Welfare economics is the study of how
a. the allocation of resources affects economic well-being.
b. a price ceiling compares to a price floor.
c. the government helps poor people.
d. a consumer’s optimal choice affects her demand curve.
The proportion of minimum-wage earners who are in families with incomes below the
poverty line is
a. less than one-third.
b. between one-third and one-half.
c. between one-half and two-thirds.
d. greater than two-thirds.
Tariffs and quotas are different in the sense that
a. tariffs cause deadweight losses, while quotas do not cause deadweight losses.
b. tariffs raise revenue for the government, while quotas do not raise revenue for the
government.
c. tariffs enhance the well-being of domestic consumers, while quotas diminish the
well-being of domestic consumers.
d. tariffs enhance the well-being of domestic producers, while quotas diminish the
well-being of domestic producers.
Which of the following events would unambiguously cause a decrease in the
equilibrium price of cotton shirts?
a. an increase in the price of wool shirts and a decrease in the price of raw cotton
b. a decrease in the price of wool shirts and a decrease in the price of raw cotton
c. an increase in the price of wool shirts and an increase in the price of raw cotton
d. a decrease in the price of wool shirts and an increase in the price of raw cotton
All else equal, if there are diminishing returns, then which of the following is true if a
country increases its capital by one unit?
a. Output will rise by more than it did when the previous unit was added.
b. Output will rise but by less than it did when the previous unit was added.
c. Output will fall by more than it did when the previous unit was added.
d. Output will fall but by less then it did when the previous unit was added.
Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
Labor Hours
Needed to Make 1
Refer to Table 3-2. Which of the following combinations of coolers and radios could
Aruba produce in one 40-hour week?
a. 3 coolers and 7 radios
b. 5 coolers and 6 radios
c. 11 coolers and 4 radios
d. 13 coolers and 3 radios
In response to the financial crisis of 2007-2008, policymakers used
a. expansionary monetary policy and expansionary fiscal policy.
b. expansionary monetary policy and contractionary fiscal policy.
c. contractionary monetary policy and expansionary fiscal policy.
d. contractionary monetary policy and contractionary fiscal policy.
The tax burden will fall most heavily on sellers of the good when the demand curve
a. is relatively steep, and the supply curve is relatively flat.
b. is relatively flat, and the supply curve is relatively steep.
c. and the supply curve are both relatively flat.
d. and the supply curve are both relatively steep.
Which of the following is not held constant when looking at an individual’s demand
curve?
a. income
b. price
c. preferences
d. the availability of alternative goods
An individual would suffer lower losses from an unexpectedly higher inflation rate if
a. she held much currency and owned few bonds.
b. she held much currency and owned many bonds.
c. she held little currency and owned few bonds.
d. she held little currency and owned many bonds.
Which of the following is correct?
a. In a closed economy, equilibrium in the market for loanable funds occurs where
saving = investment.
b. Investment is the source for the supply of loanable funds.
c. If there is a surplus in the market for loanable funds, the interest rate rises.
d. All of the above are correct
Which of the following would not interfere with market equilibria?
a. a minimum wage
b. a rent control
c. a non-binding price floor
d. a binding price ceiling
Suppose good X has a positive income elasticity of demand. This implies that good X
could be
(i) a normal good.
(ii) a necessity.
(iii) an inferior good.
(iv) a luxury.
a. (i) only
b. (i) and (ii) only
c. (i), (ii), and (iv) only
d. (iii) only
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. The area
measured by J+K+L+M represents
a. total surplus after the tax.
b. total surplus before the tax.
c. deadweight loss from the tax.
d. tax revenue.
When a country saves a larger portion of its GDP than it did before, it will have
a. more capital and higher productivity.
b. more capital and lower productivity.
c. less capital and higher productivity.
d. less capital and lower productivity.
Who of the following would necessarily be included in the Bureau of Labor Statistics’
“unemployed” category?
a. Lisa, who did not work during the previous 4 weeks
b. Julie, who tried to find new employment during the previous 4 weeks
c. Robert, who was an unpaid worker during the previous 4 weeks
d. None of the above is correct.
Which of the following is an argument in favor of a balanced budget rule?
a. Some economists believe that rules are better than discretion.
b. Per-capita debt is small relative to lifetime income.
c. The effect of deficit spending on future generations depends in part on what the
government buys.
d. Other government policies also redistribute income across generations.
If a country has a trade deficit
a. it has positive net exports and positive net capital outflow.
b. it has positive net exports and negative net capital outflow.
c. it has negative net exports and positive net capital outflow.
d. it has negative net exports and negative net capital outflow.
In the open-economy macroeconomic model, if investment demand increases, then
a. net exports and the real exchange rate rise.
b. net exports rise and the real exchange rate falls.
c. net exports fall and the real exchange rate rises.
d. net exports and the real exchange rate fall.
When we assume that the supply of money is a variable that the central bank controls,
we
a. must then assume as well that the demand for money is not influenced by the value of
money.
b. must then assume as well that the price level is unrelated to the value of money.
c. are ignoring the fact that, in the real world, households are also suppliers of money.
d. are ignoring the complications introduced by the role of the banking system.
If a tax is levied on the sellers of a product, then there will be a(n)
a. downward shift of the demand curve.
b. upward shift of the demand curve.
c. movement up and to the left along the demand curve.
d. movement down and to the right along the demand curve.
Unemployment would cause an economy to
a. produce inside its production possibilities frontier.
b. produce on its production possibilities frontier.
c. produce outside its production possibilities frontier.
d. experience an inward shift of its production possibilities frontier.
If the price of a good in the U.S. is $10 and the unit of foreign currency is the stone, in
which case is the real exchange rate 4/5?
a. the foreign price is 4 stones and the exchange rate is 2 stones per dollar
b. the foreign price is 5 stones and the exchange rate is 2.5 stones per dollar
c. the foreign price is 4 stones and the exchange rate is 1/2 stones per dollar
d. the foreign price is 5 stones and the exchange rate is 2/5 stones per dollar
Figure 4-7
Panel (a) Panel (b)
Refer to Figure 4-7. The graphs show the demand for cigarettes. In Panel (a), the
arrows are consistent with which of the following events?
a. The price of marijuana, a complement to cigarettes, increased.
b. Mandatory health warnings were placed on cigarette packages.
c. Several foreign countries banned U.S. cigarettes in their countries.
d. A tax was placed on cigarettes.
Table 6-4
The following table contains the demand schedule and supply schedule for a market for
a particular good. Suppose sellers of the good successfully lobby Congress to impose a
price floor $3 above the equilibrium price in this market.
Refer to Table 6-4. Following the imposition of a price floor $3 above the equilibrium
price, irate buyers convince Congress to repeal the price floor and to impose a price
ceiling $1 below the former price floor. The resulting shortage is
a. 0 units.
b. 4 units.
c. 5 units.
d. 10 units.
Table 7-4
The numbers in Table 7-1 reveal the maximum willingness to pay for a ticket to a
Chicago Cubs vs. St. Louis Cardinal’s baseball game at Wrigley Field.
Refer to Table 7-4. If tickets sell for $20 each, then what is the total consumer surplus
in the market?
a. $5
b. $30
c. $40
d. $75
Figure 4-19
The diagram below pertains to the demand for turkey in the United States.
Refer to Figure 4-19. All else equal, buyers expecting turkey to be more expensive 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.
Thomas Edison received patents on many of his inventions. While the patents existed,
his ideas were
a. public goods and proprietary knowledge.
b. public goods but not proprietary knowledge.
c. private goods and proprietary knowledge.
d. private goods but not proprietary knowledge.
Table 6-4
The following table contains the demand schedule and supply schedule for a market for
a particular good. Suppose sellers of the good successfully lobby Congress to impose a
price floor $3 above the equilibrium price in this market.
Refer to Table 6-4. How many units of the good are sold after the imposition of the
price floor?
a. 3
b. 9
c. 15
d. 18
Economists say that a market where goods are not consumed by those valuing the
goods most highly is
a. laissez-faire..
b. unequal.
c. inefficient.
d. rational.
As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm
is
a. borrowing directly.
b. borrowing indirectly.
c. lending directly.
d. lending indirectly.
Changes in nominal variables are determined mostly by the quantity of money and the
monetary system according to
a. both the classical dichotomy and the quantity theory of money.
b. the classical dichotomy, but not the quantity theory of money.
c. the quantity theory of money, but not the classical dichotomy.
d. neither the classical dichotomy nor the quantity theory of money.
Which list ranks assets from most to least liquid?
a. currency, fine art, stocks
b. currency, stocks, fine art
c. fine art, currency, stocks
d. fine art, stocks, currency
The irrelevance of monetary changes for real variables is called monetary neutrality.
Most economists accept monetary neutrality as a good description of the economy in
the long run, but not the short run.
A country that made its courts less corrupt and its government more stable would likely
see its standard of living rise.
Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used
by banks to meet their reserve requirements, but the Fed pays no interest on these
deposits.
All buyers benefit from a binding price ceiling.
Assumptions can simplify the complex world and make it easier to understand.
There is only one explanation for why economists give conflicting advice on policy
issues, and it is that they have different values about what policy should try to
accomplish.
Buyers and sellers always share the burden of a tax equally.
The Laffer curve is the curve showing how tax revenue varies as the size of the tax
varies.
Why does the GDP deflator give a different rate of inflation than the CPI?
A “lean against the wind” policy says the government should not use stabilization
policy and simply let the economy “weather the storm.”
Trade-offs are involved in most policy decisions.
In the ordered pair (10,30), 10 is the horizontal location of the point and 30 is the
vertical location of the point.
The scientific method can be applied to the study of economics.
GDP is defined as the market value of all final goods and services produced within a
country in a given period of time. In spite of this definition, some production is left out
of GDP. Explain why some final goods and services are not included.
The wedge between the buyers’ price and the sellers’ price is the same, regardless of
whether the tax is levied on buyers or sellers.
The unemployment that results from the quantity of labor supplied exceeding the
quantity demanded is called frictional unemployment.
Why might tax cuts be more appropriate than increasing government expenditures to
counter recessions? Is there any evidence for this thinking?
Someone who has a job but is absent from work because she is on vacation is counted
as employed.
Equality means distributing society’s resources in the most efficient manner.