Course Introduction
Economics for Engineers
Exam Materials
Economics for Engineers introduces engineering students to fundamental economic principles and analytical tools necessary for effective decision-making in engineering projects. The course covers topics such as cost estimation, value analysis, cash flow, inflation, depreciation, and project evaluation methods including net present value and internal rate of return. Through real-world case studies and problem-solving exercises, students learn to assess the economic viability of engineering solutions and optimize resources within constraints, equipping them with skills to integrate economic reasoning into technological and managerial decisions.
Recommended Textbook
Principles of Economics Arab World Edition 2nd Edition by Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Following the implementation of laws requiring automobiles to have seat belts,which of the following occurred?
A)An individual's probability of surviving an auto accident rose.
B)There was an increase in pedestrian deaths.
C)There was an increase in automobile accidents.
D)All of the above are correct.
Answer: D
Q2) In the short run,an increase in the money supply is likely to lead to
A)lower unemployment and lower inflation.
B)lower unemployment and higher inflation.
C)higher unemployment and lower inflation.
D)higher unemployment and higher inflation.
Answer: B
Q3) When society requires that firms reduce pollution,there is
A)a tradeoff because of reduced incomes to the firms' owners and workers.
B)a tradeoff only if some firms are forced to close.
C)no tradeoff,since the cost of reducing pollution falls only on the firms affected by the requirements.
D)no tradeoff,since everyone benefits from reduced pollution.
Answer: A
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Refer to Figure 2-2.Boxes C and D of this circular-flow diagram represent
A)households and government.
B)firms and government.
C)the markets for goods and services and the markets for financial assets.
D)the markets for goods and services and the markets for factors of production.
Answer: D
Q2) When economists are trying to explain the world,they are scientists,and when they are trying to help improve the world,they are policy advisers.
A)True
B)False
Answer: True
Q3) In the circular-flow diagram,payments for labor,land,and capital flow from firms to households through the markets for the factors of production.
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 3-6.For farmer B,the opportunity cost of 16 pounds of meat is
A)4.0 pounds of potatoes.
B)5.2 pounds of potatoes.
C)6.4 pounds of potatoes.
D)9.6 pounds of potatoes.
Answer: C
Q2) David Ricardo was the author of the 1817 book Principles of Political Economy and Taxation.
A)True
B)False Answer: True
Q3) Refer to Table 3-5.Varick has a comparative advantage in the production of A)wheat. B)cloth.
C)both goods.
D)neither good. Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) The supply of a good or service is determined by
A)those who buy the good or service.
B)the government.
C)those who sell the good or service.
D)both those who buy and those who sell the good or service.
Q2) 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.
Q3) From the above figure,at a price of
A)$2,there is a surplus of 6 units.
B)$5,there is a surplus of 25 units.
C)$5,there is a shortage of $25.
D)$7,there is a surplus of 4 units.
Q4) When the price of a good is lower than the equilibrium price, A)a surplus will exist.
B)buyers desire to purchase more than is produced.
C)sellers desire to produce and sell more than buyers wish to purchase.
D)quantity supplied exceeds quantity demanded.
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Chapter 5: Elasticity and Its Application
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Q1) Refer to Figure 5-3.Mark says he would buy one Mt.Dew per day regardless of the price.If this is true,then Mark's demand for Mt.Dew is represented by demand curve
A)A.
B)B.
C)C.
D)D.
Q2) If the price elasticity of demand is equal to 0,then demand is unit elastic.
A)True
B)False
Q3) If the price elasticity of supply is 1.2,and price increased by 5%,quantity supplied would
A)increase by 4.2%.
B)increase by 6%.
C)decrease by 4.2%.
D)decrease by 6%.
Q4) If a supply curve is horizontal,then supply is said to be perfectly elastic,and the price elasticity of supply approaches infinity.
A)True B)False
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Chapter 6: Supply,demand,and Government Policies
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Q1) Suppose that in a particular market,the supply curve is highly elastic and the demand curve is highly inelastic.If a tax is imposed in this market,then the A)buyers will bear a greater burden of the tax than the sellers.
B)sellers will bear a greater burden of the tax than the buyers.
C)buyers and sellers are likely to share the burden of the tax equally.
D)buyers and sellers will not share the burden equally,but it is impossible to determine who will bear the greater burden of the tax without more information.
Q2) The price paid by buyers in a market will increase if the government (i)increases a binding price floor in that market.
(ii)increases a binding price ceiling in that market.
(iii)decreases a tax on the good sold in that market.
A)(ii)only
B)(iii)only
C)(i)and (ii)only
D)(i),(ii),and (iii)
Q3) One common example of a price ceiling is rent control.
A)True
B)False
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Suppose the demand for peaches decreases.What will happen to producer surplus in the market for peaches?
A)It increases.
B)It decreases.
C)It remains unchanged.
D)It may increase,decrease,or remain unchanged.
Q2) On a graph,consumer surplus is represented by the area
A)between the demand and supply curves.
B)below the demand curve and above price.
C)below the price and above the supply curve.
D)below the demand curve and to the right of equilibrium price.
Q3) Efficiency refers to whether a market outcome is fair,while equality refers to whether the maximum amount of output was produced from a given number of inputs.
A)True
B)False
Q4) The area below the demand curve and above the supply curve measures the producer surplus in a market.
A)True
B)False
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Chapter 8: Application: The Costs of Taxation
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Sample Questions
Q1) Using demand and supply diagrams,show the difference in deadweight loss between (a)a market with inelastic demand and supply and (b)a market with elastic demand and supply.
Q2) Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.Without the tax,the producer surplus is A)(P5-0)x Q5.
B) \(1 / 2\) x (P5-0)x Q5.
C)(P8-0)x Q2.
D) \(1 / 2\) x (P8-0)x Q2.
Q3) It does not matter whether a tax is levied on the buyers or the sellers of a good because
A)sellers always bear the full burden of the tax.
B)buyers always bear the full burden of the tax.
C)buyers and sellers will share the burden of the tax.
D)None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax.
Q4) Illustrate on three demand-and-supply graphs how the size of a tax (small,medium and large)can alter total revenue and deadweight loss.
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Chapter 9: Application: International Trade
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Sample Questions
Q1) When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,
A)producer surplus increases and total surplus increases in the market for that good.
B)producer surplus increases and total surplus decreases in the market for that good.
C)producer surplus decreases and total surplus increases in the market for that good.
D)producer surplus decreases and total surplus decreases in the market for that good.
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) How does an import quota differ from an equivalent tariff?
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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11
Chapter 10: Externalities
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Sample Questions
Q1) The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?
Q2) Private parties may choose not to solve an externality problem if the transaction costs are large enough.
A)True
B)False
Q3) If only a few people are affected by an externality,then it is likely that A)corrective taxes will provide the most efficient solution to the externality.
B)command-and-control regulation will provide the most efficient solution to the externality.
C)a private solution to the inefficiency will occur.
D)a private solution will be very difficult to negotiate.
Q4) Refer to Figure 10-10.An increase in output from 120 units to 160 units would
A)move the market from a socially efficient outcome to a socially inefficient outcome.
B)increase the external cost per unit of output.
C)increase total economic well-being.
D)be an action of which a benevolent social planner would approve.
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Page 12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Even economists who advocate small government agree that national defense is a good that the government should provide.
A)True
B)False
Q2) 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.
Q3) Some advocates of antipoverty programs claim that fighting poverty is a public good.Describe why government intervention may be necessary to reduce poverty.
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Page 13
Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Refer to Table 12-2.If Mateo has taxable income of 165,000 dinar,his marginal tax rate is
A)16%.
B)24%.
C)34%.
D)36%.
Q2) An efficient tax system is one that imposes small
A)deadweight losses and administrative burdens.
B)marginal rates and deadweight losses.
C)administrative burdens and transfers of money.
D)marginal rates and transfers of money.
Q3) Refer to Table 12-2.If Mateo has taxable income of 165,000 dinar,his tax liability is A)23,800.
B)36,000.
C)45,000.
D)47,698.
Q4) A family's tax liability is the amount of money it owes in taxes.
A)True
B)False
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Refer to Table 13-8.What is the marginal cost of producing the fifth unit of output?
A)4
B)40
C)50
D)70
Q2) Accounting profit is greater than or equal to economic profit.
A)True
B)False
Q3) Refer to Table 13-8.What is the shape of the marginal cost curve for this firm?
A)constant
B)upward-sloping
C)downward-sloping
D)U-shaped
Q4) Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.
A)True
B)False
Q5) What are opportunity costs?How do explicit and implicit costs relate to opportunity costs?
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as
A)average revenue is greater than average total cost.
B)average revenue is equal to marginal cost.
C)marginal cost is greater than average total cost.
D)price is above or below marginal cost.
Q2) If identical firms that remain in a competitive market over the long run make zero economic profit,why do these firms choose to remain in the market?
Q3) Assume a firm in a competitive industry is producing 800 units of output,and it sells each unit for $6.Its average total cost is $4.Its profit is
A)$-1,600.
B)$1,600.
C)$3,200.
D)$8,000.
Q4) When a profit-maximizing firm in a competitive market experiences rising prices,it will respond with an increase in production.
A)True
B)False
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Page 16
Chapter 15: Monopoly
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Sample Questions
Q1) In order for antitrust laws to raise social welfare,the government must
A)disallow synergy benefits from accruing to monopolists.
B)disallow any mergers from taking place.
C)be able to determine which mergers are desirable and which are not.
D)always attempt to keep markets in their most competitive form.
Q2) The fundamental source of monopoly power is
A)barriers to entry.
B)profit.
C)decreasing average total cost.
D)a product without close substitutes.
Q3) Refer to Figure 15-3.The average total cost curve for a monopoly firm is depicted by curve
A)A.
B)B.
C)C.
D)D.
Q4) The fundamental cause of monopolies is barriers to entry.
A)True
B)False
Q5) Give some examples of the benefits and costs of antitrust laws.
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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) Entry of firms in a monopolistically competitive industry is characterized by two externalities.List them and briefly describe how consumers and existing firms are influenced by them.
Q2) When monopolistically competitive firms advertise,in the long run
A)they will still earn zero economic profit.
B)they can earn positive economic profit by increasing market share.
C)the market price must fall.
D)the market price must rise.
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.
Q4) A downward-sloping demand curve
A)is a feature of all monopolistically competitive firms.
B)means that the firm in question will never experience a zero profit.
C)causes marginal revenue to exceed price.
D)prohibits firms from earning positive economic profits in the long run.
Page 18
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Chapter 17: Oligopoly
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Q1) Describe the source of tension between cooperation and self-interest in a market characterized by oligopoly.Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels.
Q2) In the game in which two oil companies own adjacent oil fields,the companies will not use the oil efficiently because
A)neither company has a dominant strategy in the game.
B)the companies collude and produce a quantity of oil that is less than the socially-efficient quantity.
C)the pool from which they recover the oil is a common resource.
D)the pool from which they recover the oil is not large enough to allow both companies to earn a positive profit.
Q3) Outline the purpose of antitrust laws.What do they accomplish?
Q4) In studying oligopolistic markets,economists assume that
A)there is no conflict or tension between cooperation and self-interest.
B)it is easy for a group of firms to cooperate and thereby establish and maintain a monopoly outcome.
C)each oligopolist cares only about its own profit.
D)strategic decisions do not play a role in such markets.
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Page 19
Chapter 18: The Market for the Factors of Production
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Sample Questions
Q1) Which of the following would shift a market labor supply curve to the right?
A)an increase in the price of output
B)an increase in immigration
C)a labor-saving technological change
D)a decrease in the wage rate
Q2) Refer to Figure 18-8.Which of the following is a possible explanation of the shift of the labor-demand curve from D<sub>1</sub> to D<sub>2</sub>?
A)The wage earned by automobile workers increased.
B)The price of automobiles increased.
C)The opportunity cost of leisure,as perceived by automobile workers,decreased.
D)Large segments of the population changed their tastes regarding leisure versus work.
Q3) An increase in the output price will increase the firm's demand for labor,all else equal.
A)True
B)False
Q4) Land,labor,and capital are examples of factors of production.
A)True
B)False
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Page 20
Chapter 19: Earnings and Discrimination
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Q1) Some discriminatory hiring practices can be expected,even if markets are competitive,as a result of
A)unrestricted entry and exit in markets.
B)lower costs of hiring.
C)a perfectly elastic market demand.
D)customer preferences.
Q2) Workers whose skills become obsolete as a result of technological change are often paid a lower wage as a result of
A)natural ability.
B)geographic location of employment.
C)chance.
D)work effort.
Q3) A difference in wages between a highly-educated worker and a less-educated worker
A)may be due to a difference in the amounts of human capital between the workers..
B)may be a signal that the market is indifferent to a worker's level of human capital.
C)is considered unfair by economists.
D)is considered unfair by everyone.
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21
Chapter 20: Income Inequality and Poverty
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Q1) Liberalism suggests that public policies should aim to
A)maximize the sum of utility of everyone in society.
B)maximize the well-being of the average person in society.
C)maximize the well-being of the worst-off person in society.
D)minimize the difference between the utility of the best-off person in the society and the utility of the worst-off person in society.
Q2) Diminishing marginal utility suggests that
A)more is always preferred to less.
B)the well-being of society is maximized when the distribution of income is equal.
C)the poor are less efficient at spending money than the rich.
D)the poor receive more satisfaction from the last dollar spent than the rich.
Q3) Refer to Figure 20-5.An effective minimum wage would be set at a level
A)above W<sub>o</sub>,and employment would rise above Q<sub>o</sub>.
B)above W<sub>o</sub>,and employment would fall below Q<sub>o</sub>.
C)below W<sub>o</sub>,and employment would rise above Q<sub>o</sub>.
D)below W<sub>o</sub>,and employment would fall below Q<sub>o</sub>.
Q4) What is meant by a perfectly equal distribution of income?
Use a graph to depict such a situation.
Q5) Explain the relationship between labor earnings and the distribution of income.
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Chapter 21: The Theory of Consumer Choice
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Q1) Evaluate the following statement,"Warren Buffet is the second richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."
Q2) If goods A and B are perfect substitutes,then the marginal rate of substitution of good A for good B is constant.
A)True
B)False
Q3) The goal of the consumer is to
A)maximize utility.
B)be on the highest indifference curve.
C)maximize satisfaction.
D)All of the above are the goals of the consumer.
Q4) The opportunity cost of current household consumption is the A)wage rate.
B)market interest rate.
C)price of the goods consumed.
D)explicit cost of consumption.
Q5) For a typical consumer,most indifference curves are bowed inward. A)True B)False
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Chapter 22: Frontiers of Microeconomics
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Q1) Which of the following is an example of asymmetric information?
A)When someone is applying for a job,the employer checks references to determine the previous work habits of the applicant.
B)When an employee purchases group life insurance without taking a physical exam,she knows more about her health than does the insurance company.
C)When someone is considering buying a used car from a dealership,the potential buyer requests documentation of the repair history of the car.
D)All of the above are correct.
Q2) Refer to Table 22-8.The table shows the preferences of four types of voters over four possible outcomes: A,B,C,D.In addition,the table shows the percentage of voters of each type.Based on this information,which of the following statements is false?
A)Outcome D is preferred to outcome C overall.
B)Outcome C is preferred to outcome B overall.
C)Outcome B is preferred to outcome D overall.
D)Outcome D is preferred to outcome A overall.
Q3) How have insights from the field of psychology influenced the thinking of economists in recent years?
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Chapter 23: Measuring a Nations Income
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Q1) 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?
Q2) Sally purchases a classic 1964 car she saw for sale on someone's lawn.She then purchases some new parts and spends 120 hours refurbishing the car which she keeps.Which of the following is included in GDP?
A)the amount she paid to buy the car
B)the amount she paid to buy new parts
C)the value of her time repairing the car
D)All of the above are included.
Q3) Transactions involving items produced in the past,such as the sale of a 5-year-old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale,are
A)included in current GDP because GDP measures the value of all goods and services sold in the current year.
B)included in current GDP but valued at their original prices.
C)not included in current GDP because it is difficult to determine their value.
D)not included in current GDP because GDP only measures the value of goods and services produced in the current year.
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25
Chapter 24: Measuring the Cost of Living
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Q1) Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?
A)80 to 100
B)100 to 120
C)150 to 170
D)All of these changes produce the same rate of inflation.
Q2) In the basket of goods that is used to compute the consumer price index,the three largest categories of consumer spending are
A)housing,transportation,and recreation.
B)housing,transportation,and food & beverages.
C)housing,food & beverages,and education & communication.
D)housing,medical care,and education & communication.
Q3) If the nominal interest rate is 8 percent and the rate of inflation is 3 percent,then the real interest rate is
A)-5 percent.
B)1.67 percent.
C)5 percent.
D)11 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) Which of the following statements is true?
A)Natural resources per worker influence productivity only when those natural resources are renewable.
B)The prices of most natural resources are stable or falling relative to other prices.
C)Technology requires greater use of natural resources.
D)The terms human capital and technological knowledge are used interchangeably.
Q2) Which of the following is correct?
A)Over the last 100 years Japan had a higher average growth rate than the United States.It follows that,today,the standard of living in Japan is higher than in the United States.
B)The typical person in Bangladesh today has about twice the real income of a typical American 100 years ago.
C)The typical citizen of China today has about one-half as much real income as the typical citizen of America today.
D)None of the above is correct.
Q3) In addition to investment in physical and human capital,what other public policies might a country adopt to increase productivity?
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Chapter 26: Saving,investment,and the Financial System
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Q1) A mutual fund
A)is a financial institution that stands between savers and borrowers.
B)is a financial intermediary.
C)allows people with small amounts of money to diversify their holdings.
D)All of the above are correct.
Q2) The slope of the demand for loanable funds curve represents the
A)positive relation between the real interest rate and investment.
B)negative relation between the real interest rate and investment.
C)positive relation between the real interest rate and saving.
D)negative relation between the real interest rate and saving.
Q3) If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,
A)there is a surplus and the interest rate is above the equilibrium level.
B)there is a surplus and the interest rate is below the equilibrium level.
C)there is a shortage and the interest rate is above the equilibrium level.
D)there is a shortage and the interest rate is below the equilibrium level.
Q4) When an economy's government goes from running a budget deficit to running a budget surplus,the economy's long-run growth prospects are improved.
A)True
B)False
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Chapter 27: The Basic Tools of Finance
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Q1) Give an example of adverse selection and an example of moral hazard using homeowners insurance.
Q2) The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.
A)True
B)False
Q3) Historically the return on stocks has been higher than the return on bonds.In part this reflects the higher risk from holding stock.
A)True
B)False
Q4) If the efficient market hypothesis is correct,then
A)index funds should typically beat managed funds,and usually do.
B)index fund should typically beat managed funds,but usually do not.
C)mutual funds should typically beat index funds,and usually do.
D)mutual funds should typically beat index funds,but usually do not.
Q5) What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.
Q6) 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) The main reason for Islamic banks suffering as a result of the 2008 financial crisis was:
A)Losing money on the derivatives market.
B)Losing money on toxic debt.
C)The downturn in the economy.
D)Loss of confidence in the banking system.
Q2) Which of the following statements is not a key difference between Islamic and conventional banks.?
A)A conventional bank aims to maximize profits for the shareholders and provide adequate returns to depositors.
B)Conventional bank financing is interest orientated and both fixed and variable rates can be charged for the use of money.
C)In conventional banking speculative ventures can be.and are undertaken.
D)In conventional banking depositors gain interest and a guarantee of principal repayment.
Q3) While Islamic banks cannot charge interest on loans,both Islamic and conventional banks pay interest on savings accounts.
A)True
B)False
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Chapter 29: Unemployment
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Q1) The labor-force participation rate measures the percentage of the
A)total adult population that is in the labor force.
B)total adult population that is employed.
C)labor force that is employed.
D)labor force that is either employed or unemployed.
Q2) 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.
Q3) There are always some workers without jobs,even when the overall economy is doing well.
A)True
B)False
Q4) More than one-third of the unemployed are recent entrants into the labor force.
A)True
B)False
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Chapter 30: The Monetary System
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Q1) The discount rate is the interest rate that
A)banks charge one another for loans.
B)banks charge the Fed for loans.
C)the Fed charges banks for loans.
D)the Fed charges Congress for loans.
Q2) Explain how each of the following changes the money supply.
a.the Fed buys bonds
b.the Fed auctions credit
c.the Fed raises the discount rate
d.the Fed raises the reserve requirement
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.
Q4) Roundabout trade decreases production.
A)True
B)False
Q5) What is meant by the term "lender of last resort?
" In what circumstances might the Fed be a lender of last resort?
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Chapter 31: Money Growth and Inflation
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Q1) Higher inflation makes relative prices
A)more variable,making it more likely that resources will be allocated to their best use.
B)more variable,making it less likely that resources will be allocated to their best use.
C)less variable,making it more likely that resources will be allocated to their best use.
D)less variable,making it less likely that resources will be allocated to their best use.
Q2) On its web site,your bank posts the interest rates it is paying on savings accounts.Those posted rates
A)and a price index are both real variables.
B)and a price index are both nominal variables.
C)are real variables,and a price index is a nominal variable.
D)are nominal variables,and a price index is a real variable
Q3) Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if:
a.the Fed increases the money supply.
b.people decide to demand less money at each value of money.
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Chapter 32: Open-Economy Macroeconomic Models
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Q1) An Egyptian.firm opens a factory that produces camping equipment in Estonia.
A)This increases Egyptian net capital outflow and decreases Estonian net capital outflow.
B)This decreases Egyptian net capital outflow and increases Estonian net capital outflow.
C)This increases only Egyptian net capital outflow.
D)This increases only Estonian net capital outflow.
Q2) A Swiss watchmaker opens a factory in the United States.This is an example of Swiss A)exports.
B)imports.
C)foreign portfolio investment.
D)foreign direct investment.
Q3) Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents. A)True
B)False
Q4) Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.
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Chapter 33: A Macroeconomic Theory of the Open Economy
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Q1) Suppose that the Turkish government budget deficit increases.What curves in the open-economy macroeconomic model shift?
Explain why each curve shifts the direction it does.
Q2) A trade policy is a government policy
A)directed toward the goal of improving the tradeoff between equity and efficiency. B)that directly influences the quantity of goods and services that a country imports or exports.
C)intended to exploit the tradeoff between inflation and unemployment by altering the budget deficit.
D)concerning employment laws.
Q3) The key determinant of net capital outflow is the real interest rate.
A)True
B)False
Q4) The value of net exports equals the value of
A)national saving.
B)public saving.
C)national saving - net capital outflow.
D)national saving - domestic investment.
Q5) What effect do protectionist policies have on the trade deficit?
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Chapter 34: Aggregate Demand and Aggregate Supply
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Q1) Which of the following is correct?
A)Real GDP is the variable most commonly used to measure short-run economic fluctuations.These fluctuations can be predicted with some accuracy.
B)Real GDP is the variable most commonly used to measure short-run economic fluctuations.It is almost impossible to predict these fluctuations with much accuracy.
C)Nominal GDP is the variable most commonly used to measure short-run economic fluctuations.These fluctuations can be predicted with some accuracy.
D)Nominal GDP is the variable most commonly used to measure short-run economic fluctuations.It is almost impossible to predict these fluctuations with much accuracy.
Q2) Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left. A)True
B)False
Q3) Technological progress shifts the long-run aggregate supply curve to the right. 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) A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that,while those policies obviously work well in practice,they are not well understood on a theoretical level.
A)True
B)False
Q2) Fiscal policy affects the economy
A)only in the short run.
B)only in the long run.
C)in both the short and long run.
D)in neither the short nor the long run.
Q3) In the short run,a decrease in the money supply causes interest rates to
A)increase,and aggregate demand to shift right.
B)increase,and aggregate demand to shift left.
C)decrease,and aggregate demand to shift right.
D)decrease,and aggregate demand to shift left.
Q4) Other things the same,an increase in taxes shifts aggregate demand to the left.In the short run this makes output fall which makes the interest rate rise.
A)True
B)False
Page 37
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Chapter 36: The Short-Run Trade-Off Between Inflation and Unemployment
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Q1) In his famous article published in an economics journal in 1958,a.W.Phillips
A)used data for the United States to show a negative relationship between the rate of change of the U.S.consumer price index and the U.S.unemployment rate.
B)used data for the United States to show a negative relationship between the rate of change of wages in the U.S.and the U.S.unemployment rate.
C)used data for the United Kingdom to show a negative relationship between the rate of change of the U.K.consumer price index and the U.K.unemployment rate.
D)used data for the United Kingdom to show a negative relationship between the rate of change of wages in the U.K.and the U.K.unemployment rate.
Q2) 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.
Q3) In the long run what primarily determines the natural rate of unemployment?
In the long run what primarily determines the inflation rate?
How does this relate to the classical dichotomy?
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Chapter 37: Six Debates Over Macroeconomic Policy
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Q1) Why might government expenditures be more appropriate than tax cuts to counter recessions?
Is there any evidence for this thinking?
Q2) Means-tested programs tend to favor
A)those with high income as would a consumption tax.
B)those with high income while a consumption tax would favor those with low income.
C)those with low income as would a consumption tax.
D)those with low income while a consumption tax would favor those with high income.
Q3) Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.
A)True
B)False
Q4) 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
Q5) Explain how it is possible for the government debt to grow forever.
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