Which of the following events would cause both the equilibrium price and equilibrium
quantity of number two grade potatoes to increase if number two grade potatoes are an
inferior good?
a. an increase in consumer income
b. a decrease in consumer income
c. greater government restrictions on agricultural chemicals
d. fewer government restrictions on agricultural chemicals
When in France you notice that prices are posted in euros, this best illustrates money’s
function as
a. a store of value.
b. a medium of exchange.
c. a unit of account.
d. a method of barter.
Figure 14-3. The figure shows a utility function for Rob.
Refer to Figure 14-3. From the appearance of Rob’s utility function, we know that
a. the pain that Rob would experience if he lost $200 of his wealth would exceed the
pleasure that he would experience if he added $200 to his wealth.
b. the pleasure that Rob would experience if he added $200 to his wealth would exceed
the pain that he would experience if he lost $200 of his wealth.
c. the property of increasing utility does not apply to Rob.
d. the property of diminishing marginal utility does not apply to Rob.
Figure 6-14
The vertical distance between points A and B represents the tax in the market.
Refer to Figure 6-14. The price that buyers pay after the tax is imposed is
a. $8.
b. $10.
c. $16.
d. $24.
The price of a Honda Accord
a. and the price of a Honda Accord divided by the price of a Honda Civic are both real
variables.
b. and the price of a Honda Accord divided by the price of Honda Civic are both
nominal variables.
c. is a real variable, and the price of a Honda Accord divided by a Honda Civic is a
nominal variable.
d. is a nominal variable and the price of a Honda Accord divided by the price of a
Honda Civic is a real variable.
Denise values a stainless steel dishwasher for her new house at $500, but she succeeds
in buying one for $350. Denise’s consumer surplus is
a. $150.
b. $350.
c. $500.
d. $850.
Table 3-1
Assume that Andia and Zardia can switch between producing wheat and producing beef
at a constant rate.
Minutes Needed to Make 1
Refer to Table 3-1. Andia has an absolute advantage in the production of
a. wheat and Zardia has an absolute advantage in the production of beef.
b. beef and Zardia has an absolute advantage in the production of wheat.
c. both goods and Zardia has an absolute advantage in the production of neither good.
d. neither good and Zardia has an absolute advantage in the production of both goods.
World Wide Delivery Service Corporation develops a way to speed up its deliveries and
reduce its costs. We would expect that this would
a. raise the demand for existing shares of the stock, causing the price to rise.
b. decrease the demand for existing shares of the stock, causing the price to fall.
c. raise the supply of the existing shares of stock, causing the price to rise.
d. raise the supply of the existing shares of stock, causing the price to fall.
Other things the same, if a country raises its saving rate, when is productivity growth
higher?
a. as the economy moves toward the long run and in the long run.
b. as the economy moves toward the long run, but not in the long run.
c. in the long run, but not as the economy moves toward the long run.
d. neither as the economy moves toward the long run, nor in the long run.
According to the theory of liquidity preference,
a. if the interest rate is below the equilibrium level, then the quantity of money people
want to hold is less than the quantity of money the Fed has created.
b. if the interest rate is above the equilibrium level, then the quantity of money people
want to hold is greater than the quantity of money the Fed has created.
c. the demand for money is represented by a downward-sloping line on a
supply-and-demand graph.
d. All of the above are correct.
Other things the same, as the price level falls,
a. the dollar depreciates.
b. the interest rate rises.
c. people feel less wealthy.
d. All of the above are correct.
The tradeoff between inflation and unemployment
a. implies that policies designed to reduce unemployment also reduce inflation.
b. was eliminated by improved economic policies in the 1900s.
c. is a long-run tradeoff, persisting for decades, according to most economists.
d. None of the above are correct.
An economy’s production function has the constant-returns-to-scale property. If the
economy’s labor force doubled and all other inputs stayed the same, then real GDP
would
a. stay the same.
b. increase by exactly 50 percent.
c. increase by exactly 100 percent.
d. increase, but not necessarily by either 50 percent or 100 percent.
Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice
cream cones rises from that price by 4 percent, the number of ice cream cones
demanded falls to 46. Using the midpoint approach to calculate the price elasticity of
demand, it follows that the
a. demand for ice cream cones in this price range is elastic.
b. demand for ice cream cones in this price range is inelastic.
c. demand for ice cream cones in this price range is unit elastic.
d. price elasticity of demand for ice cream cones in this price range is 0.
Figure 5-4
Refer to Figure 5-4. If the price decreases in the region of the demand curve between
points A and B, we can expect total revenue to
a. increase.
b. stay the same.
c. decrease.
d. first decrease, then increase until total revenue is maximized.
A drug interdiction program that successfully reduces the supply of illegal drugs in the
United States likely will
a. raise the price, reduce the quantity, decrease total revenues, and decrease crime.
b. lower the price, increase the quantity, increase total revenues, and increase crime.
c. raise the price, increase the quantity, decrease total revenues, and increase crime.
d. raise the price, reduce the quantity, increase total revenues, and increase crime.
If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the
money supply by as much as
a. $6,400.
b. $8,000.
c. $12,500.
d. $20,000.
If, at some interest rate, the quantity of money demanded is greater than the quantity of
money supplied, people will desire to
a. sell interest-bearing assets, causing the interest rate to decrease.
b. sell interest-bearing assets, causing the interest rate to increase.
c. buy interest-bearing assets, causing the interest rate to decrease.
d. buy interest-bearing assets, causing the interest rate to increase.
Categories of U.S. consumer spending, ranked from largest to smallest, are
a. housing, food & beverages, education & communication, and transportation.
b. education & communication, housing, food & beverages, and transportation.
c. food & beverages, housing, transportation, and medical care.
d. housing, transportation, food & beverages, and medical care.
The scientific method is applicable to studying
a. natural sciences, but not social sciences.
b. social sciences, but not natural sciences.
c. both natural sciences and social sciences.
d. None of the above is correct.
Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes
ceramic vases, but Regan is better at producing both goods. In this case, trade could
a. benefit both Jayson and Regan.
b. benefit Jayson, but not Regan.
c. benefit Regan, but not Jayson.
d. benefit neither Jayson nor Regan.
Figure 6-14
The vertical distance between points A and B represents the tax in the market.
Refer to Figure 6-14. The effective price that sellers receive after the tax is imposed is
a. $6.
b. $10.
c. $16.
d. $24.
Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable
funds in billions of dollars.
Refer to Figure 13-4. If the equilibrium quantity of loanable funds is $56 billion and if
the rate of inflation is 5 percent, then the equilibrium nominal interest rate is
a. lower than 6 percent..
b. approximately 6 percent.
c. between 6 percent and 8 percent.
d. approximately 12 percent.
If the reserve requirement is 10 percent, which of the following pairs of changes would
both allow a bank to lend out an additional $10,000?
a. the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank
b. the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000
c. the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank
d. the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000
Assuming the interest rate is 5 percent, which of the following has the greatest present
value?
a. $240 paid in three years
b. $225 paid in two years
c. $210 paid in one year
d. $200 today
Monetary Policy in Southland
In Southland the Department of Finance is responsible for monetary policy. Southland
has had an inflation rate of 25% for many years.
Refer to Monetary Policy in Southland. Suppose the Southland Department of
Finance has run a public relations campaign claiming it will reduce inflation to 12.5%
and actually reduces inflation to that level. Suppose at first that the public thought
inflation would only drop to 18%, but eventually become convinced that the inflation
rate will stay at 12.5%.
a. unemployment rises in the short run, and remains higher than it’s original value in the
long run.
b. unemployment rises in the short run, and is the same as it’s original value in the long
run.
c. unemployment falls in the short run, and is lower than it’s original value in the long
run.
d. unemployment falls in the short run, and is the same as it’s original value in the long
run.
Figure 6-20
Refer to Figure 6-20. In the after-tax equilibrium, government collects
a. $1,440 in tax revenue; of this amount, $960 represents a burden on buyers and $480
represents a burden on sellers.
b. $1,440 in tax revenue; of this amount, $720 represents a burden on buyers and $720
represents a burden on sellers.
c. $1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420
represents a burden on sellers.
d. $1,680 in tax revenue; of this amount, $840 represents a burden on buyers and $840
represents a burden on sellers.
If the reserve ratio is 10 percent, the money multiplier is
a. 100.
b. 10.
c. 9/10.
d. 1/10.
Which of the following is likely to have the most price inelastic demand?
a. laptop computers
b. iPod shuffles
c. designer jeans
d. college tuition for a junior or senior
If a country allows trade and, for a certain good, the domestic price without trade is
lower than the world price,
a. the country will be an exporter of the good.
b. the country will be an importer of the good.
c. the country will be neither an exporter nor an importer of the good.
d. Additional information is needed about demand to determine whether the country
will be an exporter of the good, an importer of the good, or neither.
Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the
Phillips curve is
a. downward-sloping, which implies that monetary and fiscal policies can influence the
level of unemployment in the long run.
b. downward-sloping, which implies that monetary and fiscal policies cannot influence
the rate of inflation in the long run.
c. vertical, which implies that monetary and fiscal policies cannot influence the level of
unemployment in the long run.
d. vertical, which implies that monetary and fiscal policies cannot influence the rate of
inflation in the long run.
In the long run, a higher saving rate
a. cannot increase the capital stock.
b. increases the growth rate of income.
c. increases the growth rate of productivity.
d. None of the above is correct.