A risk-averse person has
a. a utility function whose slope gets flatter as wealth rises. This means they have
increasing marginal utility of wealth.
b. a utility function whose slope gets flatter as wealth rises. This means they have
diminishing marginal utility of wealth.
c. a utility function whose slope gets steeper as wealth rises. This means they have
increasing marginal utility of wealth.
d. a utility function whose slope gets steeper as wealth rises. This means they have
diminishing utility of wealth.
A statement describing how the world is
a. is a normative statement.
b. is a positive statement.
c. would only be made by an economist speaking as a policy adviser.
d. would only be made by an economist employed by the government.
Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6
percent interest. Which of the following is most likely?
a. The 6 percent bond is less risky than the 3 percent bond.
b. The 6 percent bond is a U.S. government bond, and the 3 percent bond is a junk
bond.
c. The 6 percent bond has a longer term than the 3 percent bond.
d. The 6 percent bond is a municipal bond, and the 3 percent bond is a U.S. government
bond.
At any meeting of the Federal Open Market Committee, that committee’s voting
members consist of
a. 5 Federal Reserve Regional Bank Presidents and all the members of the Board of
Governors.
b. 5 Federal Reserve Regional Bank Presidents and 5 members of the Board of
Governors.
c. 12 Federal Reserve Regional Bank Presidents and all the members of the Board of
Governors.
d. 12 Federal Reserve Regional Bank Presidents and 5 members of the Board of
Governors.
A soup manufacturer unexpectedly announces that it has hired a new manager. It is
widely believed that this manager will raise the profitability of the corporation. At the
same time interest rates unexpectedly rise. Which of the above would tend to make the
price of the stock rise?
a. the announcement and the rise in interest rates
b. the announcement but not the rise in interest rates
c. the rise in interest rates, but not the announcement
d. neither the announcement nor the rise in interest rates
According to a recent study of Chilean bus drivers, drivers who are paid by the number
of passengers they transport have higher productivity than drivers who are paid by the
hour. If Chilean bus drivers are paid by the number of passengers they transport and
Colombian bus drivers are paid by the hour, we can conclude that
a. Chilean bus drivers likely have a higher standard of living than Colombian bus
drivers.
b. Colombian bus drivers likely have a higher standard of living than Chilean bus
drivers.
c. Chilean and Colombian bus drivers likely have the same standard of living.
d. Chilean and Colombian bus drivers likely have a higher standard of living than US
bus drivers.
Assume the nation of Cropland does not trade with the rest of the world. By comparing
the world price of corn to the price of corn in Cropland, we can determine whether
a. consumer surplus exceeds producer surplus in Cropland.
b. Cropland has an absolute advantage in producing corn.
c. Cropland has a comparative advantage in producing corn.
d. All of the above are correct.
Which is the most accurate statement about trade?
a. Trade can make every nation better off.
b. Trade makes some nations better off and others worse off.
c. Trading for a good can make a nation better off only if the nation cannot produce that
good itself.
d. Trade helps rich nations and hurts poor nations.
Figure 8-6
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-6. Without a tax, total surplus in this market is
a. $3,000.
b. $4,800.
c. $6,000.
d. $7,200.
When a tax is placed on the sellers of cell phones, the size of the cell phone market
a. and the effective price received by sellers both increase.
b. increases, but the effective price received by sellers decreases.
c. decreases, but the effective price received by sellers increases.
d. and the effective price received by sellers both decrease.
Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles
values this service at $100 per hour, while the opportunity cost of Diana’s time is $75
per hour. The government places a tax of $10 per hour on personal trainers. Before the
tax, what is the total surplus?
a. $25
b. $20
c. $5
d. $0
Figure 21-2. On the left-hand graph, MS represents the supply of money and MD
represents the demand for money; on the right-hand graph, AD represents aggregate
demand. The usual quantities are measured along the axes of both graphs.
.
Refer to Figure 21-2. Assume the money market is always in equilibrium, and suppose
r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the
following statements is correct? When P = P2,
a. investment is lower than it is when P = P1.
b. nominal output is higher than it is when P = P1.
c. the expected rate of inflation is higher than it is when P = P1.
d. the velocity of money is higher than it is when P = P1.
Michigan Tea Company sold $15 million worth of tea it produced. In producing this tea
it purchased $5 million dollars worth of ingredients from foreign countries and paid
workers who reside in Canada but commute to the U.S. $1 million. How much did these
transactions add to U.S. GDP?
a. $21 million
b. $15 million
c. $10 million
d. $9 million
According to Friedman and Phelps, the unemployment rate
a. is never below its natural rate.
b. is below its natural rate when actual inflation is greater than expected inflation.
c. is below its natural rate when actual inflation is less than expected inflation.
d. is below its natural rate when actual inflation equals expected inflation.
The sticky-price theory of the short-run aggregate supply curve says that when the price
level is higher than expected, some firms will have
a. higher than desired prices which leads to an increase in the aggregate quantity of
goods and services supplied.
b. higher than desired prices which leads to a decrease in the aggregate quantity of
goods and service supplied.
c. lower than desired prices which leads to an increase in the aggregate quantity of
goods and services supplied.
d. lower than desired prices which leads to a decrease in the aggregate quantity of
goods and services supplied
Table 3-13
The following table contains some production possibilities for an economy for a given
month.
Refer to Table 3-13. If the production possibilities frontier is bowed outward, then “?”
could be
a. 100.
b. 150.
c. 200.
d. 250.
A bank’s reserve ratio is 10 percent and the bank has $2,000 in deposits. Its reserves
amount to
a. $20.
b. $200.
c. $400.
d. $1,800.
The goal of the consumer price index is to measure changes in the
a. costs of production.
b. cost of living.
c. relative prices of consumer goods.
d. production of consumer goods.
The market for corn in Wheatland consists solely of domestic buyers of corn and
domestic sellers of corn if
a. consumer surplus equals producer surplus in the Wheatland corn market.
b. total surplus exceeds consumer surplus in the Wheatland corn market.
c. Wheatland permits international trade in corn.
d. Wheatland forbids international trade in corn.
Time inconsistency will cause the
a. short-run Phillips curve to be higher than otherwise.
b. short-run Phillips curve to be lower the otherwise.
c. long-run Phillips curve to be farther to the right than otherwise.
d. long-run Phillips curve to be farther left than otherwise.
Table 15-3
2010 Labor Data for Adults (age 16 and older) in Meditor
Refer to Table 15-3. What is the adult female population in Meditor?
a. 40 million
b. 70 million
c. 100 million
d. 105 million
Figure 6-23
Refer to Figure 6-23. The price paid by buyers after the tax is imposed is
a. $8.
b. $10.
c. $14.
d. $18.
Figure 8-5
Suppose that the government imposes a tax of P3 – P1.
Refer to Figure 8-5. The loss in total welfare that results from the tax is represented by
area
a. A+B+D+F.
b. A+B+C.
c. D+H+F.
d. C+H.
In the nineteenth century, some countries were on a gold standard so that on average the
money supply growth rate was close to zero and expected inflation was more or less
constant. For these countries during this time period, we find that increases in actual
inflation were generally associated with falling unemployment. These findings
a. are consistent with Friedman and Phelps’s theories, because they argued that when
inflation was higher than expected, unemployment would fall.
b. are consistent with Friedman and Phelps’s theories, because they argued that when
prices rose unemployment would fall whether actual inflation was higher than expected
or not.
c. are inconsistent with Friedman and Phelps’s theories, because they argued that higher
inflation would increase unemployment.
d. are inconsistent with Friedman and Phelps’s theories, because they argued that
inflation and unemployment are unrelated.
GDP excludes most items that are produced and sold illegally and most items that are
produced and consumed at home because
a. the quality of these items is not high enough to contribute value to GDP.
b. measuring them is so difficult.
c. the government wants to discourage the production and consumption of these items.
d. these items are not reported on income tax forms.
Which of the following is correct?
a. Over the business cycle consumption fluctuates more than investment.
b. Economic fluctuations are easy to predict.
c. During recessions sales and profits tend to fall.
d. Because of government policy the U.S. has suffered no recessions in the last 25
years.
Table 6-1
Refer to Table 6-1. Suppose the government imposes a price floor of $1 on this market.
What will be the size of the surplus in this market?
a. 0 units
b. 2 units
c. 8 units
d. 10 units
The mainstream view among economists is that
a. society faces a tradeoff between unemployment and inflation, but only in the short
run.
b. society faces a tradeoff between unemployment and inflation, but only in the long
run.
c. society faces a tradeoff between unemployment and inflation, both in the short run
and in the long run.
d. no tradeoff exists between unemployment and inflation, either in the short run or in
the long run.
The term hyperinflation refers to
a. the spread of inflation from one country to others.
b. a decrease in the inflation rate.
c. a period of very high inflation.
d. inflation accompanied by a recession.
When a nation first begins to trade with other countries and the nation becomes an
exporter of soybeans,
a. this is an indication that the world price of soybeans exceeds the nation’s domestic
price of soybeans in the absence of trade.
b. this is an indication that the nation has a comparative advantage in producing
soybeans.
c. the nation’s consumers of soybeans become worse off and the nation’s producers of
soybeans become better off.
d. All of the above are correct.
Greater scarcity of a natural resource is indicated
a. by an increase in the price of the resource, whether the price increase is less than or
greater than the rate of inflation.
b. only by an increase in the price of the resource that is less than the rate of inflation.
c. only by an increase in the price of the resource that is greater than the rate of
inflation.
d. only by an increase in the price of the resource that is caused by a decrease in supply
and is greater than the rate of inflation.
Figure 3-6
Maxine’s Production Possibilities Frontier Daisy’s Production Possibilities
Frontier
Refer to Figure 3-6. Daisy has an absolute advantage in the production of
a. both goods and a comparative advantage in the production of pies.
b. both goods and a comparative advantage in the production of tarts.
c. neither good and a comparative advantage in the production of pies.
d. neither good and a comparative advantage in the production of tarts.
Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation
a. increases the real interest rate and the after-tax real rate of interest.
b. increases the real interest rate and the after-tax real rate of interest.
c. does not change the real interest rate but raises the after tax real rate of interest.
d. does not change the real interest rate but reduces the after-tax real rate of interest.
Suppose the multiplier has a value that exceeds 1, and there are no crowding out or
investment accelerator effects. Which of the following would shift aggregate demand to
the right by more than the increase in expenditures?
a. an increase in government expenditures
b. an increase in net exports
c. an increase in investment spending
d. All of the above are correct.