Table 16-3.
The First Bank of Fairfield
Refer to Table 16-3. If $1,000 is deposited into the First Bank of Fairfield, and the
bank takes no other actions, its
a. reserves will increase by $200.
b. liabilities will decrease by $1,000.
c. assets will increase by $1,000.
d. reserves will increase by $800.
Other things the same, people in the U.S. would want to save more if the real interest
rate in the U.S.
a. fell. The increased saving would increase the quantity of loanable funds demanded.
b. fell. The increased saving would increase the quantity of loanable funds supplied.
c. rose. The increased saving would increase the quantity of loanable funds demanded.
d. rose. The increased saving would increase the quantity of loanable funds supplied.
Figure 9-14. On the diagram below, Q represents the quantity of crude oil and P
represents the price of crude oil.
Refer to Figure 9-14. The country for which the figure is drawn
a. has a comparative advantage relative to other countries in the production of crude oil
and it will export crude oil.
b. has a comparative advantage relative to other countries in the production of crude oil
and it will import crude oil.
c. has a comparative disadvantage relative to other countries in the production of crude
oil and it will export crude oil.
d. has a comparative disadvantage relative to other countries in the production of crude
oil and it will import crude oil.
Sarah buys a new MP3 player for $135. She receives consumer surplus of $25 on her
purchase if her willingness to pay is
a. $25.
b. $110.
c. $135.
d. $160.
Other things the same, a country could move from having a trade deficit to having a
trade surplus if either
a. saving rose or domestic investment rose.
b. saving rose or domestic investment fell.
c. saving fell or domestic investment rose.
d. saving fell or domestic investment fell.
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. Assume that Zimbabwe and Portugal each has 60 machine minutes
available. Originally, each country divided its time equally between the production of
toothbrushes and hairbrushes. Now, each country spends all its time producing the good
in which it has a comparative advantage. As a result, the total output increased by
a. 4 toothbrushes and 2 hairbrushes.
b. 10 toothbrushes and 5 hairbrushes.
c. 16 toothbrushes and 8 hairbrushes.
d. 20 toothbrushes and 10 hairbrushes.
When a tax is levied on a good,
a. government revenues exceed the loss in total welfare.
b. there is a decrease in the quantity of the good bought and sold in the market.
c. the price that sellers receive exceeds the price that buyers pay.
d. All of the above are correct.
Table 11-6. The table below applies to an economy with only two goods hamburgers
and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.
Refer to Table 11-6. If the base year is 2009, then the economy’s inflation rate is
a. 10 percent in 2010 and 6.36 percent in 2011.
b. 10 percent in 2010 and 17 percent in 2011.
c. 9.2 percent in 2010 and 6 percent in 2011.
d. 8.22 percent in 2010 and 5 percent in 2011.
A firm has three different investment options, each costing $10 million. Option A will
generate $12 million in revenue at the end of one year. Option B will generate $15
million in revenue at the end of two years. Option C will generate $18 million in
revenue at the end of three years. Which option should the firm choose?
a. Option A
b. Option B
c. Option C
d. The answer depends on the rate of interest, which is not specified here.
Wealth is redistributed from creditors to debtors when inflation is
a. high, whether it is expected or not.
b. low, whether it is expected or not.
c. unexpectedly high.
d. unexpectedly low.
Which of the following are costs incurred by people trying to protect themselves from
the effects of inflation?
a. menu costs and shoeleather costs
b. menu costs but not shoeleather costs
c. shoeleather costs but not menu costs
d. menu costs but not shoeleather costs
Figure 4-15
Refer to Figure 4-15. At what price would there be an excess demand of 200 units of
the good?
a. $15
b. $20
c. $30
d. $35
For a given year, productivity in a particular country is most closely matched with that
country’s
a. level of real GDP over that year.
b. level of real GDP divided by hours worked over that year.
c. growth rate of real GDP divided by hours worked over that year.
d. growth rate of real GDP per person over that year.
Table 15-4
Civilian labor force 100 million
Persons unemployed 15 weeks or longer 1.6 million
Job losers and persons who have completed temporary jobs (excludes job leavers) 3.1
million
Total unemployed 6.2 million
Total unemployed plus discouraged workers 7.0 million
Total unemployed plus all marginally attached workers 8.1 million
Total unemployed plus all marginally attached workers plus total employed part-time
for economic reasons 9.2 million
Refer to Table 15-4. What is the U-1 measure of labor underutilization?
a. 1.6 percent
b. 3.1 percent
c. 6.2 percent
d. 7.0 percent
If a good has become more scarce, then we know for sure that
a. the demand for it increased.
b. the supply of it decreased.
c. either the demand for it increased or the supply of it decreased.
d. both the supply of it and the demand for it decreased.
Human capital is
a. the same thing as technological knowledge.
b. the same thing as labor.
c. the tools and equipment operated by humans.
d. knowledge and skills that workers have acquired.
Scenario 16-2.
The Monetary Policy of Tazi is controlled by the country’s central bank known as the
Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show
that collectively the banks of Tazi hold 300 million tazes of required reserves, 75
million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold
225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits
and so all money is on deposit at the bank.
Refer to Scenario 16-2. Suppose that the Bank of Tazi changes the reserve requirement
to 3 percent. Assuming that the banks still want to hold the same percentage of excess
reserves what is the value of the money supply after the change in the reserve
requirement?
a. 9,375 million tazes
b. 10,000 million tazes
c. 12,500 million tazes
d. None of the above is correct to the nearest million tazes.
During recessions which type of spending falls?
a. consumption and investment
b. investment but not consumption
c. consumption but not investment
d. neither consumption nor investment
According to purchasing power parity, if it took 1,100 Korean Won to buy a dollar this
year, but it took 1,000 to buy it last year, then the dollar has
a. appreciated, indicating inflation was higher in the U.S. than in Korea.
b. appreciated indicating inflation was lower in the U.S. than in Korea.
c. depreciated indicating inflation was higher in the U.S. than in Korea.
d. depreciated indicating inflation was lower in the U.S. than in Korea.
Suppose that corn farmers want to increase their total revenue. Knowing that the
demand for corn is inelastic, corn farmers should
a. plant more corn so that they would be able to sell more each year.
b. increase spending on fertilizer in an attempt to produce more corn on the acres they
farm.
c. reduce the number of acres on which they plant corn.
d. contribute to a fund that promotes technological advances in corn production.
To measure the gains and losses from a tax on a good, economists use the tools of
a. macroeconomics.
b. welfare economics.
c. international-trade theory.
d. circular-flow analysis.
Which of the following is considered human capital?
a. the comfortable chair in your dorm room where you read economics texts
b. the amount you get paid each week to work at the library
c. the things you have learned this semester
d. any capital goods that require a human to be present to operate
Trade policies
a. affect a country’s overall trade balance, but affect all firms and industries the same.
b. affect a country’s overall trade balance, but affect some firms or industries differently
than others.
c. do not affect a country’s overall trade balance, but affect some firms or industries
differently than others.
d. do not affect either a country’s overall trade balance or specific firms or industries.
From 1970 to 1998 the U.S. dollar
a. gained value compared to the German mark because inflation was higher in
Germany.
b. gained value compared to the German mark because inflation was lower in Germany.
c. lost value compared to the German mark because inflation was higher in Germany.
d. lost value compared to the German mark because inflation was lower in Germany.
In the long run, a decrease in the money supply growth rate
a. reduces expected inflation so the long-run Phillips curve shifts left.
b. reduces expected inflation so the short-run Phillips curve shifts left.
c. Both A and B are correct.
d. None of the above is correct.
Figure 14-1. The figure shows a utility function.
Refer to Figure 14-1. The properties exhibited by this utility function help to explain
various things we observe in the economy, including
a. the risk-return tradeoff.
b. insurance.
c. diversification.
d. All of the above are correct.
Other things the same if reserve requirements are decreased, the reserve ratio
a. decreases, the money multiplier increases, and the money supply decreases.
b. increases, the money multiplier increases, and the money supply increases.
c. decreases, the money multiplier increases, and the money supply increases.
d. increases, the money multiplier increases, and the money supply decreases.
Josh is a full-time college student who is not working or looking for a job. The Bureau
of Labor Statistics counts Josh as
a. unemployed and in the labor force.
b. unemployed, but not in the labor force.
c. in the labor force, but not unemployed.
d. neither in the labor force nor unemployed.
U.S. Department of Labor data show that minimum-wage workers tend to be
a. more likely to be working part time and in the communication industry.
b. more likely to be working part time and in the leisure and hospitality industry.
c. more likely to be working full time and in the communication industry.
d. more likely to be working full time and in the leisure and hospitality industry.
The opportunity cost of an item is
a. the number of hours needed to earn money to buy the item.
b. what you give up to get that item.
c. usually less than the dollar value of the item.
d. the dollar value of the item.
Carl and Carly are American residents. Carl buys stock of a corporation in Austria.
Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria’s net
capital outflow?
a. Carl’s
b. Carly’s
c. both Carl’s and Carly’s
d. neither Carl’s nor Carly’s
Farm programs that pay farmers not to plant crops on all their land
a. hurt farmers by lowering their total revenue and hurt consumers by causing shortages
of some food items.
b. help farmers by cutting costs, which helps consumers by lowering food prices.
c. help farmers by increasing total revenue in the market but hurt consumers by raising
food prices.
d. help farmers directly since they receive government payments but have no real
effects on consumers.
If the price elasticity of supply is 1.5, and a price increase led to a 3% increase in
quantity supplied, then the price increase is about
a. 0.2%.
b. 0.5%.
c. 2.0%.
d. 4.5%.
Within the U.S., teenagers have similar rates of unemployment as older workers.
Welfare economics is the study of the welfare system.
Suppose the Ivory Coast, a small country, imports wheat at the world price of $4 per
bushel. If the Ivory Coast imposes a tariff of $1 per bushel on imported wheat, then,
other things equal, the price of wheat in Ivory Coast will increase, but by less than $1.
The Bureau of Labor Statistics’ U-5 measure of joblessness includes marginally
attached workers.
Actively managed mutual funds usually fail to outperform index funds, and this fact
provides evidence in favor of the efficient markets hypothesis.
Other things the same, a higher real exchange rate reduces net exports.
Banks cannot influence the money supply if they are required to hold all deposits in
reserve.
Taxes affect market participants by increasing the price paid by the buyer and
decreasing the price received by the seller.
Gary’s wealth is $1 million. Economists would say that Gary has $1 million worth of
money.
Lawmakers can decide whether the buyers or the sellers must send a tax to the
government, but they cannot legislate the true burden of a tax.
When a country allows international trade and becomes an importer of a good, domestic
producers of the good are better off, and domestic consumers of the good are worse off.
A discovery that increases wheat yields per acre hurts farmers by increasing supply and
lowering their total revenues.
Public service announcements, mandatory health warnings on cigarette packages, and
the prohibition of cigarette advertising on television are all policies aimed at shifting the
demand curve for cigarettes to the right.
A binding price ceiling causes a shortage in the market.
Explain why it is the case that the value of intermediate goods produced and sold during
the year is not included directly as part of GDP, but the value of intermediate goods
produced and not sold is included directly as part of GDP.
What assumptions are necessary to argue that the quantity equation implies that
increases in the money supply lead to proportional changes in the price level?
When output rises, unemployment falls.
Right-to-work laws allow striking union members to be permanently replaced.
For both parties to gain from trade, the price at which they trade must lie between the
two opportunity costs.