Suppose the government eliminates all environmental regulations and, as a result, the
production of goods and services increases, but there is considerably more pollution.
Based on this scenario, which of the following statements is correct?
a. GDP would definitely increase, despite the fact that GDP includes environmental
quality.
b. GDP would definitely decrease because GDP includes environmental quality.
c. GDP would definitely increase because GDP excludes environmental quality.
d. GDP could either increase or decrease because GDP excludes environmental quality.
Figure 7-20
Refer to Figure 7-20. At equilibrium, total surplus is
a. $36.
b. $72.
c. $108.
d. $144.
Figure 7-14
Refer to Figure 7-14. If total surplus is $750 and consumer surplus is
a. $500, then the price of the good is $200.
b. $450, then the price of the good is $200.
c. $600, then the price of the good is $175.
d. $500, then the price of the good is $175.
Another way to think of the marginal seller is the seller who
a. will accept the lowest price of any seller in the market.
b. requires the highest price of any potential seller in the market.
c. would leave the market first if the price were any lower.
d. would leave the market last if the price falls.
You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider
eating a third. As a rational consumer you should make your choice by comparing
a. the benefits from eating all three bowls of ice cream to how much three bowls of ice
cream costs.
b. the benefits from eating all three bowls of ice cream to how much one more bowl of
ice cream costs.
c. the benefits from eating one more bowl of ice cream to how much three bowls of ice
cream costs.
d. the benefits from eating one more bowl of ice cream to how much one more bowl of
ice cream costs.
Ford Motor Company announces that next month it will offer $3,000 rebates on new
Mustangs. As a result of this information, today’s demand curve for Mustangs
a. shifts to the right.
b. shifts to the left.
c. shifts either to the right or to the left, but we cannot determine the direction of the
shift from the given information.
d. will not shift; rather, the demand curve for Mustangs will shift to the right next
month.
Figure 21-1
Refer to Figure 21-1. There is an excess demand for money at an interest rate of
a. 2 percent.
b. 3 percent.
c. 4 percent.
d. None of the above is correct.
Figure 15-1
Refer to Figure 15-1. At the equilibrium wage, how many workers are unemployed?
a. 0
b. 4000
c. 5000
d. 8000
Country A experienced a growth rate of real GDP per person of 0.5 percent per year
throughout the 1900’s. In view of other countries’ experiences, country A’s growth was
a. exceptionally high.
b. moderately high.
c. moderately low.
d. exceptionally low.
Figure 9-5
Refer to Figure 9-5. If this country allows free trade in wagons,
a. consumers will gain more than producers will lose.
b. producers will gain more than consumers will lose.
c. producers and consumers will both gain equally.
d. producers and consumers will both lose equally.
If a country’s budget deficit rises, then its exchange rate
a. rises, so its imports rise.
b. rises, so its imports fall.
c. falls, so its imports rise.
d. falls so its imports fall.
A car salesperson gives you four alternative ways to pay for your car. The first is to pay
$18,000 today. The second is to pay $19,000 one year from today. The third is to pay
$20,300 two years from today. The fourth is to pay $21,500 three years from today. If
the interest rate is 6 percent, which payment option has the lowest present value and
which has the highest?
a. The first is lowest; the second is highest.
b. The second is lowest; the third is highest.
c. The third is lowest; the fourth is highest.
d. The fourth is lowest; the first is highest.
If the economy is at the point where the short-run Phillips curve intersects the long-run
Phillips curve,
a. unemployment equals the natural rate and expected inflation equals actual inflation.
b. unemployment is above the natural rate and expected inflation equals actual inflation.
c. unemployment equals the natural rate and expected inflation is greater than actual
inflation.
d. None of the above is necessarily correct.
If the nominal exchange rate e is foreign currency per dollar, the domestic price is P,
and the foreign price is P*, then the real exchange rate is defined as
a. P*/(Pe).
b. P/(P*e).
c. e(P*/P).
d. e(P/P*),
The positive feedback from aggregate demand to investment is called
a. the investment multiplier.
b. the stock-market effect.
c. the investment accelerator.
d. the crowding-in multiplier.
Figure 3-2
Peru’s Production Possibilities Frontier
Refer to Figure 3-2. If the production possibilities frontier shown is for one month of
production, then which of the following combinations of emeralds and rubies could
Peru produce in a given month?
a. 7 emeralds and 40 rubies
b. 5 emeralds and 92 rubies
c. 3 emeralds and 165 rubies
d. 2 emeralds and 180 rubies
Figure 5-1
Refer to Figure 5-1. Between point A and point B on the graph, demand is
a. perfectly elastic.
b. inelastic.
c. unit elastic.
d. elastic, but not perfectly elastic.
At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At
a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the
midpoint method, the price elasticity of supply is about
a. 2.0.
b. 1.23.
c. 1.00.
d. 0.81.
John just graduated law school and has two competing job offers. The first is in Phoenix
and pays a salary of $150,000. He has a similar job offer in Cleveland that pays
$90,000. Which pair of CPIs would make the two salaries have the same purchasing
power?
a. 70 in Phoenix and 42 in Cleveland
b. 68 in Phoenix and 34 in Cleveland
c. 42 in Phoenix and 70 in Cleveland
d. 34 in Phoenix and 68 in Cleveland
Larry Summers, a chief economic adviser to President Obama, stated that as a result of
using Keynesian policies in 2008 and 2009,
a. US government policy moved in a strongly activist direction.
b. the US has shifted from worrying about an economic depression to thinking about
what kind of expansion the country will have.
c. the US has shifted from rescuing the economy to economic recovery.
d. All of the above are correct.
Fiat money
a. is worthless.
b. has no intrinsic value.
c. may be used as a medium of exchange, but is not legal tender.
d. refers to highly liquid assets that do not serve as a medium of exchange.
When drawing a demand curve,
a. demand is measured along the vertical axis, and price is measured along the
horizontal axis.
b. quantity demanded is measured along the vertical axis, and price is measured along
the horizontal axis.
c. price is measured along the vertical axis, and demand is measured along the
horizontal axis.
d. price is measured along the vertical axis, and quantity demanded is measured along
the horizontal axis.
Efficiency
a. and equality both refer to how much a society can produce with its resources.
b. and equality both refer to how fairly the benefits from using resources are distributed
between members of a society.
c. refers to how much a society can produce with its resources. Equality refers to how
evenly the benefits from using resources are distributed among members of society.
d. refers to how evenly the benefits from using resources are distributed between
members of society. Equality refers to how much a society can produce with its
resources
If U.S. residents want to buy more foreign bonds, then in the market for
foreign-currency exchange the exchange rate
a. and the quantity of dollars traded rises.
b. rises and the quantity of dollars traded falls.
c. falls and the quantity of dollars traded rises.
d. and the quantity of dollars traded falls.
Which of the following shifts aggregate demand to the right?
a. Congress reduces purchases of new weapons systems.
b. The Fed buys bonds in the open market.
c. The price level falls.
d. Net exports fall.
For an imaginary economy, the consumer price index was 115.00 in 2004, 126.50 in
2005, and 136.62 in 2006. Which of the following statements is correct?
a. For this economy, the base year must be 2004.
b. If the basket of goods that is used to calculate the CPI cost $75.00 in the base year,
then that basket of goods cost $115.00 in
c. This economy’s rate of inflation for 2006 is 10.12 percent.
d. None of the above is correct.
If the CPI rises, the number of dollars needed to buy a representative basket of goods
a. increases, and so the value of money rises.
b. increases, and so the value of money falls.
c. decreases, and so the value of money rises.
d. decreases, and so the value of money falls
Elasticity of demand is closely related to the slope of the demand curve. The less
responsive buyers are to a change in price, the
a. steeper the demand curve will be.
b. flatter the demand curve will be.
c. further to the right the demand curve will sit.
d. closer to the vertical axis the demand curve will sit.
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 deadweight loss as a result of the tax is
a. $105.
b. $210.
c. $490.
d. $600.
Because every transaction has a buyer and a seller,
a. GDP is more closely associated with an economy’s income than it is with an
economy’s expenditure.
b. every transaction contributes equally to an economy’s income and to its expenditure.
c. the number of firms must be equal to the number of households in a simple
circular-flow diagram.
d. firms’ profits are necessarily zero in a simple circular-flow diagram.
Andre walks Julia’s dog once a day for $50 per week. Julia values this service at $60
per week, while the opportunity cost of Andre’s time is $30 per week. The government
places a tax of $35 per week on dog walkers. After the tax, what is the loss in total
surplus?
a. $50
b. $30
c. $25
d. $0