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Suppose that in October the price of a cup of cafe latte was $2.50 and 400 lattes were
consumed. In November the price of a latte was $2.00 and 600 lattes were consumed.
What might have caused this change?
A) The price of tea (a substitute for cafe lattes) fell.
B) The price of tea (a substitute for cafe lattes) rose.
C) The price of coffee beans (an input of production of cafe lattes) rose.
D) The price of coffee beans (an input of production of cafe lattes) fell.
Recall the Application about the decrease in price of illegal drugs in the United
States to answer the following question(s). Recall the Application. The decrease in
price of illegal drugs could be caused by either a(n) ________ in demand or a(n)
________ in supply of the drugs.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Refer to Figure 8A.2. Compared to curve 1Y, curve 2Y represents
A) a decrease in capital deepening.
B) a higher saving rate.
C) a decrease in depreciation.
D) a decrease in original capital stock.
Suppose the economy is operating below potential output. If policy makers try to avoid
a budget deficit by raising taxes or reducing government spending, these actions would
A) increase inflation.
B) help pull an economy out of a depression.
C) make a recession worse.
D) negate the multiplier effect.
One effect of removing capital gains tax is that:
A) it promotes social inequality.
B) it makes the income tax system more progressive.
C) it promotes social equality.
D) it promotes a flat tax system.
Suppose the equilibrium quantity of labor hired decreases and the equilibrium real wage
rate increases. All else constant, this situation will also result in
A) higher output prices.
B) lower output prices.
C) fewer benefits for those still unemployed.
D) more government outlay for the unemployed.
Suppose you have $400 to invest at a nominal interest rate of 7 percent, and the
investment's term to maturity is 1 year. If the inflation rate is 2 percent, then the real
return on your investment is approximately
A) $8.
B) $20.
C) $28.
D) $36.
Recall the Application about the link between happiness and GDP to answer the
following question(s). Comparing changes in happiness to changes in per capita
income over the last 30 years, economists at Dartmouth College and Warwick
University have measured levels of happiness in the United States and United
Kingdom based on income levels, ethnicity, age, and gender. According to the
Application
A) reported levels of happiness in the United States have increased over the past 30
years.
B) stable marriages account for no more happiness than marriages ending in divorce.
C) retired people report higher levels of happiness than people below the age of 40.
D) money does appear to buy happiness, ceteris paribus.
The increase in unemployment that occurs during recessions and depressions is called:
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) natural unemployment.
When an economics professor quits his job from a university and starts looking for a
job in another university, he is:
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) naturally unemployed.
If the government wants to reduce unemployment, government spending should be
________ and/or taxes should be ________.
A) increased; increased
B) decreased; decreased
C) decreased; increased
D) increased; decreased
