When the actual change in the price level differs from its expected change, which of the
following can explain why firms might change their production?
a. both menu costs and mistaking a price level change for a change in relative prices
b. menu costs but not mistaking a price level change for a change in relative prices
c. mistaking a price level change for a change in relative price but not menu costs
d. neither menu costs nor mistaking a price level change for a change in relative prices
Which of the following is an example of a positive, as opposed to normative,
statement?
a. Inflation is more harmful to the economy than unemployment is.
b. If welfare payments increase, the world will be a better place.
c. Prices rise when the government prints too much money.
d. When public policies are evaluated, the benefits to the economy of improved equality
should be considered more important than the costs of reduced efficiency.
Figure 3-11
The graph below represents the various combinations of ham and cheese (in pounds)
that the nation of Bonovia could produce in a given month.
Refer to Figure 3-11. In the nation of Cropitia, the opportunity cost of a pound of
cheese is 1.5 pounds of ham. Bonovia and Cropitia both can gain from trading with one
another if one pound of cheese trades for
a. 1.0 pound of ham.
b. 1.4 pounds of ham.
c. 2.1 pounds of ham.
d. All of the above are correct.
Managed funds
a. typically have a higher rate of return and higher costs than index funds.
b. typically have a higher rate of return and lower costs than index funds.
c. typically have a lower rate of return and higher costs than index funds.
d. typically have a lower rate of return and lower costs than index funds.
If an economy used gold as money, its money would be
a. commodity money, but not fiat money.
b. fiat money, but not commodity money.
c. both fiat and commodity money.
d. functioning as a store of value and as a unit of account, but not as a medium of
exchange.
Table 3-9
Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim
can switch between setting up and testing computers at a constant rate. The following
table applies.
Minutes Needed to Number of Computers
Set Up or Tested in a
40-Hour Week
Refer to Table 3-9. Barb has an absolute advantage in
a. both setting up and testing computers and a comparative advantage in setting up
computers.
b. both setting up and testing computers and a comparative advantage in testing
computers.
c. neither setting up nor testing computers and a comparative advantage in setting up
computers.
d. neither setting up nor testing computers and a comparative advantage in testing
computers.
Figure 2-4
Refer to Figure 2-4. It is not possible for this economy to produce at point
a. V.
b. W.
c. Y.
d. Z.
The theory by which people optimally use all available information when forecasting
the future is known as
a. rational expectations.
b. perfect expectations.
c. credible expectations.
d. predictive expectations.
Figure 9-20
The figure illustrates the market for rice in Vietnam.
Refer to Figure 9-20. From the figure it is apparent that
a. Vietnam will experience a shortage of rice if trade is not allowed.
b. Vietnam will experience a surplus of rice if trade is not allowed.
c. Vietnam has a comparative advantage in producing rice, relative to the rest of the
world.
d. foreign countries have a comparative advantage in producing rice, relative to
Vietnam.
For a particular good, a 5 percent increase in price causes a 15 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a. There are many substitutes for this good.
b. The good is a necessity.
c. The market for the good is broadly defined.
d. The relevant time horizon is short.
Diminishing marginal utility of wealth implies that the utility function is
a. upward-sloping and has decreasing slope.
b. upward-sloping and has increasing slope.
c. downward-sloping and has decreasing slope.
d. downward-sloping and has increasing slope.
Table 3-12
Labor Hours Needed to
Make 1 Pound of: Amount
Produced in 40 hours
Refer to Table 3-12. For the farmer, the opportunity cost of 15 pounds of meat is
a. 12 pounds of potatoes.
b. 16 pounds of potatoes.
c. 20 pounds of potatoes.
d. 24 pounds of potatoes.
In the United States, incomes have historically grown
a. about 0.5 percent per year.
b. about 2 percent per year.
c. about 4 percent per year.
d. about 6 percent per year.
If the nominal interest rate is 7.5 percent and the rate of inflation is -2.5 percent, then
the real interest rate is
a. -10 percent.
b. -5 percent.
c. 5 percent.
d. 10 percent.
Consumer surplus is
a. a concept that helps us make normative statements about the desirability of market
outcomes.
b. represented on a graph by the area below the demand curve and above the price.
c. a good measure of economic welfare if buyers’ preferences are the primary concern.
d. All of the above are correct.
Figure 22-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve
and two aggregate-demand (AD) curves. On the right-hand diagram, “Inf Rate” means
“Inflation Rate.”
Refer to Figure 22-8. Which of the following events could explain the shift of the
aggregate-supply curve from AS1 to AS2?
a. a reduction in firms’ costs of production
b. a reduction in taxes on consumers
c. an increase in the price level
d. an increase in the world price of oil
If a central bank decreases the money supply, then
a. prices, output, and unemployment rise.
b. prices and output rise and unemployment falls.
c. prices rise and output and unemployment fall.
d. prices and output fall and unemployment rises.
Assume, for Canada, that the domestic price of tomatoes without international trade is
higher than the world price of tomatoes. This suggests that, in the production of
tomatoes,
a. Canada has a comparative advantage over other countries and Canada will export
tomatoes.
b. Canada has a comparative advantage over other countries and Canada will import
tomatoes.
c. other countries have a comparative advantage over Canada and Canada will export
tomatoes.
d. other countries have a comparative advantage over Canada and Canada will import
tomatoes.
In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal
year 2002, the government ran a deficit of $159 billion. This change would be expected
to have
a. decreased interest rates and investment.
b. decreased interest rates and increased investment.
c. increased interest rates and investment.
d. increased interest rates and decreased investment.
High and unexpected inflation has a greater cost
a. for those who save than for those who borrow.
b. for those who hold a little money than for those who hold a lot of money.
c. for those whose wages increase by as much as inflation than those who are paid a
fixed nominal wage.
d. for savers in low income tax brackets than for savers in high income tax brackets.
Suppose there are both multiplier and crowding out effects but without any accelerator
effects. An increase in government expenditures would definitely
a. shift aggregate demand right by a larger amount than the increase in government
expenditures.
b. shift aggregate demand right by the same amount as an the increase in government
expenditures.
c. shift aggregate demand right by a smaller amount than the increase in government
expenditures.
d. Any of the above outcomes are possible.
If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs
a. $1.80.
b. $4.80.
c. $5.
d. None of the above is correct.
Which of the following would not be a consequence of an increase in the U.S.
government budget deficit?
a. U.S. interest rates rise.
b. U.S. net capital outflow falls.
c. The real exchange rate of the U.S. dollar depreciates.
d. The U.S. supply of loanable funds shifts left.
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. The opportunity cost of 1 novel for Perry is
a. 1/6 poem.
b. 2 poems.
c. 6 poems.
d. 12 poems.
Taxes on labor have the effect of encouraging
a. workers to work more hours.
b. the elderly to postpone retirement.
c. second earners within a family to take a job.
d. unscrupulous people to take part in the underground economy.
In a perfectly competitive market, at the market price, buyers
a. cannot buy all they want, and sellers cannot sell all they want.
b. cannot buy all they want, but sellers can sell all they want.
c. can buy all they want, but sellers cannot sell all they want.
d. can buy all they want, and sellers can sell all they want.
Which of the following shifts short-run, but not long-run aggregate supply right?
a. a decrease in the actual price level
b. a decrease in the expected price level
c. a decrease in the capital stock
d. an increase in the money supply
Transactions involving items produced in the past, such as the sale of a 5-year-old
automobile by a used car dealership or the purchase of an antique rocking chair by a
person at a yard sale, are
a. included in current GDP because GDP measures the value of all goods and services
sold in the current year.
b. included in current GDP but valued at their original prices.
c. not included in current GDP because it is difficult to determine their value.
d. not included in current GDP because GDP only measures the value of goods and
services produced in the current year.
For a particular good, a 5 percent increase in price causes a 2 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a. There are many close substitutes for this good.
b. The good is a luxury.
c. The market for the good is broadly defined.
d. The relevant time horizon is long.
Which of the following events must result in a higher price in the market for Snickers?
a. Demand for Snickers increases, and supply of Snickers decreases.
b. Demand for Snickers and supply of Snickers both decrease.
c. Demand for Snickers decreases, and supply of Snickers increases.
d. Demand for Snickers and supply of Snickers both increase
Figure 4-10
Refer to Figure 4-10. Which of the following would cause the supply curve to shift
from Supply B to Supply A in the market for disposable ballpoint pens?
a. a decrease in the price of disposable ballpoint pens
b. an increase in the price of fountain pens
c. an increase in the price of ink
d. an improvement in technology that allows firms to use less labor in the production of
disposable ballpoint pens
The flatter the demand curve that passes through a given point, the more elastic the
demand.
When a corporation experiences financial problems, bondholders are paid before
stockholders.
Explain the difference between absolute advantage and comparative advantage. Which
is more important in determining trade patterns, absolute advantage or comparative
advantage? Why?
Suppose that a university charges students a $100 “tax” to register for business classes.
The next year the university raises the “tax” to $150. The deadweight loss from the
“tax” triples.
A binding price ceiling causes quantity demanded to be less than quantity supplied.
When a tax is imposed on a good, the result is always a shortage of the good.
The sacrifice ratio is the percentage point increase in the unemployment rate created in
the process of reducing inflation by one percentage point.
Economists at the U.S. Department of Justice help enforce the nation’s antitrust laws.
Suppose Hank and Tony can both produce corn. If Hank’s opportunity cost of producing
a bushel of corn is 2 bushels of soybeans and Tony’s opportunity cost of producing a
bushel of corn is 3 bushels of soybeans, then Hank has the comparative advantage in
the production of corn.
A decrease in government expenditures serves as an example of an adverse supply
shock.
If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.
A price ceiling caused the gasoline shortage of 1973 in the United States.
Human capital is the term economists use to refer to the knowledge and skills that
workers acquire through education, training, and experience.
If the marginal propensity to consume is 6/7, then the multiplier is 7.
Sellers as a group determine the demand for a product, and buyers as a group determine
the supply of a product.
A tax on buyers decreases demand.
Unemployment insurance reduces hardships of unemployment but also increases the
amount of structural unemployment.
If a determinant of demand other than price changes, the demand curve shifts.
Figure 2-14
Refer to Figure 2-14. Given the technology available for manufacturing doghouses and
dishwashers, this economy does not have enough of the factors of production to support
the level of output represented by point C.