Morgan, a financial advisor, has told her clients the following things. Which of her
statements is not correct?
a. “U.S. government bonds generally pay a higher rate of interest than corporate bonds.”
b. “The interest received on corporate bonds is taxable.”
c. “U.S. government bonds have the lowest default risk.”
d. “If you purchase a municipal bond, you can sell it before it matures.”
Import quotas and tariffs produce similar results. Which of the following is not one of
those results?
a. The domestic price of the good increases.
b. Consumer surplus of domestic consumers increases.
c. Producer surplus of domestic producers increases.
d. A deadweight loss is experienced by the domestic country.
An economy’s production of two goods is efficient if
a. all members of society consume equal portions of the goods.
b. the goods are produced using only some of society’s available resources.
c. it is impossible to produce more of one good without producing less of the other.
d. the opportunity cost of producing more of one good is zero.
A U.S. purchase of oil from overseas paid for with foreign currency it already owned
a. increases U.S. net exports, and increases U.S. net capital outflow.
b. increases U.S. net exports, and decreases U.S. net capital outflow.
c. decreases U.S. net exports, and increases U.S. net capital outflow.
d. decreases U.S. net exports, and decreases U.S. net capital outflow.
Figure 9-12
Refer to Figure 9-12. Producer surplus before trade is
a. $3,600.
b. $4,600.
c. $5,400.
d. $6,250.
Your accountant tells you that if you can continue to earn the current interest rate on
your balance of $750 for the next three years, you will have $998.25 in your account. If
your accountant is correct, what is the current interest rate?
a. 9 percent
b. 10 percent
c. 11 percent
d. 12 percent
The slope of the supply of loanable funds is based on an increase in
a. only national saving when the interest rate rises.
b. both national saving and net capital outflow when the interest rate rises.
c. only national saving when the interest rate falls.
d. both national saving and net capital outflow when the interest rate falls.
According to the classical dichotomy, which of the following is influenced by monetary
factors?
a. real GDP
b. unemployment
c. nominal interest rates
d. All of the above are correct.
When a country imposes an import quota, its exchange rate
a. rises because the supply of dollars in the market for foreign-currency exchange falls.
b. falls because the supply of dollars in the market for foreign-currency exchange rises.
c. rises because the demand for dollars in the market for foreign-currency exchange
rises.
d. falls because the demand for dollars in the market for foreign-currency exchange
falls.
The “broken window fallacy”
a. explains why inflation is so high.
b. is a justification for the government to print more money.
c. is illustrated when a government program is justified not on its merits but on the
number of jobs it will create.
d. has nothing to do with public policy.
Consumer goods that are produced, go into inventory, and are not sold during the
current period are
a. counted as intermediate goods and so are not included in current period GDP.
b. counted in current period GDP only if the firm that produced them sells them to
another firm.
c. included in current period GDP as inventory investment.
d. included in current period GDP as consumption.
If a country were to increase its saving rate, then in the long run it would also increase
its
a. level of income.
b. growth rate of income.
c. growth rate of productivity.
d. All of the above are correct.
Figure 14-5. On the graph, xrepresents risk and yrepresents return.
Refer to Figure 14-5. Which of the following statements is correct?
a. At point A the standard deviation of the portfolio is 3.
b. A risk averse person always will choose to be at point A.
c. At point D the portfolio consists of about 15 percent stocks and 85 percent safe
assets.
d. The figure shows that the greater the risk, the greater the return.
Wages tend to be sticky
a. because of contracts, social norms, and notions of fairness.
b. because of contracts, but not social norms or notions of fairness.
c. because of social norms and notions of fairness, but not contracts.
d. None of the above are correct.
The Federal Insurance Contribution Act (FICA) tax is an example of a(n)
a. payroll tax.
b. sales tax.
c. farm subsidy.
d. income subsidy.
As the reserve ratio increases, the money multiplier
a. increases.
b. does not change.
c. decreases.
d. could do any of the above.
Natural resources
a. are inputs provided by nature.
b. include land, rivers, and mineral deposits.
c. take two forms: renewable and nonrenewable.
d. All of the above are correct.
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. Aruba should specialize in the production of
a. coolers and Iceland should specialize in the production of radios.
b. radios and Iceland should specialize in the production of coolers.
c. both goods and Iceland should specialize in the production of neither good.
d. neither good and Iceland should specialize in the production of both goods.
The theory of efficiency wages explains why
a. setting wages at the equilibrium level may increase unemployment.
b. it may be in the best interest of firms to offer wages that are above the equilibrium
level.
c. the most efficient way to pay workers is to pay them according to their skills.
d. it is efficient for firms to set wages at the equilibrium level.
Table 3-3
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Machine Minutes
Needed to Make 1
Refer to Table 3-3. Which of the following combinations of toothbrushes and
hairbrushes could Portugal produce in 30 minutes?
a. 1 toothbrush and 4 hairbrushes
b. 4 toothbrushes and 2 hairbrushes
c. 5 toothbrushes and 6 hairbrushes
d. 6 toothbrushes and 5 hairbrushes
Which of the following observations would be consistent with the imposition of a
binding price ceiling on a market? After the price ceiling becomes effective,
a. a smaller quantity of the good is bought and sold.
b. a smaller quantity of the good is demanded.
c. a larger quantity of the good is supplied.
d. the price rises above the previous equilibrium.
Prices direct economic activity in a market economy by
a. influencing the actions of buyers and sellers.
b. reducing scarcity of the goods and services produced.
c. eliminating the need for government intervention.
d. allocating goods and services in the most equitable way.
Which of the following is included in GDP?
a. the market value of rental housing services, but not the market value of
owner-occupied housing services.
b. the market value of owner-occupied housing services, but not the market value of
rental housing services
c. both the market value of rental housing services and the market value of
owner-occupied housing services
d. neither the market value of owner-occupied housing services nor the market value of
rental housing services.
Demand deposits are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
A Japanese bank buys U.S. government bonds this purchase
a. increases U.S. net capital outflow and has no affect on Japanese net capital outflow.
b. increases U.S. net capital outflow and increases Japanese net capital outflow.
c. increases U.S. net capital outflow, but decreases Japanese net capital outflow.
d. decreases U.S. net capital outflow, but increases Japanese net capital outflow.
In 2009, Angel Foods produced 300,000 bags of tortilla chips, employing 12,000 hours
of labor. In 2010, Angel Foods produced 325,000 bags of tortilla chips, employing
13,000 hours of labor. Angel Food’s productivity
a. decreased by 2.1 percent.
b. was unchanged.
c. increased by 1.3 percent.
d. increased by 2.3 percent.
Scenario 9-2
For a small country called Boxland, the equation of the domestic demand curve for
cardboard is
,
where represents the domestic quantity of cardboard demanded, in tons, and
represents the price of a ton of cardboard.
For Boxland, the equation of the domestic supply curve for cardboard is
,
where represents the domestic quantity of cardboard supplied, in tons, and again
represents the price of a ton of cardboard.
Refer to Scenario 9-2. Suppose the world price of cardboard is $45 and international
trade is allowed. Then Boxland’s consumers demand
a. 110 tons of cardboard and Boxland’s producers supply 75 tons of cardboard.
b. 110 tons of cardboard and Boxland’s producers supply 96 tons of cardboard.
c. 96 tons of cardboard and Boxland’s producers supply 75 tons of cardboard.
d. 96 tons of cardboard and Boxland’s producers supply 96 tons of cardboard.
When demand is elastic, an increase in price will cause
a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue but an increase in quantity demanded.
d. no change in total revenue but a decrease in quantity demanded.
Consider five high school students working on homework in study hall.
Which of the following pairs of students has a double coincidence of wants?
a. Rosie and Piper
b. Piper and Molly
c. Dewey and Molly
d. Bob and Dewey
Collective bargaining refers to
a. the process by which the government sets exemptions from the minimum wage law.
b. setting the same wage for all employees to prevent conflict among workers.
c. firms colluding to set the wages of employees below equilibrium.
d. the process by which unions and firms agree on the terms of employment.
Which of the following tends to make aggregate demand shift further to the right than
the amount by which government expenditures increase?
a. the crowding-out effect
b. the multiplier effect
c. the exchange-rate effect
d. the interest-rate effect
If Germany purchased more goods and services abroad than it sold abroad last year,
then it had
a. positive net exports which is a trade surplus.
b. positive net exports which is a trade deficit.
c. negative net exports which is a trade surplus.
d. negative net exports which is a trade deficit.
Figure 9-20
The figure illustrates the market for rice in Vietnam.
Refer to Figure 9-20. Vietnam’s gains from trade in rice amount to
a. 750.
b. 1,000.
c. 1,250.
d. 1,500.
Rent control
a. is an example of a price ceiling.
b. leads to a larger shortage of apartments in the long run than in the short run.
c. leads to lower rents and, in the long run, to lower-quality housing.
d. All of the above are correct.
When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in
the U.S. GDP deflator.
If we observe that when the price of ice cream rises by 10%, ice cream manufacturers
increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is
2.
In a perfectly competitive market, buyers and sellers are price setters.
The Bureau of Labor Statistics produces data on unemployment and other aspects of the
labor market from a regular survey of about 600 households, called the Current
Population Survey.
Countries with high population growth rates tend to have lower levels of educational
attainment.
Fractional reserve banking is a system where banks must hold an amount of cash based
on a percentage of its loans.
The goal of rent control is to help the poor by making housing more affordable.
During World War II government expenditures increased almost five-fold and output
almost doubled.
Movies are a major export of the U.S.
In 2009, the U.S. natural rate of unemployment was estimated to be 5.0 percent, which
at the time was close to the actual rate of unemployment of 9.3 percent.
The use of money allows trade to be roundabout.
Index funds are usually outperformed by mutual funds that are actively managed by
professional money managers.
Marc puts prices on surfboards and skateboards at his sporting goods store. He is using
money as a unit of account.
Along the elastic portion of a linear demand curve, total revenue rises as price rises.
An advantage of using the midpoint method to calculate the price elasticity of demand
is that it uses the metric system.
If the price elasticity of demand is equal to 1, then demand is unit elastic.
Price controls can generate inequities.
Productivity is defined as the quantity of goods and services produced from each unit of
labor input.