Which of the following would do the most to reduce a trade deficit?
a. increase domestic saving
b. increase domestic political stability and respect of property rights
c. other countries reduce their trade restrictions
d. raise tariffs
If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the
price paid by buyers of NFL game tickets would
a. increase by less than $5.
b. increase by exactly $5.
c. increase by more than $5.
d. decrease by an indeterminate amount.
Economic models
a. are constructed to mirror reality as closely as possible, and in this respect economic
models are no different from other scientific models.
b. are constructed to mirror reality as closely as possible, and in this respect economic
models are very different from other scientific models.
c. are simplifications of reality, and in this respect economic models are no different
from other scientific models.
d. are simplifications of reality, and in this respect economic models are very different
from other scientific models.
Which of the following areas of study typifies microeconomics as opposed to
macroeconomics?
a. the impact of minimum-wage laws on employment in the fast food industry
b. the effect of changes in household saving rates on the growth rate of national income
c. the impact of faster money growth on the rate of inflation
d. a comparison of alternative tax policies and their respective impacts on the rate of the
nation’s economic growth
Figure 7-8
Refer to Figure 7-8. Which area represents producer surplus when the price is P2?
a. BCG
b. ACH
c. ABGD
d. AHGB
Figure 9-2
Refer to Figure 9-2. With free trade, this country will
a. import 40 baskets.
b. import 70 baskets.
c. export 35 baskets.
d. export 65 baskets.
Government purchases are said to have a
a. multiplier effect on aggregate supply.
b. multiplier effect on aggregate demand.
c. liquidity-enhancing effect on aggregate supply.
d. liquidity-enhancing effect on aggregate demand.
Table 7-1
Refer to Table 7-1. If the price of the product is $15, then who would be willing to
purchase the product?
a. Lori
b. Lori and Audrey
c. Lori, Audrey, and Zach
d. Lori, Audrey, Zach, and Calvin
Figure 8-5
Suppose that the government imposes a tax of P3 – P1.
Refer to Figure 8-5. After the tax is levied, producer surplus is represented by area
a. A.
b. A+B+C.
c. D+H+F.
d. F.
Producer surplus directly measures
a. the well-being of sellers.
b. production costs.
c. excess demand.
d. unsold inventories.
Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we
know that the
a. demand is more inelastic than the supply.
b. supply is more inelastic than the demand.
c. government has required that buyers remit the tax payments.
d. government has required that sellers remit the tax payments.
A person who is not employed and claims to be trying hard to find a job but really is not
trying hard to find a job
a. is counted as out of the labor force but should be counted as unemployed.
b. is counted as unemployed but should be counted as out of the labor force.
c. is correctly counted as out of the labor force.
d. is correctly counted as unemployed.
Other things the same, a lower real interest rate decreases the quantity of
a. loanable funds demanded.
b. loanable funds supplied.
c. domestic investment.
d. net capital outflow.
If your research leads you to believe that the present value of a stock’s dividend stream
and future price is less than its price then you believe the stock is
a. overvalued so you should consider buying it.
b. overvalued so you should not consider buying it.
c. undervalued so you should consider buying it.
d. undervalued so you should not consider buying it.
The source of hyperinflations is primarily
a. lower output growth.
b. continuing declines in velocity.
c. increases in money-supply growth.
d. continuing increases in money demand.
Suppose that the average income of a Costa Rican is higher than the average income of
a Guatemalan. You might conclude that
a. Costa Rican firms are faced with stricter government regulations than Guatemalan
firms.
b. total income is divided among fewer workers in Costa Rica since it has a smaller
labor force than Guatemala.
c. Guatemala’s climate allows for longer growing seasons and therefore Guatemala can
produce large quantities of grain and other crops.
d. productivity in Costa Rica is higher than in Guatemala.
If a country were to save more, but its domestic investment remained the same, then
which of the following would rise
a. both net capital outflow and net exports
b. net capital outflow but not net exports
c. net exports but not net exports
d. neither net exports nor net capital outflow
If the number of sellers in a market increases, then the
a. demand in that market will increase.
b. supply in that market will increase.
c. supply in that market will decrease.
d. demand in that market will decrease.
As the price level falls
a. people will want to hold more money, so the interest rate rises.
b. people will want to hold more money, so the interest rate falls.
c. people will want to hold less money, so the interest rate falls.
d. people will want to hold less money, so the interest rate rises.
Which of the following is the correct way to show the effects of a newly imposed
import quota?
a. Shift the demand for loanable funds right, the supply of dollars in the market for
foreign-currency exchange right, and the demand for dollars left.
b. Shift the demand for loanable funds right, and the supply of dollars in the market for
foreign-currency exchange left.
c. Shift the demand for dollars in the market for foreign-currency exchange left.
d. None of the above is correct.
If a country has a trade surplus
a. it has positive net exports and positive net capital outflow.
b. it has positive net exports and negative net capital outflow.
c. it has negative net exports and positive net capital outflow.
d. it has negative net exports and negative net capital outflow.
In 1986, OPEC countries increased their production of oil. This caused
a. the price level to rise.
b. aggregate supply to shift right.
c. unemployment to rise.
d. None of the above is correct.
In an open economy,
a. net capital outflow = imports.
b. net capital outflow = net exports.
c. net capital outflow = exports.
d. None of the above is correct.
Motor oil and gasoline are complements. If the price of motor oil decreases, consumer
surplus in the gasoline market
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.
Figure 8-5
Suppose that the government imposes a tax of P3 – P1.
Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented
by area
a. A.
b. C+H.
c. D+H.
d. F.
When demand is elastic, a decrease 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.
Trade enhances the economic well-being of a nation in the sense that
a. both domestic producers and domestic consumers of a good become better off with
trade, regardless of whether the nation imports or exports the good in question.
b. the gains of domestic producers of a good exceed the losses of domestic consumers
of a good, regardless of whether the nation imports or exports the good in question.
c. trade results in an increase in total surplus.
d. trade puts downward pressure on the prices of all goods.
In response to the sharp decline in stock prices in October 1987, the Federal Reserve
a. increased the money supply and increased interest rates.
b. increased the money supply and decreased interest rates.
c. decreased the money supply and increased interest rates.
d. decreased the money supply and decreased interest rates.
A production possibilities frontier is a straight line when
a. the more resources the economy uses to produce one good, the fewer resources it has
available to produce the other good.
b. an economy is interdependent and engaged in trade instead of self-sufficient.
c. the rate of tradeoff between the two goods being produced is constant.
d. the rate of tradeoff between the two goods being produced depends on how much of
each good is being produced.
Large or persistent inflation is almost always caused by
a. excessive government spending.
b. excessive growth in the quantity of money.
c. foreign competition.
d. higher-than-normal levels of productivity.
Figure 19-6
Refer to Figure 19-6. If the economy were initially in equilibrium at r2 and E3 and the
government removed import quotas, the exchange rate would
a. appreciate to E4.
b. appreciate to E2.
c. depreciate to E1.
d. depreciate to E2.
Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.
Refer to Figure 8-8. The government collects tax revenue that is the area
a. L.
b. B+D.
c. C+F.
d. F+G+L.
If toast and butter are complements, then which of the following would increase the
demand for toast?
a. a decrease in the price of toast
b. a decrease in the price of butter
c. an increase in the price of butter
d. Both a) and b) are correct.
Which of the following is not held constant in a supply schedule?
a. production technology
b. the price of the good
c. the prices of inputs
d. expectations
Describe the two things that limit the precision of the Fed’s control of the money supply
and explain how each limits that control.
If a good or service has only one seller, then the seller is called a monopoly.
Sectoral shifts temporarily cause unemployment.
If a person had increasing marginal utility, then the decline in utility from losing $1,000
would be greater than the increase in utility from gaining $1,000.
Other things the same, an increase in the real exchange rate raises U.S. net exports.
The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in
2006) by the CPI in 2006, then multiplying by
The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary
policy in the late 19th century.
In the short-run, society faces a tradeoff between inflation and unemployment.
Public policy can reduce frictional unemployment.
Cyclical unemployment refers to the year-to-year fluctuations in unemployment around
its natural rate.
Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A
year later, Bob withdraws his $105. If deflation was 5 percent during the year the
money was deposited, then Bob’s purchasing power has not changed.
Variations in the standard of living across countries is due almost entirely to differences
in each nation’s total output of goods and services.
Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie’s opportunity
cost of one apple pie is 1/2 gallon of ice cream and Brendan’s opportunity cost of one
apple pie is 1/4 gallon of ice cream, a mutually advantageous trade can be struck at a
price of one apple pie for 1/3 gallon of ice cream.
According to classical macroeconomic theory, changes in the money supply change real
GDP but not the price level.
Structural unemployment results when wages are, for some reason, set above the level
that brings supply and demand into equilibrium.