A COLA automatically raises the wage when
a. GDP increases.
b. taxes increase.
c. the consumer price index increases.
d. the producer price index increases.
Figure 3-3
Arturo’s Production Possibilities Frontier Dina’s Production Possibilities Frontier
Refer to Figure 3-3. Arturo should specialize in the production of
a. tacos and Dina should specialize in the production of burritos.
b. burritos and Dina should specialize in the production of tacos.
c. both goods and Dina should specialize in the production of neither good.
d. neither good and Dina should specialize in the production of both goods.
For some racquet sports, there have been increases in the size of the racquets; also, the
methods and materials used for making racquets have improved. To which problem in
the construction of the CPI is this situation most relevant?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. income bias
For an open economy, the equation Y = C + I + G + NX is an identity. If we define
national saving, S, as the total income in the economy that is left after paying for
consumption and government purchases, then for an open economy, it is true that
a. S = I.
b. S = 0.
c. I = S + NX.
d. S = I + NX.
The discount rate is
a. the interest rate the Fed charges banks.
b. one divided by the difference between one and the reserve ratio.
c. the interest rate banks receive on reserve deposits with the Fed.
d. the interest rate that banks charge on overnight loans to other banks.
A firm produces manufacturing equipment, some of which it exports. Which of the
following effects of a budget deficit would likely reduce the quantity of equipment it
sells?
a. the change in the interest rate and the change in the exchange rate
b. the change in the interest rate but not the change in the exchange rate
c. the change in the exchange rate but not the change in the interest rate
d. neither the change in the interest rate nor the change in the exchange rate
Consider the following two situations. Nicole accepts a job where she will be driving in
dangerous traffic, so she seeks auto insurance. After Braden buys health insurance, he
visits the gym less frequently. Which of these person’s actions illustrates moral hazard?
a. both Nicole’s and Braden’s
b. Nicole’s but not Braden’s
c. Braden’s but not Nicole’s
d. neither Braden’s nor Nicole’s
In the circular-flow diagram, which of the following items does not flow from firms to
households?
a. goods
b. services
c. capital
d. profit
The efficient markets hypothesis says that
a. only individual investors can make money in the stock market.
b. it should be easy to find stocks whose price differs from their fundamental value.
c. stock prices follow a random walk.
d. All of the above are correct.
Figure 3-8
Chile’s Production Possibilities Frontier Colombia’s Production Possibilities
Frontier
Refer to Figure 3-8. If the production possibilities frontiers shown are each for one day
of production, then which of the following combinations of coffee and soybeans could
Chile and Colombia together make in a given day?
a. 4 pounds of coffee and 16 pounds of soybeans
b. 8 pounds of coffee and 15 pounds of soybeans
c. 16 pounds of coffee and 10 pounds of soybeans
d. 24 pounds of coffee and 4 pounds of soybeans
Table 3-6
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
Hours Needed
To Make 1 Amount Produced
in 40 Hours
Refer to Table 3-6. We could use the information in the table to draw a production
possibilities frontier for Maya and a second production possibilities frontier for Miguel.
If we were to do this, measuring mixers along the horizontal axis, then
a. the slope of Maya’s production possibilities frontier would be -1.6 and the slope of
Miguel’s production possibilities frontier would be -2.
b. the slope of Maya’s production possibilities frontier would be -0.625 and the slope of
Miguel’s production possibilities frontier would be -0.5.
c. the slope of Maya’s production possibilities frontier would be 0.625 and the slope of
Miguel’s production possibilities frontier would be 0.5.
d. the slope of Maya’s production possibilities frontier would be 1.6 and the slope of
Miguel’s production possibilities frontier would be 2.
Evidence indicates that seat belt laws have led to
a. fewer pedestrian deaths.
b. fewer automobile accidents.
c. fewer deaths per automobile accident.
d. All of the above are correct.
Which of the following is likely to have the most price elastic demand?
a. clothing
b. blue jeans
c. Tommy Hilfiger jeans
d. All three would have the same elasticity of demand because they are all related.
The set of items that serve as media of exchange clearly includes
a. demand deposits.
b. short-term bonds.
c. credit cards.
d. All of the above are correct.
Which of the following equations is not valid?
a. Consumer surplus = Value to buyers – Amount paid by buyers
b. Producer surplus = Amount received by sellers – Cost to sellers
c. Total surplus = Value to buyers – Amount paid by buyers + Amount received by
sellers – Costs of sellers
d. Total surplus = Value to sellers – Cost to sellers
Suppose buyers of vodka are required to send $1.00 to the government for every bottle
of vodka they buy. Further, suppose this tax causes the effective price received by
sellers of vodka to fall by $0.60 per bottle. Which of the following statements is
correct?
a. This tax causes the supply curve for vodka to shift upward by $1.00 at each quantity
of vodka.
b. The price paid by buyers is $0.40 per bottle more than it was before the tax.
c. Sixty percent of the burden of the tax falls on buyers.
d. All of the above are correct.
The classical model is appropriate for analysis of the economy in the
a. long run, since evidence indicates that money is not neutral in the long run.
b. long run, since real and nominal variables are essentially determined separately in the
long run.
c. short run, provided money is not neutral.
d. short run, provided real and nominal variables are highly intertwined.
The economy’s inflation rate is the
a. price level in the current period.
b. change in the price level from the previous period.
c. change in the gross domestic product from the previous period.
d. percentage change in the price level from the previous period.
Figure 5-7
Refer to Figure 5-7. For prices below $8, demand is price
a. elastic, and total revenue will rise as price rises.
b. inelastic, and total revenue will rise as price rises.
c. elastic, and total revenue will fall as price rises.
d. inelastic, and total revenue will fall as price rises.
Which of the following statements is correct?
a. All items that are included in M1 are included also in M2.
b. All items that are included in M2 are included also in M1.
c. Credit cards are included in both M1 and M2.
d. Savings deposits are included in both M1 and M2.
Which of the following assertions is not correct about the multilateral approach to free
trade?
a. The multilateral approach has the potential to result in freer trade than does the
unilateral approach.
b. The multilateral approach may have a political advantage over the unilateral
approach.
c. The multilateral approach is simpler than the unilateral approach.
d. NAFTA and GATT both represent multilateral approaches to free trade.
If the risk of buying U.S. assets rises because it is discovered that lending institutions
had not carefully evaluated borrowers prior to lending them funds, then
a. the real exchange rate and the interest rate will rise.
b. the real exchange rate will rise and the interest rate will fall.
c. the real exchange rate will fall and the interest rate will rise.
d. the real exchange rate and the interest rate will fall.
Suppose that Congress were to repeal an investment tax credit. What would happen in
the market for loanable funds?
a. The demand and supply of loanable funds would shift right.
b. The demand and supply of loanable funds would shift left.
c. The supply of loanable funds would shift right.
d. The demand for loanable funds would shift left.
From 1970 to 1998 the U.S. dollar
a. gained value compared to the German mark because inflation was higher in the U.S.
b. gained value compared to the German mark because inflation was lower in the U.S.
c. lost value compared to the German mark because inflation was higher in the U.S.
d. lost value compared to the German mark because inflation was lower in the U.S.
The Bureau of Labor Statistics produces data on unemployment and other aspects of the
labor market from a regular survey of about
a. 600 households.
b. 6,000 households.
c. 60,000 households.
d. 6,000,000 households.
The sticky-wage theory of the short-run aggregate supply curve says that when the price
level is lower than expected,
a. relative to prices wages are higher and employment rise.
b. relative to prices wages are higher and employment falls.
c. relative to prices wages are lower and employment rises.
d. relative to prices wages are lower and employment falls.
The nominal interest rate is 4.5 percent and the inflation rate is 0.9 percent. What is the
real interest rate?
a. 5.4 percent
b. 5 percent
c. 4.1 percent
d. 3.6 percent
Which of the following is correct concerning diversification?
a. It only reduces firm-specific risk, but most of the reduction comes from increasing
the number of stocks in a portfolio to well above 30.
b. It only reduces firm-specific risk; much of the reduction comes from increasing the
number of stocks in a portfolio from 1 to 30.
c. It only reduces market risk, but most of the reduction comes from increasing the
number of stocks in a portfolio to well above 30.
d. None of the above is correct.
Suppose price is measured along the vertical axis on a graph. When price changes, there
will be a
a. rotation of the curve.
b. shift of the curve.
c. movement along the curve.
d. change in the slope of the curve.
Figure 15-1
Refer to Figure 15-1. If unemployment is 2000 workers, then the minimum wage must
be
a. $4.
b. $5.
c. $7.
d. $8.
When inflation rises, the nominal interest rate
a. rises, and people desire to hold more money.
b. rises, and people desire to hold less money.
c. falls, and people desire to hold more money.
d. falls, and people desire to hold less money
A nation’s domestic investment is greater than its savings. Which of the following is
correct?
a. This nation has a negative net capital outflow.
b. This nation has a trade surplus.
c. Purchases of foreign assets by domestic residents exceed purchases of domestic
assets by foreigners.
d. All of the above are correct.
The short-run Phillips curve intersects the long-run Phillips curve where
a. the actual rate of inflation equals the expected rate of inflation.
b. the actual rate of unemployment equals the natural rate of unemployment.
c. Both A and B are correct.
d. None of the above is correct.
A barber currently cuts hair for 50 clients per week and earns a profit. He is considering
expanding his operation in order to serve more clients. Should he expand?
a. Yes, because cutting hair is profitable.
b. No, because he may not be able to sell more services.
c. It depends on the marginal cost of serving more clients and the marginal revenue he
will earn from serving more clients.
d. It depends on the average cost of serving more clients and the average revenue he
will earn from serving more clients.
A tax imposed on the buyers of a good will
a. raise both the price buyers pay and the effective price sellers receive.
b. raise the price buyers pay and lower the effective price sellers receive.
c. lower the price buyers pay and raise the effective price sellers receive.
d. lower both the price buyers pay and the effective price sellers receive.