Contemporary Economic Issues
Test Questions
Course Introduction
Contemporary Economic Issues examines the pressing economic challenges and trends facing societies today. The course explores topics such as globalization, income inequality, labor market shifts, environmental sustainability, the digital economy, and the impact of public policy on economic growth and stability. Through analysis of current events, data, and scholarly perspectives, students gain an understanding of the dynamic economic forces shaping our world and learn to critically evaluate proposed solutions to real-world problems.
Recommended Textbook Economics 11th Edition by Roger
A. Arnold
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Chapter 1: What Economics Is About
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Sample Questions
Q1) The effect of a decrease in interest rates upon economic growth is an example of positive economics.
A)True
B)False
Answer: True
Q2) Amy's opportunity cost of going to the movies is
A) the price of the ticket.
B) zero, if she has a free pass.
C) the price of the ticket plus the value to Amy of what she would have chosen to do with her time had she not chosen to go to the movies.
D) both b and c
Answer: C
Q3) Which of the following is a possible rationing device?
A) dollar price
B) first-come-first-served
C) brute force
D) a and b
E) a, b, and c
Answer: E
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Page 3
Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) Refer to Exhibit 2-9.For Adam,the opportunity cost of producing one unit of good A is ____________ unit(s)of good B.
A) 3.00
B) 0.33
C) 0.75
D) 1.33
Answer: D
Q2) A decrease in the quantity of resources available causes a movement down along a given PPF.
A)True
B)False
Answer: False
Q3) Productive inefficiency implies that
A) it is possible to obtain gains in one area without losses in another.
B) it is impossible to obtain gains in one area without losses in another.
C) there are too many resources.
D) there are too few resources.
E) none of the above
Answer: A
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) Refer to Exhibit 3-15.In Exhibit 3-15,at fee F? there is a
A) shortage of (Q3 - Q1) doctors.
B) surplus of (Q3 - Q1) doctors.
C) surplus of (Q2 - Q1) doctors.
D) shortage of (Q2 - Q1) doctors.
Answer: A
Q2) In moving along a demand curve,which of the following is NOT held constant?
A) the prices of substitute goods
B) the prices of complementary goods
C) consumer incomes
D) the price of the good for which the demand curve is relevant
Answer: D
Q3) An advance in technology causes
A) a rightward shift in the supply curve.
B) a leftward shift in the supply curve.
C) the supply curve to go from upward sloping to vertical.
D) the supply curve to go from vertical to upward sloping.
Answer: A
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Chapter 4: Prices: Free, Controlled, and Relative
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Sample Questions
Q1) Which of the following is true?
A) Buyers always prefer lower prices to higher prices.
B) Buyers never prefer lower prices to higher prices.
C) Buyers rarely prefer lower prices to higher prices.
D) Buyers prefer lower prices to higher prices, ceteris paribus.
Q2) Refer to Situation 4-1.Before the oil embargo,the price ceiling on gasoline had no noticeable effect on the market.What is the most likely explanation for this?
A) The equilibrium price of gasoline was close to the ceiling price and probably below it.
B) The demand curve for gasoline in the 1970s was quite different from today's.
C) The supply curve for gasoline in the 1970s was quite different from today's.
D) The effects of price ceilings are dependent upon the benevolence of the government imposing them.
Q3) Refer to Exhibit 4-6.Suppose the minimum wage is set at $5.The result will be
A) unemployment.
B) a shortage of unskilled labor.
C) no effect on the unskilled labor market.
D) a prolonged surplus of unskilled labor.
E) none of the above
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Chapter 5: Supply, Demand, and Price: Applications
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Sample Questions
Q1) Refer to Exhibit 5-1,which shows supply and demand for freeway space at both 8a.m.and 11 p.m.Suppose that the government decides to set the money price of driving on the freeway at zero,but creates programs that encourage drivers to carpool.If the carpooling program is sufficiently successful to eliminate the shortage of freeway space at 8 a.m.,graphically the result of the increase in carpooling would be a
A) rightward shift of the supply of freeway space curve.
B) leftward shift of the demand for freeway space curve from D8a.m. to D11p.m.
C) movement up along D8a.m. to the point where D8a.m. intersects the supply curve.
D) leftward shift of the supply of freeway space curve.
Q2) The price of good X has a pattern such that P = $3 on Monday through Thursday of every week,and P = $2 on Fridays. If speculators begin participating in the market for good X,their actions will likely lead to a(n)______________ in the price of good X on Monday through Thursday and a(n)_______________ in the price of good X on Friday.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
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Page 7
Chapter 6: Macroeconomic Measurements: Prices and Unemployment
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Sample Questions
Q1) Suppose that 1983 is the base year for the Consumer Price Index (CPI)and in 2008 the CPI was 220.What does this "220" mean?
A) What cost $100 in 1983 on average cost 2.20 times as much in 2008.
B) What cost $100 in 1983 on average cost $220 more in 2008.
C) What cost $100 in 1983 on average cost 0.22 times as much in 2008 (that is, it cost $22 in 2008).
D) What cost $100 in 1983 on average cost $22 more in 2008.
Q2) The CPI was 238 in one year and 244 the following year.How much did prices rise between these two years?
A) 2.46 percent
B) 5.50 percent
C) 2.52 percent
D) 0.03 percent
Q3) Refer to Exhibit 6-2.The employment rate in year 1 is
A) 12 1/2 percent.
B) 70 percent.
C) 87 1/2 percent.
D) 30 percent.
E) 10 percent.
Page 8
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Chapter 7: Macroeconomic Measurements: GDP and Real GDP
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Sample Questions
Q1) Refer to Exhibit 7-5. What was Country Z's economic growth rate between year 1 and year 2?
A) 7.3%
B) 8.3%
C) 5.3%
D) 6.8%
Q2) Real GDP is always measured in
A) cheaper dollars.
B) quality of goods produced.
C) base-year dollars.
D) nominal dollars.
E) current dollars.
Q3) An example of income earned but not received is A) welfare payments.
B) Social Security payments.
C) undistributed profits.
D) a and b
E) a, b, and c
Q4) Draw an appropriate diagram to represent the business cycle and label each of the five phases.Provide a brief description of each phase.
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Suppose the price level is rising and it is widely forecast to rise even further.This forecast might cause __________ of some consumption plans,resulting in __________ the AD curve.
A) postponement; a rightward shift of B) postponement; a leftward shift of C) acceleration; a rightward shift of D) acceleration; movement down along
Q2) Greater wealth makes people _____________ willing to spend,causing __________ the economy's AD curve.
A) more; movement down along B) more; a rightward shift of C) less; movement up along D) less; a rightward shift of
Q3) Refer to Exhibit 8-2. Based on the given change,what word (rises or falls)should go in blank (5)and blank (6),respectively,to summarize the resulting impact on short run equilibrium?
A) rises; rises
B) falls; falls
C) rises; falls D) falls; rises
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Chapter 9: Classical Macroeconomics and the Self Regulating Economy
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Sample Questions
Q1) Business-cycle macroeconomics involves changes in Real GDP around a ____________ LRAS curve,while economic-growth macroeconomics deals with increases in Real GDP resulting from a ______________ LRAS curve.
A) rightward-shifting; fixed
B) fixed; leftward shifting
C) leftward shifting; fixed
D) fixed; rightward-shifting
Q2) Natural disasters (such as the 2011 earthquake and tsunami in Japan)are examples of an adverse supply shock,which result in the SRAS curve shifting leftward.
A)True
B)False
Q3) Suppose AD and SRAS intersect to the right of LRAS.Which of the following is true?
A) The economy is in a recessionary gap.
B) The economy is in an inflationary gap.
C) The economy is in a long-run equilibrium.
D) This situation is actually impossible.
Q4) Describe the difference between business-cycle macroeconomics and economic-growth macroeconomics.
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: A Critique of the Self-Regulating Economy
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Sample Questions
Q1) How does the classical position on saving differ from Keynes's position?
A) Classical position: people save more at lower interest rates. Keynes's position: people save less at lower interest rates.
B) Classical position: changes in the interest rate are irrelevant to saving decisions. Keynes's position: saving is directly related to the interest rate.
C) Classical position: saving is directly related to the interest rate. Keynes's position: at times, saving may be inversely related to the interest rate.
D) Classical position: saving can be inversely related to the interest rate. Keynes's position: consumption rises as saving rises.
E) none of the above
Q2) Which of the following is good evidence against the classical view of Say's law?
A) Investment does not always rise as interest rates fall.
B) Consumption falls by the amount that saving increases.
C) Exports are usually greater than imports.
D) People save more at higher interest rates than lower interest rates.
E) none of the above
Q3) Describe Keynes' criticism of Say's law in a money economy.
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Page 12
Chapter 11: Fiscal Policy and the Federal Budget
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Sample Questions
Q1) There is zero crowding out and the federal budget is balanced at the time government purchases are increased.It follows that the __________ curve shifts to the __________,and in the short run both the price level and Real GDP __________.
A) AD; left; rise
B) AD; right; fall
C) AD; right; rise
D) AD; left; fall
E) SRAS; right; rise
Q2) An example of contractionary fiscal policy is
A) increasing government spending.
B) increasing taxes.
C) decreasing government spending.
D) decreasing taxes.
E) b and c
Q3) Suppose Congress decreases income taxes.This is an example of
A) expansionary fiscal policy.
B) expansionary monetary policy.
C) contractionary fiscal policy.
D) contractionary monetary policy.
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Page 13
Chapter 12: Money, Banking,and the Financial System
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Sample Questions
Q1) Which of the following is not included in M1?
A) retail money market mutual funds
B) checkable deposits
C) traveler's checks
D) all of the above
Q2) In which situation are transaction costs most likely to be the lowest?
A) Rodney buys antiques; he is currently looking for an eighteenth-century table.
B) Cathy is looking for someone who is willing to trade accounting services (in return) for law services.
C) Rodriguez wants to buy a house with two master bedrooms.
D) Melinda wants to buy a McDonald's Big Mac (she will not be asking for a special order).
Q3) To a bank,a loan the bank has made to its borrowers is classified as
A) an asset.
B) a liability.
C) vault cash.
D) excess reserves.
E) bank capital.
Q4) Describe the differences between M1 and M2.
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) In 2007,the Fed began using an additional monetary policy tool called the term auction facility program.
A)True
B)False
Q2) When one commercial bank borrows from another commercial bank,it pays the __________ rate.
A) discount
B) bank interest
C) federal funds
D) prime
E) none of the above
Q3) The president of the ________________________ holds a permanent seat on the FOMC.
A) United States
B) Federal Reserve District Bank of New York
C) Federal Reserve District Bank of San Francisco
D) U.S. Senate banking committee
E) none of the above
Q4) List and describe five of the eight major functions or responsibilities of the Fed.
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Chapter 14: Money and the Economy
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Sample Questions
Q1) The simple quantity theory of money assumes that A) velocity and Real GDP are constant.
B) only velocity is constant.
C) only the money supply is constant.
D) only the price level is constant.
Q2) MV in the equation of exchange is also defined as A) national income.
B) total expenditures.
C) personal income.
D) Real GDP.
Q3) In the equation of exchange,the letter "V" stands for A) variance.
B) validity.
C) volume.
D) velocity.
Q4) "The money supply multiplied by velocity must equal GDP" is a statement of the A) simple quantity theory of money.
B) equation of exchange.
C) modern quantity theory of money.
D) all of the above
Page 16
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Chapter 15: Monetary Policy
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Sample Questions
Q1) Refer to Exhibit 15-4. In the row of this table containing blank (B),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.
A) too much; too little
B) too little; too much
C) just the right amount; too little
D) just the right amount; too much
E) just the right amount; just the right amount
Q2) Suppose the money market is in the liquidity trap and the Fed increases the supply of money.We expect that
A) people will end up willingly holding more money.
B) the excess money holdings will flow into the loanable funds market and there will be a decrease in interest rates.
C) interest rates will increase, since the demand curve for money is upward sloping in this case.
D) eventually, via the transmission mechanism, Real GDP will increase.
Q3) The money supply curve is usually horizontal.
A)True
B)False
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Page 17
Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) The economy was in long-run equilibrium when aggregate demand increased.At this point in time,the expected inflation has started to adjust to the new higher actual inflation rate.According to the (Friedman)natural rate theory,this means the unemployment rate in the economy must currently be
A) decreasing.
B) increasing.
C) higher than it was in long-run equilibrium.
D) equal to what it was in long-run equilibrium.
E) There is not enough information to answer the question.
Q2) Suppose that the government implements expansionary fiscal policy that raises aggregate demand,but individuals incorrectly anticipate the policy measure (bias upward). According to new classical theory,in the short run the price level would ____________ and Real GDP would ______________. In the long run,new classical theory would predict that the price level would ______________ compared to its original long-run equilibrium level and that Real GDP would _____________.
A) rise; decline; rise; remain unchanged
B) fall; rise; rise; remain unchanged
C) rise; decline; remain unchanged; rise
D) fall; rise; remain unchanged; rise
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Page 18
Chapter 17: Economic Growth: Resources, Technology, Ideas,
and
Institutions
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Sample Questions
Q1) __________ rights refer to the range of laws,rules,and regulations that define rights for the use and transfer of resources.
A) Individual
B) Constitutional
C) Property
D) Economic
E) none of the above
Q2) Meta-ideas involve
A) the methods of producing ideas.
B) persuading others of the validity of one's ideas.
C) putting ideas in a form capable of approval in a "yes" or "no" vote.
D) the expression of ideas in mathematical form.
Q3) Using the production function Real GDP = T (L,K),and the LRAS curve,describe the process by which a decline in taxes on the returns to capital impacts economic growth.
Q4) In the production function Real GDP = T (L,K),the T stands for tax coefficient.
A)True
B)False
Q5) Describe new growth theory.Explain how it differs from neoclassical growth theory.
Page 19
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Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) If M = $1,200 billion and V = 4,then total spending is _______________billion. Then velocity falls to 2 and M rises to $2,000 billion,so that total spending is now _______________ billion,and GDP has _________________.
A) $4,800; $4,000; declined
B) $300; $1,000; risen
C) $4,800; $4,000; risen
D) $1,204; $2,002; risen
Q2) According to John Taylor (for whom the Taylor rule is named),during the period 2002-early 2006 actual Fed policy was "too_________" ,which he believes led to both interest rates being "too ________" and rising housing prices in the United States. A) contractionary; high B) contractionary; low C) expansionary; low D) expansionary; high
Q3) Describe how,according to some economists, the Fed's actions and the"global savings glut" both contributed to rising U.S.housing prices in the early 2000s.
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Page 20
Chapter 19: Debates in Macroeconomics Over the Role and
Effects of Government
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Sample Questions
Q1) The tax multiplier is the number that,when multiplied by the A) budget deficit, gives us the change in total spending.
B) budget deficit, gives us the change in the public debt.
C) change in taxes, gives us the change in total spending.
D) change in government spending, gives us the change in total spending.
Q2) If the aggregate supply curve is vertical,it follows that a change in A) Real GDP can originate on the demand side of the economy.
B) Real GDP can originate on the supply side of the economy.
C) Real GDP can originate on either the demand side or the supply side of the economy.
D) price level can originate on the demand side of the economy.
E) b and d
Q3) The government spending multiplier is the number that,when multiplied by the A) budget deficit, gives us the change in total spending.
B) budget deficit, gives us the change in the public debt.
C) change in taxes, gives us the change in total spending.
D) change in government spending, gives us the change in total spending.
Q4) Explain how the different views of the shape of the aggregate supply (AS)curve influence economists' perception of the impact that government actions have on Real GDP in the short run.
Page 21
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Chapter 20: Elasticity
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Sample Questions
Q1) Refer to Exhibit 20-3.If price decreases from $5.50 to $4.50,total revenue along the demand curve
A) increases to $67.50.
B) increases to $87.50.
C) remains at $87.50.
D) decreases to $67.50.
E) decreases to $27.50.
Q2) Refer to Exhibit 20-2.The market for good X is initially in equilibrium at $5.The government then places a per-unit tax on good X,as shown by the shift of S<sub>1</sub> to S<sub>2</sub>.Approximately what percentage of the tax do producers end up paying?
A) 55 percent
B) 45 percent
C) 70 percent
D) 63 percent
E) 25 percent
Q3) Advertisers attempt to make the products they advertise more elastic in demand. A)True B)False
Q4) Describe what cross elasticity of demand measures.Be specific in your response.
Page 22
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Chapter 21: Consumer Choice: Maximizing Utility and Behavioral Economics
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Sample Questions
Q1) Implicit in the solution to the diamond-water paradox is the idea that prices reflect __________ utility instead of __________ utility.
A) marginal; total
B) total; marginal
C) average; total
D) total; average
E) none of the above
Q2) Given the choice between a sure-thing option and a gamble option with the same expected payoff,a____________ person will choose the sure thing.
A) risk averse
B) risk loving
C) risk neutral
D) risk enjoying
E) none of the above
Q3) If income rises,the budget constraint
A) moves inward toward the origin.
B) moves outward away from the origin.
C) does not move.
D) moves farther down the vertical axis.
Page 23
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Chapter 22: Production and Costs
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Sample Questions
Q1) Refer to Exhibit 22-13. What dollar amounts go in blanks (P)and (Q)?
A) $120; $125
B) $10; 95
C) $30; $80
D) $93.33; $82.50
E) There is not enough information to answer this question.
Q2) Refer to Exhibit 22-5.Economies of scale are present between
A) points A and B.
B) points A and C.
C) points B and C.
D) points B and D.
E) points C and D.
Q3) Refer to Exhibit 22-11.Average variable cost at two units of output is
A) $50.
B) $60.
C) $100.
D) $110.
E) There is not enough information provided to answer this question.
Q4) Explain the difference between the law of diminishing marginal returns and diseconomies of scale.
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Chapter 23: Perfect Competition
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Sample Questions
Q1) Refer to Exhibit 23-2.For the firm that faces the demand curve in the exhibit,
A) marginal revenue is constant.
B) price equals marginal revenue.
C) if the firm maximizes profits, it produces the quantity of output at which price equals marginal cost.
D) a and c
E) a, b, and c
Q2) Why must profits be zero in long-run competitive equilibrium?
A) If profits are not zero, firms will enter or exit the industry.
B) If profits are not zero, firms will produce higher-quality goods.
C) If profits are not zero, marginal revenue will rise.
D) If profits are not zero, marginal cost will rise.
Q3) In a perfectly competitive industry,there is a motive for __________ to advertise in order to induce a rightward shift of the demand curve.
A) the typical firm
B) the industry as a whole
C) both the typical firm and the industry as a whole
D) neither the typical firm nor the industry as a whole
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25
Chapter 24: Monopoly
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Sample Questions
Q1) Which of the following is false?
A) For a monopolist, the law of diminishing marginal returns does not hold.
B) A monopoly firm will earn profit if it produces the quantity of output at which MR = MC, and charges a price that is above its average total cost.
C) The monopolist firm searches for the highest per-unit price it can charge for the quantity of output it produces.
D) The highest per-unit price a monopoly firm can charge is determined by the height of its demand curve.
Q2) Refer to Exhibit 24-10.The area that is subject to socially wasteful rent seeking is
A) ABGH
B) HGCD
C) DCE
D) ABCD
E) AFD
Q3) One of the conditions necessary for price discrimination is that the seller be a price searcher.
A)True
B)False
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Chapter 25: Monopolistic Competition, Oligopoly, and Game Theory
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Q1) Which of the following is true?
A) Concentration ratios take into account competition from substitute goods.
B) The four-firm concentration ratio is likely to be larger than the eight-firm concentration ratio.
C) There are assumed to be insignificant barriers to entry in the theory of oligopoly.
D) A designer label on a pair of jeans is a way of differentiating one seller's jeans from another seller's jeans.
E) all the above
Q2) Which of the following is not a necessary condition for the contestable market theory?
A) There are no barriers to entry.
B) Exit from an industry is costless.
C) All firms in an industry have the same costs of production.
D) All of the above are necessary conditions.
Q3) The prisoner's dilemma can be used to help analyze such diverse topics as the arms race and the need for speed limit laws.
A)True
B)False
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Chapter 26: Government and Product Markets: Antitrust and Regulation
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Sample Questions
Q1) The Clayton Act of 1914 makes price discrimination,exclusive dealers,tying contracts,and the acquisition of competing companies' stock illegal when their effects "substantially lessen competition or tend to create a monopoly."
A)True
B)False
Q2) Define the term lock-in effect and explain how this effect might make a network monopoly that benefits from it less likely to innovate.
Q3) The Justice Department considers a Herfindahl index that is ____________________________ to be representative of a moderately concentrated industry.
A) less than 1,000
B) between 1,000 and 1,800
C) greater than 1,800
D) greater than 2,000
Q4) What is the Herfindahl index of a monopoly?
A) 10
B) 100
C) 1,000
D) 10,000
Chapter 27: Factor Markets: With Emphasis on the Labor Market
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Q1) If the market supply of labor increases,the total wage income will increase if the
A) demand for labor is elastic.
B) demand for labor is inelastic.
C) supply of labor is elastic.
D) supply of labor is inelastic.
Q2) The market demand curve for labor is the horizontal summation of the firms' demand curves (MRP curves)for labor.
A)True
B)False
Q3) For a product price taker,VMP equals MR.
A)True
B)False
Q4) Which of the following is a reason why wage rates differ?
A) In the short run, demand conditions are not the same in all labor markets.
B) Some jobs have special nonpecuniary aspects.
C) Labor is not homogeneous.
D) b and c
E) a, b, and c
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Chapter 28: Wages,Unions,and Labor
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Q1) Refer to Exhibit 28-9.Let DA and DB represent demand for labor curves facing unions
A and B,respectively.As a result of their efforts,both unions succeed in increasing the wage rate from W? to W?.In terms of the wage-employment trade-off,the wage increase
A) had a larger impact on employment for union A than for union B.
B) had a larger impact on employment for union B than for union A.
C) had the same impact on employment in both unions.
D) cannot be determined without further information.
Q2) "Collective bargaining" refers to
A) negotiations between labor unions and management about wage rates and other issues.
B) negotiations among labor unions over jurisdictional control.
C) negotiations between labor, management, and government over the drafting of labor laws.
D) b and c
E) none of the above
Q3) In the case of a monopsony,higher wage rates (over some range)do not necessarily imply fewer persons working.
A)True
B)False
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Page 30
Chapter 29: The Distribution of Income and Poverty
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Q1) A public good is
A) a good that government provides to the public, such as roads, education, etc.
B) a good that is consumed in public, such as at a restaurant or ball park.
C) a good that if consumed by one person can be consumed by other persons to the same degree and the consumption of which cannot be denied to anyone.
D) a good that benefits the public more than it costs the public.
E) none of the above
Q2) If a person's asset income rises and his or her transfer payments (received)decline,it follows that that person's
A) overall income rises.
B) overall income falls.
C) overall income stays constant.
D) labor income will rise as his or her asset income rises.
E) none of the above
Q3) When income distribution data for the United States is adjusted for taxes and in-kind transfer payments the distribution is more equal than before such an adjustment is made.
A)True
B)False
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Page 31
Chapter 30: Interest, Rent, and Profit
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Q1) The nominal interest rate is determined
A) by the Federal Reserve system.
B) in the loanable funds market.
C) by the U.S. Treasury.
D) by the average rate of change in the price of capital goods.
Q2) If the demand for living in and visiting New York City were to decrease,then the following would happen in this order:
A) prices of goods and services would fall, and then land rents would decrease.
B) land rents would decrease, and then prices of goods and services would decrease.
C) land rents would decrease, and then prices of goods and services would fall, and finally land rents would increase.
D) land rents would decrease, and then prices of goods and services would increase.
E) There is not enough information to answer the question.
Q3) As interest rates decrease,present values decrease and firms will purchase more capital goods.
A)True
B)False
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Chapter 31: Market Failure: Externalities, Public Goods, and
Asymmetric
Information
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Q1) The government's provision of nonexcludable public goods such as national defense is accepted because
A) government is more efficient than private firms at producing goods.
B) the market fails to produce nonexcludable public goods as a result of the free-rider problem.
C) people do not value public goods such as national defense very highly.
D) a and c
E) all of the above
Q2) A positive externality is internalized when
A) demand shifts to the right until the socially optimum level of output is obtained.
B) demand shifts to the left until the socially optimum level of production is obtained.
C) supply shifts to the left until the socially optimum level of production is obtained.
D) b and c
E) none of the above
Q3) A public good can be excludable or nonexcludable.
A)True
B)False
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Page 33
Chapter 32: Public Choice and Special-Interest-Group
Politics
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Q1) Rational ignorance is
A) a result of our educational system.
B) the curtain, or wall, of knowledge between the persons that are educated and those that are not.
C) the curtain behind which people choose to hide to avoid knowledge about poverty and, in general, the unequal distribution of income.
D) the curtain separating educated voters from uneducated voters.
E) none of the above
Q2) Logrolling consists of
A) exchanging votes to gain support for legislation.
B) spreading the costs of a piece of special interest legislation over many millions of people.
C) attempts directed at slowing down the growth of rational ignorance.
D) increasing taxes on some people and lowering taxes on other people.
E) none of the above
Q3) Simple majority rule will almost always generate efficient outcomes.
A)True B)False
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Chapter 33: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Q1) If a theory can predict those things that you should observe if it is right and can also predict those things that you should observe if it is wrong,it is said to have the virtue of falsifiability.
A)True
B)False
Q2) Suppose you go to a high school and identify groups of students sitting at different lunch tables.To you it appears that everyone on the football team sits at one table,everyone who gets really high grades sits at another table,everyone who is in the drama club sits at another table,and so on. This outcome could be
A) the result of everyone preferring to sit at a table with dissimilar students, but not want to be at a table if he or she is in a 30 percent minority or less.
B) because people naturally discriminate against (and make feel unwelcome) those people who are not like them.
C) because the school authorities have instituted a one-week experimental plan to keep students segregated (at lunch) according to certain key interests.
D) b and c
E) all of the above
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Page 35
Chapter 34: International Trade
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Q1) Refer to Exhibit 34-10. Who has the comparative advantage when it comes to mowing lawns?
A) Danielle
B) Jason
C) neither Jason nor Danielle
D) both Danielle and Jason
Q2) It is necessary for government officials to analyze cost data to determine what their country should specialize in producing.
A)True
B)False
Q3) Major U.S.exports include automobiles and aircraft.
A)True
B)False
Q4) The sale of goods abroad at a price below their cost and below the price charged in the domestic market is called
A) priming.
B) coping.
C) invading.
D) dumping.
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Chapter 35: International Finance
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Q1) The U.S.dollar has depreciated relative to the Japanese yen if it takes
A) fewer yen to buy a dollar.
B) more yen to buy a dollar.
C) more dollars to buy a yen.
D) fewer dollars to buy a yen.
E) a and c
Q2) A "devaluation" occurs when
A) the official price of a currency is raised.
B) the official price of a currency is lowered.
C) a nation's currency depreciates under a flexible exchange rate system.
D) a nation's currency appreciates under a flexible exchange rate system.
E) none of the above
Q3) If $1 = 96 Japanese yen on Wednesday and on Thursday $1 = 100 Japanese yen,then the dollar depreciated against the yen between Wednesday and Thursday.
A)True
B)False
Q4) A currency has depreciated in value if it takes more of a foreign currency to buy it.
A)True
B)False
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Chapter 36: Globalization and International Impacts on the Economy
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Q1) As the dollar appreciates,the dollar price of imported goods ___________ ultimately shifting the United States AD curve to the _______________.
A) rises; right
B) rises; left
C) falls; right
D) falls; left
Q2) If an economy's exports are $800 billion and its imports are $750 billion,its net exports are
A) $1,550 billion
B) $50 billion
C) -$50 billion
D) 1.07.
Q3) The average tariff rate in the US today is about 40 percent,but it was only 1.6 percent in 1946.
A)True
B)False
Q4) Globalization first appeared on the world stage two decades ago.
A)True
B)False
Page 38
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Chapter 37: The Economic Case For and Against
Government: Five Topics Considered
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Q1) A nonexcludable public good is
A) rivalrous in consumption and nonexcludable
B) nonrivalrous in consumption and excludable
C) nonrivalrous in consumption and nonexcludable
D) rivalrous in consumption and excludable
E) none of the above
Q2) Consider a setting in which there is a negative externality,but no positive externality. The market outcome is __________________; government can bring about the ___________________ outcome if it sets a tax equal to the
A) efficient; inefficient; MSC
B) efficient; inefficient; MEC
C) inefficient; efficient; MEC
D) inefficient; efficient; MPC
E) inefficient; efficient; MSB
Q3) The answer is,"Because of the free rider problem." The question is:
A) Why can't the government produce nonexcludable public goods?
B) Why can't the market produce nonexcludable public goods?
C) Why do negative externalities exist?
D) Why do positive externalities exist?
E) b and d
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Chapter 38: Stocks, Bonds, Futures, and Options
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Q1) Which of the following is false?
A) Private equity firms often need to borrow the money needed to buy a public corporation.
B) Once a private equity firm owns a formerly publicly held corporation, they tend to cut costs and enhance efficiency.
C) Critics of private equity firms say that companies that have too much cash and too little debt become targets for private equity firms to buy.
D) A private equity firm is a group of investors that takes a privately held corporation and uses an investment banker to turn it into a publicly held corporation.
Q2) The coupon rate is equal to the annual coupon payment
A) divided by the face value of the bond.
B) divided by the price paid for the bond.
C) multiplied by the price paid for the bond.
D) divided by the current market value of the bond.
Q3) The interest paid on corporate bonds is not subject to federal taxes.
A)True
B)False
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Chapter 39: Agriculture: Problems, Policies, and Unintended Effects
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Q1) If the demand for foodstuffs is inelastic,which of the following positions would be most beneficial to Farmer Jones?
A) Bad weather for Jones and good weather for all other farmers.
B) Bad weather for all farmers except Jones (who witnesses good weather).
C) Bad weather for all farmers.
D) Good weather for all farmers.
E) There is not enough information to answer the question.
Q2) The major way that the government supports crop prices is by granting nonrecourse loans to farmers.
A)True
B)False
Q3) When productivity increases in the production of agricultural products,the supply curve for agricultural products shifts rightward.
A)True
B)False
Q4) Explain how nonrecourse loans operate and how they help to support crop prices.
Q5) An agricultural price support is an example of a price ceiling.
A)True
B)False
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