In general, elasticity is a measure of
a. the extent to which advances in technology are adopted by producers.
b. the extent to which a market is competitive.
c. how firms’ profits respond to changes in market prices.
d. how much buyers and sellers respond to changes in market conditions.
A monopoly is a market with one
a. seller, and that seller is a price taker.
b. seller, and that seller sets the price.
c. buyer, and that buyer is a price taker.
d. buyer, and that buyer sets the price.
A tax
a. lowers the price buyers pay and raises the price sellers receive.
b. raises the price buyers pay and lowers the price sellers receive.
c. places a wedge between the price buyers pay and the price sellers receive.
d. Both b) and c) are correct.
Which of the following is not an assumption of the productions possibilities frontier?
a. A country produces only two goods or types of goods.
b. Technology does not change.
c. The amount of available resources does not change.
d. There is a fixed quantity of money.
Which of the following is the most accurate statement about the effects of quality
change on the CPI?
a. Even though the BLS adjusts the prices of products in the CPI basket when the
quality of the products change, changes in quality are still a problem because quality is
so hard to measure.
b. Because the BLS adjusts the prices of products in the CPI basket when the quality of
the products change, changes in quality are no longer a problem for the CPI.
c. The BLS does not adjust the CPI for quality changes.
d. Most economists believe that changes in the quality of goods included in the CPI
basket do not bias the CPI as a measure of the cost of living.
A payroll tax is a
a. fixed number of dollars that every firm must pay to the government for each worker
that the firm hires.
b. tax that each firm must pay to the government before the firm can hire workers and
operate its business.
c. tax on the wages that firms pay their workers.
d. tax on all wages above the minimum wage.
Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the
population was 2.2 million. The year before, real GDP was 0 billion and the population
was 2.0 million. What was the growth rate of real GDP per person during the year?
a. 12 percent
b. 10 percent
c. 4 percent
d. 2 percent
Figure 6-17
Refer to Figure 6-17. In the after-tax equilibrium, how much revenue does the
government collect from the tax on this good?
a. $210
b. $345
c. $420
d. $480
Table 3-16 Summary of the Gains from Trade
Alice Betty
Lemonade
(in pitchers) Pizzas Lemonade
(in pitchers) Pizzas
Refer to Table 3-16. The values in the table represent the amounts of lemonade and
pizzas that Alice and Betty can produce in one week without and with specialization
and trade. What are Alice and Betty’s gains from specialization and trade?
a. Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of
lemonade and 10 pizzas.
b. Alice gains 200 pitchers of lemonade and 100 pizzas, while Betty gains 180 pitchers
of lemonade and 180 pizzas.
c. Alice gains 207 pitchers of lemonade and 110 pizzas, while Betty gains 193 pitchers
of lemonade and 190 pizzas.
d. Alice gains 400 pitchers of lemonade and 0 pizzas, while Betty gains 0 pitchers of
lemonade and 300 pizzas.
Which of the following is most likely to increase the exports of a country?
a. The government gives subsidies to firms that export goods or services.
b. The government reduces the size of the budget surplus.
c. Political instability within the country increases modestly.
d. None of the above will increase exports.
In considering how to allocate its scarce resources among its various members, a
household considers
a. each member’s abilities.
b. each member’s efforts.
c. each member’s desires.
d. all of the above
Figure 6-4
Refer to Figure 6-4. A government-imposed price of $6 in this market could be an
example of a
(i) binding price ceiling.
(ii) non-binding price ceiling.
(iii) binding price floor.
(iv) non-binding price floor.
a. (i) only
b. (ii) only
c. (i) and (iv) only
d. (ii) and (iii) only
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 short run, an unexpected decrease
in money supply growth moves the economy to
a. A and 1.
b. B and 2.
c. back to C and 3.
d. D and 4.
As the price level falls,
a. the exchange rate falls, so net exports fall.
b. the exchange rate falls, so net exports rise.
c. the exchange rate rises, so net exports fall.
d. the exchange rate rises, so net exports rise.
Which of the following is correct?
a. Consumer surplus refers to a situation in which there are more buyers than sellers in a
market.
b. Producer surplus refers to a situation in which there are more sellers than buyers in a
market.
c. Total surplus is measured as the area below the demand curve and above the supply
curve, up to the equilibrium quantity.
d. All of the above are correct.
For economists, statements about the world are of two types:
a. assumptions and theories.
b. true statements and false statements.
c. specific statements and general statements.
d. positive statements and normative statements.
Which of the following is a determinant of productivity?
a. human capital per worker
b. physical capital per worker
c. natural resources per worker
d. All of the above are correct.
Other things the same, if the central bank decreases the rate at which it increases the
money supply, then in the long run
a. the short-run Phillips curve shifts right.
b. the short-run Phillips curve shifts left.
c. the long-run Phillips curve shifts right.
d. the long-run Phillips curve shifts left.
In the short run, a decrease 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.
If a tariff on lumber were implemented, for the country as a whole which of the
following would rise?
a. exports and net exports
b. exports but not net exports
c. net exports but not exports
d. neither exports nor net exports
Which of the following is correct?
a. Lenders sell bonds and borrowers buy them.
b. Long-term bonds usually pay a lower interest rate than do short-term bonds because
long-term bonds are riskier.
c. The term junk bonds refers to bonds that have been resold many times.
d. None of the above is correct.
Figure 6-1
Panel (a) Panel (b)
Refer to Figure 6-1. A binding price ceiling is shown in
a. panel (a) only.
b. panel (b) only.
c. both panel (a) and panel (b).
d. neither panel (a) nor panel (b).
If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is
a. 104.1 so prices are higher than in the base year.
b. 104.1 so prices are lower than in the base year.
c. 96.1 so prices are higher than in the base year.
d. 96.1 so prices are lower than in the base year.
Which of the following would cause the price level to rise and output to fall in the short
run?
a. an increase in the money supply
b. a decrease in the money supply
c. an adverse supply shock
d. a favorable supply shock
Suppose that Albert can buy a bond for $1,000 that matures in two years and pays
Albert $1,102.5 with certainty. He is indifferent between this bond and one that has
some risk but on which the interest rate is 3% higher. How much, to the nearest penny,
does the riskier bond pay in two years?
a. $1,160.00
b. $1,166.40
c. $1,168.65
d. $1,169.64
Figure 15-1
Refer to Figure 15-1. If the government imposes a minimum wage of $4, then
employment will decrease by
a. 0 workers.
b. 2000 workers.
c. 3000 workers.
d. 4000 workers.
If interest rates rose more in Germany than in the U.S., then other things the same
a. U.S. citizens would buy more German bonds and German citizens would buy more
U.S. bonds.
b. U.S. citizens would buy more German bonds and German citizens would buy fewer
U.S. bonds.
c. U.S. citizens would buy fewer German bonds and German citizens would buy more
U.S. bonds.
d. U.S. citizens would buy fewer German bonds and German citizens would buy fewer
U.S. bonds.
Suppose that monetary neutrality and the Fisher effect both hold. An increase in the
money supply growth rate increases
a. the inflation rate and real interest rates.
b. the inflation rate, but not real interest rates.
c. real interest rates, but not the inflation rate.
d. neither the inflation rate nor real interest rates.
Historically, the market prices of most natural resources (adjusted for inflation) have
a. increased.
b. remained stable.
c. remained stable or decreased.
d. decreased.
Which of the following does not help explain the direction the quantity of aggregate
goods demanded changes when the price level decreases?
a. consumer wealth rises
b. borrowing rises
c. each dollar is worth more domestic goods
d. the dollar appreciates relative to other currencies
Which of the following is an example of financial intermediation?
a. John buys shares of stock issued by a fast food company.
b. A foreign government buys bonds issued by the U.S. Treasury.
c. Susan makes a deposit at a bank and the bank uses this money to make an auto loan
to Ferguson.
d. None of the above is correct.
Table 4-4
Refer to Table 4-4. If these are the only four sellers in the market, then the market
quantity supplied at a price of $10 is
a. 3 units.
b. 11 units.
c. 25 units.
d. 44 units.
When studying changes in the economy over time, economists want a measure of the
total quantity of goods and services the economy is producing that is not affected by
changes in the prices of those goods and services. In other words, economists want to
study
a. nominal GDP.
b. real GDP.
c. the GDP deflator.
d. GNP.
The performance of index funds
a. usually falls short of the performance of actively-managed funds.
b. provides evidence in support of the notion that stock prices do not depend upon
supply and demand.
c. provides evidence in support of the efficient markets hypothesis.
d. provides evidence in support of the notion that stock-market participants are
irrational.
The CPI and GDP deflator usually tell two different stories about how quickly prices
are rising.
A decrease in the growth rate of the money supply eventually causes the short-run
Phillips curve to shift right.
Foreign direct investment and domestic investment have the same effect on all
measures of economic prosperity.
The Federal Reserve primarily uses open-market operations to change the money
supply.
Economists use one standard set of assumptions to answer all economic questions.
The Council of Economic Advisers’ Economic Report of the President discusses recent
developments in the economy and presents the council’s analysis of current policy
issues.
If a good produced this quarter goes into inventory, then it is included in this period’s
GDP. If it is sold in the next quarter, it will have no effect on GDP.
A COLA automatically raises the wage when the CPI rises.
Free trade allows firms to realize economies of scale, resulting in higher costs of
production.
If a tax is imposed on the sellers of a product, then the tax burden will fall entirely on
the sellers.
In principle, the government could increase the money supply or increase government
expenditures to try to offset the effects of a wave of pessimism about the future of the
economy.
The demand curve is the upward-sloping line relating price and quantity demanded.
It takes Ross 6 hours to produce a bushel of corn and 2 hours to wash and polish a car.
It takes Courtney 6 hours to produce a bushel of corn and 1 hour to wash and polish a
car. Courtney and Ross cannot gain from specialization and trade, since it takes each of
them 6 hours to produce 1 bushel of corn.
Cross-price elasticity of demand measures how the quantity demanded of one good
changes as the price of another good changes.
A tariff increases the quantity of imports and moves the market farther from its
equilibrium without trade.
How does elasticity affect the burden of a tax? Justify your answer using supply and
demand diagrams.
Suppose that changes in aggregate demand tended to be infrequent and that it takes a
long time for the economy to return to long-run output. How would this affect the
arguments of those who oppose using policy to stabilize output?
Figure 6-27
Refer to Figure 6-27. If the government places a $2 tax in the market, the buyer pays
$6.
Unexpectedly high inflation reduces unemployment in the short run, but as inflation
expectations adjust the unemployment rate returns to its natural rate.