Figure 19-1
Refer to Figure 19-1. In the Figure shown, if the real interest rate is 2 percent, there
will be a
a. surplus of $20 billion.
b. surplus of $40 billion.
c. shortage of $20 billion.
d. shortage of $40 billion.
A seller’s opportunity cost measures the
a. value of everything she must give up to produce a good.
b. amount she is paid for a good minus her cost of providing it.
c. consumer surplus.
d. out of pocket expenses to produce a good but not the value of her time.
Other things the same, if workers and firms expected prices to rise by 2 percent but
instead they rise by 3 percent, then
a. employment and production rise.
b. employment rises and production falls.
c. employment falls and production rises.
d. employment and production fall.
According to John Maynard Keynes,
a. the demand for money in a country is determined entirely by that nation’s central
bank.
b. the supply of money in a country is determined by the overall wealth of the citizens
of that country.
c. the interest rate adjusts to balance the supply of, and demand for, money.
d. the interest rate adjusts to balance the supply of, and demand for, goods and services.
In calculating the CPI, a fixed basket of goods and services is used. The quantities of
the goods and services in the fixed basket are determined by
a. surveying consumers.
b. surveying sellers of the goods and services.
c. working backward from the rate of inflation to arrive at imputed values for those
quantities.
d. arbitrary choices made by federal government employees.
A country that currently does not trade with other countries could benefit by
a. restricting imports and promoting exports.
b. promoting imports and restricting exports.
c. restricting both imports and exports.
d. not restricting trade.
Mike and Sandy are two woodworkers who both make tables and chairs. In one month,
Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs.
Given this, we know that the opportunity cost of 1 table is
a. 1/5 chair for Mike and 1/3 chair for Sandy.
b. 1/5 chair for Mike and 3 chairs for Sandy.
c. 5 chairs for Mike and 1/3 chair for Sandy.
d. 5 chairs for Mike and 3 chairs for Sandy.
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 the Scotland wool market
amounts to
a. 187.5
b. 275.0
c. 378.5
d. 412.5
Other things the same, if the U.S. price level falls, then
a. the supply of dollars in the market for foreign-currency exchange increases, so the
exchange rate rises.
b. the supply of dollars in the market for foreign-currency exchange increases, so the
exchange rate falls.
c. the supply of dollars in the market for foreign-currency exchange decreases, so the
exchange rate rises.
d. the supply of dollars in the market for foreign-currency exchange decreases, so the
exchange rate falls.
To fully understand how taxes affect economic well-being, we must
a. assume that economic well-being is not affected if all tax revenue is spent on goods
and services for the people who are being taxed.
b. compare the taxes raised in the United States with those raised in other countries,
especially France.
c. compare the reduced welfare of buyers and sellers to the amount of revenue the
government raises.
d. take into account the fact that almost all taxes reduce the welfare of buyers, increase
the welfare of sellers, and raise revenue for the government.
According to fundamental analysis, a saver should prefer to buy stocks that are
a. undervalued. This means the price of the stock is low given the value of the
corporation.
b. undervalued. This means the value of the corporation is low given the price of stock.
c. overvalued. This means the price of the stock is high given the value of the
corporation.
d. overvalued. This means the value of the corporation is high given the price of stock.
If the world price of textiles is higher than Vietnam’s domestic price of textiles without
trade, then Vietnam
a. should import textiles.
b. has a comparative advantage in textiles.
c. should produce just enough textiles to meet its domestic demand.
d. should refrain altogether from producing textiles.
An American soldier stationed in North Carolina receives a paycheck from the federal
government for $300, which she uses to purchase a $100 MP3 player made in China by
a Chinese firm and $200 for fruit and vegetables from a local farmers market. As a
result, U.S. GDP increases by
a. $200.
b. $300.
c. $500.
d. $600.
When the price level falls
a. the interest rate rises, so the quantity of goods and services demand rises.
b. the interest rate rises, so the quantity of goods and services demand falls.
c. the interest rate falls, so the quantity of goods and services demand rises.
d. the interest rate falls, so the quantity of goods and services demand falls.
If consumers view cappuccinos and lattés as substitutes, what would happen to the
equilibrium price and quantity of lattés if the price of cappuccinos rises?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.
Necessities such as food and clothing tend to have
a. high price elasticities of demand and high income elasticities of demand.
b. high price elasticities of demand and low income elasticities of demand.
c. low price elasticities of demand and high income elasticities of demand.
d. low price elasticities of demand and low income elasticities of demand.
Economists view positive statements as
a. affirmative, justifying existing economic policy.
b. optimistic, putting the best possible interpretation on things.
c. descriptive, making a claim about how the world is.
d. prescriptive, making a claim about how the world ought to be.
In the late 1960s, Milton Friedman and Edmund Phelps argued that
a. the trade-off between inflation and unemployment did not apply in the long run This
claim is consistent with monetary neutrality in the long run.
b. the trade-off between inflation and unemployment did not apply in the long run. This
claim is inconsistent with monetary neutrality in the long run.
c. the trade-off between inflation and unemployment applied in both the short run and
the long run. This claim is consistent with monetary neutrality in the long run.
d. the trade-off between inflation and unemployment applied in both the short run and
the long run. This claim is inconsistent with monetary neutrality in the long run.
Which list ranks assets from most to least liquid?
a. money, bonds, cars, houses
b. money, cars, houses, bonds
c. bonds, money, cars, houses
d. bonds, cars, money, houses
Figure 2-2
Refer to Figure 2-2. Carla regularly buys fruits and vegetables at a grocery store.
Roberto regularly pays a lawn-care company to mow his lawn. If the flow of fruits and
vegetables from the grocery store to Carla is represented by an arrow from Box C to
Box B of this circular-flow diagram, then the money paid by Roberto to the lawn-care
company is represented by an arrow
a. from Box A to Box D.
b. from Box B to Box C.
c. from Box C to Box B.
d. from Box D to Box A.
Which of the following is not an argument made by those who oppose reforming the
tax laws to encourage saving?
a. A public budget surplus can raise national saving.
b. The substitution effect of a higher return to saving may be about equal to the income
effect of a higher return to saving.
c. Low-income households save a larger fraction of their income than high-income
households.
d. Tax cuts might cause a budget deficit.
Which of the following statements concerning the history of U.S. inflation is not
correct?
a. Prices rose at an average annual rate of about 4 percent over the last 70 years.
b. There was about a 16-fold increase in the price level over the last 70 years.
c. Inflation in the 1970s was below the average over the last 70 years.
d. The United States has experienced periods of deflation.
You have been asked by your economics professor to graph the market for lumber and
then to analyze the change that would occur in equilibrium price as a result of recent
forest fires in the west. Your first step would be to
a. decide which direction to shift the curve.
b. decide whether the fires affected demand or supply.
c. graph the shift to see the effect on equilibrium.
d. None of the above is correct.
Assuming diminishing returns,
a. the increase in output growth from an increase in the saving rate rises over time, and
that, other things the same, rich countries should grow faster than poor ones.
b. the increase in output growth from an increase in the saving rate falls over time, and
that, other things the same, rich countries should grow faster than poor ones.
c. the increase in output growth from an increase in the saving rate rises over time, and
that, other things the same, poor countries should grow faster than rich ones.
d. the increase in output growth from an increase in the saving rate falls over time, and
that, other things the same, poor countries should grow faster than rich ones.
Scenario 9-1
The before-trade domestic price of peaches in the United States is $40 per bushel. The
world price of peaches is $52 per bushel. The U.S. is a price-taker in the market for
peaches.
Refer to Scenario 9-1. If trade in peaches is allowed, the United States
a. will become an importer of peaches.
b. will become an exporter of peaches.
c. may become either an importer or an exporter of peaches, but this cannot be
determined.
d. will experience increases in both consumer surplus and producer surplus.
Other things the same, a decrease in the U.S. interest rate
a. induces firms to invest more.
b. shifts money demand to the left.
c. makes the U.S. dollar appreciate.
d. increases the opportunity cost of holding dollars.
Table 10-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2009.
Prices and Quantities
Refer to Table 10-6. In 2010, this country’s real GDP was
a. $540.
b. $700.
c. $810.
d. $1050.
The price of diamonds is high, in part because the majority of the world’s diamonds are
controlled by a single firm. This is an example of
a. a market failure caused by an externality.
b. a market failure caused by market power.
c. a market failure caused by equality.
d. There is no market failure in this case.
In recent years, the Fed has chosen to target interest rates rather than the money supply
because
a. Congress passed a law requiring them to do so.
b. the President requested them to do so.
c. the money supply is hard to measure with sufficient precision.
d. changes in the interest rate change aggregate demand, but changes in the money
supply do not.
An increase in capital will increase real GDP per person
a. more in a poor country than a rich country. The increase in real GDP per person will
be larger if the addition to capital is from domestic rather than foreign investment.
b. more in a poor country than a rich country. The increase in real GDP per person will
be the same whether the addition to capital is from domestic or foreign investment.
c. less in a poor country than a rich country. The increase in real GDP per person will be
larger if the addition to capital is from domestic rather than foreign investment.
d. less in a poor country than a rich country. The increase in real GDP per person will
be the same whether the addition to capital is from domestic or foreign investment.
Figure 22-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve
and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the
unemployment rate.
Refer to Figure 22-1. What is measured along the horizontal axis of the left-hand
graph?
a. the wage rate
b. the inflation rate
c. employment
d. output
If the Fed reduces inflation 1 percentage point and this makes output fall 2 percentage
points and unemployment rise 3 percentage points for six months, the sacrifice ratio is
a. 1.
b. 2.
c. 3.
d. 4.