The marginal propensity to consume (MPC) is defined as the fraction of
a. extra income that a household consumes rather than saves.
b. extra income that a household either consumes or saves.
c. total income that a household consumes rather than saves.
d. total income that a household either consumes or saves.
Figure 8-16
Refer to Figure 8-16. Suppose the government imposes a $1 tax in each of the four
markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the
largest in the market represented by
a. S1.
b. S2.
c. S3.
d. S4.
Which country is correctly matched with its 2009 inflation rate?
a. 9 percent inflation in the United States
b. -1 percent inflation in Russia
c. 25 percent inflation in Venezuela
d. 2 percent inflation in Japan
International data on GDP and socioeconomic variables
a. are inconclusive about the relationship between GDP and the economic well-being of
citizens.
b. suggest that poor nations actually might enjoy a higher standard of living than do rich
nations.
c. leave no doubt that a nation’s GDP is closely associated with its citizens’ standard of
living.
d. indicate that there are few real differences in living standards around the world, in
spite of the large differences in GDP between nations.
Figure 4-6
Refer to Figure 4-6. The movement from D to D” could be caused by
a. an increase in price.
b. a decrease in the price of a complement.
c. a technological advance.
d. a decrease in the price of a substitute.
Figure 8-3
The vertical distance between points A and C represents a tax in the market.
Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that
the tax provides to the government?
a. Tax revenue = (P2 – P1)xQ1
b. Tax revenue = (P3 – P1)xQ1
c. Tax revenue = (P3 – P2)xQ1
d. Tax revenue = (P3 – P1)x(Q2 – Q1)
Gross domestic product adds together many different kinds of goods and services into a
single measure of the value of economic activity. To do this, GDP makes use of
a. market prices.
b. statistical estimates of the value of goods and services to consumers.
c. prices based on the assumption that producers make no profits.
d. the maximum amount consumers would be willing to pay.
When we move along a given supply curve,
a. only price is held constant.
b. technology and price are held constant.
c. all nonprice determinants of supply are held constant.
d. all determinants of quantity supplied are held constant.
Table 10-4
The table below reports nominal and real GDP for the U.S. from 1929 to 1932.
Refer to Table 10-3. What is the GDP deflator and the inflation rate for 1932?
a. 8.09, -11.7
b. 8.09.16, -13.3
c. 1236.46, 11.7
d. 1236.46, 13.3
In the circular-flow diagram, which of the following items flows from firms to
households through the markets for goods and services?
a. goods and services
b. dollars paid to land, labor, and capital
c. dollars spent on goods and services
d. wages, rent, and profit
Derek decides to forego a major appliance purchase and save the money. He transfers
$2,100 from his checking account to his savings account. As a result of this transfer by
itself
a. M1 increases by $2,100 and M2 stays the same.
b. M1 increases by $2,100 and M2 increases by $2,100.
c. M1 decreases by $2,100 and M2 increases by $2,100.
d. M1 decreases by $2,100 and M2 stays the same.
Figure 9-2
Refer to Figure 9-2. The world price for baskets represents
a. the demand for baskets from the rest of the world.
b. the supply of baskets from the rest of the world.
c. the level of inefficiency in the domestic market caused by trade.
d. the gap between domestic quantity demanded and domestic quantity supplied and the
resulting shortage.
An economy’s production possibilities frontier is also its consumption possibilities
frontier
a. under all circumstances.
b. under no circumstances.
c. when the economy is self-sufficient.
d. when the rate of tradeoff between the two goods being produced is constant.
The manager of the bank where you work tells you that the bank has $300 million in
deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how
much is the bank holding in excess reserves?
a. $15 million
b. $19.5 million
c. $25.5 million
d. $30 million
Keynes used the term “animal spirits” to refer to
a. policy makers harming the economy in the pursuit of self interest.
b. arbitrary changes in attitudes of household and firms.
c. mean-spirited economists who believed in the classical dichotomy.
d. firms’ relentless efforts to maximize profits.
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. What happens to the price level and real GDP in the short
run?
a. both the price level and real GDP rise
b. the the price level level rises and real GDP falls
c. the the price level level falls and real GDP rises
d. both the price level and real GDP fall
Which of the following could be a consequence of a depreciation of the U.S. real
exchange rate?
a. John, a French citizen, decides that Iowa pork has become too expensive and cancels
his order.
b. Nick, a U.S. citizen, decides that the trip to Nepal he’s been thinking about is now
made affordable by the depreciation.
c. Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts
company.
d. All of the above are correct.
A bank has $10,000 in deposits and $8,000 in loans. It has loaned out all it can given
the reserve requirement. It follows that the reserve requirement is
a. 2 percent.
b. 12.5 percent.
c. 20 percent.
d. 80 percent.
Figure 5-1
Refer to Figure 5-1. Between point A and point B, the slope is equal to
a. -1/4, and the price elasticity of demand is equal to 2/3.
b. -1/4, and the price elasticity of demand is equal to 3/2.
c. -3/2, and the price elasticity of demand is equal to 1/4.
d. -2/3, and the price elasticity of demand is equal to 3/2.
What will happen to the equilibrium price of new textbooks if more students attend
college, paper becomes cheaper, textbook authors accept lower royalties, and fewer
used textbooks are sold?
a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.
Which of the following events would be consistent with purchasing-power parity?
a. The price level in the United States rises more rapidly than that in Ireland and the real
exchange rate defined as Irish goods per unit of U.S. goods stays the same.
b. The money supply in the United States rises more rapidly than in Egypt and the
nominal exchange rate defined as Egyptian pounds per dollar falls.
c. Earl, a worldwide traveler, looks at exchange rates and worldwide breakfast prices
one morning and finds that whatever country he decides to go to he can convert $15
into enough local currency to buy the same breakfast.
d. All of the above are correct.
Table 11-6. The table below applies to an economy with only two goods hamburgers
and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.
Refer to Table 11-6. Between 2009 and 2011, the cost of living increased by
a. 6 percent.
b. 19 percent.
c. 14 percent.
d. 17 percent.
Which of the following is not an example of a price index computed by the Bureau of
Labor Statistics?
a. the Los Angeles price index
b. the energy price index
c. the producer price index
d. the stock price index
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 1 pound of potatoes is
a. 0.625 pound of meat.
b. 1.0 pounds of meat.
c. 1.6 pounds of meat.
d. 3.2 pounds of meat.
Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned.
Ernesto’s opportunity cost of cleaning Erin’s house is $70 per week.
Refer to Scenario 8-1. Assume Erin is required to pay a tax of $15 when she hires
someone to clean her house. Which of the following is true?
a. Erin will continue to hire Ernesto to clean her house, but her consumer surplus will
decline.
b. Ernesto will continue to clean Erin’s house, and his producer surplus will increase.
c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue)
will decrease.
d. All of the above are correct.
Halvorson Construction has an investment project that would cost $150,000 today and
yield a one-time payoff of $167,000 in three years. What is the highest interest rate at
which Halvorson would find this project profitable?
a. 7%
b. 6%
c. 5%
d. It is not profitable at any of these interest rates.
Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures
a. increase U.S. net capital outflow and have no affect on Greek net capital outflow.
b. increase U.S. net capital outflow and increase Greek net capital outflow.
c. increase U.S. net capital outflow, but decrease Greek net capital outflow.
d. decrease U.S. net capital outflow, but increase Greek net capital outflow.
An increase in price causes an increase in total revenue when demand is
a. elastic.
b. inelastic.
c. unit elastic.
d. All of the above are possible.
If sellers respond to very small changes in price by adjusting their quantity supplied by
extremely large amounts, the price elasticity of supply approaches
a. zero, and the supply curve is horizontal.
b. zero, and the supply curve is vertical.
c. infinity, and the supply curve is horizontal.
d. infinity, and the supply curve is vertical.
By definition, equity finance
a. is accomplished when units of government sell bonds.
b. is accomplished when firms sell bonds.
c. is accomplished when firms sell shares of stock.
d. involves “fair” interest rates or dividend yields.
If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
a. inelastic.
b. elastic.
c. unit elastic.
d. quite sensitive to changes in income.
In the 15 years ending June 2010, most active portfolio managers failed to beat the
market.
Every week, the Bureau of Labor Statistics produces data on unemployment.
Sandra routinely uses currency to purchase her groceries. She is using money as a
medium of exchange.
Economists disagree on whether labor taxes have a small or large deadweight loss.
In the late 1970s, U.S. nominal interest rates were high and real interest rates were low,
but in the late 1990s, U.S. nominal interest rates were low and real interest rates were
high.
A reduction in an input price will cause a change in quantity supplied but not a change
in supply.
Economists use the term inflation to describe a situation in which the economy’s overall
price level is rising.
Total surplus is always equal to the sum of consumer surplus and producer surplus.
Since half of the FICA tax is paid by firms and the other half is paid by workers, the
burden of the tax must fall equally on firms and workers.
Teenage unemployment is higher than unemployment of people ages 20 and over.
Explain why economists would attribute at least part of this difference to
minimum-wage laws.
Mutual funds are a type of financial intermediary.
Other things the same, countries that offer more generous and longer-lasting
unemployment insurance benefits are likely to have higher unemployment rates.
In the circular-flow diagram, firms consume all the goods and services that they
produce.
In an economy that relies on barter, trade requires a double-coincidence of wants.
The explanations for the slopes of the aggregate demand and short-run aggregate supply
curves are the same as the explanations for the slopes of demand and supply curves for
specific goods and services.
Suppose that when the price rises by 20% for a particular good, the quantity demanded
of that good falls by 10%. The price elasticity of demand for this good is equal to 2.0.
If a tax did not induce buyers or sellers to change their behavior, it would not cause a
deadweight loss.
The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.