Economic Development in the Arab World Study Guide Questions
Course Introduction
This course examines the patterns, challenges, and strategies of economic development in the Arab world, focusing on both historical trajectories and contemporary issues. It explores the economic structures of Arab countries, the role of natural resources, demographic trends, labor markets, and the impact of globalization. The course also considers policy responses to economic diversification, poverty reduction, gender participation, and regional integration, while analyzing the influence of political, social, and cultural factors on economic growth and development. Through case studies and comparative analysis, students gain insight into the opportunities and constraints shaping the economies of the Arab region.
Recommended Textbook Principles of Economics Arab World Edition 2nd Edition by Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) In a particular country in 1998,the average worker needed to work 25 hours to produce 40 units of output.In that same country in 2008,the average worker needed to work 40 hours to produce 68 units of output.In that country,the productivity of the average worker
A)decreased by 1.7 percent between 1998 and 2008.
B)remained unchanged between 1998 and 2008.
C)increased by 4.75 percent between 1998 and 2008.
D)increased by 6.25 percent between 1998 and 2008.
Answer: D
Q2) It once took 90 percent of our population to grow our food.It now takes only 3 percent of the population to grow our food.Which of the following statements is true?
A)This loss of jobs has been detrimental to our economy.
B)The government should provide subsidies to encourage more people to become farmers.
C)This reduction in the number of farmers explains the increase in the price of food.
D)This is progress because freed-up labor that is used to produce other goods.
Answer: D
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Chapter 2: Thinking Like an Economist
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Q1) A technological advance in the production of the first good increases the opportunity cost of the first good in terms of the second good.
A)True
B)False
Answer: True
Q2) When a relevant variable that is not named on either axis changes,
A)there will be a movement along the curve.
B)the curve will rotate clockwise.
C)the curve will be unaffected since only the variables on the axis affect the curve.
D)the curve will shift.
Answer: D
Q3) According to John Maynard Keynes,an economist must possess a rare combination of skills including being a mathematician,historian,statesman,and philosopher.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods.
A)True
B)False
Answer: True
Q2) Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.
A)True
B)False
Answer: False
Q3) Refer to Table 3-6.For farmer B,the opportunity cost of 1 pound of meat is
A)0.4 pound of potatoes.
B)2.5 pounds of potatoes.
C)4 pounds of potatoes.
D)10 pounds of potatoes.
Answer: A
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Chapter 4: The Market Forces of Supply and Demand
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Q1) What will happen in the artichoke market now if buyers expect higher artichoke prices in the near future?
A)The demand for artichokes will increase.
B)The demand for artichokes will decrease.
C)The demand for artichokes will be unaffected.
D)The supply of artichokes will increase.
Q2) In a competitive market,the quantity of a product produced and the price of the product are determined by A)buyers.
B)sellers.
C)both buyers and sellers.
D)None of the above is correct.
Q3) Most markets in the economy are
A)markets in which sellers,rather than buyers,control the price of the product.
B)markets in which buyers,rather than sellers,control the price of the product.
C)perfectly competitive.
D)highly competitive.
Q4) If a determinant of demand other than price changes,the demand curve shifts.
A)True
B)False
Page 6
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Chapter 5: Elasticity and Its Application
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Q1) How does the concept of elasticity allow us to improve upon our understanding of supply and demand?
A)Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.
B)Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept.
C)Without elasticity,we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage.
D)Without elasticity,it is very difficult to assess the degree of competition within a market.
Q2) An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.
A)True
B)False
Q3) If the price elasticity of demand is equal to 0,then demand is unit elastic.
A)True
B)False
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Chapter 6: Supply,demand,and Government Policies
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Q1) The term tax incidence refers to how the burden of a tax is distributed among the various people who make up the economy.
A)True
B)False
Q2) 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
Q3) Tax incidence
A)depends on the legislated burden.
B)is entirely random.
C)depends on the elasticities of supply and demand.
D)falls entirely on buyers or entirely on sellers.
Q4) Economists generally believe that rent control is
A)an efficient and fair way to help the poor.
B)inefficient but the best available means of solving a serious social problem.
C)a highly inefficient way to help the poor raise their standard of living.
D)an efficient way to allocate housing,but not a good way to help the poor.
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Q1) Refer to Figure 7-6.What happens to the consumer surplus if the price rises from 100 to 150?
A)The new consumer surplus is half of the original consumer surplus.
B)The new consumer surplus is 25 percent of the original consumer surplus.
C)The new consumer surplus is double the original consumer surplus.
D)The new consumer surplus is triple the original consumer surplus.
Q2) Refer to Figure 7-16.Total surplus can be measured as the area
A)JNK.
B)JNML.
C)JRL.
D)JNL.
Q3) In order to conclude that markets are efficient,we assume that they are perfectly competitive.
A)True
B)False
Q4) Free markets allocate (a)the supply of goods to the buyers who value them most highly and (b)the demand for goods to the sellers who can produce them at least cost.
A)True
B)False
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Chapter 8: Application: The Costs of Taxation
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Q1) Which of the following ideas is the most plausible?
A)Tax revenue is more likely to increase when a low tax rate is increased than when a high tax rate is increased.
B)Tax revenue is less likely to increase when a low tax rate is increased than when a high tax rate is increased.
C)Tax revenue is likely to increase by the same amount when a low tax rate is increased and when a high tax rate is increased.
D)Decreasing a tax rate can never increase tax revenue.
Q2) Refer to Figure 8-3.The price that buyers effectively pay after the tax is imposed is A)P1.
B)P2.
C)P3.
D)P4.
Q3) When a tax is imposed,the loss of consumer surplus and producer surplus as a result of the tax exceeds the tax revenue collected by the government.
A)True
B)False
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Chapter 9: Application: International Trade
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Q1) Refer to Figure 9-15.For the saddle market,area E represents
A)government's revenue from the tariff.
B)producer surplus after the tariff becomes effective.
C)the decrease in consumer surplus,relative to the free-trade situation,as a result of the tariff.
D)the decrease in total surplus,relative to the free-trade situation,as a result of the tariff.
Q2) An import quota
A)is preferable to a tariff since an import quota does not create a deadweight loss.
B)is a tax on imported goods.
C)reduces the welfare of domestic consumers.
D)reduces the welfare of domestic producers.
Q3) A country has a comparative advantage in a product if the world price is
A)lower than that country's domestic price without trade.
B)higher than that country's domestic price without trade.
C)equal to that country's domestic price without trade.
D)not subject to manipulation by organizations that govern international trade.
Q4) How does an import quota differ from an equivalent tariff?
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Chapter 10: Externalities
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Q1) Refer to Figure 10-7.To internalize the externality in this market,the government should
A)impose a tax on this product.
B)provide a subsidy for this product.
C)forbid production.
D)produce the product itself.
Q2) In a market economy,government intervention
A)will always improve market outcomes.
B)reduces efficiency in the presence of externalities.
C)may improve market outcomes in the presence of externalities.
D)is necessary to control individual greed.
Q3) Refer to Figure 10-4.If this market is currently producing at Q<sub>4</sub>,then total economic well-being would be maximized if output
A)decreased to Q<sub>1</sub>.
B)decreased to Q<sub>2.</sub>
C)decreased to Q<sub>3</sub>.
D)stayed at Q<sub>4</sub>.
Q4) Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?
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Chapter 11: Public Goods and Common Resources
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Q1) In a certain city,the government is considering acquiring some land and turning it into a park (without any fences or gates).In an attempt to determine the extent to which residents of the city would value the park,residents are asked to fill out a questionnaire.Which of the following is correct?
A)On the questionnaire,some residents are likely to exaggerate the value they associate with the park.
B)On the questionnaire,some residents are likely to exaggerate the costs they associate with the park.
C)The use of such a questionnaire in cost-benefit analysis is likely to produce only rough approximations of residents' perceptions of the costs and benefits of a park.
D)All of the above are correct.
Q2) A free rider is a person who
A)will only purchase a product on sale.
B)receives the benefit of a good but avoids paying for it.
C)can produce a good at no cost.
D)rides public transit regularly.
Q3) Why do wild salmon populations face the threat of extinction while goldfish populations are in no such danger?
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Chapter 12: The Design of the Tax System
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Q1) Many people consider lump-sum taxes to be unfair to low-income taxpayers.
A)True
B)False
Q2) In designing a tax system,policymakers have two objectives that are often conflicting.They are
A)maximizing revenue and minimizing costs to taxpayers.
B)efficiency and minimizing costs to taxpayers.
C)efficiency and equity.
D)maximizing revenue and reducing the national debt.
Q3) In addition to tax payments,the two other primary costs that a tax system inevitably imposes on taxpayers are
A)deadweight losses and administrative burdens.
B)deadweight losses and frustration with the political system.
C)administrative burdens and tax-preparation costs.
D)administrative burdens and the risk of punishment for failure to comply with tax laws.
Q4) The government raises revenue through taxation to pay for the services it provides.
A)True
B)False
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Chapter 13: The Costs of Production
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Q1) Refer to Table 13-8.What is the average variable cost of producing 5 units of output?
A)4
B)5
C)40
D)44
Q2) Which of the following statements is correct?
A)Opportunity costs equal explicit minus implicit costs.
B)Economists consider opportunity costs to be included in a firm's total revenues.
C)Economists consider opportunity costs to be included in a firm's costs of production.
D)All of the above are correct.
Q3) For a typical firm,fixed costs increase in direct proportion to the increases in output.
A)True
B)False
Q4) The typical total-cost curve is U-shaped.
A)True
B)False
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Chapter 14: Firms in Competitive Markets
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Q1) When a profit-maximizing firm in a competitive market experiences rising prices,it will respond with an increase in production.
A)True
B)False
Q2) In the short run,a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the
A)price is less than average total cost.
B)marginal revenue exceeds the marginal cost.
C)price is greater than average variable cost.
D)price is greater than average fixed cost but less than average variable cost.
Q3) Which of the following characteristics of competitive markets is necessary for firms to be price takers?
(i)There are many sellers.
(ii)Firms can freely enter or exit the market.
(iii)Goods offered for sale are largely the same.
A)(i)and (ii)only
B)(i)and (iii)only
C)(ii)only
D)(i),(ii),and (iii)
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Chapter 15: Monopoly
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Q1) Which of the following statements comparing monopoly with competition is correct?
A)A monopolist produces a higher level of output and charges a lower price than a competitive firm would.
B)With perfect price discrimination,the total surplus under monopoly can be the same as under competition.
C)With or without price discrimination,the consumer surplus under monopoly is at least as large as it would be under competition.
D)The deadweight loss associated with monopoly is caused by the positive economic profits of the monopolist; competitive firms do not earn a positive economic profit so there is no deadweight loss under competition.
Q2) Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist from group to group.
A)True
B)False
Q3) Graphically depict the deadweight loss caused by a monopoly.How is this similar to the deadweight loss from taxation?
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Chapter 16: Monopolistic Competition
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Q1) In the short run,a firm in a monopolistically competitive market operates much like a
A)firm in a perfectly competitive market.
B)firm in an oligopoly.
C)monopolist.
D)monopsonist.
Q2) Refer to Figure 16-4.Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry?
A)panel a
B)panel b
C)panel c
D)panel d
Q3) A firm maximizes its profit by producing output up to the point where marginal revenue equals marginal cost
A)only when the market is a monopoly.
B)only when the market is a monopoly or monopolistically competitive.
C)only when the market is monopolistically competitive or perfectly competitive.
D)when the market is perfectly competitive,monopolistically competitive,or monopolistic.
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Chapter 17: Oligopoly
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Q1) Refer to Table 17-22.Which of the following statements is correct?
A)Matt's dominant strategy is to charge a low price.
B)Brian's dominant strategy is to charge a high price.
C)The dominant strategy for both Brian and Matt is to charge a low price.
D)Matt's dominant strategy is to charge a high price.
Q2) The theory of oligopoly provides another reason that free trade can benefit all countries because
A)increased competition leads to larger deadweight losses.
B)As the number of firms within a given market increases,the price of the good decreases.
C)As the number of firms within a given market increases,the profit of each firm increases.
D)All of the above are correct.
Q3) A cooperative agreement among oligopolists is less likely to be maintained,
A)the greater the number of oligopolists.
B)the larger the number of buyers of the oligopolists' product.
C)the smaller the number of buyers of the oligopolists' product.
D)the more likely it is that the game among the oligopolists will be played over and over again.
Q4) Explain the practice of tying and discuss why it is controversial.
Page 19
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Chapter 18: The Market for the Factors of Production
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Q1) Describe the difference between a diminishing marginal product of labor and a negative marginal product of labor.Why would a profit-maximizing firm always choose to operate where the marginal product of labor is decreasing (but not negative)?
Q2) An increase in the output price will increase the firm's demand for labor,all else equal.
A)True
B)False
Q3) Refer to Figure 18-4.The graph above illustrates the market for bakers who make homemade breads and breakfast pastries.If the supply of commercial-grade ovens in which the bakers bake their breads and pastries decreases,what happens in the market for bakers?
A)Demand increases from D1 to D2.
B)Demand decreases from D2 to D1.
C)Supply increases from S1 to S2.
D)Supply decreases from S2 to S1.
Q4) For competitive firms,the curve that represents the value of marginal product of labor is the same as the demand for labor curve.
A)True
B)False
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Chapter 19: Earnings and Discrimination
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Q1) Which of the following sets of circumstances is likely to provide the best evidence in support of the theory of efficiency wages?
A)Workers in the market are unskilled and not represented by a union,and their wage exceeds both the equilibrium wage and the minimum wage.
B)Workers in the market are highly skilled and not represented by a union,and their wage exceeds the minimum wage.
C)Workers in the market are highly skilled and represented by a union,and their wage exceeds the equilibrium wage.
D)Employers in the market are known for reducing the workers' wage whenever they get an opportunity to do so.
Q2) Explain the theory that education acts as a signaling device.How does this contrast with the theory of education as an investment in human capital?
Q3) As a result of an increase in the earnings gap between skilled and unskilled jobs,the incentive to get a college education has been declining.
A)True
B)False
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Chapter 20: Income Inequality and Poverty
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Q1) When the government enacts policies to make the distribution of income more equitable,it distorts incentives,alters behavior,and makes the allocation of resources less efficient.
A)True
B)False
Q2) According to the doctrine of liberalism,principles of justice are the result of
A)fair agreement and bargain.
B)command-and-control policies.
C)domination of the powerful by the weak.
D)workers owning the factors of production.
Q3) What is meant by a perfectly equal distribution of income?
Use a graph to depict such a situation.
Q4) Which of the following is not correct?
A)Poverty is correlated with race.
B)Poverty is correlated with age.
C)Poverty is correlated with family composition.
D)All of the above are correct.
Q5) Explain the relationship between labor earnings and the distribution of income.
Q6) Explain what is meant by "in-kind transfer" programs.Briefly outline the advantages and disadvantages of an in-kind transfer program.
Page 22
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Chapter 21: The Theory of Consumer Choice
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Q1) If an increase in the interest rate raises savings,then
A)the substitution effect is greater than the income effect.
B)the income effect is greater than the substitution effect.
C)the income effect and the substitution effect move in the same direction.
D)we are unable to determine the sizes of the income and substitution effects without more information.
Q2) Which of the following statements is correct?
A)The theory of consumer choice provides a more complete understanding of supply,just as the theory of the competitive firm provides a more complete understanding of demand.
B)The theory of consumer choice provides a more complete understanding of demand,just as the theory of the competitive firm provides a more complete understanding of supply.
C)Monetary theory provides a more complete understanding of demand,just as the theory of the competitive firm provides a more complete understanding of supply.
D)The theory of public choice provides a more complete understanding of supply,just as the theory of the competitive firm provides a more complete understanding of demand.
Q3) List and briefly explain each of the four properties of indifference curves.
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Chapter 22: Frontiers of Microeconomics
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Q1) If A is preferred to B and C is preferred to D,then B must be preferred to C to satisfy transitivity.
A)True
B)False
Q2) The unanimity property states that the ranking between any two outcomes should not depend on whether some third outcome is available.
A)True
B)False
Q3) 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.
Q4) 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) U.S.GDP and U.S.GNP are related as follows:
A)GNP = GDP + Value of exported goods - Value of imported goods.
B)GNP = GDP - Value of exported goods + Value of imported goods.
C)GNP = GDP + Income earned by foreigners in the U.S.- Income earned by U.S.citizens abroad.
D)GNP = GDP - Income earned by foreigners in the U.S.+ Income earned by U.S.citizens abroad.
Q2) When economists talk about growth in the economy,they measure that growth as the
A)absolute change in nominal GDP from one period to another.
B)percentage change in nominal GDP from one period to another.
C)absolute change in real GDP from one period to another.
D)percentage change in real GDP from one period to another.
Q3) In a simple circular-flow diagram,total income and total expenditure are
A)never equal because total income always exceeds total expenditure.
B)seldom equal because of the ongoing changes in an economy's unemployment rate.
C)equal only when the government purchases no goods or services.
D)always equal because every transaction has a buyer and a seller.
Q4) Since it is counted as investment,why doesn't the purchase of earthmoving equipment from China by a U.S.corporation increase U.S.GDP?
Page 25
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Chapter 24: Measuring the Cost of Living
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Q1) One problem with the consumer price index stems from the fact that,over time,consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive.This problem is called
A)price-change neglect.
B)unmeasured quality change.
C)substitution bias.
D)relative bias.
Q2) By not taking into account the possibility of consumer substitution,the CPI
A)understates the cost of living.
B)overstates the cost of living.
C)may overstate or understate the cost of living,depending on how quickly prices rise.
D)may overstate or understate the cost of living,regardless of how quickly prices rise.
Q3) The inflation rate is the absolute change in the price level from the previous period.
A)True
B)False
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) Last year a country had 800 workers who worked an average of 8 hours and produced 12,800 units.This year the same country had 1000 workers who worked an average of 8 hours and produced 14,000 units.This country's productivity was
A)higher this year than last year.A possible source of this change in productivity is a change in the size of the capital stock.
B)higher this year than last year.A change in the size of the capital stock does not affect productivity.
C)lower this year than last year.A possible source of this change in productivity is a change in the size of the capital stock.
D)lower this year than last year.A change in the size of the capital stock does not affect productivity.
Q2) The traditional view of the production process is that capital is subject to A)constant returns.
B)increasing returns.
C)diminishing returns.
D)diminishing returns for low levels of capital,and increasing returns for high levels of capital.
Q3) What is the difference between human capital and technology?
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Chapter 26: Saving,investment,and the Financial System
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Q1) If the government currently has a budget deficit,then
A)it does not necessarily have a debt.
B)its debt is increasing.
C)government expenditures are greater than taxes.
D)All of the above are correct.
Q2) You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?
A)Private and public saving are both positive.
B)Private saving is positive; public saving is negative.
C)Private saving is negative; public saving is positive.
D)Both private saving and public saving are negative.
Q3) Which of the following would both make the interest rate on a bond higher than otherwise?
A)the interest it pays is taxed and it is long term
B)the interest it pays is taxed and it is short term
C)the interest it pays is tax exempt and it is long term
D)the interest it pays is tax exempt and it is short term
Q4) Draw and label a graph showing equilibrium in the market for loanable funds.
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) Refer to Figure 27-1.Which distance along the vertical axis represents the marginal utility of an increase in wealth from $600 to $800?
A)the distance between the origin and point B
B)the distance between the origin and point C
C)the distance between point A and point C
D)the distance between point B and point C
Q2) What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.
Q3) Draw graphs showing the following three relationships.
1.The relation between utility and wealth for a risk averse consumer.
2.The relation between standard deviation and the number of stocks in a portfolio.
3.The relation between return and risk.
Q4) According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.
A)True
B)False
Q5) List three different ways that a risk-averse person can reduce financial risk.
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Chapter 28: Islamic Finance
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Q1) To highlight the growing importance of Islamic finance in global business,the Dow Jones (DJ)and Financial Times Stock Exchange indicator (FTSE)have created their own Islamic securities indices.
A)True
B)False
Q2) A construction company is looking at a new project,but requires finance to pay for materials.They approach an Islamic bank who agree to buy the materials and resell it to the company on credit.What is this type of contract called?
A)Takaful
B)Musharakah
C)Ijarah
D)Murabahah
Q3) In your own words outline the key differences between Islamic and conventional financing.
Q4) Explain in your own words the three key principles of Islamic finance.
Q5) What are some of the perceived challenges faced by Islamic finance if it is to become a global alternative to conventional financial institutions?
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Chapter 29: Unemployment
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Q1) Minimum-wage laws and unions are similar to each other but different from efficiency wages in that minimum-wage law and unions
A)cause unemployment,but efficiency wages do not.
B)cause the quantity of labor supplied to exceed the quantity of labor demanded,but efficiency wages do not.
C)cause wages to be above the equilibrium level.
D)prevent firms from lowering wages in the presence of a surplus of workers.
Q2) Minimum wages create unemployment in markets where they create a
A)shortage of labor.Unemployment of this type is called frictional.
B)shortage of labor.Unemployment of this type is called structural.
C)surplus of labor.Unemployment of this type is called frictional.
D)surplus of labor.Unemployment of this type is called structural.
Q3) Most spells of unemployment are
A)long,and most unemployment observed at any given time is long term.
B)long,but most unemployment observed at any given time is short term.
C)short,but most unemployment observed at any given time is long term.
D)short,and most unemployment observed at any given time is short term.
Q4) Public policy can reduce the economy's natural rate of unemployment.
A)True
B)False
Page 31
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Chapter 30: The Monetary System
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Q1) In a system of 100-percent-reserve banking,
A)banks do not make loans.
B)currency is the only form of money.
C)deposits are banks' only assets.
D)All of the above are correct.
Q2) Suppose banks decide to hold more excess reserves relative to deposits.Other things the same,this action will cause the A)money supply to fall.To reduce the impact of this the Fed could lower the discount rate.
B)money supply to fall.To reduce the impact of this the Fed could raise the discount rate.
C)money supply to rise.To reduce the impact of this the Fed could lower the discount rate.
D)money supply to rise.To reduce the impact of this the Fed could raise the discount rate.
Q3) During the Great Depression in the early 1930s,
A)bank runs closed many banks.
B)the money supply rose sharply.
C)the Fed decreased reserve requirements.
D)both a and b are correct.
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Chapter 31: Money Growth and Inflation
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Q1) Monetary neutrality means that a change in the money supply
A)does not change real GDP.Most economists think this is a good description of the economy in the short run and in the long run.
B)does not change real GDP.Most economists think this is a good description of the economy in the long run but not the short run.
C)does change real GDP.Most economists think this is a good description of the economy in the short-run and the long run.
D)does change real GDP.Most economists think this is a good description of the economy in the long run but not the short run.
Q2) According to the quantity equation,the price level would change less than proportionately with a rise in the money supply if there were also
A)either a rise in output or a rise in the rate at which money changes hands.
B)either a rise in output or a fall in the rate at which money changes hands.
C)either a fall in output or a rise in the rate at which money changes hands.
D)either a fall in output or a fall in the rate at which money changes hands.
Q3) Suppose the Fed sells government bonds.Use a graph of the money market to show what this does to the value of money.
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Chapter 32: Open-Economy Macroeconomic Models
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Q1) If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets,then France's net capital outflow is
A)-.3 trillion euros,so it must have a trade deficit.
B)-.3 trillion euros,so it must have a trade surplus.
C).3 trillion euros,so it must have a trade deficit.
D).3 trillion euros,so it must have a trade surplus.
Q2) Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.
A)True
B)False
Q3) In an open economy,gross domestic product equals $1,950 billion,government expenditure equals $280 billion,investment equals $500,and net capital outflow equals $280 billion.What is consumption expenditure?
A)$280 billion
B)$780 billion
C)$890 billion
D)$1,170 billion
Q4) Why are net exports and net capital outflow always equal?
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Chapter 33: A Macroeconomic Theory of the Open Economy
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Q1) Other things the same,when a Canadian company imports bicycles from the U.S.,the open-economy macroeconomic model treats this transaction as an increase in the quantity of dollars demanded in the U.S.foreign-currency exchange market.
A)True
B)False
Q2) Refer to Figure 33-6.If the interest rate were initially at r<sub>2</sub> and an import quota were imposed,the interest rate would
A)stay at r<sub>2</sub>.
B)decrease because supply would shift right.
C)increase because supply would shift left.
D)decrease because demand would shift left.
Q3) In the open economy macroeconomic model,the price that balances supply and demand in the market for foreign-currency exchange model is the
A)nominal exchange rate.
B)nominal interest rate.
C)real exchange rate.
D)real interest rate.
Q4) What effect do protectionist policies have on the trade deficit?
Page 35
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Chapter 34: Aggregate Demand and Aggregate Supply
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Q1) As the price level falls,
A)the exchange rate falls,so net exports fall.
B)the exchange rate falls,so net exports rise.
C)the exchange rate rises,so net exports fall.
D)the exchange rate rises,so net exports rise.
Q2) Technological progress shifts the long-run aggregate supply curve to the right.
A)True
B)False
Q3) The aggregate quantity of goods and services demanded changes as the price level rises because
A)real wealth falls,interest rates rise,and the dollar appreciates.
B)real wealth falls,interest rates rise,and the dollar depreciates.
C)real wealth rises,interest rates fall,and the dollar appreciates.
D)real wealth rises,interest rates fall,and the dollar depreciates.
Q4) If aggregate demand shifts right,then eventually price level expectations rise.This increase in price level expectations causes the aggregate demand curve to shift to the left back to its original position.
A)True
B)False
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Chapter 35: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Suppose the multiplier has a value that exceeds 1,and there are no crowding out or investment accelerator effects.Which of the following would shift aggregate demand to the right by more than the increase in expenditures?
A)an increase in government expenditures
B)an increase in net exports
C)an increase in investment spending
D)All of the above are correct.
Q2) If the MPC is 4/5,the multiplier is 5/4.
A)True
B)False
Q3) Monetary policy and fiscal policy are the only factors that influence aggregate demand.
A)True
B)False
Q4) The wealth effect stems from the idea that a higher price level
A)increases the real value of households' money holdings.
B)decreases the real value of households' money holdings.
C)increases the real value of the domestic currency in foreign-exchange markets.
D)decreases the real value of the domestic currency in foreign-exchange markets.
Page 37
Q5) What is the difference between monetary policy and fiscal policy?
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Chapter 36: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) An event that directly affects firms' costs of production and thus the prices they charge is called
A)a Phillips contraction.
B)an inflationary spiral.
C)a demand shock.
D)a supply shock.
Q2) In the long run,a decrease in the money supply growth rate
A)increases inflation and shifts the short-run Phillips curve right.
B)increases inflation and shifts the short-run Phillips curve left.
C)decreases inflation and shifts the short-run Philips curve right.
D)decreases inflation and shifts the short-run Phillips curve left.
Q3) In the long run a reduction in the money supply growth rate affects
A)the inflation rate and the natural rate of unemployment.
B)the inflation rate but not the natural rate of unemployment.
C)neither the inflation rate nor the natural rate of unemployment.
D)the natural rate of unemployment,but not the inflation rate.
Q4) A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.
A)True
B)False
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Chapter 37: Six Debates Over Macroeconomic Policy
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Q1) Which of the following is correct?
A)Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes.
B)Economic forecast are precise and aggregate spending responds to interest rate changes with a lag.
C)Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes.
D)Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.
Q2) Why might government expenditures be more appropriate than tax cuts to counter recessions?
Is there any evidence for this thinking?
Q3) A nation's saving rate is not a primary determinant of its long-run economic prosperity.
A)True
B)False
Q4) Tax cuts affect only aggregate demand not aggregate supply.
A)True
B)False
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