Figure 2-3
Refer to Figure 2-3. Inefficient production is represented by which point(s)?
a. J, L
b. J, L, M
c. K, N
d. M
A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does
not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The
cost of making and selling a dozen bagels is $1.00; there are no costs associated with
throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a
particular day, which of the following alternatives is most attractive?
a. Lower the price of the remaining bagels, even if the price falls below $1.00 per
dozen.
b. Lower the price of the remaining bagels, but under no circumstances should the price
fall below $1.00 per dozen.
c. Throw the bagels away and produce 8 fewer dozen bagels tomorrow.
d. Starting tomorrow, lower the price on all bagels so they will all be sold earlier in the
day.
If the MPC is 3/4 then the multiplier is
a. 4, so a $100 increase in government spending increases aggregate demand by $400.
b. 4, so a $100 increase in government spending increases output by $400.
c. 4/3, so a $100 increase in government spending increases aggregate demand by
$400/3.
d. 4/3, so a $100 increase in government spending increases output by $400/3.
Which of the following statements is true for markets in which the demand curve slopes
downward and the supply curve slopes upward?
a. As the size of the tax increases, tax revenue continually rises and deadweight loss
continually falls.
b. As the size of the tax increases, tax revenue and deadweight loss rise initially, but
both eventually begin to fall.
c. As the size of the tax increases, tax revenue rises initially, but it eventually begins to
fall; deadweight loss continually rises.
d. As the size of the tax increases, tax revenue rises initially, but it eventually begins to
fall; deadweight loss falls initially, but eventually it begins to rise.
The average price level is measured by
a. any real variable.
b. the rate of inflation.
c. the level of the money supply.
d. the CPI or the GDP deflator.
Figure 3-7
Bintu’s Production Possibilities Frontier Juba’s Production Possibilities Frontier
Refer to Figure 3-7. The opportunity cost of 1 cup for Juba is
a. 1/6 bowl.
b. 2/3 bowl.
c. 3/2 bowls.
d. 6 bowls.
Table 10-6
The table below contains data for the country of Batterland, which produces only
waffles and pancakes. The base year is 2009.
Prices and Quantities
Refer to Table 10-6. In 2009, this country’s GDP deflator was
a. 1.
b. 100.
c. 138.5.
d. 540.
Between 1880 and 1886, prices that were
a. lower than expected transferred wealth from creditors to debtors.
b. lower than expected transferred wealth from debtors to creditors.
c. higher than expected transferred wealth from creditors to debtors.
d. higher than expected transferred wealth from debtors to creditors.
When we say that trade is roundabout we mean that
a. people sometimes trade goods for goods.
b. trades require a double coincidence of wants.
c. currency is accepted primarily to make further trades.
d. people must spend time searching for the products they wish to purchase.
Which of the following is not consistent with the efficient market hypothesis?
a. Stock prices should follow a random walk.
b. Index funds should typically outperform highly managed funds.
c. News has no effect on stock prices.
d. There is little point in spending many hours studying the business pages looking for
undervalued stocks.
Which tool of monetary policy does the Federal Reserve use most often?
a. term auctions
b. open-market operations
c. changes in reserve requirements
d. changes in the discount rate
Which of the following subcomponents of GDP can be either positive or negative?
a. inventory investment
b. exports
c. government purchases
d. All of the above are correct.
Which of the following is an example of menu costs?
a. deciding on new prices
b. printing new price lists
c. advertising new prices
d. All of the above are examples of menu costs.
A decrease in input costs to firms in a market will result in a(n)
a. decrease in equilibrium price and an increase in equilibrium quantity.
b. decrease in equilibrium price and a decrease in equilibrium quantity.
c. increase in equilibrium price and a decrease in equilibrium quantity.
d. increase in equilibrium price and an increase in equilibrium quantity.
Figure 9-10. The figure applies to Mexico and the good is rifles.
Refer to Figure 9-10. The area bounded by the points (Q0, P0), (Q2, P1), and (Q1, P1)
represents
a. Mexico’s gains from trade.
b. the amount by which Mexico’s gain in producer surplus exceeds its loss in consumer
surplus due to trade.
c. Mexico’s loss in total surplus due to trade.
d. All of the above are correct.
Figure 8-3
The vertical distance between points A and C represents a tax in the market.
Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the
area
a. P1P3AC.
b. P3ABP2.
c. P1P3ABC.
d. ABC.
Long lines
a. and discrimination according to seller bias are both inefficient rationing mechanisms
because they both waste buyers’ time.
b. and discrimination according to seller bias are both inefficient rationing mechanisms
because the good does not necessarily go to the buyer who values it most highly.
c. are an inefficient rationing mechanism because they waste buyers’ time, and
discrimination according to seller bias is an inefficient rationing mechanism because the
good does not necessarily go to the buyer who values it most highly.
d. are an inefficient rationing mechanism because the good does not necessarily go to
the buyer who values it most highly, and discrimination according to seller bias is an
inefficient rationing mechanism because it wastes buyers’ time.
You receive $500 today which you plan to save for two years. Also, in two years you
will be given another $500. If the interest rate is 5 percent, what is the present value of
the payment of $500 today and the $500 in two years?
a. $500(1.05)2 + $500/(1.05)2
b. $500(1.05)2 + $500
c. $500 + $500/(1.05)2
d. $500 + $500
Which of the following statements is correct?
a. A corporation receives a monetary payment every time its shares of stock are traded
by stockholders on organized stock exchanges.
b. When a corporation sells bonds as a means of raising funds it is engaging in debt
finance.
c. A share of stock is an IOU.
d. The two most important financial markets in the economy are the stock market and
financial intermediaries.
Figure 9-13
Refer to Figure 9-13. The price and domestic quantity demanded after trade are
a. $8 and 300.
b. $8 and 900.
c. $14 and 900.
d. $14 and 600.
In a particular economy, the price index was 270 in 2005 and 300 in 2006. Which of the
following statements is correct?
a. The economy experienced a rising price level between 2005 and
b. The economy experienced a higher inflation rate between 2005 and 2006 than it had
experienced between 2004 and 2005.
c. The inflation rate between 2005 and 2006 was 30 percent.
d. All of the above are correct.
Economists differ in their views of the role of the government in promoting economic
growth. At the very least, the government should
a. lend support to the invisible hand by maintaining property rights and political
stability.
b. limit foreign investment to industries that don’t already exist in the country.
c. impose trade restrictions to protect the interests of domestic producers and
consumers.
d. subsidize key industries.
Suppose over some period of time the money supply tripled, velocity was unchanged,
and real GDP doubled. According to the quantity equation the price level is now
a. 6 times its old value.
b. 3 times its old value.
c. 1.5 times its old value.
d. 0.75 times its old value
Table 5-5
Refer to Table 5-5. Which of the three supply curves represents the least elastic
supply?
a. supply curve A
b. supply curve B
c. supply curve C
d. There is no difference in the elasticity of the three supply curves.
The members of the Federal Reserve’s Board of Governors
a. are elected to office by the public every fourteen years.
b. are nominated by the U.S. Senate banking committee and confirmed by the U.S.
house of representatives.
c. are elected by bankers in each Federal Reserve Region.
d. are appointed by the president of the U.S. and confirmed by the U.S. Senate.
When the price level falls, the number of dollars needed to buy a representative basket
of goods
a. increases, so the value of money rises.
b. increases, so the value of money falls.
c. decreases, so the value of money rises.
d. decreases, so the value of money falls.
If there is a surplus of loanable funds, the quantity demanded is
a. greater than the quantity supplied and the interest rate will rise.
b. greater than the quantity supplied and the interest rate will fall.
c. less than the quantity supplied and the interest rate will rise.
d. less than the quantity supplied and the interest rate will fall.
The Surgeon General announces that eating apples promotes healthy teeth. As a result,
the equilibrium price of apples
a. increases, and producer surplus increases.
b. increases, and producer surplus decreases.
c. decreases, and producer surplus increases.
d. decreases, and producer surplus decreases.
Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant
wheat on 10 percent of their land, then
a. consumers of wheat would buy more wheat.
b. wheat farmers would suffer a reduction in their total revenue.
c. wheat farmers would experience an increase in their total revenue.
d. the demand for wheat would decrease.
What is the future value of $800 one year from today if the interest rate is 7 percent?
a. $747.66
b. $756.00
c. $856.00
d. None of the above are correct to the nearest cent.
The model of the market for loanable funds shows that an investment tax credit will
cause interest rates to rise and investment to rise. Yet we also suppose that higher
interest rates lead to lower investment. How can these two conclusions be reconciled?
The demand for bread is likely to be more elastic than the demand for solid-gold bread
plates.
For the most part, fiscal policy affects the economy in the short run while monetary
policy primarily matters in the long run.
Opportunity cost refers to how many inputs a producer requires to produce a good.
Bottles of very fine wine are less liquid than demand deposits.
A country with negative net exports has a trade surplus.
According to the theory of efficiency wages, firms operate more efficiently if wages are
below the equilibrium level.
Real GDP is a better gauge of economic well-being than is nominal GDP.
If speculators bid up the value of the dollar in the market for foreign-currency
exchange, U.S. aggregate demand would shift to the left.
A binding price floor causes a shortage in the market.
Table 15-5
2010 Labor Data for Tajnia
Refer to Table 15-5. The labor-force participation rate of Tajnia in 2010 is about 33.3
percent.
On a graph that depicts the market for loanable funds, the nominal interest rate is
measured along the vertical axis.
Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie’s opportunity
cost of one apple pie is 1/2 gallon of ice cream and Brendan’s opportunity cost of one
apple pie is 1/4 gallon of ice cream, Ellie has a comparative advantage in the production
of ice cream.
In the markets for the factors of production in the circular-flow diagram, households are
buyers and firms are sellers.
A decrease in the price level makes consumers feel wealthier, so they purchase more.
This logic helps explain why the aggregate demand curve slopes downward.
ZZL Corporation has the opportunity to undertake an investment project that will cost
$20,000 today. If the interest rate is 20 percent and if the project will yield the company
$30,000 in 3 years, then ZZL will undertake the project.
The present value of any future sum of money is the amount that would be needed
today, at current interest rates, to produce that future sum.