If velocity = 3.5, the quantity of money = 15,000, and the price level = 1.2, then the real
value of output is
a. 3,571.43.
b. 4,285.71.
c. 5,142.86.
d. 43,750.00.
The “natural” rate of unemployment is the unemployment rate toward which the
economy gravitates in the
a. short run, and the natural rate is constant over time.
b. long run, and the natural rate is constant over time.
c. short run, and the natural rate changes over time.
d. long run, and the natural rate changes over time.
When Mexico suffered from capital flight in 1994, Mexico’s net exports
a. decreased.
b. did not change.
c. increased.
d. decreased until the peso appreciated, then increased.
The y-coordinate of an ordered pair specifies the
a. diagonal location of the point.
b. vertical location of the point.
c. horizontal location of the point.
d. quadrant location in which the point is located.
Which of the following is not correct?
a. Across countries there are large differences in the average income per person. These
differences are reflected in large differences in the quality of life.
b. With a growth rate of about 2 percent per year, average income per person doubles
about every 35 years.
c. The ranking of countries by average income changes very little over time.
d. In some countries real income per person has changed very little over many years.
The equation,
Unemployment rate = Natural rate of unemployment – a ctual inflation – Expected
inflation),
a. is the equation of the short-run Phillips curve.
b. implies there can be no stable short-run Phillips curve.
c. reflects the reasoning of Friedman and Phelps.
d. All of the above are correct.
Suppose the interest rate is 8 percent. Consider three payment options.
1) $300 today.
2) $330 one year from today.
3) $360 two years from today.
Which of the following is correct?
a. 1 has the highest present value and 2 has the lowest.
b. 2 has the highest present value and 3 has the lowest.
c. 3 has the highest present value and 1 has the lowest.
d. None of the above is correct.
A group of buyers and sellers of a particular good or service is called a(n)
a. coalition.
b. economy.
c. market.
d. competition.
Assume that Greece has a comparative advantage in fish and Germany has a
comparative advantage in cars. Also assume that Germany has an absolute advantage in
both fish and cars. If these two countries specialize and trade so as to maximize the
benefits of specialization and trade, then
a. the two countries’ combined output of both goods will be higher than it would be in
the absence of trade.
b. Greece will produce more fish than it would produce in the absence of trade.
c. Germany will produce more cars than it would produce in the absence of trade.
d. All of the above are correct.
The price elasticity of demand for a good measures the willingness of
a. consumers to buy less of the good as price rises.
b. consumers to avoid monopolistic markets in favor of competitive markets.
c. firms to produce more of a good as price rises.
d. firms to respond to the tastes of consumers.
In order to understand how the economy works in the short run, we need to
a. study the classical model.
b. study a model in which real and nominal variables interact.
c. understand that “money is a veil.”
d. understand that money is neutral in the short run.
When the money market is drawn with the value of money on the vertical axis, if the
Federal Reserve sells bonds, then the money supply curve
a. shifts rightward, causing the value of money measured in terms of goods and services
to rise.
b. shifts rightward, causing the value of money measured in terms of goods and services
to fall.
c. shifts leftward, causing the value of money measured in terms of goods and services
to rise.
d. shifts leftward, causing the value of money measured in terms of goods and services
to fall.
If macaroni and cheese is an inferior good, then an increase in
a. the price will cause the demand curve for macaroni and cheese to shift to the left.
b. the price will cause the demand curve for macaroni and cheese to shift to the right.
c. a consumer’s income will cause the demand curve for macaroni and cheese to shift to
the left.
d. a consumer’s income will cause the demand curve for macaroni and cheese to shift to
the right.
Figure 3-3
Arturo’s Production Possibilities Frontier Dina’s Production Possibilities Frontier
Refer to Figure 3-3. If Dina must work 0.25 hour to produce each taco, then her
production possibilities frontier is based on how many hours of work?
a. 40 hours
b. 100 hours
c. 400 hours
d. 1600 hours
At which interest rate is the present value of $95.40 one year from today equal to $90
today?
a. 4 percent
b. 5 percent
c. 6 percent
d. 7 percent
Figure 8-6
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-6. When the tax is imposed in this market, the price buyers
effectively pay is
a. $4.
b. $6.
c. $10.
d. $16.
Figure 3-10
Alice and Betty’s Production Possibilities in one 8-hour day.
Alice’s Production Possibilities Frontier Betty’s Production Possibilities Frontier
Refer to Figure 3-10. Which of the following statements is correct regarding absolute
advantage?
a. Alice has an absolute advantage in the production of both lemonade and pizzas.
b. Betty has an absolute advantage in the production of both lemonade and pizzas.
c. Alice has an absolute advantage in the production of pizzas while Betty has an
absolute advantage in the production of lemonade.
d. Alice has an absolute advantage in the production of lemonade while Betty has an
absolute advantage in the production of pizzas.
If an economy is producing efficiently, then
a. there is no way to produce more of one good without producing less of another good.
b. it is possible to produce more of both goods without increasing the quantities of
inputs that are being used.
c. it is possible to produce more of one good without producing less of another good.
d. it is not possible to produce more of any good at any cost.
When a country allows trade and becomes an importer of a good,
a. everyone in the country benefits.
b. the gains of the winners exceed the losses of the losers.
c. the losses of the losers exceed the gains of the winners.
d. everyone in the country loses.
Which of the following is correct?
a. A horizontal line has an infinite slope, and a vertical line has a zero slope.
b. A horizontal line has a slope of 1, and a vertical line has a slope of -1.
c. A horizontal line has a zero slope, and a vertical line has an infinite slope.
d. A horizontal line has a slope of -1, and a vertical line has a slope of 1.
Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
Labor Hours
Needed to Make 1
Refer to Table 3-2. At which of the following prices would both Aruba and Iceland
gain from trade with each other?
a. 2 radios for 4 coolers
b. 2 radio for 6 coolers
c. 2 radio for 10 coolers
d. Aruba and Iceland could not both gain from trade with each other at any price.
Scenario 5-4
Suppose the government is concerned about firms in the United States importing illegal
caviar. As a result, the government increases border patrols to catch illegal shipments.
U.S. Customs agents perform DNA testing on the caviar to determine if it comes from
endangered species of fish. If so, the government destroys the caviar.
Refer to Scenario 5-4. What would we expect to observe in the caviar market?
a. Equilibrium prices and quantities will increase.
b. Equilibrium prices will increase by more if the demand for caviar is elastic than if
demand is inelastic.
c. Total revenues to caviar firms will increase if the demand for caviar is inelastic.
d. All of the above are correct.
Other things the same, if reserve requirements are increased, the reserve ratio
a. increases, the money multiplier increases, and the money supply increases.
b. increases, the money multiplier decreases, and the money supply decreases.
c. decreases, the money multiplier increases, and the money supply increases.
d. decreases, the money multiplier decreases, and the money supply increases.
The inflation rate is calculated
a. by determining the change in the price index from the preceding period.
b. by determining the change in the price index from the base year.
c. by determining the percentage change in the price index from the preceding period.
d. by determining the percentage change in the price index from the base year.
Table 7-6
Refer to Table 7-6. You are selling extra tickets to the Midwest Regional Sweet 16
game in the men’s NCAA basketball tournament. The table shows the willingness to
pay of the four potential buyers in the market for a ticket to the game. Which of the
following graphs represents the market demand curve?
a. c.
b. d.
Studies indicate that the price elasticity of demand for cigarettes is about 4. A
government policy aimed at reducing smoking changed the price of a pack of cigarettes
from $2 to $6. According to the midpoint method, the government policy should have
reduced smoking by
a. 30%.
b. 40%.
c. 80%.
d. 250%.
Figure 6-20
Refer to Figure 6-20. The per-unit burden of the tax on buyers of the good is
a. $2.
b. $4.
c. $6.
d. $8.
Susan put $375 into an account and one year later had $405. What interest rate was paid
on Susan’s deposit?
a. 5 percent
b. 7 percent
c. 8 percent
d. 10 percent
Table 5-1
Refer to Table 5-1. Which of the following is consistent with the elasticities given in
Table 5-2?
a. A is root beer, and B is carbonated beverages.
b. A is bicycles, and B is mopeds.
c. A is airline tickets in the short run, and B is airline tickets in the long run.
d. A is gourmet coffee, and B is dentist’s visits.
Figure 3-6
Maxine’s Production Possibilities Frontier Daisy’s Production Possibilities
Frontier
Refer to Figure 3-6. Suppose Daisy decides to increase her production of pies by 6.
What is the opportunity cost of this decision?
a. 8/3 tarts
b. 4.5 tarts
c. 8 tarts
d. 10 tarts
A city wants to raise revenues to build a new municipal swimming pool next year. The
mayor suggests that the city raise the price of admission to the current municipal pools
this year to raise revenues. The city manager suggests that the city lower the price of
admission to raise revenues. Who is correct?
a. the mayor
b. the city manager
c. The answer depends on the price elasticity of demand.
d. The answer depends on the costs of construction of the new municipal swimming
pool.
Thomas, a U.S. citizen, works only in Canada. The value of the output he produces is
a. included in both U.S. GDP and U.S. GNP.
b. included in U.S. GDP, but it is not included in U.S. GNP.
c. included in U.S. GNP, but it is not included in U.S. GDP.
d. included in neither U.S. GDP nor U.S. GNP.
The ability to profit by purchasing wheat in the U.S. and selling it in China implies that
the
a. nominal exchange rate is less than 1.
b. nominal exchange rate is greater than 1.
c. real exchange rate is less than 1.
d. real exchange rate is greater than 1.
The law of supply states that, other things equal, when the price of a good
a. falls, the supply of the good rises.
b. rises, the quantity supplied of the good rises.
c. rises, the supply of the good falls.
d. falls, the quantity supplied of the good rises.
As the price level rises, the value of money
a. increases, so people want to hold more of it.
b. increases, so people want to hold less of it.
c. decreases, so people want to hold more of it.
d. decreases, so people want to hold less of it.