Supply-side economists focus more than other economists on
a. how fiscal policy affects consumption.
b. the multiplier affect of fiscal policy.
c. how fiscal policy affects aggregate supply.
d. the money supply.
A country reported nominal GDP of $200 billion in 2010 and $180 billion in 2009. It
also reported a GDP deflator of 125 in 2010 and 105 in Between 2009 and 2010,
a. real output and the price level both rose.
b. real output rose and the price level fell.
c. real output fell and the price level rose.
d. real output and the price level both fell.
If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs
$30, then people could make a profit by
a. buying lobsters in Maine and selling them in Massachusetts. This action would
increase the price of lobster in Massachusetts.
b. buying lobsters in Maine and selling them in Massachusetts. This action would
decrease the price of lobster in Massachusetts.
c. buying lobsters in Massachusetts and selling them in Maine. This action would
increase the price of lobster in Massachusetts.
d. buying lobsters in Massachusetts and selling them in Maine. This action would
decrease the price of lobster in Massachusetts.
Given a nominal interest rate of 6 percent, in which of the following cases would you
earn the lowest after-tax real rate of interest?
a. Inflation is 4 percent; the tax rate is 5 percent.
b. Inflation is 3 percent; the tax rate is 20 percent.
c. Inflation is 2 percent; the tax rate is 30 percent.
d. The after-tax real interest rate is the same for all of the above.
When a government program is justified not on its merits but on the number of jobs it
will create,
a. the program is an efficient use of taxpayer dollars.
b. it should be approved only if the unemployment rate is low.
c. taxes should be raised to fund the program.
d. it is known as the “broken window fallacy.”
The long-run aggregate supply curve shifts right if
a. technology improves.
b. the price level decreases.
c. the money supply increases.
d. All of the above are correct.
The final element of a financial crisis is
a. an economic downturn.
b. a decline in confidence in financial institutions.
c. declining prices of real estate or other assets.
d. a vicious circle.
Figure 8-4
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-4. The amount of tax revenue received by the government is equal to
a. $350.
b. $490.
c. $700.
d. $840.
If domestic residents of France purchase 2 trillion euros of foreign assets and foreigners
purchase 1.5 trillion euros of French assets, then France’s net capital outflow is
a. -3 trillion euros, so it must have a trade deficit.
b. -3 trillion euros, so it must have a trade surplus.
c. 3 trillion euros, so it must have a trade deficit.
d. 3 trillion euros, so it must have a trade surplus.
If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is
a. 83.33, and this indicates that the price level has decreased by 16.67 percent since the
base year.
b. 83.33, and this indicates that the price level has increased by 83.33 percent since the
base year.
c. 120, and this indicates that the price level has increased by 20 percent since the base
year.
d. 120, and this indicates that the price level has increased by 120 percent since the base
year.
When the dollar appreciates, U.S.
a. exports decrease, while imports increase.
b. exports and imports decrease.
c. exports and imports increase.
d. exports increase, while imports decrease.
Table 11-5
The table below pertains to Napandsnack, an economy in which the typical consumer’s
basket consists of 2 pillows and 15 hotdogs.
Refer to Table 11-5. If the base year is 2009, then the consumer price index was
a. 100 in 2009, 115 in 2010, and 116 in 2011.
b. 100 in 2009, 115 in 2010, and 135 in 2011.
c. 100 in 2009, 120 in 2010, and 116 in 2011.
d. 120 in 2009, 125 in 2010, and 135 in 2011.
Scenario 13-1. Assume the following information for an imaginary, closed
economy.
GDP = $120,000; consumption = $70,000; private saving = $9,000;
national saving = $12,000.
efer to Scenario 13-1. This economy’s government is running a
a. budget surplus of $3,000.
b. budget surplus of $6,000.
c. budget deficit of $3,000.
d. budget deficit of $6,000.
People who are unemployed because wages are, for some reason, set above the level
that brings labor supply and demand into equilibrium are best classified as
a. cyclically unemployed.
b. structurally unemployed.
c. frictionally unemployed.
d. discouraged workers.
For any given year, the CPI is the price of the basket of goods and services in the
a. given year divided by the price of the basket in the base year, then multiplied by 100.
b. given year divided by the price of the basket in the previous year, then multiplied by
100.
c. base year divided by the price of the basket in the given year, then multiplied by 100.
d. previous year divided by the price of the basket in the given year, then multiplied by
100.
Figure 8-5
Suppose that the government imposes a tax of P3 – P1.
Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
Scenario 16-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The
local currency is the dia. Namdian banks collectively hold 100 million dias of required
reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury
Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use
only demand deposits and so the money supply consists of demand deposits.
Refer to Scenario 16-1. Assuming the only other item Namdian banks have on their
balance sheets is loans, what is the value of existing loans made by Namdian banks?
a. 625 million dias
b. 875 million dias
c. 1,125 million dias
d. None of the above is correct.
Cassie purchases 1,000 shares of a mutual fund for $1,000. Cassie’s purchase of these
shares contributes $1,000 to which magnitude in the identity Y = C + I + G?
a. C
b. I
c. G
d. None of the above are correct.
An economic contraction caused by a shift in aggregate demand remedies itself over
time as the expected price level
a. rises, shifting aggregate demand right.
b. rises, shifting aggregate demand left.
c. falls, shifting aggregate supply right.
d. falls, shifting aggregate supply left.
Table 5-2
Refer to Table 5-2. Using the midpoint method, if the price falls from $80 to $60, the
absolute value of the price elasticity of demand is
a. 20.
b. 10.
c. 2.33.
d. 0.43.
Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good
Y. This month sellers of good Y raised their price and took in $120 in total revenue on
sales of 40 units of good Y. At the same time, the price of good X stayed the same, but
sales of good X increased from 20 units to 40 units. We can conclude that goods X and
Y are
a. substitutes, and have a cross-price elasticity of 0.60.
b. complements, and have a cross-price elasticity of 0.60.
c. substitutes, and have a cross-price elasticity of 1.67.
d. complements, and have a cross-price elasticity of 1.67.
Table 4-4
Refer to Table 4-4. Which supply schedules obey the law of supply?
a. Firm A’s only
b. Firm B’s, Firm C’s, and Firm D’s only
c. Firm A’s and Firm C’s only
d. Firm B’s and Firm D’s only
At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of
apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170
pounds of apples per day. Using the midpoint method, the price elasticity of supply is
about
a. 1.14.
b. 1.00.
c. 0.875.
d. 0.50.
Figure 22-6
Use the two graphs in the diagram to answer the following questions.
Refer to Figure 22-6. The economy would move from 3 to 5
a. in the short run if money supply growth increased unexpectedly.
b. in the short run if money supply growth decreased unexpectedly.
c. in the long run if money supply growth increases.
d. in the long run if money supply growth decreases.
You are expecting to receive $3,500 at some time in the future. Which of the following
would unambiguously increase the present value of this future payment?
a. Interest rates rise and you get the payment sooner.
b. Interest rates rise and you have to wait longer for the payment.
c. Interest rates fall and you get the payment sooner.
d. Interest rates fall and you have to wait longer to get the payment.
Economists
a. agree that the costs of reducing inflation to zero are worth the benefits. The increase
in unemployment from reducing inflation will be smaller if inflation expectations
remain high.
b. agree that the costs of reducing inflation to zero are worth the benefits. The increase
in unemployment from reducing inflation will be larger if inflation expectations remain
high.
c. disagree about whether the costs of reducing inflation to zero are worth the benefits.
The increase in unemployment from reducing inflation will be smaller if inflation
expectations remain high.
d. disagree about whether the costs of reducing inflation to zero are worth the benefits.
The increase in unemployment from reducing inflation will be larger if inflation
expectations remain high.
Which of the following causes a shortage of a good?
a. a binding price floor
b. a binding price ceiling
c. a tax on the good
d. None of the above is correct.
Figure 21-4. On the figure, MS represents money supply and MD represents money
demand.
Refer to Figure 21-4. Which of the following events could explain a decrease in the
equilibrium interest rate from r3 to r1?
a. a decrease in the price level
b. a decrease in the number of firms building new factories and buying new equipment
c. an increase in the price level
d. an increase in the number of firms building new factories and buying new equipment
In some East Asian countries, average income, as measured by real GDP per person,
has recently grown at an average annual rate that implies output will double about every
a. 10 years.
b. 15 years.
c. 20 years.
d. 25 years.
Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the
money she holds?
a. $40. If the price of goods rises, to maintain the real value of her money holdings she
need to hold more dollars.
b. 8 units of goods. If the price of goods rises, to maintain the real value of her money
holdings she needs to hold more dollars.
c. $40. If the price of goods rises, to maintain the real value of her money holdings she
need to hold fewer dollars.
d. 8 units of goods. If the price of goods rises, to maintain the real value of her money
holdings she needs to hold fewer dollars.
In the past, environmentalists thought of economics as a method of maximizing profits.
Presently,
a. there is now realization that economics offers a framework for natural resource
allocation.
b. economists are helping to formulate the intellectual framework behind approaches to
protecting endangered species, reducing pollution, and preventing climate change.
c. economics informs environmental studies but economists still do not work for
environmental advocacy groups.
d. More than one of the above is correct.
The CPI is a measure of the overall cost of the goods and services bought by
a. a typical consumer, and the CPI is computed and reported by the Department of the
Treasury.
b. typical consumers and typical business firms, and the CPI is computed and reported
by the Department of the Treasury.
c. a typical consumer, and the CPI is computed and reported by the Bureau of Labor
Statistics.
d. typical consumers and typical business firms, and the CPI is computed and reported
by the Bureau of Labor Statistics.
Figure 20-2.
Refer to Figure 20-2. Starting from point B and assuming that aggregate demand is
held constant, in the long run the economy is likely to experience
a. a falling price level and a falling level of output.
b. a falling price level and a rising level of output.
c. a rising price level and a falling level of output.
d. a rising price level and a rising level of output.
A given short-run Phillips curve shows that an increase in the inflation rate will be
accompanied by a lower unemployment rate in the short run.
A low sacrifice ratio would make a central bank less willing to reduce the inflation rate.
Derive the relation between savings, domestic investment, and net capital outflow using
the national income accounting identity.
Figure 6-26
Refer to Figure 6-26. A price ceiling set at $30 would create a shortage of 20 units.
Because depreciation of the real exchange rate of the dollar increases U.S. net exports,
the demand curve for dollars in the foreign-currency exchange market is downward
sloping.
If the Fed buys bonds in the open market, the money supply decreases.
International trade may make some individuals in a nation better off, while other
individuals are made worse off.
When the market price is above the equilibrium price, the quantity of the good
demanded exceeds the quantity supplied.
Periods during which real GDP rises are called recessions.
The demand for labor by a certain firm is independent of the demand for that firm’s
product.
There is no longer much debate among economists concerning the severity of and the
solution to the problems in using the CPI to measure the cost of living.
During the early 1930s there were a number of bank failures in the United States. What
did this do to the money supply? The New York Federal Reserve Bank advocated open
market purchases. Would these purchases have reversed the change in the money supply
and helped banks? Explain.
One reason that governments may find it useful to sponsor universities and basic
research is that to a large extent knowledge is generally a private good.
Price controls often hurt those they are trying to help.
Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime
because the demand for drugs is inelastic.