In January the price of dark chocolate candy bars was $2.00, and Willy’s Chocolate
Factory produced 80 pounds. In February the price of dark chocolate candy bars was
$2.50, and Willy’s produced 110 pounds. In March the price of dark chocolate candy
bars was $3.00, and Willy’s produced 140 pounds. The price elasticity of supply of
Willy’s dark chocolate candy bars was about
a. 0.70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased
from $2.50 to $3.00.
b. 0.88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased
from $2.50 to $3.00.
c. 1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased
from $2.50 to $3.00.
d. 1.50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased
from $2.50 to $3.00.
Imagine that someone offers you $X today or $1,500 in 5 years. If the interest rate is 6
percent, then you would prefer to take the $X today if and only if
a. X > 1,055.56.
b. X > 1,120.89.
c. X > 1,213.33.
d. X > 1,338.26.
At which interest rate is the present value of $185.71 three years from today equal to
$175 today?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
The Stock Market Boom of 2015
Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise
more than expected and stay high for some time.
Refer to Stock Market Boom 2015. What happens to the expected price level and
what impact does this have on wage bargaining?
a. The expected price level falls. Bargains are struck for higher wages.
b. The expected price level falls. Bargains are struck for lower wages.
c. The expected price level rises. Bargains are struck for higher wages.
d. The expected price level rises. Bargains are struck for lower wages.
A common argument in favor of restricting international trade in good x is based on the
premise that
a. international trade reduces total surplus in countries that export good x.
b. international trade reduces total surplus in countries that import good x.
c. international trade is desirable only when countries with different domestic supplies
of natural resources play by different rules when trading with one another.
d. trade restrictions can be useful when one country bargains with its trading partners.
Net exports must equal zero for any economy
a. that is closed.
b. for which Y = C + I + G.
c. for which S = Y – C – G.
d. All of the above are correct.
Which of the following changes in the price index produces the greatest rate of
inflation: 100 to 110, 150 to 165, or 180 to 198?
a. 100 to 110
b. 150 to 165
c. 180 to 198
d. All of these changes produce the same rate of inflation.
Figure 9-13
Refer to Figure 9-13. With trade, domestic production and domestic consumption,
respectively, are
a. 600 and 600.
b. 600 and 300.
c. 300 and 900.
d. 600 and 900.
Thousands of people develop lung cancer from second-hand exposure to cigarette
smoke. This is an example of
a. a market failure caused by an externality.
b. a market failure caused by market power.
c. a market failure caused by equality.
d. There is no market failure in this case.
Refer to Labor Force Statistics by Age. Suppose that the natural rate of
unemployment is 5% for those under 55 and 3% for those 55 and older. The cyclical
unemployment rate for those under 55 is
a. .88% which is greater than the cyclical unemployment rate for those 55 and older.
b. .88% which is less than the cyclical unemployment rate for those 55 and older.
c. -.83% which is greater than the cyclical unemployment rate for those 55 and older.
d. -.83% which is less than the cyclical unemployment rate for those 55 and older.
When the quality of a good deteriorates while its price remains the same, the purchasing
power of the dollar
a. increases, so the CPI overstates the change in the cost of living if the quality change
is not accounted for.
b. increases, so the CPI understates the change in the cost of living if the quality change
is not accounted for.
c. decreases, so the CPI overstates the change in the cost of living if the quality change
is not accounted for.
d. decreases, so the CPI understates the change in the cost of living if the quality change
is not accounted for.
Since the end of World War II, the U.S. has almost always had rising prices and an
upward trend in real GDP. This can be explained
a. only by technological progress.
b. only by money supply growth.
c. by technological progress and money supply growth.
d. None of the above is correct.
In answering which of the following questions would you find it necessary to calculate
a present value?
a. Should Jane put $1,000 today into a 5-year certificate of deposit that pays 4 percent
annual interest?
b. Should ABC Corporation buy a factory today for $2 million, knowing that the factory
will yield the corporation $3 million after 5 years?
c. If Jill puts $5,000 today into a bank account that pays 3 percent interest, then how
much will she have in the account after 2 years?
d. You would find it necessary to calculate a present value in order to answer all of
these questions.
Which of the following is correct? Over about the last fifty years
a. U.S. exports and U.S. imports each about doubled.
b. U.S. exports and U.S. imports each about tripled.
c. U.S. exports about doubled and U.S. imports about tripled.
d. U.S. exports about tripled and U.S. imports about doubled.
An economic contraction caused by a shift in aggregate demand causes prices to
a. rise in the short run, and rise even more in the long run.
b. rise in the short run, and fall back to their original level in the long run.
c. fall in the short run, and fall even more in the long run.
d. fall in the short run, and rise back to their original level in the long run.
Which of the following is likely to have the most price elastic demand?
a. ice cream
b. frozen yogurt
c. vanilla ice cream
d. Häagen-Dazs® vanilla bean ice cream
Suppose an economy produces only eggs and ham. In 2009, 100 dozen eggs are sold at
$3 per dozen and 50 pounds of ham sold at $4 per pound. In 2010, the base year, eggs
sold at $1.50 per dozen and ham sold at $5 per pound. For 2009,
a. nominal GDP is $400, real GDP is $500, and the GDP deflator is 80.
b. nominal GDP is $400, real GDP is $500, and the GDP deflator is 125.
c. nominal GDP is $500, real GDP is $400, and the GDP deflator is 80.
d. nominal GDP is $500, real GDP is $400, and the GDP deflator is 125.
Changes in the producer price index are often thought to be useful in predicting changes
in
a. stock prices.
b. the consumer price index.
c. the unemployment rate.
d. the rate of output of goods and services.
Which of the following is correct?
a. There is no debate about the effects of higher population growth on economic
growth.
b. Natural resources clearly place limits on growth; there is simply no way to reduce
either the amount or type of natural resources needed to produce goods.
c. How much an increase in capital increases a country’s output is independent of that
country’s current level of capital.
d. Economists argue that outward rather than inward policies are likely to promote
economic growth.
In an open economy, gross domestic product equals $1,850 billion, consumption
expenditure equals $975 billion, government expenditure equals $225 billion,
investment equals $500 billion, and net exports equals $150 billion. What is national
savings?
a. $0
b. $500 billion
c. $650 billion
d. $975 billion
It is possible for an economy to increase its production of both goods if the economy
a. moves downward and to the right along its production possibilities frontier and the
frontier is bowed outward.
b. moves upward and to the left along its production possibilities frontier and the
frontier is bowed outward.
c. moves in either direction along its production possibilities frontier and the frontier is
a straight line.
d. moves from a situation of inefficient production to a situation of efficient production.
Assume for Namibia that the opportunity cost of each hut is 200 bowls. Which of these
pairs of points could be on Namibia’s production possibilities frontier?
a. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls)
b. (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls)
c. (300 huts, 50,000 bowl) and (200 huts, 60,000 bowls)
d. (300 huts, 60,000 bowls) and (200 huts, 80,000 bowls)
Institutions that help to match one person’s saving with another person’s investment are
collectively called the
a. Federal Reserve system.
b. banking system.
c. monetary system.
d. financial system.
A minimum wage that is set above a market’s equilibrium wage will result in an excess
a. demand for labor, that is, unemployment.
b. demand for labor, that is, a shortage of workers.
c. supply of labor, that is, unemployment.
d. supply of labor, that is, a shortage of workers.
Traveler’s checks are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
The GDP deflator for years subsequent to the base year measures the change in
a. nominal GDP from the base year that cannot be attributable to a change in real GDP.
b. real GDP from the base year that cannot be attributable to a change in nominal GDP.
c. nominal GDP from the base year that cannot be attributable to a change in prices.
d. real GDP from the base year that cannot be attributable to a change in prices.
In an imaginary economy, consumers buy only sandwiches and magazines. The fixed
basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a
magazine cost $2. In 2007, a sandwich cost $5. The base year is If the inflation rate in
2007 was 16 percent, then how much did a magazine cost in 2007?
a. $1.87
b. $2.08
c. $2.32
d. $3.00
In analyzing international trade, we often focus on a country whose economy is small
relative to the rest of the world. We do so
a. because it is impossible to analyze the gains and losses from international trade
without making this assumption.
b. because then we can assume that world prices of goods are unaffected by that
country’s participation in international trade.
c. in order to rule out the possibility of tariffs or quotas.
d. All of the above are correct.
The world price of a pound of T-bone steak is $9.00. Before Latvia allowed trade in
beef, the price of a pound of T-bone steak there was $7.50. Once Latvia began allowing
trade in beef with other countries, Latvia began
a. exporting T-bone steak and the price per pound in Latvia remained at $7.50.
b. exporting T-bone steak and the price per pound in Latvia increased to $9.00.
c. importing T-bone steak and the price per pound in Latvia remained at $7.50.
d. importing T-bone steak and the price per pound in Latvia increased to $9.00.
Economists use some familiar terms in specialized ways
a. to make the subject sound more complex than it is.
b. because every respectable field of study has its own language.
c. to provide a new and useful way of thinking about the world.
d. because it was too difficult to come up with new terms.
A company that formerly produced software went out of business because too many
potential customers bought illegally-produced copies of the software instead of buying
the product directly from the company. This instance serves as an example of
a. market power.
b. inefficient trade.
c. inadequate enforcement of property rights.
d. the invisible hand at work.
Which of the following would not be a result of replacing the income tax with a
consumption tax so that interest income was no longer taxed?
a. The interest rate would decrease.
b. Investment would decrease.
c. The standard of living would eventually rise.
d. The supply of loanable funds would shift right.