Scenario 13-1. Assume the following information for an imaginary, closed
economy.
GDP = $120,000; consumption = $70,000; private saving = $9,000;
national saving = $12,000.
Refer to Scenario 13-1. For this economy, investment amounts to
a. $4,000.
b. $9,000.
c. $12,000.
d. $16,000.
When can two countries gain from trading two goods?
a. when the first country can only produce the first good and the second country can
only produce the second good
b. when the first country can produce both goods, but can only produce the second good
at great cost, and the second country can produce both goods, but can only produce the
first good at great cost
c. when the first country is better at producing both goods and the second country is
worse at producing both goods
d. Two countries could gain from trading two goods under all of the above conditions.
HydroGrow is considering building a new greenhouse in which to grow tomatoes. The
board meets and decides that this is the right thing to do. Before they can put their plans
into action, the interest rate increases. The present value of the returns from this
investment project
a. is now lower than it was before, and so Hydro Grow is less likely to build the
building.
b. is now lower than it was before, and so HydroGrow is more likely to build the
building.
c. is now higher than it was before, and so HydroGrow is less likely to build the
building.
d. is now higher than it was before, and so HydroGrow is more likely to build the
building.
Figure 4-4
Refer to Figure 4-4. Which of the following would cause the demand curve to shift
from Demand A to Demand B in the market for oranges in the United States?
a. a freeze in Florida
b. a technological advance that allows oranges to ripen faster
c. a decrease in the price of apples
d. an announcement by the FDA that oranges prevent heart disease
Which of the following explains why production rises in most years?
a. increases in the labor force
b. increases in the capital stock
c. advances in technological knowledge
d. All of the above are correct.
Figure 4-15
Refer to Figure 4-15. At a price of $35, there would be a
a. shortage of 400 units.
b. surplus of 200 units.
c. surplus of 400 units.
d. surplus of 600 units.
Angelica is an unpaid homemaker who works as a volunteer at the local Red Cross and
is currently not looking for a paid job. The Bureau of Labor Statistics counts Angelica
as
a. unemployed and in the labor force.
b. unemployed, but not in the labor force.
c. in the labor force, but not unemployed.
d. neither in the labor force nor unemployed.
Some people claim that stocks follow a random walk. What does this mean?
a. The price of stock one day is about what it was on the previous day.
b. Changes in stock prices cannot be predicted from available information.
c. Stock prices are not determined by market fundamentals such as supply and demand.
d. Prices of stocks of different firms in the same industry show no or little tendency to
move together.
Real GDP is the yearly production of final goods and services valued at
a. current prices.
b. constant prices.
c. expected future prices.
d. the ratio of current prices to constant prices.
Which of the following statements correctly describes the relationship between the size
of the deadweight loss and the amount of tax revenue as the size of a tax increases from
a small tax to a medium tax and finally to a large tax?
a. Both the size of the deadweight loss and tax revenue increase.
b. The size of the deadweight loss increases, but the tax revenue decreases.
c. The size of the deadweight loss increases, but the tax revenue first increases, then
decreases.
d. Both the size of the deadweight loss and tax revenue decrease.
A movement along the supply curve might be caused by a change in
a. production technology.
b. input prices.
c. expectations about future prices.
d. the price of the good or service that is being supplied.
John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.
a. exports.
b. imports.
c. foreign portfolio investment.
d. foreign direct investment.
Suppose that the U.S. imposes an import quota on lumber. The quota makes the real
exchange rate of the U.S. dollar
a. appreciate but does not change the real interest rate in the United States.
b. appreciate and the real interest rate in the United States increase.
c. depreciate and the real interest rate in the United States decrease.
d. depreciate but does not change the real interest rate in the United States.
Figure 7-18
Refer to Figure 7-18. If 40 units of the good are being bought and sold, then
a. the marginal cost to sellers is equal to the marginal value to buyers.
b. the marginal value to buyers is greater than the marginal cost to sellers.
c. the marginal cost to sellers is greater than the marginal value to buyers.
d. producer surplus would be greater than consumer surplus.
Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500,
consumption equals 7,000, and government purchases equal 3,000. What are private
saving and public saving?
a. 1,500 and -500, respectively
b. 1,500 and 500, respectively
c. 1,000 and -500, respectively
d. 1,000 and 500, respectively
When the price level falls the quantity of
a. consumption goods demanded rises, while the quantity of net exports demanded falls.
b. consumption goods demanded and the quantity of net exports demanded both rise.
c. consumption goods demanded and the quantity of net exports demanded both fall.
d. consumption goods demanded falls, while the quantity of net exports demand rises.
A policymaker against stabilizing the economy would be likely to believe
a. policymakers should “do no harm”.
b. there are no obstacles to the practical application of policy in real life.
c. policy lags are short enough that implementing policy changes in response to
recession is not too risky.
d. policy mitigates the magnitude of economic fluctuations.
Which of the following implies that an increase in the money supply growth rate
permanently changes the unemployment rate?
a. both the long-run aggregate supply curve and the long-run Phillips curve
b. the long-run aggregate supply curve, but not the long-run Phillips curve
c. the long-run Phillips curve, but not the long-run aggregate supply curve
d. neither the long-run Phillips curve nor the long-run aggregate supply curve
Table 3-8
Assume that Huang and Min can switch between producing parasols and producing
porcelain plates at a constant rate.
Labor Hours Needed
to Make 1 Quantity Produced
in 36 Hours
Refer to Table 3-8. Assume that Huang and Min each has 36 labor hours available.
Originally, each person divided his/her time equally between the production of parasols
and plates. Now, each person spends all their time producing the good in which they
have a comparative advantage. As a result, the total output of plates increased by
a. 0.
b. 1.5.
c. 3.
d. 9.
When the government implements programs such as progressive income tax rates,
which of the following is likely to occur?
a. equality is increased and efficiency is increased.
b. equality is increased and efficiency is decreased.
c. equality is decreased and efficiency is increased.
d. equality is decreased and efficiency is decreased.
If the minimum wage increased, then at any given rate of inflation
a. both output and employment would be higher.
b. neither output nor employment would be higher.
c. output would be higher and unemployment would be lower.
d. output would be lower and unemployment would be higher.
Suppose the central bank pursues an unexpectedly tight monetary policy. In the
short-run the effects of this are shown by
a. moving to the left along the short-run Phillips curve.
b. moving to the right along the short-run Phillips curve.
c. shifting the short-run Phillips curve to the right.
d. shifting the short-run Phillips curve to the left.
When inflation rises, people will desire to hold
a. less money and will go to the bank less frequently.
b. less money and will go to the bank more frequently.
c. more money and will go to the bank less frequently.
d. more money and will go to the bank more frequently.
Demand is said to be inelastic if
a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.
In the short-run an increase in the costs of production makes
a. output and prices rise.
b. output rise and prices fall.
c. output fall and prices rise.
d. output and prices fall.
Figure 4-20
The graph below pertains to the supply of paper to colleges and universities.
Refer to Figure 4-20. All else equal, a major paper manufacturer filing for bankruptcy
and shutting down as a result of an IRS tax evasion investigation would cause a move
from
a. x to y.
b. y to x.
c. SA to SB.
d. SB to SA.
The midpoint method is used to compute elasticity because it
a. automatically computes a positive number instead of a negative number.
b. results in an elasticity that is the same as the slope of the demand curve.
c. gives the same answer regardless of the direction of change.
d. automatically rounds quantities to the nearest whole unit.
Figure 8-9
The vertical distance between points A and C represent a tax in the market.
Refer to Figure 8-9. The amount of tax revenue received by the government is
a. $4,000.
b. $6,000.
c. $10,000.
d. $24,000.
Monique is the newly appointed CEO of a company that manufactures external hard
drives on an assembly line. Her staff has told her that the output the firm produces,
given the number of workers employed, indicates that some workers may be shirking.
According to efficiency wage theory, what should she do?
a. pay all workers more than the equilibrium wage rate
b. pay all workers below the equilibrium wage rate to make up for the loss from
shirking
c. make sure that workers are getting paid exactly the equilibrium wage rate
d. pay bonuses to workers who report the shirking of other workers
A Mexican company operates a restaurant in the U.S. The value of the restaurant’s
output produced by Mexican citizens and the equipment they own is included in
a. U.S. GNP and Mexican GNP.
b. U.S. GNP and Mexican GDP.
c. U.S. GDP and Mexican GNP.
d. U.S. GDP and Mexican GDP.
Inflation distorts savings when real interest income, rather than nominal interest
income, is taxed.
An increase in supply will cause a decrease in price, which will cause an increase in
demand.
FICA is an example of a payroll tax, which is a tax on the wages that firms pay their
workers.
The theory of liquidity preference was developed by Irving Fisher.
Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A
year later, Bob withdraws his $105. If inflation was 2 percent during the year the money
was deposited, then Bob’s purchasing power has increased by 3 percent.
Market failure is the ability of a single person to have a substantial influence on market
prices.
If the inflation rate is zero, then the nominal and real interest rate are the same.
Structural unemployment is often thought to explain relatively long spells of
unemployment.
When a tax is imposed on a good, the resulting decrease in consumer surplus is always
larger than the resulting decrease in producer surplus.
In the open-economy macroeconomic model, a higher domestic interest rate reduces the
quantity of loanable funds demanded
Explain how the relation between the real exchange rate and net exports explains the
downward slope of the demand for foreign-currency exchange curve.
One prominent debate over macroeconomic policy centers on the question of whether
monetary and fiscal policy should be used to try to stabilize the economy.
A forest is an example of a nonrenewable resource.
Price will rise to eliminate a shortage.
If the demand curve is very inelastic and the supply curve is very elastic in a market,
then the sellers will bear a greater burden of a tax imposed on the market, even if the
tax is imposed on the buyers.
Recessions are associated with lower incomes, rising unemployment, and falling
profits.
According to purchasing power parity, the nominal exchange rate between the U.S. and
another country should equal the price level of foreign goods divided by the price level
of U.S. goods.
Free trade causes job losses in industries in which a country does not have a
comparative advantage, but it also causes job gains in industries in which the country
has a comparative advantage.
Trade allows a country to consume outside its production possibilities frontier.
Minimum-wage laws benefit society by creating a surplus of labor.