Table 16-5.
Bank of Pleasantville
Refer to Table 16-5. Assume the Fed’s reserve requirement is 9 percent and all banks
besides the Bank of Pleasantville are exactly in compliance with the 9 percent
requirement. Further assume that people hold only deposits and no currency. Starting
from the situation as depicted by the T-account, if the Bank of Pleasantville decides to
make new loans so as to end up with no excess reserves, then by how much does the
money supply eventually increase?
a. $555.00.
b. $1,200.00.
c. $1,777.78.
d. $2,222.22.
Which of the following items is counted as part of government purchases?
a. The federal government pays the salary of a Navy officer.
b. The state of Nevada pays a private firm to repair a Nevada state highway.
c. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.
d. All of the above are correct.
The North American Free Trade Agreement
a. is an example of the unilateral approach to free trade.
b. eliminated tariffs on imports to North America from the rest of the world.
c. reduced trade restrictions among Canada, Mexico and the United States.
d. All of the above are correct.
Finland allows trade with the rest of the world. We can determine whether Finland has a
comparative advantage in producing pork if we
a. know whether Finland imports or exports pork.
b. compare the world price of pork to the price of pork that would prevail in Finland if
trade with the rest of the world were not allowed.
c. compare the quantity of pork consumed in Finland with the quantity of pork that
would be consumed in Finland if trade with the rest of the world were not allowed.
d. All of the above are correct.
As real interest rates fall, firms desire to
a. buy more new equipment and buildings. This response helps explain why the supply
of loanable funds is upward sloping.
b. buy more new equipment and buildings. This response helps explain why the demand
for loanable funds is downward sloping.
c. buy less new equipment and buildings. This response helps explain why the supply of
loanable funds is upward sloping.
d. buy less new equipment and buildings. This response helps explain why the demand
for loanable funds is downward sloping.
Buyers and sellers who have no influence on market price are referred to as
a. market pawns.
b. monopolists.
c. price takers.
d. price setters.
Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of
wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of
wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and
consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and
consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initiated
between the two countries, and Freedonia sends 30 units of corn to Sylvania in
exchange for 30 units of wheat. Freedonia will now be able to consume a maximum of
a. 30 units of corn and 30 units of wheat.
b. 40 units of corn and 30 units of wheat.
c. 40 units of corn and 20 units of wheat.
d. 10 units of corn and 40 units of wheat.
Consumer surplus
a. is the amount of a good that a consumer can buy at a price below equilibrium price.
b. is the amount a consumer is willing to pay minus the amount the consumer actually
pays.
c. is the number of consumers who are excluded from a market because of scarcity.
d. measures how much a seller values a good.
Money market mutual funds are included in
a. M1 but not M2.
b. M1 and M2.
c. M2 but not M1.
d. neither M1 nor M2.
Suppose Spencer and Kate are the only two demanders of lemonade. Each month,
Spencer buys six glasses of lemonade when the price is $1.00 per glass, and he buys
four glasses when the price is $1.50 per glass. Each month, Kate buys four glasses of
lemonade when the price is $1.00 per glass, and she buys two glasses when the price is
$1.50 per glass. Which of the following points is on the market demand curve?
a. (quantity demanded = 2, price = $1.50)
b. (quantity demanded = 4, price = $2.50)
c. (quantity demanded = 10, price = $1.00)
d. (quantity demanded = 16, price = $2.50)
Which of the following is correct?
a. NCO + C = NX
b. NCO = NX
c. NX – NCO = C
d. NX + NCO = C
More generous unemployment insurance would
a. raise structural unemployment.
b. raise frictional unemployment.
c. lower structural unemployment.
d. lower frictional unemployment.
Which of the following was not a result of the luxury tax imposed by Congress in
1990?
a. The larger part of the tax burden fell on sellers.
b. A larger part of the tax burden fell on the middle class than on the rich.
c. Even the wealthy demanded fewer luxury goods.
d. The tax was never repealed or even modified.
Recently Greece ran large deficits and people became worried about the ability of its
government to make payments on its debt. Which of the these events reduces a
country’s real exchange rate?
a. an increase in the budget deficit, and increased concerns about the ability of the
government to pay back its debt
b. an increase in the budget deficit, but not increased concerns about the ability of the
government to pay back its debt
c. increased concerns about the ability of the government to pay back its debt, but not
an increase in the budget deficit
d. neither an increase in the budget deficit, nor increased concerns about the ability of
the government to pay back its debt
Which of the following would necessarily create a surplus at the original equilibrium
interest rate in the loanable funds market?
a. an increase in the supply of or a decrease in the demand for loanable funds
b. an increase in the supply of or an increase in the demand for loanable funds
c. a decrease in the supply of or a decrease in the demand for loanable funds
d. a decrease in the supply of or an increase in the demand for loanable funds
A painter pays $500 for paint he uses to repaint a house. He then presents a bill for
$1200 that covers his time and expenses to the homeowner. How much do these
transactions add to GDP?
a. $500
b. $700
c. $1200
d. $1700
When a tax is levied on a good,
a. government collects revenues which might justify the loss in total welfare.
b. there is a decrease in the quantity of the good bought and sold in the market.
c. a wedge is placed between the price buyers pay and the price sellers effectively
receive.
d. All of the above are correct.
Consider a good to which a per-unit tax applies. The size of the deadweight that results
from the tax is smaller, the
a. larger is the price elasticity of demand.
b. smaller is the price elasticity of supply.
c. larger is the amount of the tax.
d. All of the above are correct.
Allied Business Consultants employs five researchers that each work 8 hour days. In
one day the researchers prepare 60 reports for its 10 largest clients. What was Allied
Business Consultants’ productivity?
a. 1.5 reports per hour
b. 6 reports per client
c. 7.5 reports per hour
d. 60 reports
The quantity of money has no real impact on things people really care about like
whether or not they have a job. Most economists would agree that this statement is
appropriate concerning
a. both the short run and the long run.
b. the short run, but not the long run.
c. the long run, but not the short run.
d. neither the long run nor the short run.
If the government wants to reduce smoking, it should impose a tax on
a. buyers of cigarettes.
b. sellers of cigarettes.
c. either buyers or sellers of cigarettes.
d. whichever side of the market is less elastic.
One reason we need government, even in a market economy, is that
a. there is insufficient market power in the absence of government.
b. property rights are too strong in the absence of government.
c. the invisible hand is not perfect.
d. Both a and b are correct.
Figure 7-14
Refer to Figure 7-14. Total surplus amounts to $800 if consumer surplus amounts to
a. $450 and if the price of the good is $250.
b. $450 and if the price of the good is $300.
c. $350 and if the price of the good is $300.
d. $250 and if the price of the good is $325.
Figure 21-1
Refer to Figure 21-1. Which of the following is correct?
a. If the interest rate is 4 percent, there is excess money demand, and the interest rate
will fall.
b. If the interest rate is 3 percent, there is excess money supply, and the interest rate will
rise.
c. Starting with an interest rate of 4 percent, the demand for goods and services will
increase until the money market reaches a new equilibrium.
d. None of the above is correct.
Frictional unemployment is thought to explain
a. relatively short spells of unemployment, as is structural unemployment.
b. relatively long spells of unemployment, as is structural unemployment.
c. relatively short spells of unemployment, while structural unemployment is thought to
explain relatively long spells of unemployment.
d. relatively long spells of unemployment, while structural unemployment is thought to
explain relatively short spells of unemployment.
A major difference between tariffs and import quotas is that
a. tariffs create deadweight losses, but import quotas do not.
b. tariffs help domestic consumers, and import quotas help domestic producers.
c. tariffs raise revenue for the government, but import quotas create surplus for those
who get the licenses to import.
d. All of the above are correct.
The sum of all the individual supply curves for a product is called
a. total supply.
b. market supply.
c. aggregate supply.
d. total output.
The country of Meditor uses the merit as its currency. Recent national income statistics
showed that it had GDP of $700 million merits, no government transfer payments, taxes
of $210 million merits, a budget surplus of $60 billion merits, and investment of $100
billion merits. What were its consumption and government expenditures on goods and
services?
a. 450 million merits and $150 million merits
b. 410 million merits and $150 million merits
c. 330 million merits and $270 million merits
d. 290 million merits and $270 million merits
Which of the following is not correct?
a. An organized withdrawal of labor from a firm by a union is called a strike.
b. The power of a union comes from its ability to strike if the union and the firm do not
agree on the terms of employment.
c. Economists who study the effects of unions typically find that union workers earn
about 25 to 35 percent more than similar workers who do not belong to unions.
d. Workers in unions reap the benefit of collective bargaining, while workers not in
unions bear some of the cost.
You put money into an account and earn a real interest rate of 6 percent. Inflation is 2
percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of
interest?
a. 4.8 percent
b. 3.2 percent
c. 2.8 percent
d. None of the above is correct.
Figure 8-5
Suppose that the government imposes a tax of P3 – P1.
Refer to Figure 8-5. The tax is levied on
a. buyers only.
b. sellers only.
c. both buyers and sellers.
d. This is impossible to determine from the figure.
Table 3-4
Assume that the farmer and the rancher can switch between producing meat and
producing potatoes at a constant rate.
Labor Hours Needed
to Make 1 Pound of Pounds Produced
in 24 Hours
Refer to Table 3-4. Assume that the farmer and the rancher each has 24 labor hours
available. If each person spends all his time producing the good in which he has a
comparative advantage and trade takes place at a price of 1 pound of meat for 2 pounds
of potatoes, then
a. the farmer and the rancher will both gain from this trade.
b. the farmer will gain from this trade, but the rancher will not.
c. the rancher will gain from this trade, but the farmer will not.
d. neither the farmer nor the rancher will gain from this trade.
If the exchange rate is 70 Bangladesh taka per dollar and a bushel of rice costs 200 taka
in Bangladesh and $3 in the United States, then the real exchange rate is
a. greater than one and arbitrageurs could profit by buying rice in the United States and
selling it in Bangladesh.
b. greater than one and arbitrageurs could profit by buying rice in Bangladesh and
selling it in the United States.
c. less than one and arbitrageurs could profit by buying rice in the United States and
selling it in Bangladesh.
d. less than one and arbitrageurs could profit by buying rice in Bangladesh and selling it
in the United States.
The Bureau of Labor Statistics computes unemployment rates for the entire adult
population and for more narrowly defined groups.
The market for insurance is one example of reducing risk by using diversification.
A decrease in the price of blueberries will decrease both the equilibrium price and
quantity in the market for blueberry muffins.
If a higher price means a greater quantity supplied, then the supply curve slopes
upward.
Suppose that the government spends more on a missile defense program. What does this
do to aggregate demand? How is you answer affected by the presence of the multiplier,
crowding-out, taxes, and investment-accelerator effects?
A decrease in the money supply causes the interest rate to rise so that investment falls.
Demand refers to the amount buyers wish to buy, whereas the quantity demanded refers
to the position of the demand curve.
If Country A produces 7,000 units of goods and services using 700 hours of labor, and if
Country B produces 5,500 units of goods and services using 500 units of labor, then
productivity is lower in Country A than in Country B.
Figure 2-14
Refer to Figure 2-14. The opportunity cost of moving from point B to point D is 15
doghouses.
Available evidence indicates that stock prices, even if not exactly a random walk, are
very close to a random walk.
Figure 2-14
Refer to Figure 2-14. Points A, B, and D represent efficient outcomes for this
economy.
If a good or service is sold in a competitive market free of government regulation, then
the price of the good or service adjusts to balance supply and demand.
Suppose a country has had a high and relatively stable inflation rate for a long time.
How might this affect the costs and benefits of inflation reduction?
Suppose you sell a kayak for $600, but you were willing to sell it for $450. The buyer
was willing to pay $650. The total surplus is $200.
Reduced barriers to trade help explain an increase in U.S. exports and imports relative
to GDP since 1950.
If a price ceiling of $1.50 per gallon is imposed on gasoline, and the market equilibrium
price is $2, then the price ceiling is a binding constraint on the market.
The labor-force participation rate equals the percentage of the labor force that is either
employed or unemployed.
In a competitive market, the quantity of each good produced and the price at which it is
sold are not determined by any single buyer or seller.
Other things the same, if banks decide to hold a smaller part of their deposits as excess
reserves, the money supply will fall.