If a country raises its budget deficit, the net capital outflow
a. rises, so the supply of its currency shifts right in the market for foreign currency
exchange.
b. rises, so the demand for its currency shifts right in the market for foreign currency
exchange.
c. falls, so the supply of its currency shifts left in the market for foreign currency
exchange.
d. falls, so the demand for its currency shifts right in the market for foreign currency
exchange.
Suppose the government levies a tax of the vertical distance from point A to point B.
Using the graph shown, determine the value of each of the following:
a. equilibrium price before the tax
b. consumer surplus before the tax
c. producer surplus before the tax
d. total surplus before the tax
e. consumer surplus after the tax
f. producer surplus after the tax
g. total tax revenue to the government
h. total surplus (consumer surplus+producer surplus+tax revenue) after the tax
i. deadweight loss
Figure 9-18. On the diagram below, Q represents the quantity of peaches and P
represents the price of peaches. The domestic country is Isoland.
Refer to Figure 9-18. If Isoland allows international trade and if the world price of
peaches is $3, then
a. Isoland has a comparative advantage, relative to other countries, in producing
peaches.
b. Isoland will export peaches.
c. producer surplus with trade exceeds producer surplus without trade.
d. consumer surplus with trade exceeds consumer surplus without trade.
A decrease in the price of a good will
a. increase supply.
b. decrease supply.
c. increase quantity supplied.
d. decrease quantity supplied.
When taxes increase, consumption
a. decreases as shown by a movement to the left along a given aggregate-demand curve.
b. decreases as shown by a shift of the aggregate demand curve to the left.
c. increases as shown by a movement to the right along a given aggregate-demand
curve.
d. increases as shown by a shift of the aggregate demand curve to the right.
Suppose a typical worker in India can produce 32 units of product in an eight-hour day,
while a typical worker in Bangladesh can produce 30 units of product in a 10-hour day.
We can conclude that
a. worker productivity in Bangladesh is higher than in India.
b. the standard of living will likely be higher in India than in Bangladesh.
c. productivity is 4 units per hour for the worker in Bangladesh and 3 units per hour for
the worker in India.
d. there will be no difference between the standard of living in India and Bangladesh.
With which of the Ten Principles of Economics is the study of international trade most
closely connected?
a. People face tradeoffs.
b. Trade can make everyone better off.
c. Governments can sometimes improve market outcomes.
d. Prices rise when the government prints too much money.
Figure 2-3
Refer to Figure 2-3. Efficient production is represented by which point(s)?
a. J, K, N
b. K, M, N
c. K, N
d. L, M
The price elasticity of supply measures how responsive
a. equilibrium price is to equilibrium quantity.
b. sellers are to a change in buyers’ income.
c. sellers are to a change in price.
d. consumers are to the number of substitutes.
When describing the opportunity cost of two producers, economists use the term
a. natural advantage.
b. trading advantage.
c. comparative advantage.
d. absolute advantage.
Which of the following is an important cause of inflation in an economy?
a. increases in productivity in the economy
b. the influence of positive externalities on the economy
c. lack of property rights in the economy
d. growth in the quantity of money in the economy
A rightward shift of a supply curve is called a(n)
a. increase in supply.
b. decrease in supply.
c. decrease in quantity supplied.
d. increase in quantity supplied.
The more freedom young mothers have to work outside the home, the
a. more elastic the supply of labor will be.
b. less elastic the supply of labor will be.
c. more vertical the labor supply curve will be.
d. smaller is the decrease in employment that will result from a tax on labor.
The time inconsistency of policy implies that
a. what policymakers say they will do is generally what they will do, but people don’t
believe them because of current policy.
b. when people expect that inflation will be low, it is harder for the Fed to increase
output by increasing the money supply.
c. people will believe Fed policy will be more inflationary than the Fed claims.
d. what policymakers say they will do is usually not what they do, but people believe
them anyway.
Suppose there is currently a tax of $50 per ticket on airline tickets. Buyers of airline
tickets are required to pay the tax to the government. If the tax is reduced from $50 per
ticket to $30 per ticket, then the
a. demand curve will shift upward by $20, and the price paid by buyers will decrease by
less than $20.
b. demand curve will shift upward by $20, and the price paid by buyers will decrease by
$20.
c. supply curve will shift downward by $20, and the effective price received by sellers
will increase by less than $20.
d. supply curve will shift downward by $20, and the effective price received by sellers
will increase by $20.
All else equal, by saving more, a country
a. has more resources for capital goods. The increase in capital raises productivity.
b. has more resources for capital goods. The increase in capital reduces productivity.
c. has fewer resources for capital goods. The decrease in capital raises productivity.
d. has fewer resources for capital goods. The decrease in capital reduces productivity.
If the reserve ratio is 8 percent, banks do not hold excess reserves, and people do not
hold currency, then when the Fed purchases $20 million of government bonds, bank
reserves
a. increase by $20 million and the money supply eventually increases by $250 million.
b. decrease by $20 million and the money supply eventually increases by $250 million.
c. increase by $20 million and the money supply eventually decreases by $250 million.
d. decrease by $20 million and the money supply eventually decreases by $250 million.
Figure 22-6
Use the two graphs in the diagram to answer the following questions.
Refer to Figure 22-6. Starting from C and 3, in the long run, a decrease in money
supply growth moves the economy to
a. A and 1.
b. back to C and 3.
c. D and 4.
d. F and 5.
According to purchasing-power parity, if prices in the United States increase by a larger
percentage than prices in Poland, then
a. the real exchange defined as Polish goods per unit of U.S. goods rises.
b. the real exchange defined as Polish goods per unit of U.S. goods falls.
c. the nominal exchange rate defined as Polish currency per dollar rises.
d. the nominal exchange rate defined as Polish currency per dollar falls.
The consumer price index is used to
a. monitor changes in the level of wholesale prices in the economy.
b. monitor changes in the cost of living over time.
c. monitor changes in the level of real GDP over time.
d. monitor changes in the stock market.
Figure 19-3
Refer to this diagram to answer the questions below.
Refer to Figure 19-3. At an interest rate of 3 percent, the diagram indicates that
a. there is a surplus in the market for foreign-currency exchange.
b. national saving equals domestic investment.
c. net capital outflow + domestic investment = national saving.
d. in the market for foreign-currency exchange the quantity of dollars supplied equals
the quantity of dollars demanded.
Samuelson and Solow argued that a combination of low unemployment and low
inflation
a. was impossible given the historical data as summarized by the Phillips curve.
b. could be achieved with an “appropriate” fiscal policy.
c. could be achieved with an “appropriate” monetary policy.
d. could be achieved with an “appropriate” mix of monetary and fiscal policies.
Figure 8-2
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is
a. $1.50.
b. $3.
c. $4.50.
d. $6.
Figure 4-11
Firm A Firm B
Refer to Figure 4-11. If these are the only two sellers in the market, then the market
quantity supplied at a price of $8 is
a. 14 units.
b. 15 units.
c. 16 units.
d. 29 units.
Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a
result, the domestic price of pistachios decreases to equal the world price of pistachios,
then
a. that country becomes an exporter of pistachios.
b. that country has a comparative advantage in producing pistachios.
c. at the world price, the quantity of pistachios demanded in that country exceeds the
quantity of pistachios supplied in that country.
d. All of the above are correct.
If the cost of apparel increases by 50 percent, then, other things the same, the CPI is
likely to increase by about
a. 0.5 percent.
b. 2.0 percent.
c. 3.0 percent.
d. 11.8 percent.
A legal minimum on the price at which a good can be sold is called a price
a. subsidy.
b. floor.
c. support.
d. ceiling.
If purchasing power parity holds, when a country’s central bank increases the money
supply, a unit of money
a. gains value both in terms of the domestic goods and services it can buy and in terms
of the foreign currency it can buy.
b. gains value in terms of the domestic goods and services it can buy, but loses value in
terms of the foreign currency it can buy.
c. loses value in terms of the domestic goods and services it can buy, but gains value in
terms of the foreign currency it can buy.
d. loses value both in terms of the domestic goods and services it can buy and in terms
of the foreign currency it can buy.
Which of the following is not an example of a nondurable good?
a. a loaf of bread
b. a pair of jeans
c. a microwave
d. a pound of bacon
The nation of Falconia forbids international trade. In Falconia, you can obtain a
computer by trading 3 bicycles. In other countries, you can obtain a computer by
trading 5 bicycles. These facts indicate that
a. if Falconia were to allow trade, it would export computers.
b. Falconia has an absolute advantage, relative to other countries, in producing
computers.
c. Falconia has a comparative advantage, relative to other countries, in producing
bicycles.
d. All of the above are correct.
Suppose that the central bank is required to follow a monetary policy rule to stabilize
prices. If the economy starts at long-run equilibrium and then aggregate supply shifts
right, the central bank would have to
a. increase the money supply, which causes output to move closer to its long-run
equilibrium.
b. increase the money supply, which causes output to move farther from long-run
equilibrium.
c. decrease the money supply, which causes output to move closer to its long-run
equilibrium.
d. decrease the money supply, which causes output to move farther from long-run
equilibrium.
Regardless of whether a tax is levied on sellers or buyers, taxes discourage market
activity.
Data from the Bureau of Labor Statistics show that consumer spending on
transportation is only slightly higher than consumer spending on food and beverages.
Data from the Bureau of Labor Statistics show that consumer spending on medical care
is about equal to consumer spending on recreation and consumer spending on education
and communication.
Proponents of a balanced government budget acknowledge that running a budget deficit
is justifiable in time of war.
A central bank can reduce inflation by reducing money supply growth, but it necessarily
does so at the cost of permanently raising the unemployment rate.
What’s the basis for arguing that deficits are likely to lead to lower living standards in
the future?
In a competitive market, there are so few buyers and so few sellers that each has a
significant impact on the market price.
When a government imposes a tariff on a product, the domestic price will equal the
world price.
Markets will always allocate resources efficiently.
Price floors are typically imposed to benefit buyers.
Some countries win in international trade, while other countries lose.
Define each of the symbols and explain the meaning of M V = P Y.
The slope of a line is the ratio of the vertical distance covered to the horizontal distance
covered along the line.
When the central bank of some country prints large quantities of money, that county’s
currency loses value both in terms of the goods and services it buys and in terms of the
amount of foreign currencies it can buy.
The circular flow model is not used anymore because it fails to perfectly replicate real
world situations.
The exchange-rate effectis the idea that a higher U.S. price level causes the value of the
dollar to increase in foreign exchange markets, and this effect contributes to the
downward slope of the aggregate-demand curve.
One plausible explanation for the large amount of U.S. currency outstanding is that
many dollars are held abroad.