If LeRoyce trades two cookies for one of Amir’s brownies, we say that they are
engaging in:
A) exploitation.
B) benevolence.
C) barter.
D) a zero-sum game.
Figure: Guns and Butter
Look at the figure Guns and Butter. If the economy is operating at point B, producing
16 guns and 12 pounds of butter per period, a decision to move to point E and produce
18 pounds of butter:
A) indicates that you can have more butter and guns simultaneously.
B) makes it clear that this economy has decreasing opportunity costs.
C) necessitates a loss of eight guns per period.
D) necessitates a loss of four guns per period.
Disposable income is:
A) income spent on imports.
B) household income and government transfers less taxes.
C) gross income.
D) government transfer payments.
Stagflation is a combination of _____ unemployment and _____ inflation.
A) increasing; increasing
B) decreasing; decreasing
C) increasing; decreasing
D) decreasing; increasing
If the economy is in a liquidity trap, monetary policy is _____ and fiscal policy is
_____.
A) effective; effective
B) ineffective; ineffective
C) effective; ineffective
D) ineffective; effective
Medicaid, food stamps, and sales taxes are all automatic stabilizers.
A) True
B) False
There is a _____ relationship between the amount of loanable funds demanded and the
rate of interest.
A) positive
B) direct
C) negative
D) weak
If steak and potatoes are complements, when the price of steak goes up, the demand
curve for potatoes:
A) shifts to the right.
B) shifts to the left.
C) stays the same.
D) shifts to the right and then moves back.
The main ideas of Keynesian economics are the importance of the _____ and emphasis
on _____.
A) long run over the short run; a vertical SRAS curve
B) long run over the short run; the AD curve and the SRAS curve
C) short run over the long run; the AD curve and a rising SRAS curve
D) free market with no government intervention; monetary policy in the long run
The basic equation of national income accounting is GDP = C + I + G + X ” IM. When
the government uses fiscal policy to make changes to taxes and transfers, this policy
primarily affects:
A) IM.
B) I.
C) C.
D) X.
Which of the following demonstrates how people respond to incentives to make
themselves better off?
A) More students major in economics when they hear that salaries for economists are
rising.
B) Students are assigned dorm rooms through a lottery system.
C) Students are encouraged to donate blood because it is the right thing to do.
D) Students and faculty are encouraged to wear college apparel to support the college
athletic teams.
An inflationary gap will be eliminated because there is _____ pressure on wages,
shifting the _____.
A) downward; long-run aggregate supply curve to the right
B) downward; long-run aggregate supply curve to the left
C) downward; aggregate demand curve to the left
D) upward; short-run aggregate supply curve to the left
Cyclical unemployment is the result of:
A) normal job turnover (job searches).
B) discrimination.
C) the business cycle.
D) the minimum wage.
Low unemployment rates are often:
A) associated with recessions.
B) associated with an ability to find a job with relative ease.
C) an indicator that finding a job is extremely difficult.
D) the result of high cyclical unemployment rates.
Public debt is:
A) taxes minus government purchases minus government transfers.
B) government debt held by foreigners.
C) government debt held by individuals and institutions outside the government.
D) the government deficit divided by GDP.
An increase in interest rates causes the demand for money to:
A) increase.
B) decrease.
C) stay the same.
D) shift to the right.
A pattern of expansion, then recession, then expansion again is a(n):
A) annual trend.
B) secular trend.
C) business cycle.
D) consumer cycle.
Figure: The Market for Calculators
Look at the figure The Market for Calculators. Assume that Sand Drepresent the
domestic demand and supply of calculators. The world price, PW,equals $100. The
government imposes a quota restricting imports to 25 calculators. The domestic price
rises to _____ and the quota rent is equal to area _____.
A) $120; K+ L
B) $150; K+ H+ I+ L
C) $120; H+ I
D) $150; G+ H+ I+ J
If the natural rate of unemployment _____, the nonaccelerating inflation rate of
unemployment _____, and the long-run Phillips curve shifts to the left.
A) falls; falls
B) rises; rises
C) falls; rises
D) rises; falls
Before the Revolutionary War, clamshells were used by some of the European settlers
as commodity money.
A) True
B) False
During the credit crunch in the Great Depression, the spreadthe interest rate on Baa
corporate bonds minus the interest rate for government borrowing:
A) became negative.
B) was equal to zero.
C) grew to more than 7%.
D) fluctuated randomly.
In the simplest circular-flow model, households supply _____ and demand _____.
A) capital; barter
B) wages and income; capital markets
C) factors of production; goods and services
D) firms; markets
An economy’s gross domestic product is made up of:
A) consumption, saving, investment, and government spending.
B) consumption, investment spending, government purchases of goods and services,
and net exports.
C) consumption, saving, inventories, financial markets, and government spending.
D) consumption and saving.
A price index:
A) always includes a base year.
B) measures the cost of purchasing a market basket of output across different years.
C) is normalized to 100 for the base year.
D) always includes a base year, measures the cost of purchasing a market basket of
output across different years, and is normalized to 100 for the base year.
If a country wishes to raise the exchange rate above its equilibrium value in the foreign
exchange market, it will notice:
A) a surplus of its currency at the desired exchange rate.
B) a shortage of its currency at the desired exchange rate.
C) that it can achieve this rate by expanding the money supply.
D) that it must increase the supply of its currency in the foreign exchange market.
When a currency appreciates, the prices of its exports to other countries will:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.
In 2008, when the U.S. financial system collapsed, it led to:
A) very high inflation, and the Federal Reserve followed a strict contractionary
monetary policy to bring prices down.
B) the Federal Reserve lowering the interest rate, and the economy revived as
businesses and individuals secured low-interest loans.
C) a severe cycle of deleveraging and a credit crunch for the economy as a whole.
D) the Federal Reserve increasing the interest rate, which further destabilized the
economy.
Figure: The Minimum Wage
Look at the figure The Minimum
Wage. Which of the following is a binding minimum wage?
A) P1.
B) P2.
C) P3.
D) zero.
Efficient production occurs when the economy is:
A) operating inside its production possibility frontier.
B) operating on its production possibility frontier.
C) operating outside its production possibility frontier.
D) moving beyond its production possibility frontier.
If an economy is in short-run equilibrium and the level of actual real GDP is greater
than potential output, in the long run nominal wages will _____ and the _____ curve
will shift _____, bringing the economy back to its potential real GDP.
A) rise; SRAS; left;
B) rise; AD; right;
C) fall; SRAS; right;
D) fall; AD; left;
Malthus’ predictions have proved to be true, and they explain why U.S. productivity
growth slowed between the 1970s and the mid-1990s.
A) True
B) False
Financial problems began in Greece in late 2009, when:
A) the Greek government revealed that it had understated its budget deficits and debt.
B) the European Union forced Greece to give up its membership.
C) Greece adopted the euro.
D) the United Nations imposed trade sanctions on Greece.