Total surplus in a market is equal to
a. consumer surplus + producer surplus.
b. value to buyers – amount paid by buyers.
c. amount received by sellers – costs of sellers.
d. producer surplus – consumer surplus.
When a tax is levied on buyers, the
a. supply curves shifts upward by the amount of the tax.
b. tax creates a wedge between the price buyers effectively pay and the price sellers
receive.
c. tax has no effect on the well-being of sellers.
d. All of the above are correct.
If the reserve ratio is 20 percent, then $100 of new reserves can generate
a. $60 of new money in the economy.
b. $250 of new money in the economy.
c. $500 of new money in the economy.
d. $2,000 of new money in the economy.
Table 3-4
Assume that the farmer and the rancher can switch between producing meat and
producing potatoes at a constant rate.
Labor Hours Needed
to Make 1 Pound of Pounds Produced
in 24 Hours
Refer to Table 3-4. Which of the following combinations of meat and potatoes could
the farmer produce in 24 hours?
a. 1 pound of meat and 8 pounds of potatoes.
b. 2 pounds of meat and 5 pounds of potatoes.
c. 3 pounds of meat and 12 pounds of potatoes.
d. 4 pounds of meat and 8 pounds of potatoes.
Suppose the issuer of a bond fails to pay some of the interest or principal that was
promised to the bondholders. This failure is referred to as a
a. breach.
b. default.
c. risk.
d. term failure.
Suppose the interest rate is 5 percent. Consider three payment options:
1) $500 today.
2) $520 one year from today.
3) $550 two years from today.
Which of the following is correct?
a. 1 has the lowest present value and 3 has the highest.
b. 2 has the lowest present value and 1 has the highest.
c. 3 has the lowest present value and 2 has the highest.
d. None of the above is correct.
Suppose the government were to replace the income tax with a consumption tax so that
interest on savings was not taxed. The result would be that the interest rate
a. and investment both would increase.
b. and investment both would decrease.
c. would increase and investment would decrease.
d. would decrease and investment would increase.
Figure 8-7
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-7. Which of the following statements is correct?
a. Total surplus before the tax is imposed is $250.
b. After the tax is imposed, consumer surplus is 45 percent of its pre-tax value.
c. After the tax is imposed, producer surplus is 45 percent of its pre-tax value.
d. All of the above are correct.
If a bank has a reserve ratio of 8 percent, then
a. government regulation requires the bank to use at least 8 percent of its deposits to
make loans.
b. the bank’s ratio of loans to deposits is 8 percent.
c. the bank keeps 8 percent of its deposits as reserves and loans out the rest.
d. the bank keeps 8 percent of its assets as reserves and loans out the rest.
Disposable personal income is the income that
a. households have left after paying taxes and non-tax payments to the government.
b. businesses have left after paying taxes and non-tax payments to the government.
c. households and noncorporate businesses have left after paying taxes and non-tax
payments to the government.
d. households and businesses have left after paying taxes and non-tax payments to the
government.
Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A
year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa’s
purchasing power
a. did not change if the inflation rate was 20 percent.
b. decreased if the inflation rate was -5 percent.
c. increased if the inflation rate was 22 percent.
d. More than one of the above is correct.
Suppose you will receive $500 at some point in the future. If the annual interest rate is
7.5 percent, then the present value of the $500 is
a. $411.26 if the $500 is to be received in 5 years and $338.95 if the $500 is to be
received in 10 years.
b. $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be
received in 10 years.
c. $291.11 if the $500 is to be received in 5 years and $272.89 if the $500 is to be
received in 10 years.
d. $291.11 if the $500 is to be received in 5 years and $236.49 if the $500 is to be
received in 10 years.
Which of the following is correct?
a. Some bonds have terms as short as a few months.
b. Because they are so risky, junk bonds pay a low rate of interest.
c. Corporations buy bonds to raise funds.
d. All of the above are correct.
If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people
hold only deposits and no currency, then when the Fed sells $65 million worth of bonds
to the public, bank reserves
a. increase by $65 million and the money supply eventually increases by $266.67
million.
b. increase by $65 million and the money supply eventually increases by $433.33
million.
c. decrease by $65 million and the money supply eventually decreases by $266.67
million.
d. decrease by $65 million and the money supply eventually decreases by $433.33
million.
What would happen in the market for loanable funds if the government were to
decrease the tax rate on interest income?
a. There would be an increase in the amount of loanable funds borrowed.
b. There would be a reduction in the amount of loanable funds borrowed.
c. There would be no change in the amount of loanable funds borrowed.
d. The change in loanable funds is uncertain.
Pocoyo bakes cookies and Pato grows vegetables. In which of the following cases is it
impossible for both Pocoyo and Pato to benefit from trade?
a. Pocoyo does not like vegetables and Pato does not like cookies.
b. Pocoyo is better than Pato at baking cookies and Pato is better than Pocoyo at
growing vegetables.
c. Pato is better than Pocoyo at baking cookies and at growing vegetables.
d. Both Pocoyo and Pato can benefit from trade in all of the above cases.
Ava owns her own business. The Bureau of Labor Statistics counts Ava as
a. unemployed and in the labor force.
b. unemployed and not in the labor force.
c. employed and in the labor force.
d. employed and not in the labor force.
For a competitive market,
a. a seller can always increase her profit by raising the price of her product.
b. if a seller charges more than the going price, buyers will go elsewhere to make their
purchases.
c. a seller often charges less than the going price to increase sales and profit.
d. a single buyer can influence the price of the product but only when purchasing from
several sellers in a short period of time.
Economists would predict that, other things the same, the more generous
unemployment compensation a country has,
a. the shorter the duration of each spell of unemployment, and the higher the
unemployment rate.
b. the shorter the duration of each spell of unemployment, and the lower the
unemployment rate.
c. the longer the duration of each spell of unemployment, and the higher the
unemployment rate.
d. the longer the duration of each spell of unemployment, and the lower the
unemployment rate.
Which of the following statements about models is correct?
a. The more details a model includes, the better the model.
b. Models assume away irrelevant details.
c. Models cannot be used to explain how the economy functions.
d. Models cannot be used to make predictions.
Suppose over the last year that the price of recycled aluminum increased from $800 a
ton to $900 a ton. Over the same time a measure of the overall price level increased
from 120 to 130. The price of recycled aluminum increased by
a. less than inflation, but this doesn”t necessarily mean it became scarcer.
b. less than inflation, and this means it became scarcer.
c. more than inflation, and this means it became scarcer.
d. more than inflation, but this doesn”t necessarily mean that it become scarcer.
Table 3-11
Assume that Falda and Varick can switch between producing wheat and producing cloth
at a constant rate.
Quantity Produced in 1 Hour
Refer to Table 3-11. Falda’s opportunity cost of one bushel of wheat is
a. 2/3 yard of cloth and Varick’s opportunity cost of one bushel of wheat is 2/5 yard of
cloth.
b. 2/3 yard of cloth and Varick’s opportunity cost of one bushel of wheat is 5/2 yards of
cloth.
c. 3/2 yards of cloth and Varick’s opportunity cost of one bushel of wheat is 2/5 yard of
cloth.
d. 3/2 yards of cloth and Varick’s opportunity cost of one bushel of wheat is 5/2 yards of
cloth.
Minimum-wage laws
a. create frictional unemployment, while firms paying wages above equilibrium to
reduce worker turnover creates structural unemployment.
b. create structural unemployment, while firms paying wages above equilibrium to
reduce worker turnover creates frictional unemployment.
c. and firms paying wages above equilibrium to reduce worker turnover both create
structural unemployment.
d. and firms paying wages above equilibrium to reduce worker turnover both create
frictional unemployment.
Which of the following statements is true?
a. Natural resources per worker influence productivity only when those natural
resources are renewable.
b. The prices of most natural resources are stable or falling relative to other prices.
c. Technology requires greater use of natural resources.
d. The terms human capital and technological knowledge are used interchangeably.
If the tax on a good is doubled, the deadweight loss of the tax
a. increases by 50 percent.
b. doubles.
c. triples.
d. quadruples.
Which of the following is correct?
a. Joan takes some of her income and buys mutual fund shares. Joan’s purchase will be
included in the investment category of GDP.
b. If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share
are $5, and the dividend per share is $2, then the P/E ratio is 11.
c. In order to use equity finance, a firm must sell about equal values of stocks and
bonds.
d. None of the above is correct.
Figure 9-1
The figure illustrates the market for wool in Scotland.
Refer to Figure 9-1. In the absence of trade, total surplus in Scotland is represented by
the area
a. A + B + C.
b. A + B + C + D + F.
c. A + B + C + D + F + G.
d. A + B + C + D + F + G + H.
Mary worked part-time for her mother’s business without pay. Larry was absent from
work because he had the flu. Who is counted as employed by the BLS?
a. Mary but not Larry
b. Larry but not Mary
c. both Marry and Larry
d. neither Mary nor Larry
A favorable supply shock will shift short-run aggregate supply
a. left, making output rise.
b. left, making output fall.
c. right, making output rise.
d. right, making output fall.
Most financial assets other than money function as
a. a medium of exchange, a unit of account, and a store of value.
b. a medium of exchange and a store of value, but not a unit of account.
c. a store of value and a unit of account, but not a mediuim of exchange.
d. a store of value, but not a unit of account nor a medium of exchange
When interest rates fall
a. firms want to borrow more for new plants and equipment and households want to
borrow more for homebuilding.
b. firms want to borrow more for new plants and equipment and households want to
borrow less for homebuilding.
c. firms want to borrow less for new plants and equipment and households want to
borrow more for homebuilding.
d. firms want to borrow less for new plants and equipment and households want to
borrow less for homebuilding.
Suppose the US and Mexico both produce semiconductors and auto parts and the US
has a comparative advantage in semiconductors while Mexico has a comparative
advantage in auto parts. If the US exports semiconductors to Mexico and imports auto
parts from Mexico,
a. both countries, as a whole, will be better off.
b. all individuals in both countries will be better off.
c. both countries, as a whole, will be worse off.
d. all individuals in both countries will be worse off.
If businesses in general decide that they have overbuilt and so now have too much
capital, their response to this would initially shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.
A country has a trade deficit. Which of the following must also be true?
a. net capital outflow is positive and domestic investment is larger than saving
b. net capital outflow is positive and saving is larger than domestic investment
c. net capital outflow is negative and domestic investment is larger than saving
d. net capital outflow is negative and saving is larger than domestic investment