Suppose the price index was 110 in 2004, 120 in 2005, and 125 in Which of the
following statements is correct?
a. The economy experienced inflation between 2004 and 2005 and between 2005 and
2006.
b. The inflation rate was positive between 2004 and 2005, and it was negative between
2005 and 2006.
c. The inflation rate was higher between 2005 and 2006 than it was between 2004 and
2005.
d. All of the above are correct.
Figure 3-4
Perry’s Production Possibilities Frontier Jordan’s Production Possibilities Frontier
Refer to Figure 3-4. Perry should specialize in the production of
a. novels.
b. poems.
c. both goods.
d. neither good.
The amount of goods and services produced from each unit of labor input is called
a. opportunity cost.
b. productivity.
c. externality.
d. marginal benefit.
In response to the sharp decline in stock prices in October 1987, the Federal Reserve
a. increased interest rates, and the economy avoided a recession.
b. increased interest rates, but the economy was unable to avoid a recession.
c. decreased interest rates, and the economy avoided a recession.
d. decreased interest rates, but the economy was unable to avoid a recession.
Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.
Refer to Figure 8-8. After the tax goes into effect, producer surplus is the area
a. D+F+G+H+J.
b. D+F+G+H.
c. D+F+J.
d. J.
If households view a tax cut as temporary, then the tax cut
a. has no affect on aggregate demand.
b. has more of an affect on aggregate demand than if households view it as permanent.
c. has the same affect as when households view the cut as permanent.
d. has less of an affect on aggregate demand than if households view it as permanent.
In the economy of Ukzten in 2010, consumption was $3000, GDP was $5500,
government purchases were $1000, imports were $2000, and investment was $1000.
What were Ukzten’s exports in 2010?
a. -$1500
b. $500
c. $1500
d. $2500
Which of the following is not correct? In a 2006 survey of Ph.D. economists,
a. 47 percent favored eliminating the minimum wage.
b. 14 percent would maintain the minimum wage at its current level.
c. 38 percent would increase the minimum wage.
d. 10 percent would decrease the minimum wage.
Which of the following statements is an example of a positive, as opposed to normative,
statement?
a. Americans deserve a cleaner environment.
b. Reducing emissions reduces days missed from school due to asthma.
c. All Americans are entitled to quality health care.
d. Economic policies should focus on improving equality.
According to classical macroeconomic theory, changes in the money supply affect
a. variables measured in terms of money and variables measured in terms of quantities
or relative prices
b. variables measured in terms of money but not variables measured in terms of
quantities or relative prices
c. variables measured in terms of quantities or relative prices, but not variables
measured in terms of money
d. neither variables measured in terms of money nor variables measured in terms of
quantities or relative prices
Answer each of the following questions about supply and producer surplus.
a. What is producer surplus, and how is it measured?
b. What is the relationship between the cost to sellers and the supply curve?
c. Other things equal, what happens to producer surplus when the price of a good rises?
Illustrate your answer on a supply curve.
If a government of a country with a zero trade balance increases its budget deficit, then
the real exchange rate
a. appreciates and there is a trade surplus.
b. appreciates and there is a trade deficit.
c. depreciates and there is a trade surplus.
d. depreciates and there is a trade deficit.
Figure 3-3
Arturo’s Production Possibilities Frontier Dina’s Production Possibilities Frontier
Refer to Figure 3-3. Which of the following is not correct?
a. Arturo and Dina could each consume 100 tacos and 100 burritos without trade.
b. Neither Arturo nor Dina could each consume 200 tacos and 200 burritos without
trade.
c. Arturo and Dina could each consume 200 tacos and 200 burritos with trade.
d. Total consumption of burritos could not be 600 either with or without trade.
Popeye produces 20 cans of spinach in 8 hours. Wimpy produces 15 hamburgers in 10
hours. If each hamburger trades for 1.5 cans of spinach, then
a. Popeye’s production and productivity are greater than Wimpy’s.
b. Popeye’s production is greater than Wimpy’s, but his productivity is less.
c. Wimpy’s production and productivity are greater than Popeye’s.
d. Wimpy’s production is greater than Popeye’s, but his productivity is less.
Table 3-5
Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
Labor Hours Needed
to Make 1 Unit of Number of Units
Produced in 40 Hours
Refer to Table 3-5. We could use the information in the table to draw a production
possibilities frontier for England and a second production possibilities frontier for
Spain. If we were to do this, measuring cheese along the horizontal axis, then
a. the slope of England’s production possibilities frontier would be -4 and the slope of
Spain’s production possibilities frontier would be -2.
b. the slope of England’s production possibilities frontier would be -0.25 and the slope
of Spain’s production possibilities frontier would be -0.5.
c. the slope of England’s production possibilities frontier would be 0.25 and the slope of
Spain’s production possibilities frontier would be 0.5.
d. the slope of England’s production possibilities frontier would be 4 and the slope of
Spain’s production possibilities frontier would be 2.
Michael values a stainless steel refrigerator for his new house at $3,500, but he
succeeds in buying one for $3,000. Michael’s consumer surplus is
a. $500.
b. $3,000.
c. $3,500.
d. $6,500.
The natural rate of unemployment
a. is constant over time.
b. varies over time, but can”t be changed by the government.
c. is the socially desirable rate of unemployment.
d. does not depend on the rate at which the Fed increases the money supply.
An import quota
a. is preferable to a tariff since an import quota does not create a deadweight loss.
b. is a tax on imported goods.
c. reduces the welfare of domestic consumers.
d. reduces the welfare of domestic producers.
In which case can we be sure aggregate demand shifts left overall?
a. people want to save more for retirement and the government raises taxes
b. people want to save more for retirement and the government cuts taxes
c. people want to save less for retirement and the government raises taxes
d. people want to save less for retirement and the government cuts taxes
In the equation for the production function Y/L represents
a. productivity.
b. output.
c. the availability of natural resources.
d. the amount of human capital.
Job search
a. is one reason economies always experience some unemployment.
b. is the process of matching workers with appropriate jobs.
c. would not be a problem if all workers and all jobs were the same.
d. All of the above are correct.
Table 7-3
The only four consumers in a market have the following willingness to pay for a good:
Refer to Table 7-3. If there is only one unit of the good and if the buyers bid against
each other for the right to purchase it, then the good will sell for
a. $15 or slightly less.
b. $25 or slightly more.
c. $35 or slightly more.
d. $45 or slightly less.
Other things the same, when the price level falls, interest rates
a. rise, which means consumers will want to spend more on homebuilding.
b. rise, which means consumers will want to spend less on homebuilding.
c. fall, which means consumers will want to spend more on homebuilding.
d. fall, which means consumers will want to spend less on homebuilding.
Scenario 16-2.
The Monetary Policy of Tazi is controlled by the country’s central bank known as the
Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show
that collectively the banks of Tazi hold 300 million tazes of required reserves, 75
million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold
225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits
and so all money is on deposit at the bank.
Refer to Scenario 16-2. Assume that banks desire to continue holding the same ratio of
excess reserves to deposits. What is the reserve requirement and the reserve ratio for
Tazian Banks?
a. 5 percent, 8 percent
b. 4 percent, 8 percent
c. 4 percent, 5 percent
d. None of the above is correct.
In which case below does a person’s purchasing power from saving increase the least?
a. the nominal interest rate = 10% and inflation = 8%
b. the nominal interest rate = 9% and inflation = 6%
c. the nominal interest rate = 8% and inflation = 4%
d. the nominal interest rate = 7% and inflation = 2%
Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks
her balance and finds it’s worth about $708.62. How many years did she wait to check
her balance?
a. 5 years
b. 6 years
c. 7 years
d. 8 years
Figure 3-8
Chile’s Production Possibilities Frontier Colombia’s Production Possibilities
Frontier
Refer to Figure 3-8. Chile and Colombia would not be able to gain from trade if
Colombia’s opportunity cost of one pound of soybeans changed to
a. 1/2 pound of coffee.
b. 3/4 pound of coffee.
c. 4/3 pounds of coffee.
d. 2 pounds of coffee.
In 1974, one could buy a theater for $1.25. Today the same theater ticket costs $6.50.
Which pair of CPIs would imply that the cost in today’s dollars was the same for both
tickets?
a. 60 in 1964 and 390 today
b. 75 in 1964 and 390 today
c. 80 in 1964 and 404 today
d. 95 in 1964 and 475 today
Brian is the owner of a firm that produces bottled water in Washington state. There are
many other such firms in the area. Brian decides that if he pays his workers a wage
higher than the going market wage, his profits will increase. Which of the following is a
likely explanation for his decision?
a. The higher the wage, the less often his workers will choose to leave his firm.
b. The higher the wage, the lower will be the cost of obtaining needed supplies.
c. The higher the wage, the more he can charge for his water.
d. The higher the wage, the more he will have to monitor his workers for shirking.
Figure 3-6
Maxine’s Production Possibilities Frontier Daisy’s Production Possibilities
Frontier
Refer to Figure 3-6. If the production possibilities frontiers shown are each for one day
of work, then which of the following combinations of pies and tarts could Maxine and
Daisy together not make in a given day?
a. 2 pies and 25 tarts
b. 10 pies and 22 tarts
c. 12 pies and 15 tarts
d. 15 pies and 16 tarts
When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds
a. and U.S. net capital outflow rose.
b. and U.S. net capital outflow fell.
c. fell and U.S. net capital outflow rose.
d. rose and U.S. net capital outflow fell.
Figure 4-19
The diagram below pertains to the demand for turkey in the United States.
Refer to Figure 4-19. All else equal, sellers expecting the price of turkey to rise in the
future would cause a current move from
a. DA to DB.
b. DB to DA.
c. x to y.
d. y to x.
A problem that the Fed faces when it attempts to control the money supply is that
a. since the U.S. has a fractional-reserve banking system, the amount of money in the
economy depends in part on the behavior of depositors and bankers.
b. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any
of its monetary policy tools.
c. while the Fed has the ability to change the money supply by a large amount, it does
not have the ability to change it by a small amount.
d. federal legislation in the 1950s stripped the Fed of its power to act as a lender of last
resort to banks.
When the government places a tax on a product, the cost of the tax to buyers and sellers
a. is less than the revenue raised from the tax by the government.
b. is equal to the revenue raised from the tax by the government.
c. exceeds the revenue raised from the tax by the government.
d. Without additional information, such as the elasticity of demand for this product, it is
impossible to compare the cost of a tax to buyers and sellers with tax revenue.
From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made
people feel wealthier, then it would have shifted
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.