One problem with the consumer price index stems from the fact that, over time,
consumers tend to buy larger quantities of goods that have become relatively less
expensive and smaller quantities of goods that have become relatively more expensive.
This problem is called
a. price-change neglect.
b. unmeasured quality change.
c. substitution bias.
d. relative bias.
A tax on the sellers of coffee mugs
a. increases the size of the coffee mug market.
b. decreases the size of the coffee mug market.
c. has no effect on the size of the coffee mug market.
d. may increase, decrease, or have no effect on the size of the coffee mug market.
A legal maximum on the price at which a good can be sold is called a price
a. floor.
b. subsidy.
c. support.
d. ceiling.
If the price level falls, the real value of a dollar
a. rises, so people will want to buy more. This response helps explain the slope of the
aggregate demand curve.
b. rises, so people will want to buy more. This response shifts aggregate demand to the
right.
c. falls, so people will want to buy less. This response helps explain the slope of the
aggregate demand curve.
d. falls, so people will want to buy less. This response shifts aggregate demand to the
left.
Other things the same, a country that decides to reduce inflation will
a. have a higher unemployment rate in the short run and the long run.
b. have a higher unemployment rate only in the long run.
c. have a higher unemployment rate only in the short run.
d. not have a higher unemployment rate in either the short run or the long run.
The price level falls if either
a. money demand or money supply shifts rightward.
b. money demand shifts rightward or money supply shifts leftward.
c. money demand shifts leftward or money supply shifts rightward.
d. money demand or money supply shifts leftward.
Opponents of free trade often want the United States to prohibit the import of goods
made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting
such goods is likely to
a. cause these factories to pay the U.S. minimum wage.
b. increase the rate of technological advance in poor countries so that they can afford to
pay higher wages.
c. increase poverty in poor countries and benefit U.S. firms which compete with these
imports.
d. harm U.S. firms which compete with these imports.
Figure 2-12
Refer to Figure 2-12. Which points are not currently attainable but could become
achievable for this economy if there is an improvement in technology?
a. D, H
b. B, C
c. F, G
d. A, B
The price of sugar that prevails in international markets is called the
a. export price of sugar.
b. import price of sugar.
c. comparative-advantage price of sugar.
d. world price of sugar.
Evidence from research studies by economists
a. shows that increased unemployment benefits decrease the job search efforts of the
unemployed.
b. shows that increased unemployment benefits have virtually no effect on the job
search efforts of the unemployed.
c. shows that increased unemployment benefits increase the job search efforts of the
unemployed.
d. is conflicting on what increased unemployment benefits do to the job search efforts
of the unemployed.
Figure 21-6. On the left-hand graph, MS represents the supply of money and MD
represents the demand for money; on the right-hand graph, AD represents aggregate
demand. The usual quantities are measured along the axes of both graphs.
Refer to Figure 21-6. Suppose the multiplier is 3 and the government increases its
purchases by $25 billion. Also, suppose the AD curve would shift from AD1 to AD2 if
there were no crowding out; the AD curve actually shifts from AD1 to AD3with
crowding out. Finally, assume the horizontal distance between the curves AD1 and AD3
is $30 billion. The extent of crowding out, for any particular level of the price level, is
a. $25 billion.
b. $30 billion.
c. $45 billion.
d. $60 billion.
Sometimes during wars, government expenditures are larger than normal. To reduce the
effects this spending creates on interest rates,
a. the Federal Reserve could increase the money supply by buying bonds.
b. the Federal Reserve could increase the money supply by selling bonds.
c. the Federal Reserve could decrease the money supply by buying bonds.
d. the Federal Reserve could decrease the money supply by selling bonds.
Which of the following is included in the supply of U.S. dollars in the market for
foreign-currency exchange in the open-economy macroeconomic model?
a. A retail outlet in Canada wants to buy handbags from a U.S. manufacturer.
b. A U.S. bank loans dollars to Karen, a U.S. resident, who wants to purchase a car in
the U.S.
c. A U.S. based law firm wants to build a new office in Japan.
d. All of the above are correct.
Assuming that a is positive, theories of short-run aggregate supply are expressed
mathematically as
a. quantity of output supplied = natural rate of output + a(actual price level – expected
price level).
b. quantity of output supplied = natural rate of output + a(expected price level – actual
price level).
c. quantity of output supplied = a(actual price level -expected price level) – natural rate
of output.
d. quantity of output supplied = a(expected price level – actual price level) – natural rate
of output.
Pens are normal goods. What will happen to the equilibrium price of pens if the price of
pencils rises, consumers experience an increase in income, writing in ink becomes
fashionable, people expect the price of pens to rise in the near future, the population
increases, fewer firms manufacture pens, and the wages of pen-makers increase?
a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.
Figure 6-19
Refer to Figure 6-19. The price paid by buyers after the tax is imposed is
a. $3.
b. $4.
c. $5.
d. $7.
If nominal GDP is $10 trillion and real GDP is $12 trillion, then the GDP deflator is
a. 83.33, and this indicates that the price level has decreased by 16.67 percent since the
base year.
b. 83.33, and this indicates that the price level has increased by 83.33 percent since the
base year.
c. 120, and this indicates that the price level has increased by 20 percent since the base
year.
d. 120, and this indicates that the price level has increased by 120 percent since the base
year.
Longview Corporation has a stock price of $50, has issued 2,000,000 shares of stock,
has retained earnings of $4 million dollars, and a dividend yield of 4 percent. The
price-earnings ratio for Longview stock is
a. 25, which is high compared to historical standards of the market.
b. 25, which is low compared to historical standards of the market.
c. 12.5, which is low compared to historical standards of the market.
d. 12.5, which is high compared to historical standards of the market.
In a free, competitive market, what is the rationing mechanism?
a. seller bias
b. buyer bias
c. government law
d. price
If the government of Kenya implemented a policy that decreased national saving, its
real exchange rate would
a. depreciate and Kenyan net exports would rise.
b. depreciate and Kenyan net exports would fall.
c. appreciate and Kenyan net exports would rise.
d. appreciate and Kenyan net exports would fall.
A tax imposed on the sellers of a good will lower the
a. price paid by buyers and lower the equilibrium quantity.
b. price paid by buyers and raise the equilibrium quantity.
c. effective price received by sellers and lower the equilibrium quantity.
d. effective price received by sellers and raise the equilibrium quantity.
Figure 14-2. The figure shows a utility function for Mary Ann.
Refer to Figure 14-2. Suppose Mary Ann begins with $1,050 in wealth. Which of the
following coin-flip bets would she definitely not be willing to accept?
a. If it is “heads,” she wins $100; if it is tails, she loses $95.
b. If it is “heads,” she wins $150; if it is tails, she loses $150.
c. If it is “heads,” she wins $150; if it is tails, she loses $140.
d. She definitely would not accept any of these bets.
“Other things equal, when the price of a good rises, the quantity supplied of the good
also rises, and when the price falls, the quantity supplied falls as well.” This relationship
between price and quantity supplied
a. is referred to as the law of supply.
b. applies only to a few goods in the economy.
c. is represented by a downward-sloping supply curve.
d. All of the above are correct.
Table 11-4
The table below pertains to Wrexington, an economy in which the typical consumer’s
basket consists of 20 pounds of meat and 10 toys.
Refer to Table 11-4. If the base year is 2004, then the CPI
a. increased from 2004 to 2005 and increased from 2005 to 2006.
b. increased from 2004 to 2005 and decreased from 2005 to 2006.
c. decreased from 2004 to 2005 and increased from 2005 to 2006.
d. decreased from 2004 to 2005 and decreased from 2005 to 2006.
The price of a basket of goods is $2000 in the U.S. If purchasing power parity holds,
and the dollar buys two units of some country’s currency, then how many units of
foreign currency does the same basket of goods cost in that country?
a. 4000
b. 2000
c. 1000
d. None of the above are correct.
Which of the following shifts aggregate demand to the left?
a. The price level rises.
b. The price level falls.
c. The dollar depreciates for some reason other than a change in the price level.
d. Stock prices fall for some reason other than a change in the price level.
When the money supply and the price level in countries that experienced hyperinflation
are plotted on a graph against time, we see that
a. the price level grew at about the same rate as the money supply.
b. the price level grew at a much faster rate than the money supply.
c. the price level grew at a much slower rate than the money supply.
d. the inflation rate and the money supply growth rate do not appear to be related.
Many U.S. business leaders argue that the current state of U.S. net exports is the result
of
a. U.S. export subsidies.
b. free trade policies of foreign governments.
c. unproductive U.S. workers.
d. unfair foreign competition.
In an open economy, the demand for loanable funds comes from
a. only those who want to borrow funds to buy domestic capital goods.
b. only those who want to borrow funds to buy foreign assets.
c. those who want to borrow funds to buy either domestic capital goods or foreign
assets.
d. neither those who want to borrow funds to buy domestic capital goods nor those who
want to borrow funds to buy foreign assets.
Suppose that the demand for picture frames is highly inelastic, and the supply of picture
frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the
price paid by buyers of picture frames by
a. less than $0.50.
b. $0.50.
c. between $0.50 and $1.
d. $1.
One difference between a hypothetical benevolent king implementing the best policy
and the president implementing the best policy in the real world is the president has to
be concerned about
a. any misunderstandings in communicating the policy to the public.
b. whether the policy will affect his standing among different groups in the electorate.
c. what amendments will be suggested by members of Congress.
d. All of the above are correct.
GDP is the market value of all final goods and services produced within a country in a
given period of time.
When the government has a deficit, a burden is necessarily imposed on future
generations of taxpayers.
People who report being unemployed but who, in fact, are working for “under the table”
pay to avoid taxes on their earnings are really employed and therefore cause the
reported unemployment rate to be higher than it would otherwise be.
An increase in price increases consumer surplus.
Most economists agree that eliminating unemployment insurance would increase the
amount of unemployment in the economy.
Figure 2-14
Refer to Figure 2-14. This economy fully employs its resources when it produces 35
dishwashers and zero doghouses.
Specialization and trade can make everyone better off if a person can obtain goods at
prices that are less than that person’s opportunity cost.
The classic tradeoff between “guns and butter” states that when a society spends more
on national defense, it has less to spend on consumer goods to raise the standard of
living.
In a perfectly competitive market, the goods offered for sale are all exactly the same.
The unemployment rate equals the percentage of the adult population that is
unemployed.
Why did farmers in the late 1800s dislike deflation?
In liquidity preference theory, an increase in the interest rate, other things the same,
decreases the quantity of money demanded, but does not shift the money demand curve.
In an economy consisting of two people producing two goods, it is possible for one
person to have the absolute advantage and the comparative advantage in both goods.
Explain how an increase in the demand for capital goods in the U.S. can lead to a
change in the U.S. exchange rate.
The analysis of Friedman and Phelps argues that an expected change in inflation has no
impact on the unemployment rate.
Some adults who were not working are included in the Bureau of Labor Statistics’
“employed” category.
When a firm wants to borrow directly from the public to finance the purchase of new
equipment, it does so by selling bonds.