Figure 4-6 Figure 4-6 shows the market for
granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1.
Now suppose producers decide to cut output to Q2 in order to raise the price to P2.
What area represents producer surplus at the equilibrium price of P1?
A) A + B + D
B) D + E
C) D + E + G + H
D) A + B + C + D + E
Table 1-3
Santiago runs a comic book store in the town of East Arbor. He is debating whether he
should extend his hours of operation. Santiago figures that his sales revenue will
depend on the number of hours the store is open as shown in the table above. He would
have to hire a worker for those hours at a wage rate of $18 per hour. Using marginal
analysis, determine how many hours should Santiago extend his store’s hours of
operations?
A) 2 hours
B) 3 hours
C) 4 hours
D) 5 hours
E) 6 hours
Suppose a 4 percent increase in price results in a 2 percent increase in the quantity
supplied of a good. Calculate the price elasticity of supply and characterize the product.
A) 2; The product is elastic.
B) 0.2; The product is inelastic.
C) 0.5; The product is inelastic.
D) 50%; The product is inelastic.
Figure 2-3
Sergio Vignetto raises cattle and llamas on his land. A portion of his land is more
suitable for raising cattle, and the other portion is better suited for raising llamas. Which
of the graphs in Figure 2-3 represent his production possibilities frontier?
A) Graph A
B) Graph B
C) Graph C
D) either Graph A or Graph C
E) either Graph B or Graph C
The supporters of a monetary growth rule believe that active monetary policy
A) stabilizes the economy, decreasing the number of recessions and their severity.
B) destabilizes the economy, increasing the number of recessions and their severity.
C) cannot change the inflation rate.
D) cannot change real GDP.
The price of a financial asset should be equal to
A) the face value of the asset.
B) the present value of the sum of the coupon payments and the interest rate.
C) the face value of the asset divided by the interest rate.
D) the present value of payments to be received from owning that asset.
Federal government expenditures, as a percentage of GDP,
A) have risen since the early 1950s to the present.
B) have fallen since the early 1950s to the present.
C) rose from 1950 to 1991, fell from 1992 to 2001, and have risen from 2001 to the
present.
D) rose from 1950 to 2001 and then fell from 2001 to the present.
E) rose from 1950 to 1980, fell from 1981 to 2001, and have risen from 2001 to the
present.
A decrease in the real interest rate will
A) increase consumption and reduce investment.
B) increase saving and investment.
C) decrease investment and government spending.
D) increase consumption and investment.
Table 4-3
The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that
specializes in producing western wear. If the price of cowboy hats increases from $38 to
$46,
A) consumers will buy no cowboy hats.
B) the marginal cost of producing the third cowboy hat will increase to $46.
C) producer surplus will rise from $22 to $46.
D) there will be a surplus of cowboy hats.
Suppose the Federal Reserve purchases $10,000 of Treasury bonds from you and that
you deposit the $10,000 into your checking account deposit at Bank Y. Assume that
Bank Y has no excess reserves at the time you make your deposit and that the required
reserve ratio is 20 percent.
a. Use a T-account to show the initial effect of this transaction on Bank Y’s balance
sheet.
b. Suppose that Bank Y makes the maximum loan they can from the funds you
deposited. Use a T-account to show the initial effect on Bank Y’s balance sheet from
granting the loan. Also include in this T-account the transaction from question (a.).
c. Now suppose that whoever took out the loan in question (b) writes a check for this
amount and that the person receiving the check deposits it in Bank Z. Show the effect of
these transactions on the balance sheet of Bank Y and Bank Z, after the check has been
cleared. On the T-account for Bank Y, include the transactions from questions (a) and
(b).
d. What is the maximum increase in checking account deposits that can result from your
$10,000 deposit? What is the maximum increase in the money supply? Explain.
Which of the following is a true statement about the impact of World War II on the U.S.
economy?
A) U.S. GDP decreased dramatically from 1941 to 1945.
B) The war time years were a period of prosperity for U.S. consumers.
C) Less than 10% of the labor force was in the military or producing war goods.
D) Increased production of tanks, ships, planes, and munitions accounted for most of
the increase in GDP.