Figure 3-5
Hosne’s Production Possibilities Frontier Merve’s Production Possibilities Frontier
Refer to Figure 3-5. If Hosne and Merve switch from each person dividing her time
equally between the production of purses and wallets to each person spending all of her
time producing the good in which she has a comparative advantage, then total
production of purses will increase by
a. 2.
b. 3.
c. 5.
d. 10.
Which of the following is an example of a renewable natural resource?
a. fish
b. soybeans
c. wood
d. All of the above are correct.
If the price of Italian shoes imported into the United States increases, then
a. both the GDP deflator and the consumer price index will increase.
b. neither the GDP deflator nor the consumer price index will increase.
c. the GDP deflator will increase, but the consumer price index will not increase.
d. the consumer price index will increase, but the GDP deflator will not increase.
When quantity demanded responds strongly to changes in price, demand is said to be
a. fluid.
b. elastic.
c. dynamic.
d. highly variable.
Money demand refers to
a. the total quantity of financial assets that people want to hold.
b. how much income people want to earn per year.
c. how much wealth people want to hold in liquid form.
d. how much currency the Federal Reserve decides to print.
A decrease in the size of a tax is most likely to increase tax revenue in a market with
a. elastic demand and elastic supply.
b. elastic demand and inelastic supply.
c. inelastic demand and elastic supply.
d. inelastic demand and inelastic supply.
Other things equal, in the short run a higher price level leads households to
a. increase consumption and firms to buy more capital goods.
b. increase consumption and firms to buy fewer capital goods.
c. decrease consumption and firms to buy more capital goods.
d. decrease consumption and firms to buy fewer capital goods.
When a society decides to increase its quantity of physical capital, the society
a. can avoid the usual need to face trade-offs.
b. is apparently not very concerned about its rate of economic growth in the future.
c. is in effect deciding to consume fewer goods and services in the present.
d. is in effect deciding to save less of its current income in the present.
Table 10-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2009.
Prices and Quantities
Refer to Table 10-6. In 2011, this country’s GDP deflator was
a. 58.0.
b. 100.
c. 148.1.
d. 172.5.
Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5
empty rooms for tonight. If the marginal cost of operating one room for one night is $30
and a customer is willing to pay $60 for the night, the hotel manager should
a. rent the room because the marginal benefit exceeds the marginal cost.
b. rent the room because the marginal benefit exceeds the average cost.
c. not rent the room because the marginal benefit is less than the marginal cost.
d. not rent the room because the marginal benefit is less than the average cost.
When a French vineyard establishes a distribution center in the U.S., U.S. net capital
outflow
a. increases because the foreign company makes a portfolio investment in the U.S.
b. declines because the foreign company makes a portfolio investment in the U.S.
c. increases because the foreign company makes a direct investment in capital in the
U.S.
d. declines because the foreign company makes a direct investment in capital in the
U.S.
A program to reduce inflation is likely to have lower costs if the sacrifice ratio is
a. high and the reduction is unexpected.
b. high and the reduction is expected.
c. low and the reduction is unexpected.
d. low and the reduction is expected.
Which of the following is the correct expression for finding the present value of a $500
payment two years from today if the interest rate is 4 percent?
a. $500/(1.04)2
b. $500 – 500(1.04)2
c. $500 – $500/(.04)2
d. None of the above is correct.
Figure 9-9
Refer to Figure 9-9. Producer surplus in this market after trade is
a. A.
b. A + B.
c. B + C + D.
d. C.
Figure 20-2.
Refer to Figure 20-2. The appearance of the long-run aggregate-supply (LRAS) curve
a. is inconsistent with the concept of monetary neutrality.
b. is consistent with the idea that point A represents a long-run equilibrium but not a
short-run equilibrium when the relevant short-run aggregate-supply curve is AS1.
c. indicates that Y1 is the natural rate of output.
d. All of the above are correct.
The wealth effect helps explain the slope of the aggregate-demand curve. This effect is
a. relatively important in the United States because expenditures on consumer durables
is very responsive to changes in wealth.
b. relatively important in the United States because consumption spending is a large
part of GDP.
c. relatively unimportant in the United States because money holdings are a small part
of consumer wealth.
d. relatively unimportant because it takes a large change in wealth to cause a significant
change in interest rates.
Which of the following increases if the U.S. imposes an import quota on computer
components?
a. U.S. exports
b. U.S. imports
c. U.S. net exports
d. None of the above increases.
In analyzing the gains and losses from international trade, to say that Moldova is a
small country is to say that
a. Moldova can only import goods; it cannot export goods.
b. Moldova’s choice of which goods to export and which goods to import is not based
on the principle of comparative advantage.
c. only the domestic price of a good is relevant for Moldova; the world price of a good
is irrelevant.
d. Moldova is a price taker.
You are planning a graduation trip to Nepal. Other things the same, if the dollar
depreciates relative to the Nepalese rupee, then
a. the dollar buys fewer rupees. Your purchases in Nepal will require fewer dollars.
b. the dollar buys fewer rupees. Your purchases in Nepal will require more dollars.
c. the dollar buys more rupees. Your purchases in Nepal will require fewer dollars.
d. the dollar buys more rupees. Your purchases in Nepal will require more dollars.
Figure 3-7
Bintu’s Production Possibilities Frontier Juba’s Production Possibilities Frontier
Refer to Figure 3-7. Suppose Juba is willing to trade one bowl to Bintu for every two
cups that Bintu makes and sends to Juba. Which of the following combinations of
bowls and cups could Bintu then consume, assuming Bintu specializes in making cups
and Juba specializes in making bowls?
a. 1 bowl and 7 cups
b. 2 bowls and 4 cups
c. 3 bowls and 3 cups
d. 4 bowls and 1 cup
How is net national product (NNP) calculated?
a. Saving is subtracted from the total income of a nation’s citizens.
b. Saving is added to the total income of a nation’s citizens
c. Depreciation losses are subtracted from the total income of a nation’s citizens.
d. Depreciation losses are added to the total income of a nation’s citizens.
If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to
a. $200 of new money.
b. $2,000 of new money.
c. $20,000 of new money.
d. None of the above is correct.
You own a small town movie theatre. You currently charge $5 per ticket for everyone
who comes to your movies. Your friend who took an economics course in college tells
you that there may be a way to increase your total revenue. Given the demand curves
shown, answer the following questions.
a. What is your current total revenue for both groups?
b. The elasticity of demand is more elastic in which market?
c. Which market has the more inelastic demand?
d. What is the elasticity of demand between the prices of $5 and $2 in the adult market?
Is this elastic or inelastic?
e. What is the elasticity of demand between $5 and $2 in the children’s market? Is this
elastic or inelastic?
f. Given the graphs and what your friend knows about economics, he recommends you
increase the price of adult tickets to $8 each and lower the price of a child’s ticket to $3.
How much could you increase total revenue if you take his advice?
In which of the following cases would the quantity of money demanded be smallest?
a. r = 0.06, P = 1.2
b. r = 0.05, P = 1.0
c. r = 0.04, P = 1.2
d. r = 0.06, P = 1.0
The marginal benefit Colin gets from eating a fourth slice of pizza is
a. the total benefit Colin gets from eating four slices of pizza minus the total benefit
Colin gets from eating three slices of pizza.
b. the same as the total benefit of eating four slices of pizza.
c. less than the marginal cost of eating the fourth slice of pizza since he chose to eat the
fourth slice.
d. the total benefit Colin gets from eating five slices of pizza minus the total benefit
Colin gets from eating four slices of pizza.
The Central Bank of Wiknam increases the money supply at the same time the
Parliament of Wiknam passes a new investment tax credit. Which of these policies shift
aggregate demand to the right?
a. both the money supply increase and the investment tax credit
b. the money supply increase but not the investment tax credit
c. the investment tax credit but not the money supply increase
d. neither the investment tax credit nor the money supply increase
The substitution bias in the consumer price index refers to the
a. substitution by consumers toward new goods and away from old goods.
b. substitution by consumers toward a smaller number of high-quality goods and away
from a larger number of low-quality goods.
c. substitution by consumers toward goods that have become relatively less expensive
and away from goods that have become relatively more expensive.
d. substitution of new prices for old prices in the CPI basket of goods and services from
one year to the next.
Suppose banks decide to hold fewer excess reserves relative to deposits. Other things
the same, this action will cause the
a. money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds.
b. money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds.
c. money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds.
d. money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.
The first element of a financial crisis is
a. inflation.
b. a decline in confidence in financial institutions.
c. a relaxation of rules and regulations that pertain to the financial system.
d. a large decline in some asset prices.
Which of the following statements about markets is most accurate?
a. Markets are usually a good way to organize economic activity.
b. Markets are usually inferior to central planning as a way to organize economic
activity.
c. Markets fail and are therefore not an acceptable way to organize economic activity.
d. Markets are a good way to organize economic activity in developed nations, but not
in less developed nations.
In examining the national income accounts of the closed economy of Nepotocracy you
see that this year it had taxes of $100 billion, transfers of $40 billion, and government
purchases of goods and services of $80 billion. You also notice that last year it had
private saving of $50 billion and investment of $70 billion. In which year did
Nepotocracy have a budget deficit of $20 billion?
a. this year and last year
b. this year but not last year
c. last year but not this year
d. neither this year nor last year
If the demand for a product increases, then we would expect equilibrium price
a. to increase and equilibrium quantity to decrease.
b. to decrease and equilibrium quantity to increase.
c. and equilibrium quantity both to increase.
d. and equilibrium quantity both to decrease.
Figure 9-6
Refer to Figure 9-6. Before the tariff is imposed, this country
a. imports 200 carnations.
b. imports 400 carnations.
c. exports 200 carnations.
d. exports 400 carnations.
An increase in the budget deficit causes domestic interest rates
a. and investment to rise.
b. to rise and investment to fall.
c. to fall and investment to rise.
d. and investment to fall.
Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to
Joan’s purchase as investment.
Import quotas and tariffs make domestic sellers better off and domestic buyers worse
off.
Economists may disagree about the validity of alternative positive theories about how
the world works.
A rational decisionmaker takes an action if and only if the marginal cost exceeds the
marginal benefit.
The future value of $1 saved today is $1/(1 + r).
Most economists are in favor of price controls as a way of allocating resources in the
economy.
Assume a farmer has the ability to produce corn and/or beans. Whenever the farmer
spends 1 hour less producing corn and 1 hour more producing beans, he reduces his
output of corn by 2 bushels and raises his output of beans by 3 bushels. In view of these
assumptions, the farmer’s production possibilities frontier is bowed out.
Local cable television companies frequently are monopolists.
Table 15-5
2010 Labor Data for Tajnia
Refer to Table 15-5. The labor force of Tajnia in 2010 is 12,250.
Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the
typical consumer’s budget.
The greater the elasticities of supply and demand, the smaller are the gains from trade.
In the long run import quotas do not affect the size of net exports.
Figure 6-26
Refer to Figure 6-26. A price floor set at $40 would create a surplus of 20 units.
Producer surplus measures the benefit to sellers from receiving a price above their
costs.
Under what conditions might government intervention in a market economy improve
the economy’s performance?
Using the midpoint method, compute the elasticity of demand between points A and B.
Is demand along this portion of the curve elastic or inelastic? Interpret your answer with
regard to price and quantity demanded. Now compute the elasticity of demand between
points B and C. Is demand along this portion of the curve elastic or inelastic?
Even the demand for a necessity such as gasoline will respond to a change in price,
especially over a longer time horizon.