If a 40% change in price results in a 25% change in quantity supplied, then the price
elasticity of supply is about
a. 0.63, and supply is elastic.
b. 0.63, and supply is inelastic.
c. 1.60, and supply is elastic.
d. 1.60, and supply is inelastic.
Table 7-7
The following table represents the costs of five possible sellers.
Refer to Table 7-7. Suppose each of the five sellers can supply at most one unit of the
good. The market quantity supplied is exactly 4 if the price is
a. $770.
b. $970.
c. $1,170.
d. $1,370.
Home is a country that produces two goods, pears and cellular phones. Last year, Home
produced 450 bushels of pears and 1050 cellular phones. This year it produced 450
bushels of pears and 2000 cellular phones. Given no other information, which of the
following events could explain this change?
a. Home experienced increased unemployment.
b. Home experienced a decline in pear-producing technology.
c. Home experienced an improvement in cellular phone-making technology.
d. Home experienced a reduction in resources.
If the tax on gasoline increases from $2 to $4 per gallon, the deadweight loss from the
tax increases by a factor of
a. one-half.
b. two.
c. four.
d. six.
Technological knowledge refers to
a. human capital.
b. available information on how to produce things.
c. resources expended transmitting society’s understanding to the labor force.
d. All of the above are technological knowledge.
When a tax is levied on the sellers of a good, the
a. supply curve shifts upward by the amount of the tax.
b. quantity demanded decreases for all conceivable prices of the good.
c. quantity supplied increases for all conceivable prices of the good.
d. None of the above is correct.
If a U.S. textbook publishing company sells texts overseas, U.S. net exports
a. increase, and U.S. net capital outflow increases.
b. increase, and U.S. net capital outflow decreases.
c. decrease, and U.S. net capital outflow increases.
d. decrease, and U.S. net capital outflow decreases.
Figure 8-10
Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity
sold in the market after the tax to Q2. With the tax, the total surplus is
a. [ x (P0-P5) x Q5] + [ x (P5-0) x Q5].
b. [ x (P0-P2) x Q2] +[(P2-P8) x Q2] + [ x (P8-0) x Q2].
c. (P2-P8) x Q2.
d. x (P2-P8) x (Q5-Q2).
Suppose that consumers choose to smoke less and chew gum more. Tobacco companies
cut back on the number of people they employ while chewing gum manufacturers
employ more. This is an example of
a. structural unemployment created by efficiency wages.
b. structural unemployment created by sectoral shifts.
c. frictional unemployment created by efficiency wages.
d. frictional unemployment created by sectoral shifts.
When quantity demanded has increased at every price, it might be because
a. the number of buyers in the market has decreased.
b. income has increased, and the good is an inferior good.
c. the costs incurred by sellers producing the good have decreased.
d. the price of a complementary good has decreased.
Elasticity of demand is closely related to the slope of the demand curve. The more
responsive buyers are to a change in price, the
a. steeper the demand curve will be.
b. flatter the demand curve will be.
c. further to the right the demand curve will sit.
d. closer to the vertical axis the demand curve will sit.
Who would be included in the labor force?
a. Homer, who is waiting for his new job to start
b. Michelle, who has become discouraged looking for a job and has quit looking
c. Derrick, an unpaid homemaker
d. None of the above would be included in the labor force.
Consider the following rule for monetary policy: r = 2 percent + + 1/2(y – y*)/y* +
1/2(- *), where r is the nominal federal funds rate, y is real GDP, y* is an estimate of
the natural rate of output, is the inflation rate, and * is the inflation target. Other
things the same, if the inflation rate rises by 1 percentage point this rule says the Fed
should increase the nominal federal funds rate by
a. 1/2 percentage point
b. 1 percentage point
c. 1 and 1/2 percentage points
d. 3 and 1/2 percentage points
In an open economy, national saving equals
a. domestic investment plus net capital outflow.
b. domestic investment minus net capital outflow.
c. domestic investment.
d. net capital outflow.
Figure 8-16
Refer to Figure 8-16. Suppose the government imposes a $1 tax in each of the four
markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the
smallest in the market represented by
a. S1.
b. S2.
c. S3.
d. S4.
Suppose that an economy is currently experiencing 10 percent unemployment and 15
percent inflation. If in the process of bringing inflation down by 2 percentage points,
real GDP falls by 6 percent for a year, the sacrifice ratio is
a. 5.
b. 2.
c. 12.
d. None of the above is correct.
Of the following interest rates, which is the highest one at which you would prefer to
have $170 ten years from today instead of $100 today?
a. 3 percent
b. 5 percent
c. 7 percent
d. 9 percent
Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new
car from the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year,
Tyler sold the car to Camille for $17,000. By how much did these transactions
contribute to U.S. GDP for the year?
a. $18,000
b. $22,000
c. $39,000
d. $57,000
During the 2008-2009 unemployment rose from about 4.4% to about
a. 6%
b. 8%
c. 10%
d. 12%
Which of the following areas of study typifies macroeconomics as opposed to
microeconomics?
a. the effects of rent control on the availability of housing in New York City
b. the economic impact of tornadoes on cities and towns in Oklahoma
c. how tariffs on shoes affects the shoe industry
d. the effect on the economy of changes in the nation’s unemployment rate
Table 3-14
The following table contains some production possibilities for an economy for a given
year.
Refer to Table 3-14. If the production possibilities frontier is a straight line, then “?”
must be
a. 340.
b. 330.
c. 320.
d. 310.
Scenario 12-1. An economy’s production form takes the form Y = AF(L, K, H, N).
Refer to Scenario 12-1. If the production function has the constant-returns-to-scale
property, then if we know the values of A, K/L, H/L, and N/L, we also know the value of
a. output.
b. labor productivity.
c. A.
d. All of the above are correct.
The invisible hand’s ability to coordinate the decisions of the firms and households in
the economy can be hindered by
a. government actions that distort prices.
b. increased competition in markets.
c. enforcement of property rights.
d. too much attention paid to efficiency.
The “invisible hand” directs economic activity through
a. advertising.
b. prices.
c. central planning.
d. government regulations.
According to liquidity preference theory, if the quantity of money demanded is greater
than the quantity supplied, then the interest rate will
a. increase and the quantity of money demanded will decrease.
b. increase and the quantity of money demanded will increase.
c. decrease and the quantity of money demanded will decrease.
d. decrease and the quantity of money demanded will increase.
In economics, capital refers to
a. the finances necessary for firms to produce their products.
b. buildings and machines used in the production process.
c. the money households use to purchase firms’ output.
d. stocks and bonds.
Which of the following statements is correct? In 2008,
a. real income per person in the U.S. was about 8 times that in China.
b. real income per person in China was about 2 times that in India in 2008.
c. the typical resident of India had less real income than the typical resident of England
in
d. All of the above are correct.
Which of the following statements is correct? In the special case of the 100-percent
reserve banking the money multiplier is
a. 0 and banks create money.
b. 0 and banks do not create money.
c. 1 and banks create money
d. 1 and banks do not create money.
In the basket of goods that is used to compute the consumer price index, the three
largest categories of consumer spending are
a. housing, transportation, and recreation.
b. housing, transportation, and food & beverages.
c. housing, food & beverages, and education & communication.
d. housing, medical care, and education & communication.
On which of these bonds is the prospect of default most likely?
a. a junk bond
b. a municipal bond
c. a U.S. government bond
d. a corporate bond issued by Proctor & Gamble Corporation
The goal of the minimum wage is to ensure workers a minimally adequate standard of
living.
A country’s standard of living depends on its ability to produce goods and services.
If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is
$10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price
elasticity of supply is 2.
Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of
$15 million, and currently has issued 10 million shares of stocks selling at $90 each.
Compute the price-earning ratio. Show your work. Is this ratio relatively high or low?
What might an increase in the price-earnings ratio indicate?
Unions are often thought to cause conflict between different groups of workers —
between the insiders who benefit from high union wages and the outsiders who do not
get the union jobs.
An increase in the money supply decreases the equilibrium interest rate and shifts the
aggregate-demand curve to the right.
When a union raises the wage above the equilibrium level, it reduces the quantity of
labor supplied and raises the quantity of labor demanded, resulting in unemployment.
The principle of comparative advantage states that, regardless of the price at which
trade takes place, everyone will benefit from trade if they specialize in the production of
the good for which they have a comparative advantage.
Banks and mutual funds are examples of financial markets.
When free markets ration goods with prices, it is both efficient and impersonal.
A rational investor will always purchase the bond that pays the highest real interest rate.
An increase in the price of maple syrup will decrease both the equilibrium price and
quantity in the market for pancakes.
If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.
Suppose that the Prime Minister and Parliament of Veridian are disappointed with the
high inflation rates under the current system where the Veridian Ministry of Finance is
in charge of the money supply. They make reforms to lower inflation from its current
rate of 8%. Suppose further that the public is confident that with the reforms in place
that inflation will fall to 2%. Also suppose that those in control of the money supply
actually conduct monetary policy so that the actual inflation rate is 4%. Using long-run
and short-run Phillips curves and assuming the natural rate of unemployment is 6%,
show the initial long run equilibrium of Veridian and label it “A”. Assuming that the
government had actually set inflation at 2% and that the public believed this, label the
long-run equilibrium “B”. Now, suppose that inflation expectations fell to 2% and that
the government unexpectedly created inflation of 4%. Show the short-run equilibrium
and label it “C”. If the money supply continues to grow at a rate consistent with 4%
inflation, show where the economy ends up and label that point “D”.
A drop in a country’s real interest rate reduces that country’s net capital outflow.
In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1
sweater or 3 scarves. Together, they could produce more output in total if Moira knits
only sweaters and Tori knits only scarves.
The same size decrease in the amount of capital stock per worker will cause output per
worker to fall by more in a country with a relatively high level of capital per worker
than in a country with a relatively low level of capital per worker.
Sectoral shifts contribute to frictional unemployment.