Suppose that policymakers are considering placing a tax on either of two markets. In
Market A, the tax will have a significant effect on the price consumers pay, but it will
not affect equilibrium quantity very much. In Market B, the same tax will have only a
small effect on the price consumers pay, but it will have a large effect on the
equilibrium quantity. Other factors are held constant. In which market will the tax have
a larger deadweight loss?
a. Market A
b. Market B
c. The deadweight loss will be the same in both markets.
d. There is not enough information to answer the question.
James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to
increase to 206 but it actually increased to The real interest rate he paid is
a. higher than he had expected, and the real value of the loan is higher than he had
expected.
b. higher than he had expected, and the real value of the loan is lower than he had
expected.
c. lower than he had expected, and the real value of the loan is higher than he had
expected.
d. lower then he had expected, and the real value of the loan is lower than he had
expected.
A policy that results in slow and steady growth of the money supply is an example of
a. an “easy” monetary policy.
b. a “passive” monetary policy.
c. a “practical” monetary policy.
d. an “active” monetary policy.
Ethan purchases a new house for $170,000. Ethan’s purchase of the house contributes
$170,000 to which magnitude in the identity Y = C + I + G?
a. C
b. I
c. G
d. None of the above are correct.
If the demand for net exports rises, which of the following happens in the
open-economy macroeconomic model?
a. the exchange rate rises
b. the interest rate falls
c. net capital outflow rises
d. All of the above are correct.
Suppose the Federal Reserve pursues contractionary monetary policy. In the long run
a. both inflation and the unemployment rate are higher than they were prior to the
change in policy.
b. inflation is higher and the unemployment rate is the same as it was prior to the
change in policy.
c. inflation is lower and the unemployment rate is lower than it was prior to the change
in policy.
d. inflation is lower and unemployment is the same as it was prior to the change in
policy.
The slope of a steep upward-sloping line will be a
a. small positive number.
b. large positive number.
c. small negative number.
d. large negative number.
Efficiency is illustrated by
a. both the production possibilities frontier and the circular-flow diagram.
b. neither the production possibilities frontier nor the circular-flow diagram.
c. the production possibilities frontier only.
d. the circular-flow diagram only.
An event that directly affects firms’ costs of production and thus the prices they charge
is called
a. a Phillips contraction.
b. an inflationary spiral.
c. a demand shock.
d. a supply shock.
If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what
is the inflation rate?
a. 9.0 percent
b. 5 percent
c. 3.5 percent
d. None of the above is correct.
Today, people changed their expectations about the future. This change
a. can cause a movement along a demand curve.
b. can affect future demand but not today’s demand.
c. can affect today’s demand.
d. cannot affect either today’s demand or future demand.
If unexpected news raised people’s expectations of a corporation’s future dividends and
price, then before the price changes this corporation’s stock would be
a. overvalued, so its price would rise.
b. overvalued, so its price would fall.
c. undervalued, so its price would rise.
d. undervalued, so its price would fall.
A firm has four different investment options. Option A will give the firm $10 million at
the end of one year, $10 million at the end of two years, and $10 million at the end of
three years. Option B will give the firm $5 million at the end of one year, $10 million at
the end of two years, and $15 million at the end of three years. Option C will give the
firm $15 million at the end of one year, $10 million at the end of two years, and $5
million at the end of three years. Option D will give the firm $21 million at the end of
one year, nothing at the end of two years, and $9 million at the end of three years.
Which of these options has the highest present value if the rate of interest is 5 percent?
a. Option A
b. Option B
c. Option C
d. Option D
The Dow Jones Industrial Average is now based on the prices of the stocks of
a. 30 major U.S. corporations.
b. 100 major U.S. corporations.
c. 500 representative U.S. corporations.
d. 1,000 representative U.S. corporations.
To diversify, a homeowner with a variable-rate mortgage should choose investments
that
a. pay higher returns when interest rates rise and lower returns when interest rates fall.
b. pay lower returns when interest rates rise and higher returns when interest rates fall.
c. provide a higher return than the market average.
d. provide a lower return than the market average.
The decisions of firms and households are guided by prices and self-interest in a
a. command economy.
b. centrally-planned economy.
c. market economy.
d. All of the above are correct.
If there are floods or droughts or a decrease in the availability of raw materials
a. aggregate supply shifts right.
b. output falls in the short run.
c. prices fall in the short run.
d. None of the above is correct.
When a country allows international trade and becomes an importer of a good,
a. domestic producers of the good become better off.
b. domestic consumers of the good become worse off.
c. the gains of the winners exceed the losses of the losers.
d. All of the above are correct.
Figure 2-9
Panel (a) Panel (b)
Refer to Figure 2-9, Panel (a). The opportunity cost of one computer is highest when
the economy produces
a. 0 computers.
b. 6 computers.
c. 10 computers.
d. 12 computers.
If stock prices follow a random walk, then stock investors can make large profits by
a. buying stocks whose prices have been falling for several days.
b. buying stocks whose prices have been rising for several days.
c. performing fundamental analysis of stocks using data contained in annual reports.
d. using inside information.
In the market for widgets, the supply curve is the typical upward-sloping straight line,
and the demand curve is the typical downward-sloping straight line. The equilibrium
quantity in the market for widgets is 200 per month when there is no tax. Then a tax of
$5 per widget is imposed. As a result, the government is able to raise $750 per month in
tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by
a. 25 per month.
b. 50 per month.
c. 75 per month.
d. 100 per month.
Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of
mints rises from $1.25 to $1.75. If the CPI rises from 140 to 182, then people likely will
buy
a. more cola and more mints.
b. more cola and fewer mints.
c. less cola and more mints.
d. less cola and fewer mints.
Total surplus with a tax is equal to
a. consumer surplus plus producer surplus.
b. consumer surplus minus producer surplus.
c. consumer surplus plus producer surplus minus tax revenue.
d. consumer surplus plus producer surplus plus tax revenue.
The residents of country A earn $500 million of income from abroad. Residents of other
countries earn $200 million in country A. These earnings are accounted for in country
A’s
a. GNP which is larger than GDP in country A.
b. GNP which is smaller than GDP in country A.
c. GDP which is larger than GNP in country A.
d. GDP which is smaller than GNP in country A.
Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then
other things the same, we would expect
a. lower interest rates and investment in 2011 than in 2010.
b. lower interest rates and greater investment in 2011 than in 2010.
c. higher interest rates and greater investment in 2011 than in 2010.
d. higher interest rates and lower investment in 2011 than in 2010.
Which of the following is correct?
a. In the national income accounts, investment and private saving refer to the same
thing.
b. In a closed economy if national saving is greater than zero, then everyone must be
saving.
c. The financial system channels funds from savers to borrowers.
d. People whose consumption exceeds their income are savers.
The manager of the bank where you work tells you that the bank has $400 million in
deposits and $340 million dollars in loans. The Fed then raises the reserve requirement
from 10 percent to 15 percent. Assuming everything else stays the same, how much is
the bank holding in excess reserves after the increase in the reserve requirement?
a. $0
b. $20 million
c. $40 million
d. $60 million
Figure 21-2. On the left-hand graph, MS represents the supply of money and MD
represents the demand for money; on the right-hand graph, AD represents aggregate
demand. The usual quantities are measured along the axes of both graphs.
.
Refer to Figure 21-2. Assume the money market is always in equilibrium, and suppose
r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the
following statements is correct?
a. When r = r2, nominal output is higher than it is when r = r1.
b. When r = r2, real output is higher than it is when r = r1.
c. When r = r2, the expected rate of inflation is higher than it is when r = r1.
d. If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.
Efficiency-wage theory suggests that paying
a. low wages might be profitable because they raise the efficiency of a firm’s workers.
b. low wages might be profitable because they lower the efficiency of a firm’s workers.
c. high wages might be profitable because they raise the efficiency of a firm’s workers.
d. high wages might be profitable because they lower the efficiency of a firm’s workers.
Figure 4-21
Refer to Figure 4-21. Which of the following movements would illustrate the effect in
the market for chocolate chip cookies of a decrease in the price of flour?
a. Point A to Point B
b. Point C to Point B
c. Point C to Point D
d. Point A to Point D
Which of the following shifts short-run aggregate supply left?
a. an increase in price expectations
b. an increase in the actual price level
c. a decrease in the money supply
d. a decrease in the price of oil
The short-run tradeoff between inflation and unemployment implies that, in the short
run,
a. a decrease in the growth rate of the quantity of money will be accompanied by an
increase in the unemployment rate.
b. an increase in the growth rate of the quantity of money will be accompanied by an
increase in the unemployment rate.
c. policymakers are able to reduce the inflation rate and, at the same time, reduce the
unemployment rate.
d. policymakers can influence the inflation rate, but not the unemployment rate.