Low rates of inflation are generally associated with
a. low rates of government spending.
b. small or nonexistent government budget deficits.
c. low rates of productivity growth.
d. low rates of growth of the quantity of money.
The marginal benefit Claire gets from purchasing a third pair of flip-flops is
a. the same as the total benefit of purchasing three pairs of flip-flops.
b. more than the marginal cost of purchasing the third pair of flip-flops.
c. the total benefit Claire gets from purchasing three pairs of flip-flops minus the total
benefit she gets from purchasing two pairs of flip-flops.
d. the total benefit Claire gets from purchasing four pairs of flip-flops minus the total
benefit she gets from purchasing three pairs of flip-flops.
When calculating the cost of college, which of the following should you probably not
include?
a. The cost of tuition
b. The cost of books required for college classes
c. The income you would have earned had you not gone to college
d. The cost of rent for your off-campus apartment.
Suppose you will receive $800 in two years. If the interest rate is 5 percent, then the
present value of this future payment is
a. $725.62. It would be higher if the interest rate were higher.
b. $727.28. It would be higher if the interest rate were higher.
c. $725.62. It would be lower if the interest rate were higher.
d. $727.28. It would be lower if the interest rate were higher.
The federal funds rate is the interest rate
a. the Federal Reserves charges for loans it makes to the federal government.
b. the Federal Reserve charges banks for short-term loans.
c. banks charge each other for short-term loans of reserves.
d. on newly issued one-year Treasury bonds.
Countries with more than 80 percent of their population living within 100 kilometers of
a coast will have an average GDP per person that is
a. around four times a country with less than 20 percent of the population living near
the coast.
b. around ten times a country with less than 20 percent of the population living near the
coast.
c. around twenty times a country with less than 20 percent of the population living near
the coast.
d. around fifty times a country with less than 20 percent of the population living near
the coast.
Who of the following is not included in the Bureau of Labor Statistics’ “employed”
category?
a. those who worked in their own business
b. those who worked as unpaid workers in a family member’s business
c. those waiting to be recalled to a job from which they had been laid off
d. those who were temporarily absent from work because of vacation.
Figure 3-5
Hosne’s Production Possibilities Frontier Merve’s Production Possibilities Frontier
Refer to Figure 3-5. Hosne’s opportunity cost of one wallet is
a. 4/5 purse and Merve’s opportunity cost of one wallet is 2/3 purse.
b. 4/5 purse and Merve’s opportunity cost of one wallet is 3/2 purses.
c. 5/4 purses and Merve’s opportunity cost of one wallet is 2/3 purse.
d. 5/4 purses and Merve’s opportunity cost of one wallet is 3/2 purses.
Table 5-2
Refer to Table 5-2. Using the midpoint method, if the price falls from $60 to $40, the
absolute value of the price elasticity of demand is
a. 0.4.
b. 1.
c. 4.
d. 20.
Figure 2-15
Relationship between Price and Cups of Coffee
Refer to Figure 2-15. Which of the following could result in a movement from point A
to point B?
a. a change in income
b. a change in preferences
c. a change in the price of coffee
d. a change in the price of tea
In a simple circular-flow diagram, total income and total expenditure are
a. never equal because total income always exceeds total expenditure.
b. seldom equal because of the ongoing changes in an economy’s unemployment rate.
c. equal only when the government purchases no goods or services.
d. always equal because every transaction has a buyer and a seller.
When a country moves away from a free trade position and imposes a tariff on imports,
it causes
a. a decrease in total surplus in the market.
b. a decrease in producer surplus in the market.
c. an increase in consumer surplus in the market.
d. a decrease in revenue to the government.
Moving downward and to the right along a linear demand curve, we know that total
revenue
a. first increases, then decreases.
b. first decreases, then increases.
c. always increases.
d. always decreases.
The primary argument against active monetary and fiscal policy is that
a. attempts to stabilize the economy do not constitute a proper role for government in a
democratic society.
b. these policies affect the economy with a long lag.
c. these policies affect the economy too quickly and with too much impact.
d. history demonstrates that interest rates respond unpredictably to active policies,
leading to unpredictable effects on income.
If the supply of a product increases, then we would expect equilibrium price
a. to increase and equilibrium quantity to decrease.
b. to decrease and equilibrium quantity to increase.
c. and equilibrium quantity to both increase.
d. and equilibrium quantity to both decrease.
Figure 22-5
Use the graph below to answer the following questions.
Refer to Figure 22-5. Curve 2 is the
a. long-run Phillips curve.
b. short-run Phillips curve.
c. long-run aggregate demand curve.
d. short-run aggregate demand curve.
Which of the following does purchasing-power parity conclude should equal 1?
a. both the nominal and the real exchange rate.
b. the nominal exchange rate but not the real exchange rate
c. the real exchange rate but not the nominal exchange rate
d. neither the nominal exchange rate nor the real exchange rate
Financial Crisis
Suppose that banks are less able to raise funds and so lend less. Consequently, because
people and households are less able to borrow, they spend less at any given price level
than they would otherwise. The crisis is persistent so lending should remain depressed
for some time.
Refer to Financial Crisis. Suppose the economy reaches long-run equilibrium without
the Fed responding. Now suppose the financial crisis ends and the ability of banks to
lend returns to normal. In which case is the price level lower compared to its value prior
to the crisis?
a. both after the economy reaches long-run equilibrium during the crisis and in the
long-run equilibrium after the crisis is over
b. after the economy reaches long-run equilibrium during the crisis but not in the
long-run equilibrium after the crisis is over
c. in the long-run equilibrium after the crisis is over but not after the economy reaches
long-run equilibrium during the crisis
d. neither after the economy reaches long-run equilibrium during the crisis nor in the
long-run equilibrium after the crisis is over
Which of the following is correct?
a. Over the last 100 years Japan had a higher average growth rate than the United
States. It follows that, today, the standard of living in Japan is higher than in the United
States.
b. The typical person in Bangladesh today has about twice the real income of a typical
American 100 years ago.
c. The typical citizen of China today has about one-half as much real income as the
typical citizen of America today.
d. None of the above is correct.
A country has a growth rate of 2%. Government spending is 50 billion units of currency
and its tax revenues are 30 billion units of currency. The current national debt is 400
billion units of currency. At which inflation rate is its debt to income ratio unchanged?
a. 2%
b. 3%
c. 5%
d. 7%
Suppose the typical consumer buys more bananas than oranges. In fixing the basket of
goods and services for the purpose of calculating the consumer price index, the Bureau
of Labor Statistics
a. ignores the fact that the typical consumer buys more bananas than orange; this
procedure does not affect the value of the index.
b. ignores the fact that the typical consumer buys more bananas than orange; this
procedure results in a potentially-serious bias in the index.
c. places more weight on the price of bananas than on the price of oranges; the weights
of the two prices are determined by surveying consumers.
d. places more weight on the price of bananas than on the price of oranges; the weights
of the two prices are determined by the extent to which those prices have changed over
the previous year.
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. The shift of the aggregate-supply curve from AS1 to AS2
a. results in a more favorable trade-off between inflation and unemployment.
b. results in a more favorable trade-off between inflation and the growth rate of real
GDP.
c. represents an adverse shock to aggregate supply.
d. represents a favorable shock to aggregate supply.
Figure 6-6
Refer to Figure 6-6. If the government imposes a price ceiling of $12 on this market,
then there will be
a. no shortage.
b. a shortage of 10 units.
c. a shortage of 20 units.
d. a shortage of 40 units.
John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their
savings account. As a result of this transfer by itself
a. M1 increases by $2,500 and M2 decreases by $2,500.
b. M1 increases by $2,500 and M2 stays the same.
c. M1 decreases by $2,500 and M2 stays the same.
d. M1 decreases by $2,500 and M2 decreases by $2,500.
Because the liquidity-preference framework focuses on the
a. short run, it assumes the price level adjusts to bring the money market to equilibrium.
b. short run, it assumes the interest rate adjusts to bring the money market to
equilibrium.
c. long run, it assumes the price level adjusts to bring the money market to equilibrium.
d. long run, it assumes the interest rate adjusts to bring the money market to
equilibrium.
In which case can we be sure real GDP rises in the short run?
a. foreign economies expand and taxes rise
b. foreign economies expand and taxes fall
c. foreign economies contract and taxes fall
d. None of the above are correct.
If the cross-price elasticity of demand for two goods is -4.5, then
a. the two goods are substitutes.
b. the two goods are complements.
c. one of the goods is normal while the other good is inferior.
d. one of the goods is a luxury while the other good is a necessity.
If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on
sellers of cigars, then the price paid by buyers will
a. not change, and the price received by sellers will not change.
b. not change, and the price received by sellers will decrease.
c. decrease, and the price received by sellers will not change.
d. decrease, and the price received by sellers will decrease.
Which of the following shifts short-run aggregate supply right?
a. an increase in the minimum wage
b. an increase in immigration from abroad
c. an increase in the price of oil
d. an increase in the actual price level
Suppose there is an early freeze in California that reduces the size of the lemon crop.
What happens to consumer surplus in the market for lemons?
a. Consumer surplus increases.
b. Consumer surplus decreases.
c. Consumer surplus is not affected by this change in market forces.
d. We would have to know whether the demand for lemons is elastic or inelastic to
make this determination.
To say that a price floor is binding is to say that the price floor
a. results in a shortage.
b. is set below the equilibrium price.
c. causes quantity supplied to exceed quantity demanded.
d. All of the above are correct.
If sellers do not adjust their quantities supplied at all in response to a change in price,
a. advances in technology must be prevalent.
b. the time period under consideration must be very long.
c. supply is perfectly elastic.
d. supply is perfectly inelastic.
The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase
in world prices of oil and foodstuffs were affecting the economy.
Refer to The Economy in 2008. The short-run effects of rising world commodity
prices are shown by
a. moving to the right along the short-run Phillips curve.
b. moving to the left along the short-run Phillips curve.
c. shifting the short-run Phillips curve right.
d. shifting the short-run Phillips curve left.
In a closed economy, if Y remained the same, but G rose, T rose by the same amount as
G, and C fell but by less than the increase in T, what would happen to private and
national saving?
a. national saving would fall and private saving would rise
b. national saving would rise and private saving would fall
c. both national saving and private saving would fall
d. None of the above is correct.
Suppose a tax cut affected aggregate demand and aggregate supply. The shift in
aggregate supply would make the
a. price level and real GDP change by more than otherwise.
b. price level change by more than otherwise and real GDP change by less than
otherwise.
c. price level change by less than otherwise and real GDP change by more than
otherwise.
d. price level and real GDP change by more than otherwise.