Figure 17-1
Refer to Figure 17-1. When the money supply curve shifts from MS1 to MS2,
a. the demand for goods and services decreases.
b. the economy’s ability to produce goods and services increases.
c. the equilibrium price level decreases.
d. None of the above is correct.
Slow growth in US incomes during the 1970s and 1980s was primarily due to
a. slow productivity growth in the US.
b. increased competition from Japan.
c. increased competition from European countries.
d. a rapid decrease in the quantity of money in the economy.
Opponents of cigarette taxes often argue that tobacco and marijuana are substitutes so
that high cigarette prices
a. encourage marijuana use, and the evidence supports this argument.
b. encourage marijuana use, but the evidence does not support this argument.
c. discourage marijuana use, and the evidence supports this argument.
d. discourage marijuana use, but the evidence does not support this argument.
The imposition of an import quota shifts
a. the supply of currency right, so the exchange rate falls.
b. the supply of currency left, so the exchange rate rises.
c. the demand for currency right, so the exchange rate rises.
d. the demand for currency left, so the exchange rate falls.
In a certain economy, jam and bread are produced, and the economy currently operates
on its production possibilities frontier. Which of the following events would allow the
economy to produce more jam and more bread, relative to the quantities of those goods
that are being produced now?
a. Unemployed labor is put to work producing jam and bread.
b. The economy puts its idle capital to work producing jam and bread.
c. The economy experiences economic growth.
d. All of the above are correct.
A model can be accurately described as a
a. theoretical abstraction with very little value.
b. device that is useful only to the people who created it.
c. realistic and carefully constructed theory.
d. simplification of reality.
Figure 8-19. The figure represents the relationship between the size of a tax and the tax
revenue raised by that tax.
Refer to Figure 8-19. If the economy is at point B on the curve, then a small decrease
in the tax rate will
a. increase the deadweight loss of the tax and increase tax revenue.
b. increase the deadweight loss of the tax and decrease tax revenue.
c. decrease the deadweight loss of the tax and increase tax revenue.
d. decrease the deadweight loss of the tax and decrease tax revenue.
For a particular good, a 10 percent increase in price causes a 15 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a. There are no close substitutes for this good.
b. The good is a necessity.
c. The market for the good is broadly defined.
d. The relevant time horizon is long.
Table 11-11. Megan’s salary for three consecutive years, along with other values, are
presented in the table below.
Refer to Table 11-11. Megan’s 2008 salary in 2010 dollars is
a. $51,458.
b. $62,226.
c. $69,960.
d. $75,554.
Which of the following statements about inputs is correct?
a. A forest is an example of a natural resource; it is also an example of a renewable
resource.
b. There is no distinction between human capital and technological knowledge.
c. Human capital is a non-produced factor of production.
d. Physical capital is a non-produced factor of production.
In constructing models, economists
a. leave out equations, since equations and models tend to contradict one another.
b. ignore the long run, since models are useful only for short-run analysis.
c. sometimes make assumptions that are contrary to features of the real world.
d. try to include every feature of the economy.
In 2008, XYZ Corporation had total earnings of $200 million and 50 million shares of
the corporation’s stock were outstanding. If the price-earnings ratio for XYZ is 20, then
what is the price of a share of its stock?
a. $5
b. $10
c. $80
d. $500
An increase in the budget deficit
a. reduces net capital outflow and domestic investment.
b. reduces net capital outflow and raises domestic investment.
c. raises net capital outflow and domestic investment
d. raises net capital outflow and reduces domestic investment.
The old adage, “Don”t put all your eggs in one basket,” is very similar to a modern bit
of advice concerning financial matters:
a. “Buy low-risk bonds.”
b. “Use a medium of exchange.”
c. “Diversify.”
d. “Intermediate.”
Figure 17-1
Refer to Figure 17-1. If the money supply is MS2 and the value of money is 2, then
a. the quantity of money demanded is greater than the quantity supplied; the price level
will rise.
b. the quantity of money demanded is greater than the quantity supplied; the price level
will fall.
c. the quantity of money supplied is greater than the quantity demanded; the price level
will rise.
d. the quantity of money supplied is greater than the quantity demanded; the price level
will fall.
A bond buyer is a
a. saver. Bond buyers must hold their bonds until maturity.
b. saver. Bond buyers may sell their bonds prior to maturity.
c. borrower. Bond buyers must hold their bonds until maturity.
d. borrower. Bond buyers may sell their bonds prior to maturity.
In the 1970s, the U.S. inflation rate reached about
a. 7 percent per year.
b. 10 percent per year.
c. 14 percent per year.
d. 20 percent per year.
Which of the following are human capital and physical capital, respectively?
a. for an accounting firm: the accountants’ knowledge of tax laws and computer
software
b. for a grocery store: grocery carts and shelving
c. for a school: chalkboard and desks
d. for a library: the building and the reference librarians’ knowledge of the Internet
Suppose after graduating from college you get a job working at a bank earning $30,000
per year. After two years of working at the bank earning the same salary, you have an
opportunity to enroll in a one-year graduate program that would require you to quit
your job at the bank. Which of the following should not be included in a calculation of
your opportunity cost?
a. the cost of tuition and books to attend the graduate program
b. the $30,000 salary that you could have earned if you retained your job at the bank
c. the $45,000 salary that you will be able to earn after having completed your graduate
program
d. the value of insurance coverage and other employee benefits you would have
received if you retained your job at the bank
Most markets in the economy are
a. markets in which sellers, rather than buyers, control the price of the product.
b. markets in which buyers, rather than sellers, control the price of the product.
c. perfectly competitive.
d. highly competitive.
Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of
bonds. One year later the price index is 126. Maria redeems his bonds for $22,250 and
is in a 40 percent tax bracket. What is Maria’s real after-tax rate of interest to the nearest
tenth of a percent?
a. 4.3 percent
b. 3.1 percent
c. 1.8 percent
d. 1.2 percent
Figure 8-6
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-6. Total surplus with the tax in place is
a. $1,500.
b. $3,600.
c. $4,500.
d. $6,000.
Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in assets.
Al will earn 16% interest and retire in two years. Ralph will earn 8% interest and retire
in four years. Stan will earn 4% interest and retire in eight years. Who will have the
largest sum when he retires?
a. Al
b. Ralph
c. Stan
d. They all retire with the same amount.
Which of the following is correct?
a. Although levels of real GDP per person vary substantially from country to country,
the growth rate of real GDP per person is similar across countries.
b. Productivity is not closely linked to government policies.
c. The level of real GDP per person is a good gauge of economic prosperity, and the
growth rate of real GDP per person is a good gauge of economic progress.
d. Productivity may be measured by the growth rate of real GDP per person.
Given that Tamar is a risk-averse person, she might accept a bet with a 50 percent
chance of losing $100 today if she had a 50 percent
a. chance of winning $120 in two years and the interest rate was 11%.
b. chance of winning $114 in two years and the interest rate was 7%.
c. chance of winning $110 in two years and the interest rate was 3%.
d. None of the above are correct; a risk averse person would not accept any of the above
bets.
The president of the United States receives tax policy advice from economists in the
a. Federal Reserve.
b. Department of Justice.
c. Department of the Treasury.
d. Congressional Budget Office.
Which of the following statements concerning the aggregate demand and aggregate
supply model is correct?
a. The aggregate demand and aggregate supply model is nothing more than a large
version of the model of market demand and supply.
b. The price level and quantity of output adjust to bring aggregate demand and supply
into balance.
c. The aggregate supply curve shows the quantity of goods and services that
households, firms, and the government want to buy at each price.
d. All of the above are correct.
Table 11-7
The table below relates to the economy of Mainland, where the typical consumer’s
market basket consists of 2 iPhones and 3 hamburgers.
Refer to Table 11-7. The cost of the basket
a. increased from 2007 to 2008 and increased from 2008 to 2009.
b. increased from 2007 to 2008 and decreased from 2008 to 2009.
c. decreased from 2007 to 2008 and increased from 2008 to 2009.
d. decreased from 2007 to 2008 and decreased from 2008 to 2009.
Economist Robert Fogel focused on which of the following factors as one determinant
of long-run economic growth?
a. education
b. research and development
c. nutrition
d. trade restrictions
Which of the following is an example of U.S. foreign portfolio investment?
a. Disney builds a new amusement park near Barcelona, Spain.
b. A U.S. citizen buys bonds issued by the British government.
c. A Dutch hotel chain opens a new hotel in the United States.
d. A citizen of Singapore buys a bond issued by a U.S. corporation.
The money supply increases when the Fed
a. lowers the discount rate. The increase will be larger the smaller the reserve ratio is.
b. lowers the discount rate. The increase will be larger the larger the reserve ratio is.
c. raises the discount rate. The increase will be larger the smaller the reserve ratio is.
d. raises the discount rate. The increase will be larger the larger the reserve ratio is.
When the money market is drawn with the value of money on the vertical axis, if there
is a surplus of money then
a. the value of money rises which will make people desire to hold more money.
b. the value of money rises which will make people desire to hold less money.
c. the value of money falls which will make people desire to hold more money.
d. the value of money falls which will make people desire to hold less money.
Individual supply curves are summed vertically to obtain the market supply curve.
Price indexes allow comparisons of dollar figures over time and provide us a sense of
how the economy is changing.
When a free market for a good reaches equilibrium, anyone who is willing and able to
pay the market price can buy the good.
What do trade policies do to the standard of living?
The effects of rent control in the long run include lower rents and lower-quality
housing.
Economists use the government’s tax revenue to measure the public benefit from a tax.
If Honduras were to subsidize the production of wool blankets and sell them in Sweden
at artificially low prices, the Swedish economy would be worse off.
If a country has a lower opportunity cost than its potential trading partner, the country
should decide to be self-sufficient.
GDP is the most closely watched economic statistic because it is thought to be the best
single measure of a society’s economic well-being.
If someone in the United States buys a surfboard produced in Australia, then that
purchase is included in both the consumption component of U.S. GDP and the net
exports component of U.S. GDP.
Monetary policy is determined by a committee whose voting members include all the
presidents of the regional Federal Reserve Banks.
Financial crises seldom involve economic downturns.
Two variables that have a negative correlation move in opposite directions.
If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price
elasticity of supply approaches infinity.
Data on the unemployment rate in the U.S. since 1960 show that the unemployment rate
sometimes is close to zero.
The invisible hand ensures that economic prosperity is distributed equally.
A binding minimum wage creates a surplus of labor.
An import quota imposed by the U.S. would reduce U.S. imports, but have no impact
on U.S. exports.