Katie is planning to sell her house, and she is considering making two upgrades to the
house before listing it for sale. Replacing the carpeting will cost her $2,500 and
replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the
value of her house by $3,000 and the new roof to increase the value of her house by
$7,000.
a. She should make both improvements to her house.
b. She should replace the carpeting but not replace the roof.
c. She should replace the roof but not replace the carpeting.
d. She should not make either improvement to her house.
Figure 9-3. The domestic country is China.
Refer to Figure 9-3. If China were to abandon a no-trade policy in favor of a free-trade
policy,
a. Chinese producers of pencil sharpeners would become worse off.
b. Chinese consumers of pencil sharpeners would become better off.
c. total surplus in the Chinese economy would increase.
d. All of the above are correct.
Suppose the banking system currently has $300 billion in reserves; the reserve
requirement is 10 percent; and excess reserves amount to $3 billion. What is the level of
deposits?
a. $3,300 billion
b. $2,970 billion
c. $2,700 billion
d. $2,673 billion
Figure 4-21
Refer to Figure 4-21. Which of the following movements would illustrate the effect in
the market for golf balls of an increase in green fees?
a. Point A to Point B
b. Point C to Point B
c. Point C to Point D
d. Point A to Point D
Figure 2-5
Refer to Figure 2-5. The opportunity cost of this economy moving from point A to
point C is
a. 75 soccer balls.
b. 125 soccer balls.
c. 125 soccer balls and 240 sweaters.
d. 240 sweaters.
Figure 7-12
Refer to Figure 7-12. Suppose producer surplus is larger than C but smaller than
A+B+C. The price of the good must be
a. lower than P1.
b. P1.
c. between P1 and P2.
d. higher than P2.
You put $150 in the bank two years ago and forgot about it. The bank sends you a
notice that you now have $169.34 in your account. What interest rate did you earn?
a. 5.50 percent
b. 5.65 percent
c. 6.25 percent
d. 7.05 percent
Suppose that fundamental analysis indicates a particular company’s stock is overvalued.
a. This means its present value is less than its price. You should consider adding the
stock to your portfolio.
b. This means its present value is less than its price. You shouldn”t consider adding the
stock to your portfolio.
c. This means its present value is more than its price. You should consider adding the
stock to your portfolio.
d. This means its present value is more than its price. You shouldn”t consider adding the
stock to your portfolio.
When a country allows trade and becomes an importer of a good,
a. both domestic producers and domestic consumers become better off.
b. domestic producers become better off, and domestic consumers become worse off.
c. domestic producers become worse off, and domestic consumers become better off.
d. both domestic producers and domestic consumers become worse off.
Lawmakers designed the burden of the FICA payroll tax to be split evenly between
workers and firms. Labor economists believe that
a. lawmakers may have actually achieved their goal because statistics show that the tax
burden is currently equally divided.
b. the tax raises too little revenue for the government, so it should be eliminated.
c. firms bear most of the burden of the tax.
d. workers bear most of the burden of the tax.
During recessions, taxes tend to
a. rise and thereby increase aggregate demand.
b. rise and thereby decrease aggregate demand.
c. fall and thereby increase aggregate demand.
d. fall and thereby decrease aggregate demand.
Table 5-4
Refer to Table 5-4. Demand is unit elastic when quantity demanded changes from
a. 10 to 9.
b. 9 to 8.
c. 8 to 7.
d. There is not enough information given to determine the correct answer.
Pat bought a new car for $15,500 but was willing to pay $24,000. The consumer surplus
is
a. $8,500.
b. $15,500.
c. $24,000.
d. $39,500.
Which of the following does purchasing-power parity imply?
a. the foreign price level times the nominal exchange rate (given as amount of foreign
currency per dollar) equals the U.S. price level.
b. The price of domestic goods relative to foreign goods cannot change.
c. The nominal exchange rate is the ratio of foreign prices to U.S. prices.
d. All of the above are correct.
What is the future value of $450 at an interest rate of 9 percent two years from today?
a. $534.65
b. $546.35
c. $565.18
d. $574.13
The opportunity cost of an item is
a. the number of hours that one must work in order to buy one unit of the item.
b. what you give up to get that item.
c. always less than the dollar value of the item.
d. always greater than the cost of producing the item.
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. Assume that Aruba and Iceland each has 80 labor hours available.
Originally, each country divided its time equally between the production of coolers and
radios. Now, each country spends all its time producing the good in which it has a
comparative advantage. As a result, the total output of coolers increased by
a. 20.
b. 40.
c. 60.
d. 80.
Table 5-6
Refer to Table 5-6. Using the midpoint method, what is the income elasticity of
demand for good X?
a. -3.5
b. -0.29
c. 0.29
d. 3.5
Under a fractional-reserve banking system, banks
a. hold more reserves than deposits.
b. generally lend out a majority of the funds deposited.
c. cause the money supply to fall by lending out reserves.
d. All of the above are correct.
The idea that nominal variables are heavily influenced by the quantity of money and
that money is largely irrelevant for understanding the determinants of real variables is
called the
a. velocity concept.
b. Fisher effect.
c. classical dichotomy.
d. Mankiw effect.
Buyers of a product will bear the larger part of the tax burden, and sellers will bear a
smaller part of the tax burden, when the
a. tax is placed on the sellers of the product.
b. tax is placed on the buyers of the product.
c. supply of the product is more elastic than the demand for the product.
d. demand for the product is more elastic than the supply of the product.
Figure 9-2
Refer to Figure 9-2. If this country chooses to trade, the price of baskets in this country
will be
a. $10 and 40 baskets will be sold domestically.
b. $10 and 105 baskets will be sold domestically.
c. $7 and 70 baskets will be sold domestically.
d. $7 and 40 baskets will be sold domestically.
Figure 3-7
Bintu’s Production Possibilities Frontier Juba’s Production Possibilities Frontier
Refer to Figure 3-7. The opportunity cost of 1 cup for Bintu is
a. 1/8 bowl.
b. 1/4 bowl.
c. 4 bowls.
d. 8 bowls.
In which case(s) does(do) a country’s supply of loanable funds shift right?
a. both an increase in the budget deficit and capital flight
b. an increase in the budget deficit, but not capital flight
c. capital flight, but not an increase in the budget deficit
d. neither an increase in the budget deficit nor capital flight
When the price level changes, which of the following variables will change and thereby
cause a change in the aggregate quantity of goods and services demanded?
a. the real value of wealth
b. the interest rate
c. the value of currency in the market for foreign exchange
d. All of the above are correct.
In recent years the Federal Open Market Committee has focused on a target for
a. M1 growth.
b. the federal funds rate.
c. the number of Treasury Securities issued by the federal government.
d. total reserves of banks.
Table 3-3
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Machine Minutes
Needed to Make 1
Refer to Table 3-3. Which of the following combinations of toothbrushes and
hairbrushes could Zimbabwe not produce in 120 minutes?
a. 5 toothbrushes and 11 hairbrushes
b. 10 toothbrushes and 9 hairbrushes
c. 20 toothbrushes and 6 hairbrushes
d. 30 toothbrushes and 3 hairbrushes
Figure 21-1
Refer to Figure 21-1. At an interest rate of 4 percent, there is an excess
a. demand for money equal to the distance between points a and b.
b. demand for money equal to the distance between points b and c.
c. supply of money equal to the distance between points a and b.
d. supply of money equal to the distance between points b and c.
All else equal, if there are diminishing returns, then what happens to productivity if
both capital and labor increase?
a. Productivity will definitely fall.
b. Productivity will definitely be unchanged.
c. Productivity will definitely rise.
d. None of the above are necessarily correct.
In the long run, fiscal policy primarily affects
a. aggregate demand. In the short run, it affects primarily aggregate supply.
b. aggregate supply. In the short run, it affects primarily saving, investment, and
growth.
c. saving, investment, and growth. In the short run, it affects primarily aggregate
demand.
d. saving, investment, and growth. In the short run, it affects primarily aggregate
supply.
According to classical macroeconomic theory, in the long run
a. monetary growth affects both real and nominal variables.
b. the only real variable affected by monetary growth is the unemployment rate.
c. a number of factors that affect unemployment are influenced by monetary growth.
d. monetary growth affects nominal but not real variables.
If a paper factory does not bear the entire cost of the pollution it emits, it will
a. not emit any pollution so as to avoid the entire cost of the pollution.
b. emit lower levels of pollution.
c. emit an acceptable level of pollution.
d. emit too much pollution.
Who is included in the labor force by the Bureau of Labor Statistics?
a. Juan, who works most of the week in a steel factory
b. Molly, who is on temporary layoff
c. Charlie, who does not have a job, but is looking for work
d. All of the above are included in the labor force.
GDP is equal to
a. the market value of all final goods and services produced within a country in a given
period of time.
b. Y.
c. C + I + G + NX.
d. All of the above are correct.
Figure 2-4
Refer to Figure 2-4. The opportunity cost of obtaining 10 additional lamps by moving
from point W to point Z is
a. 0 notepads.
b. 10 notepads.
c. 50 notepads.
d. None of the above; the economy cannot move from point W to point Z.
If a market is in equilibrium, then it is impossible for a social planner to raise economic
welfare by increasing or decreasing the quantity of the good.
When a tax is imposed on sellers, consumer surplus and producer surplus both decrease.
A firm might offer efficiency wages in order to reduce shirking.
An increase in the natural rate of unemployment shifts the long-run Phillips curve to the
right.
More than one-third of the unemployed are recent entrants into the labor force.
Minimum-wage laws matter most for the least skilled and least experienced members of
the labor force, such as teenagers.
According to the open-economy macroeconomic model, a decrease in the U.S.
government budget deficit increases U.S. net capital outflow, causes the real exchange
rate of the dollar to depreciate, and increases U.S. net exports.
A central bank announces it will decrease the inflation rate by 10 percentage points.
People are skeptical of the announcement, but do expect the central bank will reduce
inflation by 5 percentage points and so expected inflation falls by 5 percentage points.
If the central bank decreases inflation by only 3 percentage points then the
unemployment rate will fall.
The effect of a change in the value of the dollar in the foreign exchange market due to a
change in the price level helps explain the slope of aggregate demand, but does not shift
it. The effects of a change in the value of the dollar in the foreign exchange market due
to speculation is shown by shifting the aggregate demand curve.
Suppose the demand for calendars increases in November. At the same time, the price
of the ink used in the production of calendars increases. In the market for calendars, the
equilibrium price rises, but the effect on the equilibrium quantity is ambiguous.
Suppose that Bill, a resident of the U.S., buys software from a company in Japan.
Explain why and in what directions this changes U.S. net exports and U.S. net capital
outflow.
Inflation increases the value of money.
When job search is the explanation for unemployment, workers are searching for the
jobs that best suit their tastes and skills, but when the wage is above the equilibrium
level, the quantity of labor supplied exceeds the quantity of labor demanded, and
workers are unemployed because they are waiting for jobs to open up.
An increase in the money supply decreases the interest rate in the short run.
A minimum wage that is below the equilibrium wage rate does not raise unemployment.
An increase in the interest rate causes a decrease in the future value of $1,000 that you
have in a bank account today.
Petroleum is an example of a nonrenewable resource.