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In the circular-flow diagram, in the markets for
a. goods and services, households and firms are both sellers.
b. goods and services, households are sellers and firms are buyers.
c. the factors of production, households are sellers and firms are buyers.
d. the factors of production, households and firms are both buyers.
After the terrorist attacks on September 11, 2001, governments within the United States
raised expenditures to increase security at airports. These purchases of goods and
services are
a. not included in GDP since they do not represent production.
b. not included in GDP since the government collects taxes to pay for them.
c. included in GDP since government expenditures on goods and services are included
in GDP.
d. included in GDP only to the extent that the federal government, rather than state or
local governments, paid for them.
Figure 2-16
In the following graph the x-axis shows the number of times a commuter rail train stops
at a station per hour and the y-axis shows the number of commuter rail passengers per
hour.
Commuter Rail Passengers by Frequency of Service
Refer to Figure 2-16. A policymaker observes this graph and concludes that increasing
the frequency of commuter rail service is a certain way to get more commuters to
choose the commuter rail instead of driving their own cars. You warn the policymaker
about making a reverse causality mistake with which of the following statements?
a. Higher gas prices are causing more people to choose the commuter rail over driving.
b. The service frequency was increased in response to an increase in the number of
passengers per hour.
c. There is a positive relationship between frequency of stops and number of
passengers.
d. None of the above is correct.
Figure 5-7
Refer to Figure 5-7. For prices above $8, demand is price
a. elastic, and total revenue will rise as price rises.
b. inelastic, and total revenue will rise as price rises.
c. elastic, and total revenue will fall as price rises.
d. inelastic, and total revenue will fall as price rises.
Figure 7-20
Refer to Figure 7-20. If 6 units of the good are produced and sold, then
a. consumer surplus is maximized.
b. producer surplus is maximized.
c. the sum of consumer surplus and producer surplus is maximized.
d. the marginal value to buyers exceeds the marginal cost to sellers.
Jill does not currently have a job, but has applied for several jobs in the previous week.
Ken is an unpaid stay-at-home dad who has not searched for work in recent years. Who
does the BLS count as out of the labor force?
a. Jill but not Ken
b. Ken but not Jill
c. Jill and Ken
d. neither Jill nor Ken
Which of the following is most likely to increase U.S. exports?
a. The government gives subsidies to U.S. firms that export goods or services.
b. The government reduces the size of the budget surplus.
c. The United States unilaterally reduces its restrictions on foreign imports.
d. Taxes on domestic saving rise.
Which of the following statements is correct?
a. A high-risk person is more likely to apply for insurance than a low-risk person
because a high-risk person would benefit more from insurance protection.
b. A low-risk person is more likely to apply for insurance than a high-risk person
because a low-risk person would benefit more from insurance protection.
c. Insurance companies can fully guard against the problem of adverse selection, but
they cannot fully guard against the problem of moral hazard.
d. Insurance companies can fully guard against the problem of moral hazard, but they
cannot fully guard against the problem of adverse selection.
Figure 5-5
Refer to Figure 5-5. Using the midpoint method, demand is unit elastic between prices
of
a. $18 and $24.
b. $24 and $30.
c. $24 and $36.
d. $30 and $36.
If the Federal Open Market Committee decides to increase the money supply, then the
Federal Reserve
a. creates dollars and uses them to purchase government bonds from the public.
b. sells government bonds from its portfolio to the public.
c. creates dollars and uses them to purchase various types of stocks and bonds from the
public.
d. sells various types of stocks and bonds from its portfolio to the public.
Figure 6-8
Refer to Figure 6-8. The price of the good would continue to serve as the rationing
mechanism if
a. a price ceiling of $4 is imposed.
b. a price ceiling of $5 is imposed.
c. a price floor of $3 is imposed.
d. All of the above are correct.
If the price of walnuts rises, many people would switch from consuming walnuts to
consuming pecans. But if the price of salt rises, people would have difficulty
purchasing something to use in its place. These examples illustrate the importance of
a. the availability of close substitutes in determining the price elasticity of demand.
b. a necessity versus a luxury in determining the price elasticity of demand.
c. the definition of a market in determining the price elasticity of demand.
d. the time horizon in determining the price elasticity of demand.
In the early 1980s, U.S. economic policy was directed toward reducing inflation. What
would you have expected to observe during this short period of time?
a. Inflation fell and unemployment fell.
b. Inflation and unemployment were both unaffected.
c. Inflation fell and unemployment increased.
d. Inflation fell and unemployment was unchanged.
The Bureau of Labor Statistics reported in 2005 that there were 40 million people over
age 25 whose highest level of education was some college or an associate degree, 33.86
million of whom were employed and 1.27 million of whom were unemployed. What
were the labor-force participation rate and the unemployment rate for this group?
a. 69.7% and 2.5%
b. 69.7% and 3.6%
c. 67.2% and 2.5%
d. 67.2% and 3.6%
Which of the following is an example of the "brain drain?"
a. A country's most highly educated workers emigrate to rich countries.
b. A country has such a poor educational system that human capital falls over time.
c. The population of a country grows so fast that the educational system can't keep up.
d. A country steals patented technology from another country.
Other things equal, relatively poor countries tend to grow
a. slower than relatively rich countries; this is called the poverty trap.
b. slower than relatively rich countries; this is called the fall-behind effect.
c. faster than relatively rich countries; this is called the catch-up effect.
d. faster than relatively rich countries; this is called the constant-returns-to-scale effect.
Figure 9-16. The figure below illustrates a tariff. On the graph, Q represents quantity
and P represents price.
Refer to Figure 9-16. Government revenue raised by the tariff is represented by the
area
a. E.
b. B + E.
c. D + E + F.
d. B + D + E + F.
Other things the same, if the price level is lower than expected, then some firms believe
that the relative price of what they produce has
a. decreased, so they increase production.
b. decreased, so they decrease production.
c. increased, so they increase production.
d. increased, so they decrease production.
A firm produces manufacturing equipment, some of which it exports. Which of the
following effects of capital flight in the country it produces in would likely reduce the
quantity of equipment it sells?
a. both what happens to the interest rate and what happens to the exchange rate
b. what happens to the interest rate but not what happens to the exchange rate
c. what happens to the exchange rate but not what happens to the interest rate
d. neither what happens to the interest rate nor what happens to the interest rate.
Which of the following does not create unemployment by keeping wages above the
equilibrium level?
a. efficiency wages
b. job search
c. minimum-wage laws
d. unions
When the Fed purchases $200 worth of government bonds from the public, the U.S.
money supply eventually increases by
a. more than $200.
b. exactly $200.
c. less than $200.
d. None of the above are correct.
The lag problem associated with monetary policy is due mostly to
a. the fact that business firms make investment plans far in advance.
b. the political system of checks and balances that slows down the process of
determining monetary policy.
c. the time it takes for changes in government spending to affect the interest rate.
d. All of the above are correct.
Late in the 2000"2009 decade, real estate prices in the U.S. fell by a greater percentage
than they had fallen since the
a. 1890s.
b. 1930s.
c. 1950s.
d. 1970s.
When a tax is placed on the buyers of a product, the
a. size of the market decreases.
b. effective price received by sellers decreases, and the price paid by buyers increases.
c. demand for the product decreases.
d. All of the above are correct.
Suppose the government has imposed a price ceiling on laptop computers. Which of the
following events could transform the price ceiling from one that is not binding into one
that is binding?
a. Improvements in production technology reduce the costs of producing laptop
computers.
b. The number of firms selling laptop computers decreases.
c. Consumers' income decreases, and laptop computers are a normal good.
d. The number of consumers buying laptop computers decreases.
The combination of President Obama's strategies and the Federal Reserve's reaction to
the deep economic downturn in the US in 2008 and 2009
a. intended to reduce unemployment.
b. may lead to excessive inflation over time.
c. resulted in higher taxes and an increased supply of money.
d. Both a and b are correct.
In 2009, Modern Electronics, Inc. produced 60,000 calculators, employing 80 workers,
each of whom worked 8 hours per day. In 2010, the same firm produced 76,500
calculators, employing 85 workers, each of whom worked 10 hours per day.
Productivity at Modern Electronics
a. decreased by 4%
b. remained constant.
c. increased by 8.33%
d. increased by 27.50%
Which of the following statements does not apply to a market economy?
a. Firms decide whom to hire and what to produce.
b. The "invisible hand" usually maximizes the well-being of society as a whole.
c. Households decide which firms to work for and what to buy with their incomes.
d. Government policies are the primary forces that guide the decisions of firms and
households.
An American company operates a fast food restaurant in Paris, France. Which of the
following statements is accurate?
a. The value of the goods and services produced by the restaurant is included in both
French GDP and U.S. GDP.
b. The value added by American workers and equipment in France is included in U.S.
GDP and the value added by French workers and equipment is added to French GDP.
c. The value of the goods and services produced by the restaurant is included in French
GDP, but not in U.S. GDP.
d. The value of the goods and services produced by the restaurant is included in U.S.
GDP, but not in French GDP.
When a country that imports a particular good imposes an import quota on that good,
a. consumer surplus increases and total surplus increases in the market for that good.
b. consumer surplus increases and total surplus decreases in the market for that good.
c. consumer surplus decreases and total surplus increases in the market for that good.
d. consumer surplus decreases and total surplus decreases in the market for that good.
If a McDonald's Big Mac cost $3.06 in the United States and 3.21 euros in the Euro
area, then purchasing-power parity implies the nominal exchange rate is how many
euros per dollar?
a. 1.05 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S.
than in the Euro area.
b. 1.05 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S.
then in the Euro area.
c. 0.95 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S.
than in the Euro area.
d. 0.95 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S.
than in the Euro area.
If $300 of new reserves generates $800 of new money in the economy, then the reserve
ratio is
a. 2.7 percent.
b. 12.5 percent.
c. 37.5 percent.
d. 40 percent.
If a U.S. company buys an electrical generator made in Japan by a Japanese firm, and
the Japanese firm uses the payment to buy stocks issued by a U.S. company then
a. U.S. exports and U.S imports increase.
b. U.S. exports but not U.S. imports increase.
c. U.S. imports but not U.S. exports increase.
d. neither U.S. exports nor U.S. imports increase.
In a 100-percent-reserve banking system, if people decided to decrease the amount of
currency they held by increasing the amount they held in checkable deposits, then
a. M1 would increase.
b. M1 would decrease.
c. M1 would not change.
d. M1 might rise or fall.
Figure 7-12
Refer to Figure 7-12. When the price rises from P1 to P2, which area represents the
increase in producer surplus due to new producers entering the market?
a. A
b. B
c. A+B
d. G
If the spending multiplier is 8, then the marginal propensity to consume must be 7/8.
The goal of macroeconomics is to explain the economic changes that affect many
households, firms, and markets simultaneously.
Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States. If
the exchange rate is .80 euros per dollar, what is the real exchange rate?
In 2009, government purchases was the largest component of U.S. GDP.
Changes in the GDP deflator reflect only changes in the prices of goods and services.
If a county becomes more likely to default on its bonds, what happens to that country's
interest rate and exchange rate? Explain.
An increase in the inflation rate permanently reduces the natural rate of unemployment.
A nation's saving rate is not a primary determinant of its long-run economic prosperity.
The labor-force participation rate tells us the fraction of the population that is able to
participate in the labor market.
What is a production function? Write an equation for a typical production function, and
explain what each of the terms represents.
If inflation is higher than expected, then lenders receive interest payments whose real
values are less than they expected.
Government policies that improve equality usually increase efficiency at the same time.
The concept of present value helps explain why the quantity of loanable funds
demanded decreases when the interest rate increases.
A shortage will occur at any price below equilibrium price and a surplus will occur at
any price above equilibrium price.
Discrimination is an example of a rationing mechanism that may naturally develop in
response to a binding price floor.
If a person expects the price of pumpkins to increase next month, then that person's
current demand for pumpkins will increase.
A tax on a good causes the size of the market to shrink.
