Business Economics
Review Questions
Course Introduction
Business Economics explores the application of economic theory and quantitative methods to business decision-making. The course examines how markets function, the behavior of firms and consumers, pricing strategies, production and cost analysis, and the impact of government regulation. Students will analyze real-world business scenarios utilizing economic concepts such as supply and demand, elasticity, market structure, and game theory. By integrating both microeconomic and macroeconomic perspectives, the course equips students with the analytical tools necessary to make informed decisions in a dynamic business environment.
Recommended Textbook
Principles of Economics 5th Edition by N. Gregory
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Mankiw
Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Economists use the word equality to describe a situation in which
A) each member of society has the same income.
B) each member of society has access to abundant quantities of goods and services,regardless of his or her income.
C) society is getting the maximum benefits from its scarce resources.
D) society's resources are used efficiently.
Answer: A
Q2) The marginal benefit John gets from eating a fourth cheeseburger at a picnic is A) the total benefit John gets from eating four cheeseburgers minus the total benefit John gets from eating three cheeseburgers.
B) the same as the total benefit of eating four cheeseburgers.
C) less than the marginal cost of eating the fourth cheeseburger since he chose to eat the fourth cheeseburger.
D) the total benefit John gets from eating five cheeseburgers minus the total benefit John gets from eating four cheeseburgers.
Answer: A
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Sir Isaac Newton's development of the theory of gravity after observing an apple fall from a tree is an example of
A) a controlled experiment that lead to the formulation of a scientific theory.
B) being in the right place at the right time.
C) an idea whose time had come.
D) the interplay between observation and theory in science.
Answer: D
Q2) Unemployment causes production levels to be inefficient.
A)True
B)False
Answer: True
Q3) The Council of Economic Advisers consists of thirty members and a staff of several dozen economists.
A)True
B)False
Answer: False
Q4) A circular-flow diagram is a visual model of the economy.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-8.Assume that Kito and Penda each has 24 labor hours available.If each person divides their time equally between the production of baskets and birdhouses,then total production is
A) 4.75 baskets and 2 birdhouses.
B) 9.5 baskets and 12 birdhouses.
C) 16 baskets and 12 birdhouses.
D) 19 baskets and 24 birdhouses.
Answer: B
Q2) Refer to Figure 3-3.At which of the following prices would both Bob and Enid gain from trade with each other?
A) 12 burritos for 21 tacos
B) 12 burritos for 27 tacos
C) 12 burritos for 36 tacos
D) Bob and Enid could not both gain from trade with each other at any price.
Answer: A
Q3) Trade allows all countries to achieve greater prosperity.
A)True
B)False
Answer: True
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Refer to Figure 4-2.It is apparent from the figure that
A) the good is inferior.
B) the demand for the good decreases as income increases.
C) the demand for the good conforms to the law of demand.
D) All of the above are correct.
Q2) An increase in the price of a product and an increase in the number of sellers in the market affect the supply curve in the same general way.
A)True
B)False
Q3) Supply and demand together determine the price and quantity of a good sold in a market.
A)True
B)False
Q4) When a supply curve or a demand curve shifts,the equilibrium price and equilibrium quantity change.
A)True
B)False
Q5) In a market economy,prices are the signals that guide the allocation of scarce resources.
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) Refer to Figure 5-3.Between point A and point B on the graph,demand is A) perfectly elastic.
B) inelastic.
C) unit elastic.
D) elastic,but not perfectly elastic.
Q2) Refer to Table 5-2.Using the midpoint method,at a price of $16,what is the income elasticity of demand when income rises from $5,000 to $10,000?
A) 0.00
B) 0.50
C) 1.00
D) 1.50
Q3) The price elasticity of supply measures how much
A) the quantity supplied responds to changes in input prices.
B) the quantity supplied responds to changes in the price of the good.
C) the price of the good responds to changes in supply.
D) sellers respond to changes in technology.
Q4) If the price elasticity of demand is equal to 1,then demand is unit elastic.
A)True
B)False
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Chapter 6: Supply, Demand, and Government Policies
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Sample Questions
Q1) The Federal Insurance Contribution Act (FICA)tax is an example of A) a payroll tax.
B) a sales tax.
C) a farm subsidy.
D) an income subsidy.
Q2) A tax on buyers decreases the quantity of the good sold in the market.
A)True
B)False
Q3) Rent subsidies and wage subsidies are better than price controls at helping the poor because they have no costs associated with them.
A)True
B)False
Q4) The minimum wage,if it is binding,raises the incomes of A) no workers.
B) only those workers who cannot find jobs.
C) only those workers who have jobs.
D) all workers.
Q5) A tax of $1 on sellers shifts the supply curve upward by exactly $1.
A)True
B)False
8
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Figure 7-14.When the price is P1,area B represents A) total surplus.
B) producer surplus.
C) consumer surplus.
D) profits.
Q2) Efficiency in a market is achieved when
A) a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs.
B) the sum of producer surplus and consumer surplus is maximized.
C) all firms are producing the good at the same low cost per unit.
D) no buyer is willing to pay more than the equilibrium price for any unit of the good.
Q3) The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.
A)True
B)False
Q4) Total surplus in a market is consumer surplus minus producer surplus.
A)True
B)False
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Chapter 8: Application: The Costs of Taxation
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Sample Questions
Q1) A tax on raw land causes
A) a large deadweight loss.
B) no deadweight loss.
C) landlords to bear none of the burden of the tax.
D) the generation of such a large amount of tax revenue that all other taxes could be eliminated.
Q2) Refer to Figure 8-10.The original tax can be represented by the vertical distance AB.Suppose the government is deciding whether to lower the tax to CD or raise it to FG.Which of the following statements is not correct?
A) Compared to the original tax,the larger tax will increase tax revenue.
B) Compared to the original tax,the smaller tax will decrease deadweight loss.
C) Compared to the original tax,the smaller tax will decrease tax revenue.
D) Compared to the original tax,the larger tax will increase deadweight loss.
Q3) The elasticities of the supply and demand curves in the market for cigarettes affect how much a tax distorts that market.
A)True
B)False
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10
Chapter 9: Application: International Trade
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Sample Questions
Q1) If a country allows trade and,for a certain good,the domestic price without trade is higher than the world price,
A) the country will be an exporter of the good.
B) the country will be an importer of the good.
C) the country will be neither an exporter nor an importer of the good.
D) Additional information is needed about demand to determine whether the country will be an exporter of the good,an importer of the good,or neither.
Q2) Refer to Figure 9-12.Consumer surplus before trade is
A) $1,600.
B) $2,400.
C) $3,200.
D) $3,600.
Q3) Refer to Figure 9-7.With trade,Wales
A) imports Q<sub>2</sub> - Q<sub>1</sub> units of cheese.
B) exports Q<sub>2</sub> - Q<sub>1</sub> units of cheese.
C) imports Q<sub>2</sub> - Q<sub>0</sub> units of cheese.
D) exports Q<sub>2</sub> - Q<sub>0</sub> units of cheese.
Q4) Characterize the two different approaches a nation can take to achieve free trade.Does one approach have an advantage over the other?
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Chapter 10: Externalities
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Sample Questions
Q1) When one firm sells its pollution permit to another firm,
A) both firms benefit.
B) the total amount of pollution remains the same.
C) the total amount of pollution decreases.
D) Both a and b are correct.
Q2) Dioxin emission that results from the production of paper is a good example of a negative externality because
A) self-interested paper firms are generally unaware of environmental regulations.
B) there are fines for producing too much dioxin.
C) self-interested paper producers will not consider the full cost of the dioxin pollution they create.
D) toxic emissions are the best example of an externality.
Q3) Since restored historic buildings convey a positive externality,local governments may choose to
A) regulate the demolition of them.
B) provide tax breaks to owners who restore them.
C) increase property taxes in historic areas.
D) Both a and b are correct.
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12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Excessive fishing occurs because
A) each individual fisherman has little incentive to maintain the species for the next year.
B) fishermen rely on government managers to worry about fish populations.
C) fishermen are unionized,so they are not concerned with externalities.
D) fishermen have other marketable skills and do not fear exploitation of fish reserves.
Q2) The greatest difficulty with cost-benefit analysis of a public project is determining A) whether government revenue is sufficient to cover the cost of the project.
B) which contractor should be awarded the project.
C) the cost of the project.
D) the value or benefit of the project.
Q3) Governments can grant private property rights over resources that were previously viewed as public,such as fish or elephants.Why would governments want to do so?
A) to prevent overuse
B) to decrease taxes
C) to fight poverty
D) to increase consumption
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000.What is the average tax rate when income is $60,000?
A) 21.7 percent
B) 25.0 percent
C) 46.7 percent
D) 50.0 percent
Q2) Suppose that in 2015 the average citizen's federal tax bill is $10,277,and total federal spending is $9,973 per person.In 2015,the federal government will have
A) a budget surplus.
B) a budget deficit.
C) horizontal equity.
D) vertical equity.
Q3) Refer to Table 12-12.Samantha is a single person whose taxable income is $100,000 a year.What is her marginal tax rate in 2003?
A) 15%
B) 27%
C) 30%
D) 35%
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Page 14
Chapter 13: The Costs of Production
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Sample Questions
Q1) Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired.In addition,suppose that the average total cost when 5 units of output are produced is $30,and the marginal cost of the sixth unit of output is $60.What is the average total cost when six units are produced?
A) $10
B) $25
C) $30
D) $35
Q2) The cost of producing the typical unit of output is the firm's
A) average total cost.
B) opportunity cost.
C) variable cost.
D) marginal cost.
Q3) As a firm moves along its long-run average cost curve,it is adjusting the size of its factory to the quantity of production.
A)True
B)False
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15
Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) Refer to Scenario 14-2.At Q = 999,the firm's total cost amounts to
A) $24,970.
B) $24,975.
C) $24,980.
D) $25,025.
Q2) In a competitive market with free entry and exit,if all firms have the same cost structure,then
A) all firms will operate at their efficient scale in the short run.
B) all firms will operate at their efficient scale in the long run.
C) the price of the product will differ across firms.
D) Both a and b are correct.
Q3) Who is a price taker in a competitive market?
A) buyers only
B) sellers only
C) both buyers and sellers
D) neither buyers nor sellers
Q4) Because nothing can be done about sunk costs,they are irrelevant to decisions about business strategy.
A)True
B)False
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Chapter 15: Monopoly
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Sample Questions
Q1) When a firm has a natural monopoly,the firm's
A) marginal cost always exceeds its average total cost.
B) total cost curve is horizontal.
C) average total cost curve is downward sloping.
D) marginal cost curve must lie above the firm's average total cost curve.
Q2) How does a competitive market compare to a monopoly that engages in perfect price discrimination?
A) In both cases,total social welfare is the same.
B) Total social welfare is higher in the competitive market than with the perfectly price discriminating monopoly.
C) In both cases,some potentially mutually beneficial trades do not occur.
D) Consumer surplus is the same in both cases.
Q3) One solution to the problems of marginal-cost pricing of a regulated natural monopolist is average cost pricing.In this model,the monopolist is allowed to price its production at average total cost.How does average-cost pricing differ from marginal-cost pricing? Does this solution maximize social well-being?
Q4) A monopolist's supply curve is horizontal.
A)True
B)False
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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) A firm operating in a monopolistically competitive market can earn economic profits in
A) the short run but not in the long run.
B) the long run but not in the short run.
C) both the short run and the long run.
D) neither the short run nor the long run.
Q2) In the long run,a monopolistically competitive firm produces a quantity that is A) equal to the efficient scale.
B) less than the efficient scale.
C) greater than the efficient scale.
D) consistent with diseconomies of scale.
Q3) Refer to Scenario 16-3.If Firm A decides to advertise its product it can expect to A) incur a loss of $8 million.
B) incur a loss of $4 million.
C) earn a profit of $4 million.
D) earn a profit of $8 million.
Q4) Assume the role of a critic of advertising.Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.
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Page 18
Chapter 17: Oligopoly
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Sample Questions
Q1) Refer to Table 17-8.If there are two suppliers of water,Mort and Callie,and if they have successfully formed a cartel,then what would be the price and the market quantity?
A) The price would be $7 per bottle and the market quantity would be 300 bottles.
B) The price would be $6 per bottle and the market quantity would be 400 bottles.
C) The price would be $5 per bottle and the market quantity would be 500 bottles.
D) The price would be $4 per bottle and the market quantity would be 600 bottles.
Q2) Refer to Table 17-13.Which of the following statements regarding this game is true?
A) Both players have a dominant strategy.
B) Player A has a dominant strategy,but player B does not have a dominant strategy.
C) Player A does not have a dominant strategy,but player B does have a dominant strategy.
D) Neither player has a dominant strategy.
Q3) Explain the practice of tying and discuss why it is controversial.
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Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) Refer to Figure 18-7.The shift of the labor supply curve from S<sub>1</sub> to S<sub>2</sub> could possibly be explained by
A) a change in workers' attitudes toward the work-leisure tradeoff.
B) decreases in wages in other labor markets.
C) immigration of workers into the region or country.
D) All of the above are correct.
Q2) A competitive firm will hire workers up to the point at which the value of the marginal product of labor equals the A) average total cost.
B) average variable cost.
C) wage.
D) price per unit of output.
Q3) Labor-augmenting technological advances decrease the marginal productivity of labor.
A)True
B)False
Q4) Describe the difference between the purchase price of capital and the rental price of capital.If you know the value of marginal product from the flow of capital services,how would you determine the market price for the capital stock?
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) Economists who study labor markets have discovered that
A) only about 5 percent of wage differences are related to chance.
B) ability is not difficult to measure but is largely insignificant in explaining wage differences.
C) work effort is difficult to measure but is not likely to contribute much to an explanation of wage differences.
D) ability,effort,and chance are likely to be significant contributors to wage differences.
Q2) Discrimination by a manager in the hiring process
A) decreases the firm's costs.
B) increases the firm's costs.
C) is evident if a white manager refuses to hire a Hispanic worker.
D) is evident if a 30-year-old manager refuses to hire a 50-year-old worker.
Q3) As a result of their experiment economists Muriel Niederle and Lise Vesterlund found that
A) women choose competitive environments more than men.
B) women and men choose competitive environments equally.
C) women choose competitive environments less than men.
D) women are just as likely as men to have high-paying corporate jobs.
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Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) The concept of utility is fundamental to utilitarianism and describes the A) optimal distribution of wealth in society.
B) level of satisfaction derived from a person's circumstances.
C) method by which society chooses to allocate resources.
D) method whereby wealth is stored.
Q2) Based on U.S.income data from 2005,the top fifth of all families received
A) the same share of income as the bottom fifth.
B) twice as much income as the bottom fifth.
C) approximately 5 times more income than the bottom fifth.
D) more than 10 times more income than the bottom fifth.
Q3) The study by economists Cox and Alm found
A) inequality in consumption is much smaller than inequality in annual income.
B) inequality in consumption is slightly smaller than inequality in annual income.
C) inequality in consumption is slightly larger than inequality in annual income.
D) inequality in consumption is much larger than inequality in annual income.
Q4) The United States has more income inequality than Brazil and South Africa.
A)True
B)False
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Page 22
Chapter 21: The Theory of Consumer Choice
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Q1) A consumer chooses an optimal consumption point where the A) marginal rate of substitution is maximized.
B) slope of the indifference curve exceeds the slope of the budget constraint by the greatest amount.
C) ratio of the marginal utilities equals the ratio of the prices.
D) All of the above are correct.
Q2) Suppose the price of good X falls and the consumption of good X increases.From this we can infer that X is a(n)
A) normal good.
B) inferior good.
C) Giffen good.
D) None of the above is correct.
Q3) The theory of consumer choice illustrates that people face tradeoffs,which is one of the Ten Principles of Economics.
A)True
B)False
Q4) All points on a demand curve are optimal consumption points.
A)True
B)False
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Chapter 22: Frontiers of Microeconomics
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Sample Questions
Q1) Which of the following statements is correct?
A) Hidden actions and hidden characteristics are both associated with the moral-hazard problem.
B) Hidden actions and hidden characteristics are both associated with the adverse-selection problem.
C) Hidden actions are associated with the moral-hazard problem,whereas hidden characteristics are associated with the adverse-selection problem.
D) Hidden actions are associated with the adverse-selection problem,whereas hidden characteristics are associated with the moral-hazard problem.
Q2) Employers can try to overcome the moral-hazard problem involving their employees by
A) paying their employees more often.
B) paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities.
C) better monitoring their employees' work efforts.
D) requiring their employees to take a pre-employment work effort test.
Q3) Explain the Condorcet paradox.To which type of voting system does it apply?
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Chapter 23: Measuring a Nations Income
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Q1) A wind farm in Iowa buys a large turbine generator from a Swedish-owned factory located in Connecticut that uses workers who live in Connecticut.As a result,
A) U.S.investment,GDP,and GNP all increase by the same amount.
B) U.S.investment increases,but GDP and GNP are unaffected by the purchase.
C) U.S.investment and GDP increase by the same amount,but U.S.GNP increases by a smaller amount.
D) U.S.investment and GNP increase by the same amount,but U.S.GDP increases by a smaller amount.
Q2) During the current quarter,a firm produces consumer goods and adds some of those goods to its inventory rather than selling them.The value of the goods added to inventory is
A) not included in the current quarter GDP.
B) included in the current quarter GDP as investment.
C) included in the current quarter GDP as consumption.
D) included in the current quarter GDP as a statistical discrepancy.
Q3) Changes in inventory are included in the investment component of GDP.
A)True
B)False
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25
Chapter 24: Measuring the Cost of Living
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Q1) An increase in the price of Irish whiskey regularly purchased by Americans will be reflected in
A) both the U.S.GDP deflator and the U.S.CPI.
B) neither the U.S.GDP deflator nor the U.S.CPI.
C) the U.S.GDP deflator,but not the U.S.CPI.
D) the U.S.CPI,but not the U.S.GDP deflator.
Q2) One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI
A) fails to account for consumer spending on housing.
B) accounts only for consumer spending on food,clothing,and energy.
C) fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods.
D) fails to account for the introduction of new goods.
Q3) Refer to Table 24-2.If 2009 is the base year,then the inflation rate in 2009 was
A) 26.5 percent.
B) 36.1 percent.
C) 39 percent.
D) 47 percent.
Q4) Why does the GDP deflator give a different rate of inflation than the CPI?
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Chapter 25: Production and Growth
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Q1) In addition to investment in physical and human capital,what other public policies might a country adopt to increase productivity?
Q2) Over the past century in the United States,average income as measured by real GDP per person has grown about
A) 4 percent per year,which implies a doubling about every 18 years.
B) 4 percent per year,which implies a doubling about every 8 years.
C) 2 percent per year,which implies a doubling about every 35 years.
D) 2 percent per year,which implies a doubling about every 18 years.
Q3) Over the period 1870-2006,the United States experienced an average annual growth rate of real GDP per person of about 4 percent per year.
A)True
B)False
Q4) Some economists argue that it is possible to raise the standard of living by reducing population growth.As an economist interested in incentives rather than coercion,what kind of policy would you recommend to slow population growth?
Q5) How do outward-oriented policies affect a nation's productivity?
Q6) Why does a nation's standard of living depend on property rights?
Q7) Compare and contrast the population theories of Malthus and Kremer.
Page 27
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Chapter 26: Saving, investment, and the Financial System
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Sample Questions
Q1) In 2008,XYZ Corporation had total earnings of $200 million and 50 million shares of the corporation's stock were outstanding.If the price-earnings ratio for XYZ is 20,then what is the price of a share of its stock?
A) $5
B) $10
C) $80
D) $500
Q2) In a closed economy,investment must be equal to private saving.
A)True
B)False
Q3) The financial system coordinates investment and saving,which are important determinants of long-run real GDP.
A)True
B)False
Q4) Other things the same,the higher the rate of saving and investment in a country,the higher will be the standard of living.
A)True
B)False
Q5) What are the basic differences between bonds and stocks?
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Chapter 27: The Basic Tools of Finance
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Q1) The problem of moral hazard arises because
A) life is full of all sorts of risks.
B) after people buy insurance,they have less incentive to be careful about their risky behavior.
C) a high-risk person is more likely to apply for insurance than is a low-risk person.
D) insurance companies go to great effort to avoid paying claims to their policy holders.
Q2) The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting
A) the present value of the factory rises.It's more likely the company will build the factory.
B) the present value of the factory rises.It's less likely the company will build the factory.
C) the present value of the factory falls.It's more likely the company will build the factory.
D) the present value of the factory falls.It's less likely the company will build the factory.
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Chapter 28: Unemployment
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Q1) Refer to Table 28-2.How many people were employed in Wrexington in 2009?
A) 9,600
B) 10,600
C) 11,000
D) 11,200
Q2) Refer to Table 28-2.What was Wrexington's labor-force participation rate in 2009?
A) 55 percent
B) 63 percent
C) 66.9 percent
D) 87.3 percent
Q3) Refer to Table 28-3.What is the adult male population in Meditor?
A) 50 million
B) 90 million
C) 130 million
D) 135 million
Q4) It is best to view the official unemployment rate as a useful but imperfect measure of joblessness.
A)True
B)False
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Chapter 29: The Monetary System
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Q1) Refer to Table 29-1.What is the M1 money supply?
A) $215 billion
B) $216 billion
C) $226 billion
D) $301 billion
Q2) To decrease the money supply,the Fed can
A) buy government bonds or increase the discount rate.
B) buy government bonds or decrease the discount rate.
C) sell government bonds or increase the discount rate.
D) sell government bonds or decrease the discount rate.
Q3) 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.
Q4) Draw a simple T-account for First National Bank which has $5,000 of deposits,a required reserve ratio of 10 percent,and excess reserves of $300.Make sure you balance sheet balances.
Q5) Compare the Board of Governors and the Federal Open Market Committee.
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Chapter 30: Money Growth and Inflation
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Q1) If Y and M are constant,and V doubles,the quantity equation implies that the price level
A) falls to half it's original level.
B) doubles.
C) more than doubles.
D) does not change.
Q2) Wealth is redistributed from creditors to debtors when inflation was expected to be
A) high and it turns out to be high.
B) low and it turns out to be low.
C) low and it turns out to be high.
D) high and it turns out to be low.
Q3) Suppose that when the money supply changes,real output and velocity do not change.Then a 2 percent increase in the money supply
A) decreases the price level by 2 percent.
B) decreases the price level by less than 2 percent.
C) increases the price level by less than 2 percent.
D) increases the price level by 2 percent.
Q4) List and define any two of the costs of high inflation.
Q5) Why did farmers in the late 1800s dislike deflation?
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Chapter 31: Open-Economy Macroeconomics: Basic Concepts
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Q1) From 1970 to 1998 the U.S.dollar
A) gained value compared to the Italian lira because inflation was higher in Italy.
B) gained value compared to the Italian lira because inflation was lower in Italy.
C) lost value compared to the Italian lira because inflation was higher in Italy.
D) lost value compared to the Italian lira because inflation was lower in Italy.
Q2) During a hyperinflation the real domestic value of a country's currency
A) falls and its nominal exchange rate depreciates.
B) falls and its nominal exchange rate appreciates.
C) rises and its nominal exchange rate depreciates.
D) rises and its nominal exchange rate appreciates.
Q3) If a country's net exports fall,then its net capital outflow rises.
A)True
B)False
Q4) U.S.exports make up less than 20 percent of GDP.
A)True
B)False
Q5) How do the nominal exchange rate and the real exchange rate differ?
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Chapter 32: A Macroeconomic Theory of the Open Economy
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Q1) If a country removed an import quota on cotton,then overall that country's
A) exports and imports would rise.
B) exports would rise and imports would fall.
C) exports would fall and imports would rise.
D) exports and imports would fall.
Q2) Capital flight reduces a country's real exchange rate.
A)True
B)False
Q3) Other things the same,if the Swedish real interest rate were to decrease,Swedish net capital outflow
A) and net capital outflow of other countries would rise.
B) and net capital outflow of other countries would fall.
C) would rise,while net capital outflow of other countries would fall.
D) would fall,while net capital outflow of other countries would rise.
Q4) Other things the same,a higher real interest rate raises the quantity of
A) domestic investment.
B) net capital outflow.
C) loanable funds demanded.
D) loanable funds supplied.
Page 34
Q5) Why do higher real interest rates lead to lower net capital outflow?
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Chapter 33: Aggregate Demand and Aggregate Supply
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Q1) Other things the same,the aggregate quantity of goods demanded in the U.S.increases if
A) real wealth falls.
B) the interest rate rises.
C) the dollar depreciates.
D) None of the above is correct.
Q2) Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,then we would expect that in the short-run,
A) real GDP will rise and the price level might rise,fall,or stay the same.
B) real GDP will fall and the price level might rise,fall,or stay the same.
C) the price level will rise,and real GDP might rise,fall,or stay the same.
D) the price level will fall,and real GDP might rise,fall,or stay the same.
Q3) Which of the following typically rises during a recession?
A) garbage collection
B) unemployment
C) corporate profits
D) automobile sales
Q4) What do most economists believe concerning the relation between the price level and real output?
Page 35
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Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) If net exports fall $20 billion and the MPC is 7/10 and there is a multiplier effect,but no crowding out and no investment accelerator,then
A) aggregate demand falls by 10/3 x $20 billion.
B) aggregate demand falls by 7/3 x $20 billion.
C) aggregate demand falls by 7/10 x $20 billion.
D) None of the above is correct.
Q2) Which of the following events would shift money demand to the left?
A) an increase in the price level
B) a decrease in the price level
C) an increase in the interest rate
D) a decrease in the interest rate
Q3) According to liquidity preference theory,an increase in the price level causes the interest rate to
A) increase,which increases the quantity of goods and services demanded.
B) increase,which decreases the quantity of goods and services demanded.
C) decrease,which increases the quantity of goods and services demanded.
D) decrease,which decreases the quantity of goods and services demanded.
Q4) If the marginal propensity to consume is 6/7,then the multiplier is 7.
A)True
B)False
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Chapter 35: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) Suppose that the money supply increases.In the short run this decreases unemployment according to
A) both the short-run Phillips curve and the aggregate demand and aggregate supply model.
B) neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
C) the short-run Phillips curve,but not the aggregate demand and supply model.
D) the aggregate demand and aggregate supply model,but not the short-run Phillips curve.
Q2) A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower unemployment rate in the short run.
A)True
B)False
Q3) In the long run,if the Fed decreases the rate at which it increases the money supply,
A) inflation and unemployment will be higher.
B) inflation will be higher and unemployment will be lower.
C) inflation will be lower and unemployment will be higher.
D) None of the above is correct.
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Chapter 36: Five Debates Over Macroeconomic Policy
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Q1) Which of the following is not correct?
A) Government debt can continue to rise forever.
B) If the government uses funds to pay for investment programs,on net the debt need not burden future generations.
C) Social Security does not transfer wealth from younger generations to older generations.
D) The average U.S.citizens' share of the government debt represents about 1 percent of her lifetime income.
Q2) Proponents of tax-law changes to encourage saving would
A) argue that corporate tax rates should be increased.
B) eliminate or reduce the means-tests for government benefits.
C) argue that state sales tax should be replaced with state income tax.
D) favor none of the above programs.
Q3) If the central bank has discretion to make policy,it may create economic fluctuations that reflect the electoral calendar.This is called the political business cycle.
A)True
B)False
Q4) Explain the time inconsistency of monetary policy.
Q5) Explain the main arguments in favor of economic stabilization.
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