Greece’s financial difficulties following the crisis of 2008 were due primarily to a
housing bubble.
A) True
B) False
Table: Peanut Butter and Jelly
Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars of
peanut butter and 10 jars of jelly. What is the value of the market basket in 2014?
A) $62
B) $49
C) $42
D) $44.50
Figure: The Market for Laptop Sleeves
Look at the figure The Market for Laptop Sleeves. Assume that Sand Dare the domestic
supply and demand curves and the world price is PW.Identify the area of deadweight
loss when a tariff raises the domestic price from the world price to PT.
A) A + B
B) C + D + E + F
C) D + E + F
D) D + F
Look at the table Comparative Advantage I. Finland has a comparative advantage in
producing:
A) cell phones only.
B) herring only.
C) both cell phones and herring.
D) neither cell phones nor herring.
When the output gap is positive, the unemployment rate is:
A) positive.
B) above the natural rate.
C) below the natural rate.
D) negative.
The “wholesale” funding that Irish banks used for real estate loans came primarily
from:
A) the European Union central bank.
B) long-term, low-interest loans from the Irish government.
C) bank deposits of individuals.
D) short-term loans from other banks and private investors.
The scale most often used to compare economic performance in other years is:
A) the circular-flow diagram.
B) GDP.
C) the business cycle.
D) fiscal policy.
Look at the table Bongos and Frisbees. Bill and Mickey make bongos and Frisbees.
Who should specialize in the production of bongos?
A) Bill
B) Mickey
C) both
D) neither
The government saves when it:
A) has a balanced budget.
B) has a budget deficit.
C) has a budget surplus.
D) borrows by selling bonds.
The supply of pounds sterling in the foreign exchange market might come from people
in Britain who want to buy U.S. goods, services, and assets.
A) True
B) False
Consider an economy that already has a sizable budget deficit. If the economy is facing
a major downturn, the government should:
A) stimulate the economy by raising expenditure as long as the ratio of debt to GDP is
declining.
B) stimulate the economy by raising expenditure irrespective of the ratio of debt to
GDP.
C) not stimulate the economy by raising expenditure because of the burden of debt.
D) not increase government expenditure, since the budget should be balanced.
A high unemployment rate implies a high level of GDP.
A) True
B) False
For a marginal propensity to consume of 0.9, the multiplier effect of an increase of $100
billion in government purchases of goods and services is larger than the multiplier
effect of a tax cut of $100 billion because:
A) the government pays a higher price than households for the same goods and
services.
B) production of the goods and services the government purchases has a bigger impact
on real GDP than production of consumer goods.
C) many households fail to file their income tax and claim their refund.
D) in the first round of spending only $90 billion of the tax cut will be spent and $10
billion will be saved, while the entire $100 billion of government purchases will be
spent.
Which of the following is likely to cause a rightward shift in the demand for
home-delivered pizza?
A) a lower price of pizza
B) a lower price of fast-food hamburgers
C) a higher price of pepperoni
D) a larger population
The 2001 devaluation of the Argentine peso had all of the following effects EXCEPT:
A) promoting Argentine exports.
B) helping close a recessionary gap.
C) reducing the deficit of the current account.
D) helping close an inflationary gap.
Changes in aggregate demand can be caused by changes in:
A) wages.
B) business costs.
C) raw materials costs.
D) government spending.
Open market operations are carried out by the Federal Reserve Bank of:
A) San Francisco.
B) Kansas City.
C) Philadelphia.
D) New York.
To change the money supply, the Federal Reserve most frequently uses:
A) changes in the required reserve ratios.
B) changes in the discount rate.
C) open-market operations.
D) changes in the inflation rate.
Foreign exchange controls, unlike tariffs and quotas, do not distort incentives for trade
between countries.
A) True
B) False
The demand for meals at a local Applebee’s will shift to the left if:
A) the Olive Garden offers a 10 percent discount coupon in the local newspaper.
B) the price of a meal at Applebee’s rises.
C) local incomes increase and Applebee’s is a normal good.
D) the price of gasoline falls in the area.
Consumers and businesses with debt overhang are likely to _____ their borrowing and
_____ their spending.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase
When short-run aggregate supply increases, it means that the short-run aggregate
supply curve shifts to the right, showing that producers are willing to produce more at
each price level.
A) True
B) False
Workers in China earn low wages relative to world standards. A person who believes
trade must be bad for workers in China because of this adheres to the:
A) sweatshop labor fallacy.
B) Heckscher”Ohlin theory.
C) pauper labor fallacy.
D) theory of absolute advantage.
In the long run, the interest rate is determined in the _____ market.
A) stock
B) money
C) loanable funds
D) commodity
Unemployment that is due to the time workers spend in job search is _____
unemployment.
A) frictional
B) structural
C) cyclical
D) natural
Table: The Economy of Albernia
Real GDP
(in billions) Disposable Income
(in billions) Consumption
(in billions) Planned Investment
(in billions)
$ 0 $ 0 $ 400 $600
500 500 700 600
1,000 1,000 1,000 600
1,500 1,500 1,300 600
2,000 2,000 1,600 600
2,500 2,500 1,900 600
3,000 3,000 2,200 600
Look at the table The Economy of Albernia. If real GDP is $3,000 billion, then
unplanned investment is:
A) zero.
B) $100 billion.
C) $200 billion.
D) $300 billion.
An increase in the interest rate causes a decrease in investment by shifting the loanable
funds demand curve to the left.
A) True
B) False
A college student is faced with a difficult decision of how to spend one hour tonight.
She could babysit her professor’s child at an hourly wage of $7; she could work at the
college library at a wage of $6; or she could finish her economics homework
assignment. If she chooses to complete her homework assignment, she has incurred an
opportunity cost equal to:
A) $7.
B) $6.
C) $13.
D) $0.
Real GDP per capita in the United States increased almost _____ times between 1900
and 2010.
A) 2
B) 3
C) 8
D) 10
A decrease in aggregate demand is seen as a(n) _____ the aggregate demand curve.
A) downward movement along
B) upward movement along
C) shift to the left in
D) shift to the right in
The initial impact of an unexpected decrease in consumer spending will be a change in:
A) planned investment spending.
B) unplanned investment spending.
C) both planned and unplanned investment spending
D) neither planned nor unplanned investment spending.
A decrease in demand and a decrease in supply will lead to _____ in equilibrium
quantity and _____ in equilibrium price.
A) a decrease; an indeterminate change
B) an indeterminate change; an increase
C) an indeterminate change; a decrease
D) an increase; an indeterminate change
Which of the following is one of the reasons that the aggregate demand curve slopes
downward?
A) the paradox of thrift
B) the interest rate effect
C) the substitution effect
D) the income effect
Why did the adoption of Keynesian economics come out of the Great Depression?
A two-year-old child is eating raisins one at a time from a large box. Even though the
child doesn’t understand formal economic theory, he knows when to stop eating because
he is full. Describe how this child has already mastered marginal analysis.
Many economists caution against extremely active stabilization policy because of time
lags in its use. Explain this rationale.
The economy is in a recessionary gap. What are the fiscal policy options available to
the government?
Compare stocks and bonds with respect to risk and return.
Suppose the business cycle is expanding. Predict how the economic indicators of real
gross domestic product, the unemployment rate, and the inflation rate are moving.
Look at the table Gadget GDP in Rayistan. Why is real GDP per capita used as a
measure of a country’s standard of living? What are some of the limitations of using real
GDP as the only measure of a country’s quality of life?
Why is the long-run Phillips curve believed to be vertical at the natural rate of
unemployment, or NAIRU?
You read that college tuition is rising every year, and yet more students attend college
every year. Isn’t this a violation of the law of demand?
The short-run Phillips curve is believed to be downward sloping with the inflation rate
on the vertical axis and the unemployment rate on the horizontal axis. Can this curve
extend below the horizontal axis? Can it extend to the left of the vertical axis? Explain.
Explain why the classical model of the price level is more accurate during high inflation
than low inflation.
Explain how the boom and bust in the Ft. Myers housing market between 2003 and
2010 illustrates the positive and negative effects of the multiplier.
Explain the difference between shoe-leather costs and menu costs of inflation.
A college student stays up late writing a history paper and as a result sleeps through her
morning economics class. What is the cost of sleeping through the class?
Explain why economists believe that production possibility frontiers have a bowed-out
curvature rather than a straight line.
Why are economists so particular about the difference between an increase in quantity
demanded and an increase in demand? Aren’t they the same thing?