The CPI in 2010 was 218, while the CPI in 1980 was 82. If you had $5,000 in 1980, its
equivalent purchasing power in 2008 would be $10,850.
Holding all else constant, an economic expansion in Mexico should decrease the
demand for U.S. dollars.
Inflation targeting has been adopted by the central banks of several countries including
the European Central Bank.
A monopoly is a firm that is the only seller of a good or service that does not have a
close substitute.
Eliminating frictional unemployment would be good for the economy.
If voters lack an economic incentive to become informed about pending legislation,
then their preferences become a constraint on legislators voting for rent-seeking
legislation.
For a profit-maximizing monopolistically competitive firm, for the last unit sold, the
marginal cost of production is less than the marginal benefit received by a customer
from the purchase of that unit.
As a percentage of GDP, health care spending on Medicare and Medicaid is expected to
double over the next 40 years unless health care costs begin to grow at a slower rate.
Market equilibrium occurs where supply equals demand.
As the number of firms in a market decreases, the supply curve will shift to the left and
the equilibrium price will fall.
A tariff is a tax imposed by a government on its own exports.
If government increases taxes by the same amount it increases government spending,
there will be no effect on aggregate demand: the increase in government spending is
offset by an equal decrease in consumption spending by households.
Trade only occurs if there are only winners, and no losers, as a result of the trade.
The marginal propensity to consume is the slope of the consumption function.
Figure 7-2 Suppose the U.S. government
imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this
tariff. The tariff causes domestic consumption of coffee
A) to fall by 27 million pounds.
B) to fall by 7 million pounds.
C) to rise by 6 million pounds.
D) to rise by 20 million pounds.
Table 14-1
Godrickporter and Star
Connections are the only two airport shuttle and limousine rental service companies in
the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase
its advertising spending to compete for customers. Table 14-1 shows the payoff matrix
for this advertising game. What is the Nash equilibrium in this game?
A) There is no Nash equilibrium.
B) Godrickporter increases its advertising budget, but Star Connections does not.
C) Star Connections increases its advertising budget, but Godrickporter does not.
D) Both Godrickporter and Star Connections increase their advertising budgets.
Figure 18-9
Answer the following questions.
a. Did the distribution of income become more equal in 2010 that it was in 2009, or did
it become less equal? Explain.
b. If area A = 1,600, area B = 200, and area C = 3,200, calculate the Gini coefficient for
2009 and the Gini coefficient for 2010.
What is the difference between “diminishing marginal returns” and “diseconomies of
scale”?
A) Both concepts explain why marginal cost increases after some point but diminishing
marginal returns applies only in the short run when there is at least one fixed factor,
while diseconomies of scale applies in the long run when all factors are variable.
B) Both concepts explain why average total cost increases after some point but
diminishing marginal returns applies only in the short run when there is at least one
fixed factor, while diseconomies of scale applies in the long run when all factors are
variable.
C) Diminishing marginal returns, which applies only in the short run when at least one
factor is fixed, explains why marginal cost increases, while diseconomies of scale,
which applies in the long run when all factors are variable, explains why average cost
increases.
D) Diminishing marginal returns, which applies only in the long run when all factors
are variable, explains why average variable cost increases, while diseconomies of scale,
which applies in the short run when at least one factor is fixed, explains why average
total cost increases.
Basic supply and demand analysis indicates that having firms rather than the
government provide health insurance to workers
A) changes both the composition of the compensation that firms pay and its level.
B) changes the composition of the compensation that firms pay, but does not change its
level.
C) does not change the composition of the compensation that firms pay, but does
change its level.
D) changes neither the composition of the compensation that firms pay nor its level.
Figure 16-1
Suppose the economy is in short-run equilibrium above potential GDP and no policy is
pursued. Using the static AD–AS model in the figure above, this would be depicted as a
movement from
A) D to C.
B) A to E.
C) C to D.
D) C to B.
E) E to A.
Total revenue is equal to
A) the amount of funds earned by a firm minus its costs of production.
B) the total quantity sold of a product over a given period of time.
C) the price of a product multiplied by the number of units of the product sold.
D) the monetary value of the capital (for example, plant and equipment) a firm owns.
Goods and services bought domestically but produced in other countries are referred to
as
A) exports.
B) imports.
C) transfer payments.
D) foreign consumption.
Economists generally favor the use of tradable emissions allowances to reduce
pollution. However, the use of these allowances has been criticized by some
environmentalists. Which of the following describes this criticism?
A) Some environmentalists believe the allowances give firms a license to pollute.
B) Some environmentalists believe that the price of allowances is often too high for
consumers to afford.
C) Some environmentalists believe that Pigovian taxes are a more efficient way to
reduce pollution.
D) Some environmentalists oppose allowances on legal grounds; they believe the use of
allowances is unconstitutional.
When you purchase a new pair of jeans you do so in the
A) factor market.
B) input market.
C) product market.
D) resource market.
A supply curve shows
A) the quantities sold at Different prices.
B) the marginal cost of producing one more unit of a good or service.
C) the marginal benefit from buying one more unit of a good or service.
D) the total cost of producing Different quantities of a good or service.
What actions could the Federal Reserve take to achieve consistent growth in real GDP
at 4 percent per year?
A) The Fed could increase in the growth rate of the money supply by 1% each year
until the inflation rate was exactly equal to 4 percent.
B) The Fed could maintain a growth rate of the money supply of 4 percent, regardless
of whether inflation was rising or falling in the economy.
C) The Fed could follow contractionary monetary policy that would reduce the federal
funds rate to zero so investment will rise consistently.
D) The Fed has no direct control over real GDP in the long run, so there are no actions
it could take to achieve that goal.
What is the macroeconomic consequence if firms accumulate large amounts of
unplanned inventory at the beginning of a recession?
What is meant by the term “free market”?
How is economic profit found?
When the price of Starbucks coffee increased by 8 percent, the quantity demanded of
Peets coffee increased by 10 percent. Calculate the cross price elasticity of demand
between Starbucks coffee and Peets coffee. What is the relationship between the two
products?
Table 26-7
Why does the holding of excess reserves by banks and the holding of currency by
households and firms cause the real-world deposit multiplier to be less than the simple
deposit multiplier?
What is the Difference between a price ceiling and a price floor? Compared to the
competitive equilibrium price, where must price ceilings and price floors be set to have
an effect on the market?
Using equations for public and private saving, show that saving must equal investment
in a closed economy. Begin with the expression for total saving in the economy.
Why might an amusement park switch from charging admission to the park and
charging for the rides to charging for admission but not charging for the rides?