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Figure: The Market for Oranges in South Africa
Look at the figure The Market for Oranges in South Africa. In autarky, the price of
oranges in South Africa is P1. When the economy is opened to trade, the price falls to
PWand the change in total surplus is area:
A) O.
B) O+ P.
C) M+ N+ O+ P.
D) M+ N+ O+ P+ Q.
Figure: Circular-Flow Model
Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium
(the sum of money flowing into each box is equal to the sum of the money flowing out
of it) and there is an increase in government spending, which of the following is likely
to happen?
A) an increase in the nominal GDP
B) a decrease in the real GDP
C) an increase in the unemployment rate
D) a decrease in the inflation rate
The purpose of the bank holiday declared by Franklin Roosevelt in 1933 was to:
A) close all banks until regulators could determine how to solve the banking crisis.
B) give overworked bank employees a rest.
C) exempt banks from taxes until the Depression was over.
D) encourage people to use cash instead of checks.
When countries seek to maintain fixed exchange rates through intervention, their
governments or central banks:
A) never have to intervene in currency markets because the exchange rate is fixed.
B) may have to stop printing domestic currency.
C) must buy domestic currency when foreign demand for it increases.
D) must sell domestic currency when foreign demand for it increases.
Look at the table Coffee and Salmon Production Possibilities. The table shows the
maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just
produce one good. The opportunity cost of producing 1 unit of salmon for Alaska is:
A) 2 coffees.
B) 0.25 coffee.
C) 1 coffee.
D) 0.5 coffee.
Figure: Illustrating Slope
Look at the figure Illustrating Slope. In the graph, line 1 depicts X and Y to be:
A) positively related.
B) nonlinearly related.
C) unrelated.
D) negatively related.
The demand for money is higher in Japan than in the United States because:
A) Japanese banks pay interest on checking accounts.
B) most stores in Japan do not accept credit cards.
C) the ATMs are open all night.
D) the average price level is lower in Japan.
Which of the following is the best equation for GDP?
A) GDP = C+ I + G " X + IM
B) GDP = C + I + G + X " IM
C) GDP = C + I + G + taxes " value added
D) GDP = C + I + G + taxes + X +IM
In a vicious cycle of deleveraging, financial institutions:
A) sell assets at a deep discounts.
B) sell assets at unreasonably high prices.
C) offer higher interest rates to their depositors.
D) buy assets at unreasonably high prices.
Final goods and services are sold to the final or end user.
A) True
B) False
Figure: The Production Possibility Frontiers for Jackson and Tahoe
Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. In
autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat,
while Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. Assume
each nation specializes completely, based on comparative advantage, and the price of 1
head of cattle equals the price of 2 bushels of wheat. If Jackson exports 120 bushels of
wheat to Tahoe, Tahoe will export _____ head of cattle to Jackson.
A) 120
B) 60
C) 240
D) 200
The primary cause of the recession that ended in late 2001 was:
A) a slump in business investment spending.
B) too much investment spending by households, crowding out business investment
spending.
C) an increase in income tax rates.
D) a decrease in government spending.
Transfer payments:
A) are a means by which government raises funds.
B) are a redistribution of funds from one individual to another individual.
C) are counted in GDP.
D) is another term for government taxation.
Countries that trade based on the Heckscher"Ohlin model will find that:
A) their import goods tend to utilize their relatively scarce factors of production most
intensively.
B) the goods they export tend to use their relatively scarce factors of production most
intensively.
C) countries with a relative abundance of capital will export goods that use labor
intensively.
D) the concept of absolute advantage determines which goods they should export and
import.
Figure: Demand for Coconuts
Look at the figure Demand for Coconuts. If coconuts are a normal good and the income
level of consumers falls, it will be represented in the figure as a movement from:
A) A to C.
B) B to A.
C) C to A.
D) E to B.
One reason financial institutions become very large is to:
A) decrease transaction costs.
B) enjoy the power of having a large corporation.
C) increase transaction costs.
D) avoid the risks of diversification.
In the factor markets:
A) households supply goods and services.
B) households demand goods and services.
C) firms demand resources.
D) firms supply resources.
The difference between the interest rate on assets that are not money and the interest
rate on assets that are money is:
A) the opportunity cost of holding money.
B) the rate of return of holding money.
C) short-term interest rates.
D) long-term interest rates.
When a currency becomes more valuable in terms of other currencies, it appreciates.
A) True
B) False
The Glass-Steagall Act of 1933 gave the Reconstruction Finance Corporation the power
to make loans to commercial banks but prohibited the Federal Reserve from making
loans to commercial banks.
A) True
B) False
An economy is efficient when:
A) the problem of scarcity is eliminated.
B) output is distributed equitably.
C) all opportunities to make some people better off without making other people worse
off have been taken.
D) all opportunities to make some people worse off without making other people better
off have been taken.
Figure: Fiscal Policy with a Fixed Money Supply
Look at the figure Fiscal Policy with a Fixed Money Supply. Assume that this economy
is at E1. Now government deficit spending increases and the Federal Reserve expands
the money supply. According to this model:
A) real GDP might increase in the short run, but inflation can lead to a return to the
original level of real GDP in the long run.
B) real GDP will decrease because the government expanded deficit spending.
C) real GDP will decrease, but not as much as if the Federal Reserve had contracted the
money supply.
D) interest rates will decrease.
Which of the following is a positive statement?
A) The rate of unemployment is 4%.
B) A high rate of economic growth is the most important economic goal for the country.
C) Everyone in the country should be covered by national health insurance.
D) Baseball players should not be paid higher salaries than the president of the United
States.
If the value of beach-front property in Beach City decreases, the people of Beach City
will likely spend _____, causing incomes in Beach City to _____.
A) more; increase
B) more; decrease
C) less; increase
D) less; decrease
The purchaser of a share of stock receives interest each year from the stock and then
receives the purchase price of the stock at its maturity.
A) True
B) False
For an asset to be considered money, it must be:
A) able to serve as medium of exchange, standard unit of account, and store of value.
B) available in sufficient quantities and designated as such by law.
C) fiat money also.
D) backed by some precious commodity such as gold.
The purpose of a cap and trade system is to encourage trade between countries by
limiting the amount of tariffs that can be imposed on traded goods.
A) True
B) False
In the circular-flow diagram, the product market is where:
A) firms buy goods and services.
B) firms buy resources used to produce goods and services.
C) households buy goods and services.
D) households buy resources used to produce goods and services.
When we are forced to make choices, we are facing the concept of:
A) human capital.
B) inflation.
C) scarcity.
D) market failure.
If the marginal propensity to consume is 0.8, the multiplier is:
A) 0.8.
B) 0.2.
C) 1.25.
D) 5.
The financial crisis of 2008 in the United States required:
A) the Fed to solve the problem independent of government assistance.
B) more government involvement and funding for troubled industries.
C) tighter supervision by the Federal Reserve Bank of New York.
D) the Treasury to solve the problems independently, since the Fed was unwilling to
help.
Real interest rates can be positive, zero, or negative, but nominal interest rates can only
be zero or positive.
A) True
B) False
_____ illustrates an inverse relationship between price and quantity.
A) A demand curve
B) A supply curve
C) A production possibility frontier
D) Equilibrium
