Consider the following traders who meet.
Which, if any, pairs of traders has a double coincidence of wants?
a. Bob with Alice
b. Ted with Alice
c. Bob with Mary, Ted with Bob, and Ted with Alice
d. None of the pairs above has a double coincidence of wants.
Table 3-4
Assume that the farmer and the rancher can switch between producing meat and
producing potatoes at a constant rate.
Labor Hours Needed
to Make 1 Pound of Pounds Produced
in 24 Hours
Refer to Table 3-4. The opportunity cost of 1 pound of meat for the farmer is
a. 1/4 pound of potatoes.
b. 1/4 hour of labor.
c. 4 pounds of potatoes.
d. 8 hours of labor.
Closely watched indicators such as the inflation rate and unemployment are released
each month by the
a. Bureau of the Budget.
b. Bureau of Labor Statistics.
c. Department of the Treasury.
d. President’s Council of Economic Advisors.
When the price level falls
a. households want to lend less.
b. the interest rate rises.
c. firms want to spend less on investment goods.
d. None of the above are correct.
Table 11-6. The table below applies to an economy with only two goods hamburgers
and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.
Refer to Table 11-6. If the base year is 2010, then the economy’s inflation rate is
a. 2 percent in 2010 and 7 percent in 2011.
b. 4.5 percent in 2010 and 5.2 percent in 2011.
c. 9 percent in 2010 and 5.5 percent in 2011.
d. 10 percent in 2010 and 6.36 percent in 2011.
Jackie, a Canadian citizen, works only in the United States. The value of the output she
produces is
a. included in both U.S. GDP and U.S. GNP.
b. included in U.S. GDP, but it is not included in U.S. GNP.
c. included in U.S. GNP, but it is not included in U.S. GDP.
d. included in neither U.S. GDP nor U.S. GNP.
Tax policy changes that favor people who save will
a. favor low-income households.
b. favor people with high income.
c. create a more egalitarian society.
d. unambiguously increase national saving.
Since 1960, the natural rate of unemployment in the U.S. has been between
a. 0.4 and 0.6 percent.
b. 4 and 6 percent.
c. 6 and 12 percent.
d. 12 and 24 percent.
An increase in the budget deficit causes domestic interest rates
a. and net capital outflow to rise.
b. to rise and net capital outflow to fall.
c. to fall and net capital outflow to rise.
d. and net capital outflow to fall.
Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an
example of
a. investment for Mark and U.S. foreign direct investment.
b. investment for Mark and U.S. foreign portfolio investment.
c. saving for Mark and U.S. foreign direct investment.
d. saving for Mark and U.S. foreign portfolio investment.
Suppose an increase in the price of rubber coincides with an advance in the technology
of tire production. As a result of these two events, the demand for tires
a. decreases, and the supply of tires increases.
b. is unaffected, and the supply of tires decreases.
c. is unaffected, and the supply of tires increases.
d. None of the above is necessarily correct.
A high-ranking corporate official of a well-known company is unexpectedly sentenced
to prison for criminal activity in trading stocks. This should
a. raise the price and raise the present value of the corporation’s stock.
b. raise the price and lower the present value of the corporation’s stock.
c. lower the price and raise the present value of the corporation’s stock.
d. lower the price and lower the present value of the corporation’s stock.
With respect to the consumer price index, which of the following does not serve as an
example of how the substitution bias arises? Between 2010 and 2011, the price of a
pound of peanuts
a. rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
b. rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30.
c. remains constant, while the price of a loaf of bread rises from $2.00 to $2.30.
d. falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.
Which of the following countries had the lowest level of real GDP per person in 2008?
a. Bangladesh
b. Indonesia
c. Mexico
d. China
If an economy is closed and if it has no government, then
a. national saving = 0.
b. national saving = private saving.
c. public saving = investment.
d. gross domestic product = consumption.
A country reported a nominal GDP of $85 billion in 2010 and $100 billion in 2009. It
also reported a GDP deflator of 100 in 2010 and 105 in 2009. Between 2009 and 2010,
a. real output and the price level both rose.
b. real output rose and the price level fell.
c. real output fell and the price level rose.
d. real output and the price level both fell.
Whether a good is a luxury or necessity depends on the
a. price of the good.
b. preferences of the buyer.
c. intrinsic properties of the good.
d. scarcity of the good.
A country has domestic investment of $100 billion. Its citizens purchase $500 of
foreign assets and foreign citizens purchase $300 of its assets. What is national saving?
a. -$100 billion
b. $100 billion
c. $300 billion
d. $600 billion
Table 7-1
Refer to Table 7-1. If the price of the product is $18, then the total consumer surplus is
a. $38.
b. $42.
c. $46.
d. $72.
Figure 7-13
Refer to Figure 7-13. Sellers will be unwilling to sell more than
a. 1 unit of the good if its price is below $200.
b. 2 units of the good if its price is below $450.
c. 3 units of the good if its price is below $700.
d. All of the above are correct.
Skyline Chili wants to finance the purchase of new equipment for its restaurants. The
firm has limited internal funds, so Skyline likely will
a. demand funds from the financial system by buying bonds.
b. demand funds from the financial system by selling bonds.
c. supply funds to the financial system by buying bonds.
d. supply funds to the financial system by selling bonds.
Equilibrium price must decrease when demand
a. increases and supply does not change, when demand does not change and supply
decreases, and when demand decreases and supply increases simultaneously.
b. increases and supply does not change, when demand does not change and supply
decreases, and when demand increases and supply decreases simultaneously.
c. decreases and supply does not change, when demand does not change and supply
increases, and when demand decreases and supply increases simultaneously.
d. decreases and supply does not change, when demand does not change and supply
increases, and when demand increases and supply decreases simultaneously.
During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation
was 1.5 percent, but people had been expecting 1 percent . This difference between
actual and expected inflation
a. transferred wealth from the borrower to you and caused your after-tax real interest
rate to be 0.5 percentage points higher than what you had expected.
b. transferred wealth from the borrower to you and caused your after-tax real interest
rate to be more than 0.5 percentage points higher than what you had expected.
c. transferred wealth from you to the borrower and caused your after-tax real interest
rate to be 0.5 percentage points lower than what you had expected.
d. transferred wealth from you to the borrower and caused your after-tax real interest
rate to be more than 0.5 percentage points lower than what you had expected.
The minimum wage
a. is an example of a price ceiling.
b. has its greatest impact on middle-aged and immigrant workers.
c. does not apply to unpaid internships.
d. does not affect the quantity of labor demanded; it only affects the quantity of labor
supplied.
Most economists believe the principle of monetary neutrality is
a. relevant to both the short and long run.
b. irrelevant to both the short and long run.
c. mostly relevant to the short run.
d. mostly relevant to the long run.
The Fed can decrease the money supply by conducting open-market
a. sales or by raising the discount rate.
b. sales or by lowering the discount rate.
c. purchases or by raising the discount rate.
d. purchases or by lowering the discount rate.
A depreciation of the U.S. real exchange rate induces U.S. consumers to buy
a. fewer domestic goods and fewer foreign goods.
b. more domestic goods and fewer foreign goods.
c. fewer domestic goods and more foreign goods.
d. more domestic goods and more foreign goods.
Consider the following sequence of events:
price level demand for money equilibrium interest rate
quantity of goods and services demanded
This sequence explains why the
a. money-supply curve is vertical.
b. aggregate-demand curve shifts leftward in response to a monetary injection.
c. aggregate-demand curve shifts rightward in response to a monetary injection.
d. aggregate-demand curve slopes downward.
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. Total surplus
after the tax is measured by the area
a. I+Y.
b. J+K+L+M.
c. I+Y+B.
d. I+J+K+L+M+Y.
Suppose buyers of tequila are required to send $1.00 to the government for every bottle
of tequila they buy. Further, suppose this tax causes the effective price received by
sellers of tequila to fall by $0.80 per bottle. Which of the following statements is
correct?
a. This tax causes the demand curve for tequila to shift downward by $1.00 at each
quantity of tequila.
b. The price paid by buyers is $0.20 per bottle more than it was before the tax.
c. Eighty percent of the burden of the tax falls on sellers.
d. All of the above are correct.
All or part of a firm’s profits may be paid out to the firm’s stockholders in the form of
a. retained earnings.
b. dividends.
c. interest payments.
d. capital accounts.
Suppose workers notice a fall in their nominal wage but are slow to notice that the price
of things they consume have fallen by the same percentage. They may infer that the
reward to working is
a. temporarily low and so supply a smaller quantity of labor.
b. temporarily low and so supply a larger quantity of labor.
c. temporarily high and so supply a smaller quantity of labor.
d. temporarily high and so supply a larger quantity of labor.
Table 3-6
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
Hours Needed
To Make 1 Amount Produced
in 40 Hours
Refer to Table 3-6. Miguel has an absolute advantage in the production of
a. both goods and a comparative advantage in the production of mixers.
b. both goods and a comparative advantage in the production of toasters.
c. neither good and a comparative advantage in the production of mixers.
d. neither good and a comparative advantage in the production of toasters.
In the United States, a three-pound can of coffee costs about $5. If the exchange rate is
about 0.8 euros per dollar and a three-pound can of coffee in Belgium costs about 7
euros. What is the real exchange rate?
a. 7/4 cans of Belgian coffee per can of U.S. coffee
b. 5.6/5 cans of Belgian coffee per can of U.S. coffee
c. 5/5.6 cans of Belgian coffee per can of U.S. coffee
d. 4/7 cans of Belgian coffee per can of U.S. coffee
Figure 6-8
Refer to Figure 6-8. If the government imposes a price ceiling of $2 on this market,
then there will be
a. no shortage of the good.
b. a shortage of 40 units of the good.
c. a shortage of 60 units of the good.
d. a shortage of 85 units of the good.
Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds
the rate of inflation, then her purchasing power increases over time.
An outcome is said to be efficient if an economy is getting all it can from the scarce
resources it has available.
Evaluating normative statements involves values as well as facts.
Economists use the term inflation to describe a situation in which the economy’s overall
production level is rising.
The nation of Cranolia used to prohibit international trade, but now trade is allowed,
and Cranolia is exporting furniture. Relative to the previous no-trade situation, buyers
of furniture in Cranolia are now better off.
Explain the main arguments in favor of economic stabilization.
The more elastic the supply, the larger the deadweight loss from a tax, all else equal.
A significant lag for monetary policy is the time it takes to for a change in the money
supply to change the economy. A significant lag for fiscal policy is the time it takes to
pass legislation authorizing it.
We can explain continued increases in both output and the price level by supposing that
only aggregate demand shifted right over time.
If a rich country reduced subsidies to domestic producers of goods that poor countries
have a comparative advantage producing, the standard of living in these poor countries
would likely rise.
Figure 2-14
Refer to Figure 2-14. The opportunity cost of moving from point A to point D is 10
dishwashers.
National saving is equal to Y – T – C.
Demonstrate that whether you would prefer to have $225 today or wait five years for
$300 depends on the interest rate. Show your work.
Trade with any nation can be mutually beneficial.
Suppose that a decrease in the demand for goods and services pushes the economy into
recession. What happens to the price level? If the government does nothing, what
ensures that the economy still eventually gets back to the natural rate of output?
The fact that people are willing to pay much more for a diamond, which is not needed
for survival, than they are willing to pay for a cup of water, which is needed for
survival, is an example of irrational behavior.