Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. The area
measured by J represents
a. consumer surplus after the tax.
b. consumer surplus before the tax.
c. producer surplus after the tax.
d. producer surplus before the tax.
Figure 6-5
Refer to Figure 6-5. Suppose the market is initially in equilibrium. Then the
government imposes a price control, as represented by the horizontal line on the graph.
If the price control is a price floor, then the price control
a. causes the quantity demanded to decrease by 50 units, relative to the initial
equilibrium.
b. causes the quantity supplied to increase by 40 units, relative to the initial equilibrium.
c. results in some firms being more successful than others in selling their goods.
d. All of the above are correct.
Figure 7-15
Refer to Figure 7-15. At the equilibrium price, producer surplus is
a. $80.
b. $100.
c. $120.
d. $135.
For an economy as a whole,
a. wages must equal profit.
b. consumption must equal saving.
c. income must equal expenditure.
d. the number of buyers must equal the number of sellers.
Figure 3-5
Hosne’s Production Possibilities Frontier Merve’s Production Possibilities Frontier
Refer to Figure 3-5. Hosne has a comparative advantage in the production of
a. purses and Merve has a comparative advantage in the production of wallets.
b. wallets and Merve has a comparative advantage in the production of purses.
c. both goods and Merve has a comparative advantage in the production of neither
good.
d. neither good and Merve has a comparative advantage in the production of both
goods.
In a closed economy, private saving is
a. the amount of income that households have left after paying for their taxes and
consumption.
b. the amount of income that businesses have left after paying for the factors of
production.
c. the amount of tax revenue that the government has left after paying for its spending.
d. always equal to investment.
Two years ago Darryl put $3,000 into an account paying 3 percent interest. How much
does he have in the account today?
a. $3,180.00
b. $3,182.70
c. $3,183.62
d. None of the above are correct to the nearest cent.
Two goods are substitutes when a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.
Figure 21-4. On the figure, MS represents money supply and MD represents money
demand.
Refer to Figure 21-4. Suppose the current equilibrium interest rate is r1. Let Y1
represent the corresponding quantity of goods and services demanded, and let P1
represent the corresponding price level. Starting from this situation, if the Federal
Reserve increases the money supply and if the price level remains at P1, then
a. there will be an increase in the equilibrium quantity of goods and services demanded.
b. there will be a decrease in the equilibrium quantity of goods and services demanded.
c. there will be an increase in the equilibrium interest rate.
d. fewer firms will choose to borrow to build new factories and buy new equipment.
Phillip is a mortgage broker, who is paid by commission. When interest rates decline,
he does a lot of business and earns a lot of money, as more people buy houses or
refinance their mortgages. But when interest rates rise, business falls substantially. To
diversify, Phillip should choose investments that
a. provide a higher return than the market average.
b. provide a lower return than the market average.
c. pay higher returns when interest rates rise and lower returns when interest rates fall.
d. pay lower returns when interest rates rise and higher returns when interest rates fall.
Darla puts her money into a bank account that earns interest. One year later she sees
that the account has 6 percent more dollars and that her money will buy 7.5 percent
more goods.
a. The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent.
b. The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent.
c. The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.
d. The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.
Table 18-1
Refer to Table 18-1. What are Bolivia’s net exports?
a. $30 billion
b. $5 billion
c. -$5 billion
d. -$25 billion
Figure 9-17
Refer to Figure 9-17. The deadweight loss caused by the tariff is
a. $24.
b. $72.
c. $96.
d. $144.
Real interest rates
a. cannot be negative.
b. can be negative only if inflation is negative.
c. can be negative only if inflation is zero.
d. can be negative only if inflation is greater than zero.
Which of the following is likely to have the most price inelastic demand?
a. lattés
b. filet mignon
c. Grey Goose® vodka
d. milk
The price index was 220 in one year and 260 in the next year. What was the inflation
rate?
a. 9.0 percent
b. 114.6 percent
c. 18.2 percent
d. 40.0 percent
Suppose a gardener produces both green beans and corn in her garden. If the
opportunity cost of one bushel of corn is 3/5 bushel of green beans, then the opportunity
cost of 1 bushel of green beans is
a. 3/5 bushel of corn.
b. 5/3 bushels of corn.
c. 3 bushels of corn.
d. 5 bushels of corn.
Which of the following will not help to prevent bank runs?
a. government insurance of deposits
b. fractional reserve banking
c. 100% reserve banking
d. All of the above prevent bank runs.
Figure 6-12
Refer to Figure 6-12. Which of the following statements best relates the figure to the
events that occurred in the United States in the 1970s?
a. Buyers of gasoline paid a price of P1 before 1973; they paid a price of P2 after OPEC
increased the price of crude oil in 1973, and there was a shortage of gasoline at that
price.
b. Buyers of gasoline paid a price of P1 before 1973; they paid a price of P3 after OPEC
increased the price of crude oil in 1973, and there was a shortage of gasoline at that
price.
c. Buyers of gasoline paid a price of P2 before 1973; they paid a price of P3 after OPEC
increased the price of crude oil in 1973, with no shortage of gasoline at that price.
d. The price ceiling was binding before 1973; the price ceiling was no longer binding
after OPEC increased the price of crude oil in 1973.
Table 3-11
Assume that Falda and Varick can switch between producing wheat and producing cloth
at a constant rate.
Quantity Produced in 1 Hour
Refer to Table 3-11. Varick has an absolute advantage in the production of
a. wheat.
b. cloth.
c. both goods.
d. neither good.
A key determinant of the price elasticity of supply is the
a. time horizon.
b. income of consumers.
c. price elasticity of demand.
d. importance of the good in a consumer’s budget.
Frequently, in the short run, the quantity supplied of a good is
a. impossible, or nearly impossible, to measure.
b. not very responsive to price changes.
c. determined by the quantity demanded of the good.
d. determined by psychological forces and other non-economic forces.
If people eventually adjust their inflation expectations so that in the long run actual and
expected inflation are the same, then policymakers
a. can not exploit a tradeoff between inflation and unemployment in either the short or
long run.
b. can exploit a tradeoff between inflation and unemployment in the short run but not in
the long run.
c. can exploit a tradeoff between inflation and unemployment in both the short run and
the long run.
d. can exploit a tradeoff between inflation and unemployment in the long run, but not
the short run.
Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro
area. Also, suppose a McDonald’s Big Mac costs $3.50 in the United States and 2.45
euros in Euro area. If the nominal exchange rate is .75 euros per dollar, the prices of
which goods have prices that are consistent with purchasing power parity?
a. Both the tall latte and the Big Mac.
b. Neither the tall latte nor the Big Mac.
c. The tall latte but not the Big Mac.
d. The Big Mac but not the tall latte.
Figure 21-6. On the left-hand graph, MS represents the supply of money and MD
represents the demand for money; on the right-hand graph, AD represents aggregate
demand. The usual quantities are measured along the axes of both graphs.
Refer to Figure 21-6. Suppose the graphs are drawn to show the effects of an increase
in government purchases. If it were not for the increase in r from r1 to r2, then
a. there would be no crowding out.
b. the full multiplier effect of the increase in government purchases would be realized.
c. the AD curves that actually apply, before and after the change in government
purchases, would be separated horizontally by the distance equal to the multiplier times
the change in government purchases.
d. All of the above are correct.
If consumers often purchase muffins to eat while they drink their lattés at local coffee
shops, what would happen to the equilibrium price and quantity of lattés if the price of
muffins falls?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.
Figure 4-16
Refer to Figure 4-16. If price in this market is currently $14, then there would be a(n)
a. surplus of 20 units. The law of supply and demand predicts that the price will rise
from $14 to a higher price.
b. excess supply of 20 units. The law of supply and demand predicts that the price will
fall from $14 to a lower price.
c. surplus of 40 units. The law of supply and demand predicts that the price will rise
from $14 to a higher price.
d. excess supply of 40 units. The law of supply and demand predicts that the price will
fall from $14 to a lower price.
Over the past 100 years, U.S. real GDP per person has doubled about every 35 years. If
it continues to double every 35 years, then in 100 years U.S. real GDP per person will
be about
a. 4 times higher than it is now.
b. 8 times higher than it is now.
c. 12 times higher than it is now.
d. 16 times higher than it is now.
Table 3-5
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Labor Hours Needed
to Make 1 Unit of Number of Units
Produced in 40 Hours
Refer to Table 3-5. The opportunity cost of 1 unit of cheese for England is
a. 1/4 unit of bread.
b. 1 hour of labor.
c. 4 units of bread.
d. 4 hours of labor.
An increase in the money supply
a. reduces interest rates and shifts aggregate demand to the right.
b. reduces interest rates and shifts aggregate supply to the right
c. raises interest rates and shifts aggregate demand to the right.
d. raises interest rates and shifts aggregate supply to the right.
Increased optimism about the future leads to rising prices and falling unemployment in
the short run.
In the open-economy macroeconomic model, at the equilibrium real interest rate, the
amount that people (including government) want to save equals desired quantities of
domestic investment and net capital outflow.
A discovery that increases wheat yields per acre helps farmers by increasing both
supply and total revenues.
More than 30 percent of U.S. workers leave their jobs in a typical month.
Economists believe that production possibilities frontiers rarely have a bowed shape.
Workers, rather than firms, bear most of the burden of the payroll tax.
Different values are not a reason for disagreement among economists.
The Bureau of Labor Statistics computes labor-force participation rates for the entire
adult population and for more narrowly defined groups.
“Other things equal, an increase in supply causes a decrease in price” is a normative
statement, not a positive statement.
According to economists, “money” means the same thing as “wealth”.
Over the past two decades, the United States has persistently exported more goods and
services than it has imported.
Who bears the majority of a tax burden depends on whether the tax is placed on the
buyers or the sellers.
Price cannot fall so low that some sellers choose to supply a quantity of zero.
A production point is said to be efficient if there is no way for the economy to produce
more of one good without producing less of another.
Julia can fix a meal in 1 hour, and her opportunity cost of one hour is $50. Jacque can
fix the same kind of meal in 2 hours, and his opportunity cost of one hour is $20. Will
both Julia and Jacque be better off if she pays him $45 per meal to fix her meals?
Explain.
If a price ceiling is not binding, then it will have no effect on the market.
In the long run the primary effect of increasing the quantity of money is higher prices.
If US workers can produce everything in less time than Mexican workers, it is not
possible for the US to gain from trade with Mexico.
The United States is the only country in the world with minimum-wage laws.
Market power and externalities are examples of market failures.