Figure 9-1
The figure illustrates the market for wool in Scotland.
Refer to Figure 9-1. From the figure it is apparent that
a. Scotland will experience a shortage of wool if trade is not allowed.
b. Scotland will experience a surplus of wool if trade is not allowed.
c. Scotland has a comparative advantage in producing wool, relative to the rest of the
world.
d. foreign countries have a comparative advantage in producing wool, relative to
Scotland.
For the following questions, use the diagram below:
Figure 21-7.
Refer to Figure 21-7. Which of the following is correct?
a. A wave of optimism could move the economy from point a to point b.
b. If aggregate demand moves from AD1 to AD2, the economy will stay at point b in
both the short run and long run.
c. It is possible that either fiscal or monetary policy might have caused the shift from
AD1 to AD2.
d. All of the above are correct.
When demand is perfectly inelastic, the price elasticity of demand
a. is zero, and the demand curve is vertical.
b. is zero, and the demand curve is horizontal.
c. approaches infinity, and the demand curve is vertical.
d. approaches infinity, and the demand curve is horizontal.
Figure 2-1
Refer to Figure 2-1. Which arrow represents the flow of spending by households?
a. A
b. B
c. C
d. D
The saws, lathes, and drill presses that woodworkers at Cedar Valley Furniture use to
produce furniture are called
a. human capital.
b. physical capital.
c. natural resources.
d. technological knowledge.
According to the principle of monetary neutrality, a decrease in the money supply will
not change
a. nominal GDP.
b. the price level.
c. unemployment.
d. All of the above are correct.
The effects of unionization on wages in the sectors of the economy that are unionized
causes the supply of labor in other sectors of the economy to
a. decrease, raising wages in industries that are not unionized.
b. decrease, reducing wages in industries that are not unionized.
c. increase, raising wages in industries that are not unionized.
d. increase, reducing wages in industries that are not unionized.
Suppose the tax on gasoline is raised from $0.50 per gallon to $2.50 per gallon. As a
result,
a. tax revenue necessarily increases.
b. the deadweight loss of the tax necessarily increases.
c. the demand curve for gasoline necessarily becomes steeper.
d. All of the above are correct.
Figure 5-5
Refer to Figure 5-5. Using the midpoint method, between prices of $48 and $54, price
elasticity of demand is about
a. 0.92.
b. 3.89.
c. 4.33.
d. 5.67.
If the price level rises above what was expected and nominal wages are fixed, then
a. production becomes less profitable so firms will hire fewer workers.
b. production becomes less profitable so firms will hire more workers.
c. production becomes more profitable so firms will hire fewer workers.
d. production become more profitable so firms will hire more workers.
Holding all other things constant, a higher price for ski lift tickets would
a. increase the number of skiers.
b. increase the price of skis.
c. decrease the number of skis sold.
d. decrease the demand for other winter recreational activities.
Which of the following statements helps to explain why government drug interdiction
increases drug-related crime?
a. The direct impact is on buyers, not sellers.
b. Successful drug interdiction policies reduce the demand for illegal drugs.
c. Drug addicts will have an even greater need for quick cash to support their habits.
d. In the short run, both equilibrium quantities and prices will fall in the markets for
illegal drugs.
In the 1970’s the Federal Reserve responded to an adverse supply shock. Its policy
made
a. the recession that followed smaller and so provided a more favorable tradeoff
between inflation and unemployment.
b. the recession that followed smaller, but in doing so produced a less favorable tradeoff
between inflation and unemployment.
c. the recession that followed larger, but in doing so provided a more favorable tradeoff
between inflation and unemployment.
d. the recession that followed larger and also produced a less favorable tradeoff between
inflation and unemployment.
Paying efficiency wages means that wages are
a. above equilibrium and profits are higher than otherwise.
b. above equilibrium and profits are lower than otherwise.
c. below equilibrium and profits are higher than otherwise.
d. below equilibrium and profits are lower than otherwise.
Other things the same, which bond would you expect to pay the highest interest rate?
a. a bond issued by the U.S. government
b. a bond issued by Microsoft Corporation
c. a bond issued by the state of Montana
d. a bond issued by a new chain of Brazilian-style restaurants
Table 5-1
Refer to Table 5-1. Which of the following is consistent with the elasticities given in
Table 5-2?
a. A is a luxury, and B is a necessity.
b. A is a good several years after a price increase, and B is that same good several days
after the price increase.
c. A is a Kit Kat bar, and B is candy.
d. A has fewer substitutes than B.
Which of the following domestically produced items is not included in GDP?
a. a bottle of shampoo
b. a hairdryer
c. a haircut
d. All of the above are included in GDP.
“Leaning against the wind” is exemplified by a
a. tax cut when there is a recession.
b. decrease in the money supply when there is a recession.
c. decrease in government expenditures when there is a recession.
d. increasing money supply when there is a boom.
Music compact discs are normal goods. What will happen to the equilibrium price and
quantity of music compact discs if musicians accept lower royalties, compact disc
players become cheaper, more firms start producing music compact discs, and music
lovers experience an increase in income?
a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.
Which of the following is an explanation for the existence of frictional unemployment?
a. efficiency wages
b. minimum-wage laws
c. unions
d. job search
In the long run, inflation
a. and unemployment are primarily determined by labor market factors.
b. and unemployment are primarily determined by the rate of money supply growth.
c. is primarily determined by the rate of money supply growth while unemployment is
primarily determined by labor market factors.
d. is primarily determined by labor market factors while unemployment is primarily
determined by the rate of money supply growth.
A movement downward and to the left along a supply curve is called a(n)
a. increase in supply.
b. decrease in supply.
c. decrease in quantity supplied.
d. increase in quantity supplied.
Which of the following institutions is a central bank?
a. the Bank of Japan
b. the Bank of England
c. the Federal Reserve System
d. All of the above are correct.
Use the graph shown to answer the following questions. Put the correct letter(s) in the
blank.
a. The elastic section of the graph is represented by section from _______.
b. The inelastic section of the graph is represented by section from _______.
c. The unit elastic section of the graph is represented by section _______.
d. The portion of the graph in which a decrease in price would cause total revenue to
fall would be from _________.
e. The portion of the graph in which a decrease in price would cause total revenue to
rise would be from _________.
f. The portion of the graph in which a decrease in price would not cause a change in
total revenue would be _________.
g. The section of the graph in which total revenue would be at a maximum would be
_______.
h. The section of the graph in which elasticity is greater than 1 is _______.
i. The section of the graph in which elasticity is equal to 1 is ______.
j. The section of the graph in which elasticity is less than 1 is _______.
An understanding of the best ways to produce goods and services is called
a. human capital.
b. physical capital.
c. technology.
d. productivity.
The marginal seller is the seller
a. for whom the marginal cost of producing one more unit of output is the lowest among
all sellers, and the marginal buyer is the buyer for whom the marginal benefit of one
more unit of the good is the highest among all buyers.
b. who supplies the smallest quantity of the good among all sellers, and the marginal
buyer is the buyer who demands the smallest quantity of the good among all buyers.
c. who would leave the market first if the price were any lower, and the marginal buyer
is the buyer who would leave the market first if the price were any higher.
d. who has the largest producer surplus, and the marginal buyer is the buyer who has the
largest consumer surplus.
Figure 7-3
Refer to Figure 7-3. Which area represents consumer surplus at a price of P1?
a. ABD
b. ACG
c. BCDF
d. DFG
A U.S.-imposed quota on appliances would shift
a. both the demand and supply curves in the market for foreign-currency exchange
right.
b. both the demand and supply curves in the market for foreign-currency exchange
right.
c. only the demand curve in the market for foreign-currency exchange right.
d. only the supply curve in the market for foreign-currency exchange right.
Figure 9-5
Refer to Figure 9-5. Bearing in mind that this country is ‘small,” which of the
following events conceivably could cause the country to switch from being an importer
of wagons to an exporter of wagons?
a. Incomes of domestic citizens increase, and wagons are a normal good.
b. Within this country, the price of a substitute for wagons decreases.
c. Within this country, the price of a complement to wagons decreases.
d. Wages increase for domestic workers who produce wagons.
Natural rate of unemployment – a ctual inflation – Expected inflation) =
a. Quantity of goods and services demanded.
b. Quantity of goods and services supplied.
c. Unemployment rate.
d. Previous year’s inflation rate.
Which of the following correctly orders U.S. income measures from largest to smallest?
a. disposable personal income, gross national product, national income, net national
product, personal income
b. personal income, net national product, national income, gross national product,
disposable personal income
c. gross national product, net national product, national income, personal income,
disposable personal income
d. disposable personal income, personal income, national income, net national product,
gross national product
Scenario 16-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The
local currency is the dia. Namdian banks collectively hold 100 million dias of required
reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury
Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use
only demand deposits and so the money supply consists of demand deposits.
Refer to Scenario 16-1. Suppose the Central Bank of Namdia loaned the banks of
Namdia 5 million dias. Suppose also that both the reserve requirement and the
percentage of deposits held as excess reserves stay the same. By how much would the
money supply of Namdia change?
a. 60 million dias
b. 50 million dias
c. 40 million dias
d. None of the above is correct.
If a country had a rule that required the ratio of debt to GDP to be constant, it would
necessarily have to run a surplus if
a. real GDP rose and the inflation rate were positive.
b. real GDP rose and the inflation rate were negative.
c. real GDP fell and the inflation rate were positive.
d. real GDP fell and the inflation rate were negative.
In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot
chocolate costs 6.5 units of that country’s currency. If the exchange rate were 1.3 units
of foreign currency per U.S. dollar, what is the real exchange rate?
a. 1/2 cup of that country’s hot chocolate per cup of U.S. hot chocolate
b. 1 cup of that country’s hot chocolate per cup of U.S. hot chocolate
c. 2 cups of that country’s’s hot chocolate per cup of U.S. hot chocolate
d. None of the above is correct.
Imagine two economies that are identical except that for a long time, economy A has
had a money supply of $1,000 billion while economy B has had a money supply of
$500 billion. It follows that
a. real GDP and the price level are lower in country B.
b. real GDP, but not the price level, is lower in country B.
c. the price level, but not real GDP is lower in country B.
d. neither the price level or real GDP is lower in country B.
For Country A, the world price of textiles exceeds the domestic equilibrium price of
textiles. As a result, international trade allows sellers of textiles in Country A to
experience greater producer surplus than they otherwise would experience.
A severe problem that many economists have with the active use of monetary policy
and fiscal policy to stabilize the economy is that, while those policies obviously work
well in practice, they are not well understood on a theoretical level.
Figure 2-14
Refer to Figure 2-14. It is possible for this economy to produce 75 doghouses.
When a union is present in a labor market, wages are not determined by the equilibrium
of supply and demand.
Frictional unemployment is inevitable because the economy is always changing.
One reason economies always experience some unemployment is job search.
An increase in the price of cotton will increase the equilibrium price and decrease the
equilibrium quantity in the market for cotton t-shirts.
If a tariff is placed on watches, the price of both domestic and imported watches will
rise by the amount of the tariff.
Data on unemployment indicate that most people who become unemployed will soon
find jobs.
When a production possibilities frontier is bowed outward, the opportunity cost of the
second good in terms of the first good increases as more of the second good is
produced.
Why are net exports and net capital outflow always equal?
Most job search in the U.S. economy takes place with the help of the government.
Taxes affect market participants by increasing the price paid by the buyer and received
by the seller.
For Country A, the world price of soybeans exceeds the domestic equilibrium price of
soybeans. As a result, international trade allows buyers of soybeans in Country A to
experience greater consumer surplus than they otherwise would experience.
In the United States in 2008 real GDP per person was about $47,000, while in some
poor countries real GDP per person was less than $4,000.
If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five
years, then you need to be making $43,333.33 in five years to have kept pace with
consumer price inflation.