Table 3-22
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Refer to Table3-22. Assume that Zimbabwe and Portugal each has 60 machine minutes
available. Originally, each country divided its time equally between the production of
toothbrushes and hairbrushes. Now, each country spends all its time producing the good
in which it has a comparative advantage. As a result, the total output increased by
a. 4 toothbrushes and 2 hairbrushes.
b. 10 toothbrushes and 5 hairbrushes.
c. 16 toothbrushes and 8 hairbrushes.
d. 20 toothbrushes and 10 hairbrushes.
Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a
result, smokers who live in Wyoming start purchasing their cigarettes in surrounding
states. Which of the following principles does this best illustrate?
a. People respond to incentives.
b. Rational people think at the margin.
c. Trade can make everyone better off.
d. Markets are usually a good way to organize economic activity.
Bob is looking for work after school, but everywhere he fills out an application, the
managers say they always have a lot more applications than open positions. Tom has a
law degree. Several firms have made him offers, but he thinks he might be able to find a
firm where his talents could be put to better use.
a. Bob and Tom are both frictionally unemployed.
b. Bob and Tom are both structurally unemployed.
c. Bob is frictionally unemployed, and Tom is structurally unemployed.
d. Bob is structurally unemployed, and Tom is frictionally unemployed.
A stock’s dividendyieldis the
a. dividend as a percentage of the price per share.
b. stock price as a percentage of the dividend.
c. dividend as a percentage of the retained earnings per share.
d. retained earnings per share as the percentage of the dividend.
A likely example of substitute goods for most people would be
a. peanut butter and jelly.
b. tennis balls and tennis rackets.
c. televisions and subscriptions to cable television services.
d. pencils and pens.
When a country imposes an import quota, its
a. net exports rise and its real exchange rate appreciates.
b. net exports rise and its real exchange rate depreciates.
c. net exports fall and its real exchange rate depreciates
d. None of the above is correct.
As long as two people have different opportunity costs, each can gain from trade with
the other, since trade allows each person to obtain a good at a price lower than his or her
opportunity cost.
a. True
b. False
You are thinking of buying a bond from Bluestone Corporation. You know that this
bond is long term and you know that Bluestone’s business ventures are risky and
uncertain. You then consider another bond with a shorter term to maturity issued by a
company with good prospects and an established reputation. Which of the following is
correct?
a. The longer term would tend to make the interest rate on the bond issued by Bluestone
higher, while the higher risk would tend to make the interest rate lower.
b. The longer term would tend to make the interest rate on the bond issued by Bluestone
lower, while the higher risk would tend to make the interest rate higher.
c. Both the longer term and the higher risk would tend to make the interest rate lower
on the bond issued by Bluestone.
d. Both the longer term and the higher risk would tend to make the interest rate higher
on the bond issued by Bluestone.
Which of the following policy changes would lead to a decrease in the real interest rate
and an increase in investment and saving?
a. a larger investment tax credit
b. an expansion of eligibility for Individual Retirement Accounts
c. an increase in income-tax rates, with no change in the government budget deficit or
surplus
d. an increase in government purchases, with no change in taxes
Sandy has graduated from college and is devoting her time to searching for a job. She
has seen plenty of openings but has not yet been offered one that best suits her tastes
and skills. Sandy is
a. structurally unemployed. Structural unemployment exists even in the long run.
b. structurally unemployed. There is no structural unemployment in the long run.
c. frictionally unemployed. Frictional unemployment exists even in the long run.
d. frictionally unemployed. There is no frictional unemployment in the long run.
All goods and services are sold in perfectly competitive markets.
a. True
b. False
When economists make
a. positive statements, they are speaking not as policy advisers but as scientists.
b. positive statements, they are speaking not as scientists but as forecasters.
c. normative statements, they are speaking not as policy advisers but as scientists.
d. normative statements, they are speaking not as policy advisers but as model-builders.
Historically, the typical price-earnings ratio for stocks is about
a. 3
b. 8
c. 15
d. 26
Trade between countries
a. allows each country to consume at a point outside its production possibilities frontier.
b. limits a country’s ability to produce goods and services on its own.
c. must benefit both countries equally; otherwise, trade is not mutually beneficial.
d. can best be understood by examining the countries’ absolute advantages.
If you put $125 into an account that paid 3.25 percent interest, then how much money
would you have in the account after 20 years?
a. $285.83
b. $236.98
c. $202.04
d. $145.65
When Mexico suffered from capital flight in 1994, Mexico’s real interest rate
a. fell and the peso appreciated.
b. fell and the peso depreciated.
c. rose and the peso appreciated.
d. rose and the peso depreciated.
Figure 3-2
Brazil’sProductionPossibilitiesFrontier
Referto Figure 3-2. If the production possibilities frontier shown is for 24 hours of
production, then how long does it take Brazil to make one peanut?
a. 1/10 hour
b. 1/3 hour
c. 3 hours
d. 10 hours
If WarmWear, a U.S.manufacturer of winter clothing, opens a new factory in Austria,
then
a. Austrian GNP increases by more than Austrian GDP, because GDP includes income
earned by foreigners working in Austria.
b. Austrian GNP increases by more than Austrian GDP, because GDP excludes income
earned by foreigners working in Austria.
c. Austrian GNP increases by less than Austrian GDP, because GDP includes income
earned by foreigners working in Austria.
d. Austrian GNP increases by less than Austrian GDP, because GDP excludes income
earned by foreigners working in Austria.
Suppose that the nominal exchange rate is .80 euro per dollar, that the price of a basket
of goods in the U.S. is $500 and the price of a basket of goods in Germany is 400 Euro.
Suppose that these values change to .90 euro per dollar, $600, and 600 euro. Then the
real exchange rate would
a. appreciate which by itself would make U.S. net exports fall.
b. appreciate which by itself would make U.S. net exports rise.
c. depreciate which by itself would make U.S. net exports fall.
d. depreciate which by itself would make U.S. net exports rise.
A policymaker against stabilizing the economy would be likely to believe
a. policymakers should “do no harm”.
b. there are no obstacles to the practical application of policy in real life.
c. policy lags are short enough that implementing policy changes in response to
recession is not too risky.
d. policy mitigates the magnitude of economic fluctuations.
Which of the following is correct?
a. No forms of capital income are taxed twice.
b. The tax code cannot be rewritten to provide greater incentive to save.
c. Means-tested benefits increase the incentive to save.
d. There is a correlation between national savings rates and measures of economic
well-being.
In which of the following cases would the quantity of money demanded be largest?
a. = 0.03, P= 1.2
b. = 0.03, P = 1.3
c. = 0.04, P = 1.2
d. = 0.05, P = 0.9
Marginally attached workers are people who are
a. looking for a better job than they currently have.
b. not working and are not looking for work, but would work if asked.
c. working part-time while they go to school or get training for a better job.
d. only a few years from retirement.
Stockholders of ComfortAir Corporation, an air conditioner and furnace manufacturer,
are concerned that the companies executives may take on greater risks than
stockholders desire. This example illustrates
a. moral hazard and market risk.
b. moral hazard and firm specific risk.
c. adverse selection and market risk.
d. adverse selection and firm specific risk.
Figure 2-18
RelationshipbetweenPriceandRestaurantMeals
RefertoFigure2-18.Which of the following could result in a movement from point B to
point Z?
a. a change in the price of a restaurant meal
b. a change in the number of restaurant meals demanded
c. a change in income
d. Both a and b are correct.
An increase in demand is represented by a
a. movement downward and to the right along a demand curve.
b. movement upward and to the left along a demand curve.
c. rightward shift of a demand curve.
d. leftward shift of a demand curve.
By purchasing shares in a mutual fund that holds a portfolio of stocks, a person can
a. benefit from fundamental analysis, since the mutual fund requires its shareholders to
perform fundamental analysis on their own.
b. benefit from fundamental analysis, since the mutual fund hires one or more
individuals to perform fundamental analysis for the fund.
c. eliminate market risk.
d. reduce the standard deviation of his or her portfolio to zero.
During the financial crisis it was proposed that firms be provided with a tax credit for
investment projects. Such a tax credit would
a. shift both the demand for loanable funds and the supply of dollars in the market for
foreign-currency exchange right.
b. shift the demand for loanable funds right and shift the supply of dollars in the market
for foreign-currency exchange left.
c. shift the demand for loanable funds left and shift the supply of dollars in the market
for foreign-currency exchange right.
d. shift both the demand for loanable funds and the supply of dollars in the market for
foreign-currency exchange left.
If consumption is $7000, exports are $600, government purchases are $2000,
government transfers are $900, imports are $800, and investment is $1000, then GDP is
$9,800.
a. True
b. False
In the short run, an increase in the money supply causes interest rates to
a. increase, and aggregate demand to shift right.
b. increase, and aggregate demand to shift left.
c. decrease, and aggregate demand to shift right.
d. decrease, and aggregate demand to shift left.
Suppose an increase in interest rates causes rising unemployment and falling output. To
counter this, the Federal Reserve would
a. increase government spending.
b. increase the money supply.
c. decrease government spending.
d. decrease the money supply.
The Fed purchases $200 worth of government bonds from the public. The reserve
requirement is 12.5 percent, people hold no currency, and the banking system keeps no
excess reserves. The U.S. money supply eventually increases by
a. $25.
b. between $200 and $300.
c. $1,600.
d. $2,500.
Explainwhasmeantbythemeinconsistencyofmonetarypolicy.
Identify three government policies that discourage saving.
How does a central bank’s accommodation of an adverse supply shock change the
longrun results of the shock?
Does a change in the price in a market result in a shift of the demand curve or in a
movement along the demand curve?
During periods of stagflation, what happens to output and prices in the economy?
According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount
of money that people wish to hold. As a result, falling interest rates stimulates
investment spending and aggregate _____.
List the main employment characteristics over which a labor union negotiates for its
workers.
Bond A and Bond B are identical except Bond B has a longer term. Therefore, we
expect Bond _____ to pay a higher rate of interest.
What curve shows the quantity of goods and services that firms choose to produce and
sell at each price level?
The crowding-out effect occurs because an increase in government spending _____
interest rates, causing _____ to fall.
Suppose that there is an excess supply of economics professors. Should universities
necessarily reduce salaries? What does standard economic theory suggest? What does
efficiency-wage theory suggest?
When a country eliminates tariffs and other trade restrictions, intending to promote
economic growth, it is pursuing_______”oriented policies.
Figure 4-29
RefertoFigure4-29.If the price increases from $5 to $6, how does the quantity
demanded change?
Suppose households attempt to increase money holdings. To stabilize output and
employment, the Federal Reserve will .
Figure 2-22
RefertoFigure2-22.What is the x-coordinate of point R?
Why might government expenditures be more appropriate than tax cuts to counter
recessions? Is there any evidence for this thinking?
Studies show that lower cigarette prices are associated with greater use of marijuana;
therefore, tobacco and marijuana are
Figure 25-1
RefertoFigure21-1. “When the amount of capital per worker increases by one unit, a
poor country experiences a greater benefit than does a rich country.” Does the figure
illustrate this notion? Briefly explain.
The quantity equation is expressed as _____. The rate at which money changes hands is
known as _____.