Efficiency wages create a labor
a. surplus and so increase unemployment.
b. surplus and so decrease unemployment.
c. shortage and so increase unemployment.
d. shortage and so decrease unemployment.
When we move along a given demand curve,
a. only price is held constant.
b. income and price are held constant.
c. all nonprice determinants of demand are held constant.
d. all determinants of quantity demanded are held constant.
Figure 2-2
Refer to Figure 2-2. If households are buyers in the markets represented by Box C of
this circular-flow diagram, then
a. Box C must represent the markets for the factors of production.
b. Box D must represent the markets for goods and services.
c. firms are sellers in the markets represented by Box C.
d. All of the above are correct.
The introduction of the video cassette recorder in the 1970s exemplified a problem in
measuring the cost of living; that problem is the problem of
a. substitution bias.
b. product-improvement bias.
c. introduction of new goods.
d. unmeasured quality change.
Figure 3-11
The graph below represents the various combinations of ham and cheese (in pounds)
that the nation of Bonovia could produce in a given month.
Refer to Figure 3-11. If the production possibilities frontier shown is for 240 hours of
production, then which of the following combinations of ham and cheese could
Bonovia not produce in 240 hours?
a. 250 pounds of ham and 120 pounds of cheese
b. 200 pounds of ham and 160 pounds of cheese
c. 160 pounds of ham and 200 pounds of cheese
d. 100 pounds of ham and 240 pounds of cheese
For the purpose of calculating the consumer price index, the basket of goods
a. is kept the same from year to year so that the effects of price changes are isolated
from the effect of any quantity changes that might be occurring at the same time.
b. is kept the same from year to year; otherwise, the value of the index would remain
constant from year to year.
c. varies from year to year; otherwise, the value of the index would remain constant
from year to year.
d. varies from year to year so that consumers’ buying patterns are updated in a timely
fashion.
The Surgeon General announces that eating chocolate increases tooth decay. As a result,
the equilibrium price of chocolate
a. increases, and producer surplus increases.
b. increases, and producer surplus decreases.
c. decreases, and producer surplus increases.
d. decreases, and producer surplus decreases.
Sage decides to cash in all his savings to open a recording studio. He has three accounts
to cash in. The first earned 9 percent for two years. The second earned 6 percent for
three years. And the last earned 3 percent for six years. Supposing he started with
$5,000 in each account, from which account will he get the most cash?
a. the two-year account at 9 percent
b. the three-year account at 6 percent
c. the six-year account at 3 percent
d. The accounts are all worth the same.
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. The area
measured by I+J+K+L+M+Y represents
a. total surplus before the tax.
b. total surplus after the tax.
c. consumer surplus before the tax.
d. deadweight loss from the tax.
Which of the following would likely have the smallest deadweight loss relative to the
tax revenue?
a. a head tax (that is, a tax everyone must pay regardless of what one does or buys)
b. an income tax
c. a tax on compact discs
d. a tax on caviar
Duties of the Council of Economic Advisers include
a. advising the president and writing the annual Economic Report of the President.
b. implementing the president’s tax policies.
c. tracking the behavior of the nation’s money supply.
d. All of the above are correct.
Of the following interest rates, which is the highest one at which the present value of
$200 ten years from today is greater than $150?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
Scenario 9-2
For a small country called Boxland, the equation of the domestic demand curve for
cardboard is
,
where represents the domestic quantity of cardboard demanded, in tons, and
represents the price of a ton of cardboard.
For Boxland, the equation of the domestic supply curve for cardboard is
,
where represents the domestic quantity of cardboard supplied, in tons, and again
represents the price of a ton of cardboard.
Refer to Scenario 9-2. Suppose the world price of cardboard is $45. Then Boxland’s
gains from international trade in cardboard amount to
a. $88.75.
b. $102.50.
c. $122.50.
d. $135.00.
A U.S. firm buys cement mixers from China and pays for them with U.S. dollars.
a. The purchase of the cement mixers increases U.S. net exports and the payment with
dollars increases U.S. net capital outflow.
b. The purchase of cement mixers increases U.S. net exports and the payment with
dollars decreases U.S. net capital outflow.
c. The purchase of cement mixers decreases U.S. net exports and the payment with
dollars increases U.S. net capital outflow.
d. The purchase of cement mixers decreases U.S. net exports and the payment with
dollars decreases U.S. net capital outflow.
Which of the following policy changes would lead to a decrease in the real interest rate
and an increase in investment and saving?
a. a larger investment tax credit
b. an expansion of eligibility for Individual Retirement Accounts
c. an increase in income-tax rates, with no change in the government budget deficit or
surplus
d. an increase in government purchases, with no change in taxes
In a system of 100-percent-reserve banking, the purpose of a bank is to
a. make loans to households.
b. influence the money supply.
c. give depositors a safe place to keep their money.
d. buy and sell gold.
If something happens to alter the quantity supplied at any given price, then
a. we move along the supply curve.
b. the supply curve shifts.
c. the supply curve becomes steeper.
d. the supply curve becomes flatter.
Table 5-4
Refer to Table 5-4. When price is between $10 and $14, demand is
a. elastic.
b. unit elastic.
c. inelastic.
d. There is not enough information given to determine whether demand is elastic, unit
elastic, or inelastic.
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 bread 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.
The Employment Act of 1946
a. implies that the government should avoid being a cause of economic fluctuations.
b. implies that the government should respond to changes in the private economy to
stabilize aggregate demand.
c. reflected the ideas promoted in Keynes’s influential book, The General Theory of
Employment, Interest, and Money.
d. All of the above are correct
If the reserve ratio is 100-percent, then a new deposit of $500 into a bank account
a. eventually increases the money supply by $500.
b. leaves the size of the money supply unchanged.
c. eventually decreases the size of the money supply by $500.
d. None of the above is correct.
The income elasticity of demand for caviar tends to be
a. high because caviar is relatively expensive.
b. low because caviar is packaged in small containers.
c. high because buyers generally feel that they can do without it.
d. low because it is almost always in short supply.
When inflation rises, people
a. make less frequent trips to the bank and firms make less frequent price changes.
b. make less frequent trips to the bank while firms make more frequent price changes.
c. make more frequent trips to the bank while firms make less frequent price changes.
d. make more frequent trips to the bank and firms make more frequent price changes.
A seller’s willingness to sell is
a. measured by the seller’s cost of production.
b. related to her supply curve, just as a buyer’s willingness to buy is related to his
demand curve.
c. less than the price received if producer surplus is a positive number.
d. All of the above are correct.
The field of economics is traditionally divided into two broad subfields,
a. national economics and international economics.
b. consumer economics and producer economics.
c. private sector economics and public sector economics.
d. microeconomics and macroeconomics.
The economy will move to a point on the short-run Phillips curve where unemployment
is higher if
a. the inflation rate decreases.
b. the government increases its expenditures.
c. the Fed increases the money supply.
d. None of the above is correct.
Sticky nominal wages can result in
a. lower profits for firms when the price level is lower than expected.
b. a decrease in real wages when the price level is lower than expected.
c. a short-run aggregate-supply curve that is vertical.
d. a long-run aggregate-supply curve that is upward-sloping.
For a vertical demand curve,
a. the slope is undefined, and the price elasticity of demand is equal to 0.
b. the slope is equal to 0, and the price elasticity of demand is undefined.
c. both the slope and price elasticity of demand are undefined.
d. both the slope and price elasticity of demand are equal to 0.
Kayla faces risks and she pays a fee to ABC Company; in return, ABC Company agrees
to accept some or all of Kayla’s risks. ABC Company is
a. a mutual fund.
b. an insurance company.
c. a diversified company.
d. an equity-financed company.
Scenario 16-1.
The monetary policy of Namdian is determined by the Namdian Central Bank. The
local currency is the dia. Namdian banks collectively hold 100 million dias of required
reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury
Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use
only demand deposits and so the money supply consists of demand deposits.
Refer to Scenario 16-1 . Suppose the Central Bank of Namdia purchases 25 million
dias of Namdian Treasury Bonds from banks. Suppose also that both the reserve
requirement and the percentage of deposits held as excess reserves stay the same. By
how much would the money supply of Namdia change?
a. 200 million dias
b. 150 million dias
c. 100 million dias
d. None of the above is correct.
Other things the same, if the dollar appreciates relative to the Japanese yen, then
a. the exchange rate falls. It will cost fewer yen to travel in the U.S.
b. the exchange rate falls. It will cost more yen to travel in the U.S.
c. the exchange rate rises. It will cost fewer yen to travel in the U.S.
d. the exchange rate rises. It will cost more yen to travel in the U.S.
Table 7-7
The following table represents the costs of five possible sellers.
Refer to Table 7-7. Who is a marginal seller when the price is $1,200?
a. Bobby
b. Bobby and Abby
c. Carlos, Dianne, and Evalina
d. Carlos, Dianne, Evalina, and Bobby
A price ceiling is binding when it is set
a. above the equilibrium price, causing a shortage.
b. above the equilibrium price, causing a surplus.
c. below the equilibrium price, causing a shortage.
d. below the equilibrium price, causing a surplus.
Funsters, Inc., the largest toy company in the country, sells its most popular doll for
$15. It has just learned that its leading competitor, Toysorama, is mass-producing an
excellent copy and plans to flood the market with their $5 doll in six weeks. Funsters
should
a. “fight fire with fire” by decreasing supply of its doll for six weeks and then
increasing the supply.
b. increase the supply of its doll now before the other doll hits the market.
c. increase the price of its doll now.
d. discontinue its doll.
Most labor economists believe that the supply of labor is much more elastic than the
demand.
Most economist agree that money changes real GDP in both the short and long run.
If a production function has constant returns to scale, then if all inputs double so does
production.
Economists mostly agree that the Great Depression was principally caused by factors
that shifted short-run aggregate supply left.
If total spending rises from one year to the next, then the economy must be producing a
larger output of goods and services.
The quantity demanded of a product is the amount that buyers are willing and able to
purchase at a particular price.
In a closed economy, investment must be equal to private saving.
The output of goods and services produced in the United States has grown on average 3
percent per year since 1965.
If a firm produces a good and then adds it to its inventory rather than selling it, for the
purposes of GDP accounting the firm is considered to have “purchased” the good so it
will count as part of that period’s investment expenditures.
Most markets in the economy are highly competitive.
Communist countries worked on the premise that government officials were in the best
position to allocate the economy’s scarce resources.
Compare and contrast the population theories of Malthus and Kremer.
If nominal GDP is $10,000 and real GDP is $8,000, then the GDP deflator is 125.
Price floors are typically imposed to benefit sellers.
Make a list of expenditures whose sum equals GDP.
There are ways that policymakers could reduce the costs of inflation without reducing
inflation.
Wages and prices are many times higher today than they were 30 years ago, yet people
do not work a lot more hours or buy fewer goods. How can this be?
Efficiency means everyone in the economy should receive an equal share of the goods
and services produced.
Two countries with the same saving rates must have the same growth rate of real GDP
per person.