Which of the following concepts is most helpful in explaining why investment
increases when the interest rate falls?
a. deadweight loss
b. present value
c. economic growth
d. financial intermediation
Figure 7-21
Refer to Figure 7-21. If the government mandated a price increase from P1 to a higher
price, then
a. total surplus would decrease.
b. consumer surplus would increase.
c. total surplus would increase, since producer surplus would increase.
d. total surplus would remain unchanged.
Which of the following rises when the U.S. price level falls?
a. interest rates
b. the value of the dollar in the market for foreign-currency exchange
c. real wealth
d. All of the above are correct.
When the government reduces taxes, which of the following decreases?
a. consumption
b. take-home pay
c. household saving
d. None of the above is correct.
Figure 7-18
Refer to Figure 7-18. Assume demand increases and as a result, equilibrium price
increases to $22 and equilibrium quantity increases to 110. The increase in producer
surplus due to new producers entering the market would be
a. $90.
b. $210.
c. $360.
d. $480.
To fully understand how taxes affect economic well-being, we must compare the
a. benefit to buyers with the loss to sellers.
b. price paid by buyers to the price received by sellers.
c. profits earned by firms to the losses incurred by consumers.
d. decrease in total surplus to the increase in revenue raised by the government.
Monetary neutrality implies that an increase in the quantity of money will
a. increase employment.
b. increase the price level.
c. increase the incentive to save.
d. not increase any of the above.
Jouke is on a temporary layoff from his factory job but has not looked for work in the
last four weeks. The Bureau of Labor Statistics counts Jouke as
a. unemployed and in the labor force.
b. unemployed and not in the labor force.
c. employed and in the labor force.
d. employed and not in the labor force.
If purchasing power parity holds, when a country’s central bank increases the money
supply, its
a. price level rises and its currency appreciates relative to other currencies in the world.
b. price level rises and its currency depreciates relative to other currencies in the world.
c. price level falls and its currency appreciates relative to other currencies in the world.
d. price level falls and its currency depreciates relative to other currencies in the world.
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. Iceland should export
a. coolers and import radios.
b. radios and import coolers.
c. both goods and import neither good.
d. neither good and import both goods.
Which of the following does the Federal Reserve not do?
a. conduct monetary policy
b. act as a lender of last resort
c. convert Federal Reserve Notes into gold
d. serve as a bank regulator
The “natural” rate of unemployment is the unemployment rate toward which the
economy gravitates in the
a. short run, and the natural rate is the socially optimal rate of unemployment.
b. long run, and the natural rate is the socially optimal rate of unemployment.
c. short run, and the natural rate is not necessarily the socially optimal rate of
unemployment.
d. long run, and the natural rate is not necessarily the socially optimal rate of
unemployment.
Figure 7-20
Refer to Figure 7-20. If 6 units of the good are produced and sold, then
a. efficiency is achieved in this market.
b. the marginal value to buyers equals the marginal cost to sellers.
c. the sum of consumer surplus and producer surplus is maximized.
d. All of the above are correct.
When the nation of Isoland opens up its steel market to international trade, that change
a. creates winners and losers, regardless of whether Isoland ends up exporting or
importing steel.
b. results in a decrease in total surplus, regardless of whether Isoland ends up exporting
or importing steel.
c. creates winners, but no losers, if Isoland ends up exporting steel.
d. creates losers, but no winners, if Isoland ends up importing steel.
Table 7-9
The numbers reveal the opportunity costs of providing 10 piano lessons of equal
quality.
Refer to Table 7-9. You wish to purchase 10 piano lessons for yourself and for your
brother, so you take bids from each of the sellers. You will take lessons at the same
time, so one teacher cannot provide lessons to both of you. You must pay the same price
for both sets of lessons, and you will not accept a bid below a seller’s cost because you
are concerned that the seller will not provide all 10 lessons. What bid will you accept?
a. $351
b. $349
c. $201
d. $199
Suppose that in Ireland total annual output is worth $600 million and people work 30
million hours. In Canada total annual output is worth $800 million and people work 50
million hours. Productivity is higher
a. in Ireland. Most variation in the standard of living across countries is due to
differences in productivity.
b. in Ireland. Differences in productivity explain very little of the variation in the
standard of living across countries.
c. in Canada. Most variation in the standard of living across countries is due to
differences in productivity.
d. in Canada. Differences in productivity explain very little of the variation in the
standard of living across countries.
If 2002 is the base year, then the inflation rate in 2005 equals
a.
b.
c.
d.
An example of a price floor is
a. the regulation of gasoline prices in the U.S. in the 1970s.
b. rent control.
c. the minimum wage.
d. any restriction on price that leads to a shortage.
For an imaginary economy, when the real interest rate is 7 percent, the quantity of
loanable funds demanded is $500 and the quantity of loanable funds supplied is $500.
Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent.
Currently,
a. the market for loanable funds is in equilibrium.
b. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will rise.
c. the quantity of loanable funds supplied exceeds the quantity of loanable funds
demanded, and as a result the real interest rate will fall.
d. the quantity of loanable funds demanded exceeds the quantity of loanable funds
supplied, and as a result the real interest rate will rise.
Figure 6-11
Refer to Figure 6-11. Which of the following statements is not correct?
a. A government-imposed price of $9 would be a binding price floor if market demand
is Demand A and a binding price ceiling if market demand is Demand B.
b. A government-imposed price of $15 would be a binding price ceiling if market
demand is either Demand A or Demand B.
c. A government-imposed price of $3 would be a binding price ceiling if market
demand is either Demand A or Demand B.
d. A government-imposed price of $12 would be a binding price floor if market demand
is Demand A and a non-binding price ceiling if market demand is Demand B.
Dilbert’s Incorporated produced 6,000,000 units of software in 2008. At the start of
2009 the pointy-haired boss raised employment from 10,000 total annual hours to
14,000 annual hours and production was 7,000,000 units. These number indicate that
productivity
a. fell by about 16.7%.
b. stayed the same.
c. rose by about 16.7%.
d. rose by about 40%.
Suppose that gasoline prices increase dramatically this month. Lola commutes 100
miles to work each weekday. Over the next few months, Lola drives less on the
weekends to try to save money. Within the year, she sells her home and purchases one
only 10 miles from her place of employment. These examples illustrate the importance
of
a. the availability of substitutes in determining the price elasticity of demand.
b. a necessity versus a luxury in determining the price elasticity of demand.
c. the definition of a market in determining the price elasticity of demand.
d. the time horizon in determining the price elasticity of demand.
Which of the two bonds in each example would you expect to generally pay the higher
interest rate? Explain why.
a. a U.S. government bond or a Venezuelan government bond
b. a U.S. government bond or a municipal bond with the same term and issued by a
creditworthy municipality.
c. a 6-month Treasury bill or a 20-year Treasury bond
d. a Microsoft bond or a bond issued by a new recording company
If a central bank had to give up its discretion and follow a rule that required it to keep
inflation low,
a. the short-run Phillips curve would shift up.
b. the short-run Phillips curve would shift down.
c. the long-run Phillips curve would shift right.
d. the long-run Phillips curve would shift left.
Scenario 11-2
The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005
read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
Refer to Scenario 11-2. The price of a 1975 golf ball in 2005 dollars is
a. $0.05.
b. $0.53.
c. $0.73.
d. $2.00.
Consider two individuals Howard and Mai each of whom would like to wear sweaters
and eat tasty food. The gains from trade between Howard and Mai are least obvious in
which of the following cases?
a. Howard is very good at knitting sweaters and at cooking tasty food, but Mai’s skills
in both of these activities are very poor.
b. Howard is very good at knitting sweaters and at cooking tasty food; Mai is very good
at knitting sweaters, but she knows nothing about cooking tasty food.
c. Howard’s skills in knitting sweaters are fairly good, but his skills in cooking tasty
food are fairly bad; Mai’s skills in knitting sweaters are fairly bad, but her skills in
cooking tasty food are fairly good.
d. Howard’s skills are such that he can produce only sweaters, and Mai’s skills are such
that she can produce only tasty food.
Which of the following expressions must be equal to national saving for a closed
economy?
a. Y – I – G – NX
b. Y – C – G
c. Y – I – C
d. G + C – Y
Figure 8-19. The figure represents the relationship between the size of a tax and the tax
revenue raised by that tax.
Refer to Figure 8-19. If the economy is at point A on the curve, then a small increase in
the tax rate will
a. increase the deadweight loss of the tax and increase tax revenue.
b. increase the deadweight loss of the tax and decrease tax revenue.
c. decrease the deadweight loss of the tax and increase tax revenue.
d. decrease the deadweight loss of the tax and decrease tax revenue.
People are willing to pay more for a diamond than for a bottle of water because
a. the marginal cost of producing an extra diamond far exceeds the marginal cost of
producing an extra bottle of water.
b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra
bottle of water.
c. producers of diamonds have a much greater ability to manipulate diamond prices
than producers of water have to manipulate water prices.
d. water prices are held artificially low by governments, since water is necessary for
life.
Which of the following is not included in M1?
a. currency
b. demand deposits
c. savings deposits
d. traveler’s checks
When a country allows trade and becomes an importer of coal,
a. the losses of the domestic producers of coal exceed the gains of the domestic
consumers of coal.
b. the losses of the domestic consumers of coal exceed the gains of the domestic
producers of coal.
c. the gains of the domestic producers of coal exceed the losses of the domestic
consumers of coal.
d. the gains of the domestic consumers of coal exceed the losses of the domestic
producers of coal.
Table 15-4
Refer to Table 15-4. What is the U-4 measure of labor underutilization?
a. 6.5 percent
b. 6.9 percent
c. 7.0 percent
d. 17.9 percent
Stagflation results from continued decreases in aggregate demand.
Economists often find it worthwhile to make assumptions that do not necessarily
describe the real world.
If per capita real income grows by 2 percent per year, then it will double in
approximately 20 years.
The labor force minus the number of employed equals the number of unemployed.
Means-tested government programs tend to reduce saving. What are means-tested
programs and how do they reduce saving?
Within the U.S. population, women ages 20 and older have similar rates of labor-force
participation as men.
When a tax is imposed, the loss of consumer surplus and producer surplus as a result of
the tax exceeds the tax revenue collected by the government.
When the U.S. government is in debt during a given year, it follows that its budget is in
deficit for that year.
Make a list of things that would shift the long-run aggregate supply curve to the right.
Because the supply and demand of housing are inelastic in the short run, the initial
shortage caused by rent control is large.
What is the theory of efficiency wages? Provide four reasons that employers might pay
efficiency wages.
Inflation measures the increase in the quantity of goods and services produced from
each hour of a worker’s time.
A tax on buyers shifts the demand curve to the right.
Table 15-5
2010 Labor Data for Tajnia
Refer to Table 15-5. The unemployment rate of Tajnia in 2010 is about 18.4 percent.
Figure 2-14
Refer to Figure 2-14. It is possible for this economy to produce 30 doghouses and 20
dishwashers.
An adverse supply shock shifts the short-run Phillips curve right. If people raise their
inflation expectations, the short-run Phillips curve shifts farther right.
If the GDP deflator in 2009 was 150 and the GDP deflator in 2010 was 175, then the
inflation rate in 2010 was 25%.
The unemployment rate never falls to zero.
When the government budget deficit increases, national saving increases.