The term used to describe a situation in which markets do not allocate resources
efficiently is
a. economic meltdown.
b. market failure.
c. equilibrium.
d. the effect of the invisible hand.
Monetary policy affects employment
a. only in the long run.
b. only in the short run.
c. in both the long run and the short run.
d. in neither the long run nor the short run.
At Nick’s Bakery, the cost to make homemade chocolate cake is $3 per cake. As a result
of selling three cakes, Nick experiences a producer surplus in the amount of $19.50.
Nick must be selling his cakes for
a. $6.50 each.
b. $7.50 each.
c. $9.50 each.
d. $10.50 each.
Scenario 21-2. The following facts apply to a small, imaginary economy.
Consumption spending is $5,200 when income is $8,000.
Consumption spending is $5,536 when income is $8,400.
Refer to Scenario 21-2. The multiplier for this economy is
a. 6.00.
b. 6.25.
c. 8.40
d. 9.00.
The argument that an increase in government expenditures will have a larger impact on
aggregate demand than tax cuts is based on the idea that
a. tax cuts have no multiplier affect.
b. people will save part of a tax cut.
c. an increase in consumption expenditures has a smaller effect on real GDP than an
equal increase in government expenditures.
d. None of the above is correct.
Figure 6-16
Refer to Figure 6-16. Suppose a tax of $5 per unit is imposed on this market. What will
be the new equilibrium quantity in this market?
a. less than 25 units
b. 25 units
c. between 25 units and 50 units
d. greater than 50 units
Gramp’s Potato Chips produces 1280 bags of potato chips a day. Each employee at
Gramp’s works 8 hours. If the company’s productivity is 20 bags per hour, how many
people does Gramp’s employ?
a. 8
b. 10
c. 80
d. 100
In any economic system, scarce resources have to be allocated among competing uses.
Market economies harness the forces of
a. government to allocate scarce resources.
b. supply and demand to allocate scarce resources.
c. credit cards to allocate scarce resources.
d. nature to allocate scarce resources.
If P = 4 and Y = 450, then which of the following pairs of values are possible?
a. M = 800, V = 4
b. M = 600, V =3
c. M = 400, V =2
d. M = 200, V =1
Today, bank runs are
a. uncommon because of the high reserve requirement.
b. uncommon because of FDIC deposit insurance.
c. common because of the low reserve requirement.
d. common because the FDIC is nearly bankrupt.
Fourteen years ago William put money in his account at First National Bank. William
decides to cash in his account and is told that his money has quadrupled. According to
the rule of 70, what rate of interest did Alfred earn?
a. 5 percent
b. 7 percent
c. 10 percent
d. 14 percent
The number of shares of Biggie Corporation stock outstanding in 2007 was 100 million.
In 2007, Biggie stock paid a dividend of $2.40 per share and its dividend yield was 4
percent. If the price-earnings ratio is 16, then Biggie’s total earnings in 2007 amounted
to
a. $1.92 million.
b. $87.50 million.
c. $375.00 million.
d. $960.00 million.
Interest rates adjusted for the effects of inflation
a. and inflation are nominal variables.
b. and inflation are real variables.
c. are real variables; inflation is a nominal variable.
d. are nominal variables; inflation is a real variable.
Figure 2-12
Refer to Figure 2-12. Which of the following combinations of points are both efficient
and attainable for this economy?
a. B, C
b. A, D, H
c. A, B, C, D, H
d. F, G
The size of the deadweight loss generated from a tax is affected by the
a. elasticities of both supply and demand.
b. elasticity of demand only.
c. elasticity of supply only.
d. total revenue collected by the government.
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. Suppose Isoland changes from a no-trade policy to a policy that
allows international trade. If the world price of peaches is $5, then the policy change
results in a
a. $25 decrease in consumer surplus.
b. $20 increase in consumer surplus.
c. $25 decrease in producer surplus.
d. $20 increase in producer surplus.
Which of the following best illustrates the unit of account function of money?
a. You list prices for candy sold on your Web site, www.sweettooth.com, in dollars.
b. You pay for your theater tickets with dollars.
c. You hold currency even though you don”t intend to spend it right away.
d. None of the above is correct.
A Canadian manufacturing company opens a factory the produces air conditioners in
the United States. This is an example of Canadian
a. foreign direct investment that increases Canadian net capital outflow.
b. foreign direct investment that decreases Canadian net capital outflow.
c. foreign portfolio investment that increases Canadian net capital outflow.
d. foreign portfolio investment that decreases Canadian net capital outflow.
Which of the following is correct?
a. Studies of the effects of the minimum wage typically find that a 10 percent increase
in the minimum wage raises the average wage of teenagers by 10 percent.
b. The drop in teenage employment caused by a 10 percent increase in the minimum
wage is not significant.
c. The minimum wage is more often binding for teenagers than for other members of
the labor force.
d. All firms consistently enforce minimum-wage laws.
Charles purchases 20 basketball tickets per year when his annual income is $50,000 and
25 basketball tickets when his annual income is $60,000. Charles’s income elasticity of
demand for basketball ticket is
a. 0.82, and basketball tickets are a normal good.
b. 0.82, and basketball tickets are an inferior good.
c. 1.22, and basketball tickets are a normal good.
d. 1.22, and basketball tickets are an inferior good.
Table 10-2
The table below contains data for the country of Crete for the year 2010.
Refer to Table 10-2. What was Crete’s GDP in 2010?
a. $4623
b. $5731
c. $6037
d. $6839
The belief that tobacco is a “gateway drug” is consistent with
a. the idea that tobacco and marijuana are substitutes.
b. the idea that an increase in income causes a decrease in the demand for tobacco and
an increase in the demand for marijuana.
c. the idea that lower cigarette prices are associated with less use of marijuana.
d. most of the available evidence.
Which of the following statements is true?
a. Even if we know the values of the consumer price index for the years 2009 and 2010,
we cannot calculate the inflation rate for 2010 if we do not know which year is the base
year.
b. If we know the base year is 1990, and if we know the value of the consumer price
index for the year 2010, then we have all the information we need to calculate the
inflation rate for 2010.
c. If we know the base year is 2000, and if we know the value of the consumer price
index for the year 1995, then we have all the information we need to calculate the
inflation rate for 1995.
d. If we know the base year is 2000, and if we know the value of the consumer price
index for the year 1995, then we have all the information we need to calculate the
percentage change in the cost of living between 1995 and 2000.
Coffee and tea are substitutes. Good weather that sharply increases the coffee bean
harvest would
a. increase consumer surplus in the market for coffee and decrease producer surplus in
the market for tea.
b. increase consumer surplus in the market for coffee and increase producer surplus in
the market for tea.
c. decrease consumer surplus in the market for coffee and increase producer surplus in
the market for tea.
d. decrease consumer surplus in the market for coffee and decrease producer surplus in
the market for tea.
In 1776, the American Revolution was sparked by anger over
a. the extravagant lifestyle of British royalty.
b. the crimes of British soldiers stationed in the American colonies.
c. British taxes imposed on the American colonies.
d. the failure of the British to protect American colonists from attack by hostile Native
Americans.
Arnold quit his job because he was unhappy at work. Michael was fired because he
frequently came to work late. Who is eligible for unemployment insurance benefits?
a. both Arnold and Michael
b. Arnold but not Michael
c. Michael but not Arnold
d. neither Arnold nor Michael
Table 8-1
Refer to Table 8-1. Suppose the government is considering levying a tax in one or
more of the markets described in the table. Which of the markets will maximize the
deadweight loss(es) from the tax?
a. market B only
b. markets A and C only
c. markets B and D only
d. market D only
The nation of Fastbrooke forbids international trade. In Fastbrooke, you can exchange 1
television for 3 computers. In other countries, you can exchange 1 television for 2
computers. These facts indicate that
a. other countries have an absolute advantage, relative to Fastbrooke, in producing
televisions.
b. Fastbrooke has a comparative advantage, relative to other countries, in producing
televisions.
c. if Fastbrooke were to allow trade, it would import computers.
d. the world price of computers exceeds the price of computers in Fastbrooke.
In the basket of goods that is used to compute the consumer price index, which of the
following categories of consumer spending is the largest?
a. education & communication
b. recreation
c. medical care
d. All of the above categories are about equal in magnitude.
When we are calculating the consumer price index and the inflation rate for a certain
year,
a. the value of the consumer price index may depend on the choice of a base year, but
the inflation rate does not depend on the choice of a base year.
b. the inflation rate may depend on the choice of a base year, but the value of the
consumer price index does not depend on the choice of a base year.
c. both the value of the consumer price index and the inflation rate may depend on the
choice of a base year.
d. neither the value of the consumer price index nor the inflation rate depends on the
choice of a base year.
Which two of the Ten Principles of Economics imply that the Fed can profoundly affect
the economy?
Productivity can be computed as the number of hours worked divided by output.
Economists agree that trade ought to be restricted if free trade means that domestic jobs
might be lost because of foreign competition.
Most spells of unemployment are short, and most unemployment observed at any given
time is long-term.
Economist Michael Kremer found that world growth rates fell as population increased.
Suppose that the government increases expenditures by $150 billion while increasing
taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out
or accelerator effects. What is the combined effects of these changes? Why is the
combined change not equal to zero?
Assume that when $100 of new reserves enter the banking system, the money supply
ultimately increases by $625. Assume also that no banks hold excess reserves and that
the entire money supply consists of bank deposits. If, at a point in time, reserves for all
banks amount to $500, then at that same point in time, loans for all banks amount to
$2,625.
The law of supply states that, other things equal, when the price of a good falls, the
quantity supplied falls as well.
While GDP includes tangible goods such as books and bug spray, it excludes intangible
services such as the services provided by teachers and exterminators.
In the circular-flow diagram, the two types of markets in which households and firms
interact are the markets for goods and services and the markets for factors of
production.
The small-economy assumption is necessary to analyze the gains and losses from
international trade.
People who report being not in the labor force but who, in fact, want to work but have
given up trying to find a job after an unsuccessful search cause the reported
unemployment rate to be lower than it would otherwise be.
Long lines and discrimination are examples of rationing methods that may naturally
develop in response to a binding price ceiling.
The logic of the exchange-rate effect begins with a change in the price level changing
the interest rate.
The classical dichotomy is useful for analyzing the economy because in the long run
nominal variables are heavily influenced by developments in the monetary system, and
real variables are not.
Rupert is collecting unemployment insurance benefits. To continue to receive his
benefits, he must be looking for work. Because he”d like to continue collecting benefits
rather than take a job, he applies at places that are unlikely to hire him. People like
Rupert make the reported unemployment rate less than it would otherwise be.
The purchase of a capital asset adds to the demand for loanable funds only if that asset
is a domestic one.
If a country allows free trade and its domestic price for a given good is lower than the
world price, then it will import that good.