Two of the economy’s most important financial intermediaries are
a. suppliers of funds and demanders of funds.
b. banks and the bond market.
c. the stock market and the bond market.
d. banks and mutual funds.
A roll of duct tape costs 2 Canadian dollars in Canada and 1.75 U.S. dollars in the U.S.
If the nominal exchange rate were 1.10 Canadian dollars per U.S. dollar.
a. A profit could be made by buying duct tape in Canada and selling it in the U.S. This
would tend to drive up the price of U.S. duct tape.
b. A profit could be made by buying duct tape in Canada and selling it in the U.S. This
would tend to drive up the price of Canadian duct tape.
c. A profit could be made by buying duct tape in the U.S. and selling it in Canada. This
would tend to drive up the price of U.S. duct tape.
d. A profit could be made by buying duct tape in the U.S. and selling it in Canada. This
would tend to drive up the price of Canadian duct tape.
Which list contains, in this order, a country whose real GDP per person grew faster and
one whose real GDP per person grew slower than real GDP per person in the U.S. over
the last 100 years?
a. China, Pakistan
b. United Kingdom, China
c. Pakistan, Argentina
d. Argentina, Japan
The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase
in world prices of oil and foodstuffs were affecting the economy.
Refer to the Economy in 2008. The effects of increased prices of world commodities is
shown by shifting
a. aggregate demand to the right.
b. aggregate demand to the left.
c. aggregate supply to the right.
d. aggregate supply to the left.
By definition, exports are
a. limits placed on the quantity of goods brought into a country.
b. goods in which a country has an absolute advantage.
c. people who work in foreign countries.
d. goods produced domestically and sold abroad.
Table 3-17
US and French Production Opportunities
Refer to Table 3-17 France has an absolute advantage in the production of
a. wine.
b. cheese.
c. both wine and cheese.
d. neither wine nor cheese.
When a country imposes an import quota, its
a. net exports rise and its real exchange rate appreciates.
b. net exports rise and its real exchange rate depreciates.
c. net exports fall and its real exchange rate depreciates
d. None of the above is correct.
If a country had a trade deficit of $10 billion and then its exports rose by $20 billion
and its imports rose by $10 billion, its net exports would now be
a. $0
b. $10 billion.
c. -$10 billion.
d. -$20 billion.
If net exports are positive, then
a. exports are greater than imports.
b. net capital outflow is negative.
c. Both of the above are correct.
d. Neither of the above is correct.
According to the misperceptions theory of the short-run aggregate supply curve, if a
firm thought that inflation was going to be 4 percent and actual inflation was 2 percent,
then the firm would believe that the relative price of what it produces had
a. increased, so it would increase production.
b. increased, so it would decrease production.
c. decreased, so it would increase production.
d. decreased, so it would decrease production.
The principle that “people face tradeoffs” applies to
a. individuals.
b. families.
c. societies.
d. All of the above are correct.
Over time, housing shortages caused by rent control
a. increase, because the demand for and supply of housing are less elastic in the long
run.
b. increase, because the demand for and supply of housing are more elastic in the long
run.
c. decrease, because the demand for and supply of housing are less elastic in the long
run.
d. decrease, because the demand for and supply of housing are more elastic in the long
run.
If the United States had negative net exports last year, then it
a. sold more abroad than it purchased abroad and had a trade surplus.
b. sold more abroad than it purchased abroad and had a trade deficit.
c. bought more abroad than it sold abroad and had a trade surplus.
d. bought more abroad than it sold abroad and had a trade deficit.
In the early 1930s in the United States, there was a
a. large increase in output. In the early 1940s there was also a large increase in output.
b. large increase in output. In the early 1940s there was a large decrease in output.
c. large decrease in output. In the early 1940s there was a large increase in output.
d. large decrease in output. In the early 1940s there was also a large decrease in output.
When the price of good A is $50, the quantity demanded of good A is 500 units. When
the price of good A rises to $70, the quantity demanded of good A falls to 400 units.
Using the midpoint method, the price elasticity of demand for good A is
a. 1.50, and an increase in price will result in an increase in total revenue for good A.
b. 1.50, and an increase in price will result in a decrease in total revenue for good A.
c. 0.67, and an increase in price will result in an increase in total revenue for good A.
d. 0.67, and an increase in price will result in a decrease in total revenue for good A.
Figure 7-19
Refer to Figure 7-19. If the price were P3, consumer surplus would be represented by
the area
a. A.
b. A+B+C.
c. D+H+F.
d. A+B+C+D+H+F.
If a country institutes policies that lead domestic firms to desire more capital stock
a. net capital outflows rise and the real exchange rate rises.
b. net capital outflows rise and the real exchange rate falls.
c. net capital outflows fall and the real exchange rate rises.
d. net capital outflows and the real exchange rate falls.
Figure 3-11
The graph below represents the various combinations of ham and cheese (in pounds)
that the nation of Bonovia could produce in a given month.
Refer to Figure 3-11. In the nation of Cropitia, the opportunity cost of a pound of
cheese is 1.5 pounds of ham. Based on this information, if Bonovia and Cropitia want
to trade, Cropitia should specialize,in the production of
a. ham and import cheese.
b. cheese and import ham.
c. both goods and import neither good.
d. neither good and import both goods..
Which of the following countries had the highest level of real GDP per person in 2008?
a. Germany
b. United Kingdom
c. United States
d. Japan
A scholarship gives you $1,000 today and promises to pay you $1,000 one year from
today. What is the present value of these payments?
a. $2,000/(1 + r)2.
b. $1,000 + $1,000/(1 + r)
c. $1,000/(1 + r) + $1,000/(1 + r)2
d. $1,000(1 + r) + $1,000(1 + r)2
A movement along the demand curve might be caused by a change in
a. income.
b. the prices of substitutes or complements.
c. expectations about future prices.
d. the price of the good or service that is being demanded.
When economists talk about growth in the economy, they measure that growth as the
a. absolute change in nominal GDP from one period to another.
b. percentage change in nominal GDP from one period to another.
c. absolute change in real GDP from one period to another.
d. percentage change in real GDP from one period to another.
Which of the following is indicated by the data on real income per person for various
countries over the past 100 or so years?
a. If, in a relatively poor country, real income per person had grown by 3.5 percent per
year for the last 100 years, it would be a relatively rich country today.
b. Rich countries became richer and poor countries became poorer.
c. In the United States, real income per person today is about four times as high as it
was 100 years ago.
d. All of the above are correct.
According to the open-economy macroeconomic model, import quotas increase which
of the following
a. net exports and net capital outflow
b. net exports but not net capital outflow.
c. net capital outflow but not net exports.
d. neither net exports nor net capital outflow.
Which of the following could be the cross-price elasticity of demand for two goods that
are complements?
a. -1.3
b. 0
c. 0.2
d. 1.4
Last year a country had 800 workers who worked an average of 8 hours and produced
12,800 units. This year the same country had 1000 workers who worked an average of 8
hours and produced 14,000 units. This country’s productivity was
a. higher this year than last year. A possible source of this change in productivity is a
change in the size of the capital stock.
b. higher this year than last year. A change in the size of the capital stock does not affect
productivity.
c. lower this year than last year. A possible source of this change in productivity is a
change in the size of the capital stock.
d. lower this year than last year. A change in the size of the capital stock does not affect
productivity.
Other things the same, which of the following is correct?
a. A decrease in the price level causes the dollar to appreciate. Aggregate demand shifts
right.
b. A decrease in the price level causes the dollar to depreciate. Aggregate demand shifts
right.
c. If speculators lose confidence in the American economy, the dollar appreciates.
Aggregate demand shifts right.
d. If speculators lose confidence in the American economy, the dollar depreciates.
Aggregate demand shifts right.
In a market economy, scarcity of resources is most clearly reflected in
a. supply.
b. demand.
c. market prices.
d. the stock of the resource.
Table 4-3
Refer to Table 4-3. If these are the only four buyers in the market, then the market
quantity demanded at a price of $2 is
a. 0 units.
b. 3.5 units.
c. 12 units.
d. 14 units.
When the consumer price index falls, the typical family
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can save less because they do not need to offset the effects of rising prices.
Some economists argue that it is possible to raise the standard of living by reducing
population growth. As an economist interested in incentives rather than coercion, what
kind of policy would you recommend to slow population growth?
If the government removes a binding price ceiling in a market, then the producer
surplus in that market will increase.
Increases in both human capital per worker and physical capital per worker increase
productivity.
To say people respond to incentives means that people may alter their decisions when
the costs and benefits of an action change.
Connie can clean windows in large office buildings at a cost of $1 per window. The
market price for window-cleaning services is $3 per window. If Connie cleans 100
windows, her producer surplus is $200.
Drug interdiction, which reduces the supply of drugs, will likely be a less effective
policy than educating consumers to reduce their demand for drugs because the drug
interdiction policy will lower drug prices and reduce the quantity of drugs demanded.
The natural rate of unemployment is any type of unemployment that does not go away
on its own even in the long run.
The area below the price and above the supply curve measures the producer surplus in a
market.
Roundabout trade decreases production.
Sectoral shifts contribute to structural unemployment.
Critics of unions argue that unions cause the allocation of labor to be inefficient and
inequitable.
Economics is the study of how evenly goods and services are distributed within society.
Price controls are usually enacted when policymakers believe that the market price of a
good or service is unfair to buyers or sellers.
A binding price ceiling may not help all consumers, but it does not hurt any consumers.
Some countries have inflation around or in excess of 8 percent. Suppose that the
sacrifice ratio is 2.5. What is the cost of reducing inflation from 8 percent to 2 percent?
In your answer, define the sacrifice ratio and explain how you found the cost of
inflation reduction.
An increase in the money supply causes the interest rate to fall, investment spending to
rise, and aggregate demand to shift right.
Unless two people who are producing two goods have exactly the same opportunity
costs, then one person will have a comparative advantage in one good, and the other
person will have a comparative advantage in the other good.