demand shifts left.
Assume the multiplier is 5 and that the crowding-out effect is $20 billion. An increase
in government purchases of $10 billion will shift the aggregate-demand curve to the
a. right by $150 billion.
b. right by $70 billion.
c. right by $30 billion.
d. None of the above is correct.
Figure 7-17
Refer to Figure 7-17. Which area represents total surplus in the market when the price
is P1?
a. A+B
b. B+C
c. C+D
d. A+B+C+D
Figure 3-2
Peru’s Production Possibilities Frontier
Refer to Figure 3-2. If the production possibilities frontier shown is for 40 hours of
production, then how long does it take Peru to make one emerald?
a. 1/6 hour
b. 1/5 hour
c. 5 hours
d. 6 hours
Table 4-2
Refer to Table 4-2. If these are the only four buyers in the market, then the market
quantity demanded at a price of $8 is
a. 4 units.
b. 6 units.
c. 24 units.
d. 32 units.
Consider four survivors on an island.
Which of the following pairs of survivors has a double-coincidence of wants?
a. Rupert with Amber, and Rob with Tom
b. Amber with Tom
c. Rupert with Rob
d. None of the above are correct.
Suppose that the prices of dairy products have risen relatively less than prices in general
over the last several years. To which problem in the construction of the CPI is this
situation most relevant?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. income bias
The business cycle is measured by the
a. production of goods and services.
b. number of people employed.
c. the interest rate.
d. Both a and b are correct.
Figure 4-13
Refer to Figure 4-13. The shift from S to S” in the market for peaches could be caused
by a(n)
a. increase in the price of peaches.
b. decrease in the price of pears.
c. increase in income.
d. decrease in the labor costs of the workers who pick peaches.
Table 10-4
The country of Caspir produces only cereal and milk. Quantities and prices of these
goods for the last several years are shown below. The base year is 2008.
Prices and Quantities
Refer to Table 10-4. In 2008, this country’s
a. nominal GDP was greater than real GDP, and the GDP deflator was greater than 100.
b. nominal GDP was equal to real GDP, and the GDP deflator was equal to 1.
c. nominal GDP was less than real GDP, and the GDP deflator was less than 100.
d. nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.
Which of the following is included in the investment component of GDP?
a. households’ purchases of newly constructed homes
b. net additions to firms’ inventories
c. firms’ purchases of capital equipment
d. All of the above are correct.
If a country experiences capital flight, which of the following lists only curves that shift
right?
a. the demand for loanable funds and the demand for dollars in the market for
foreign-currency exchange
b. the demand for loanable funds and the supply of dollars in the market for
foreign-currrency exchange
c. the supply of loanable funds and the demand for dollars in the market for
foreign-currency exchange
d. the supply of loanable funds and the supply of dollars in the market for
foreign-currency exchange
For a particular good, a 10 percent increase in price causes a 3 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a. The relevant time horizon is short.
b. The good is a luxury.
c. The market for the good is narrowly defined.
d. There are many close substitutes for this good.
In the calculation of the CPI, tea is given greater weight than beer if
a. the price of tea is higher than the price of beer.
b. it costs more to produce tea than it costs to produce beer.
c. tea is more readily available than beer to the typical consumer.
d. consumers buy more tea than beer.
If government policy encouraged households to save more at each interest rate, then
a. the real exchange rate and net exports would rise.
b. the real exchange rate and net exports would fall.
c. the real exchange rate would rise and net exports would fall.
d. the real exchange rate would fall and net exports would rise.
Table 7-7
The following table represents the costs of five possible sellers.
Refer to Table 7-7. If the market price is $1,100, the combined total cost of all
participating sellers is
a. $3,700.
b. $2,700.
c. $2,250.
d. $1,250.
A situation in which the Fed’s target interest rate has fallen as far as it can fall is
sometimes described as a
a. liquidity preference.
b. liquidity trap.
c. open-market trap.
d. interest-rate contraction.
Suppose that a country that has a high level of output per person agrees to trade with a
country that has a low level of output per person. Which country can benefit?
a. only the one with a low level of output per person.
b. only the one with a high level of output per person.
c. both
d. neither
President George W. Bush and congress cut taxes and raised government expenditures
in 2003. According to the aggregate supply and aggregate demand model
a. both the tax cut and the increase in government expenditures would tend to increase
output.
b. only the tax cut would tend to increase output.
c. only the increase in government expenditures would tend to increase output.
d. neither the tax cut nor the increase in government expenditures would tend to
increase output.
The sticky-price theory implies that
a. the short-run aggregate-supply curve is upward-sloping.
b. an unexpected fall in the price level induces firms to reduce the quantity of goods and
services they produce.
c. menu costs influence the speed of adjustment of prices.
d. All of the above are correct.
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. Total surplus
before the tax is measured by the area
a. I+Y.
b. J+K+L+M.
c. L+M+Y.
d. I+J+K+L+M+Y.
The price elasticity of supply along a typical supply curve is
a. constant.
b. equal to zero.
c. higher at low levels of quantity supplied and lower at high levels of quantity
supplied.
d. lower at low levels of quantity supplied and higher at high levels of quantity
supplied.
If the Fed increases the money supply, then 1/P
a. falls, so the value of money falls.
b. falls, so the value of money rises.
c. rises, so the value of money falls.
d. rises, so the value of money rises.
Suppose there are constant returns to scale. Now suppose that over time a country
doubles its workers, its natural resources, its physical capital, and its human capital, but
its technology is unchanged. Which of the following would double?
a. both output and productivity
b. output, but not productivity
c. productivity, but not output
d. neither productivity nor output
Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of
their contributions was to argue that if a central bank could convince people to expect
zero inflation, then the Fed would be tempted to raise output by increasing inflation.
This possibility is known as
a. inflation targeting.
b. the monetary policy reaction lag.
c. the time inconsistency of policy.
d. the sacrifice ratio dilemma.
Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she
enters the soft drink section, she notices that the price of ginger ale has increased 15
percent, so she decides to buy some peppermint tea instead. To which problem in the
construction of the CPI is this situation most relevant?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. income effect
In the long run, if the Fed decreases the rate at which it increases the money supply,
a. inflation and unemployment will be higher.
b. inflation will be higher and unemployment will be lower.
c. inflation will be lower and unemployment will be higher.
d. None of the above is correct.
Suppose stock prices rise. To offset the resulting change in output the Federal Reserve
could
a. increase the money supply. This increase would also move the price level closer to its
value before the rise in stock prices.
b. increase the money supply. However, this increase would move the price level farther
from its value before the rise in stock prices.
c. decrease the money supply. This decrease would also move the price level closer to
its value before the rise in stock prices.
d. decrease the money supply. However, this decrease would move the price level
farther from its value before the rise in stock prices.
Wages in excess of their equilibrium level help explain
a. frictional but not structural unemployment.
b. structural but not frictional unemployment.
c. both frictional and structural unemployment.
d. neither frictional nor structural unemployment.