Chapter 1: What Is Economics?
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Q1) The above figure reveals
A) no relationship between household income and average household expenditure on automobiles.
B) that as household income increases the average household expenditure on automobiles decreases.
C) that as household income increases the average household expenditure on automobiles increases.
D) all of the above are possible.
Answer: C
Q2) Using the above figure, the origin is at which point?
A) point a
B) point b
C) point c
D) None of the points in the figure is the origin.
Answer: B
Q3) In the above diagram, draw a straight line with a slope of zero.
Answer: 11ea1607_d9fc_158e_ba9d_8387a731dc0e_TB3035_00 A horizontal line has a slope of zero. The figure above shows a horizontal line with a slope of zero.
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Chapter 3: Demand and Supply
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Q1) The "income effect" in the market for aspirin means that
A) aspirin are generally taken by people with higher than average incomes.
B) a decrease in the price of a substitute good like acetaminophen will make aspirin takers feel a little poorer than they were before.
C) an increase in the price of aspirin will reduce the total purchasing power of aspirin takers, making them able to afford fewer aspirin.
D) an increase in the price of aspirin will cause headache sufferers to look for a lower priced remedy.
Answer: C
Q2) Using the above figure, suppose that roses are a normal good. If incomes decrease while simultaneously there is an increase in the price of the resources used to produce roses, then
A) the price will definitely increase above $25 per dozen roses.
B) the quantity will definitely decrease below 10 dozen roses.
C) the price will definitely decrease below $25 per dozen roses.
D) we cannot tell what will happen to equilibrium quantity.
Answer: B
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Chapter 4: Measuring GDP and Economic Growth
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Q1) Net exports of goods and services equal the A) exports of goods and services divided by the imports of goods and services. B) exports of goods and services plus the imports of goods and services. C) exports of goods and services minus the imports of goods and services. D) imports of goods and services minus the exports of goods and services.
Q2) What must be done to net domestic product at factor cost in order to transform it to gross domestic product? Explain why these adjustments are necessary.
Q3) In the above figure, a trough is at point ________ and a peak is at point
A) a; b
B) b; c
C) b; a
D) d; c
Q4) "If country A has a higher level of real GDP per person than country B, then people in Country A must enjoy a higher standard of economic welfare than people in Country B." Is this statement true or false and explain your answer.
Q5) What is the relationship between actual and potential real GDP?
Q6) How do firms and households interact within the context of the circular flow model?
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Chapter 5: Monitoring Jobs and Inflation
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Q1) Suppose the country of Tiny Town decided to open its borders to free trade. As a result, a number of its workers lost their jobs to international competition and can't find new jobs because their skills don't match what is required for job openings. The workers who lost their jobs and searched for new ones are best be considered part of
A) frictional unemployment.
B) structural unemployment
C) cyclical unemployment.
D) discouraged workers.
Q2) "The bias in the CPI distorts private contracts because a future payment that is linked to the CPI will be raised above the true increase in the price level." Is the previous sentence true or false?
Q3) Recessions and expansions affect most strongly which type of unemployment?
A) frictional unemployment
B) structural unemployment
C) cyclical unemployment
D) seasonal unemployment
Q4) What is the definition of the unemployment rate? How are part-time workers and discouraged workers treated when calculating the unemployment rate?
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Chapter 6: Economic Growth
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Q1) An increase in saving that leads to more capital accumulation ________ labor productivity.
A) increases
B) does not change
C) decreases
D) probably changes but in an ambiguous direction
Q2) If the price level rises relative to the money wage rate, firms ________ the quantity of labor they demand and workers ________ the quantity of labor they supply.
A) increase; increase B) increase; decrease
C) decrease; increase D) decrease; decrease
Q3) "According to the neoclassical growth theory, national incentives to save, invest, accumulate human capital, and develop new technology influence the country's growth rate of real GDP." Comment on the accuracy of the previous statement.
Q4) How has the U.S. growth experience compared to that of Central Europe and Africa? How has compared to the recent experience of Asian nations such as Hong Kong and Singapore.
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Chapter 7: Finance, Saving, and Investment
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Q1) If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)
A) 0.3 percent.
B) 8.6 percent.
C) 6.3 percent.
D) 9.9 percent.
Q2) The term capital, as used in macroeconomics, refers to
A) the amount of money that someone can invest in a new venture.
B) the amount of money a firm can raise in the stock market.
C) physical capital.
D) All of the above answers are correct.
Q3) Which of the following is FALSE about saving?
A) Saving adds to wealth.
B) Income left after paying taxes can either be consumed or saved.
C) Saving equals wealth minus consumption expenditures.
D) Saving is the source of funds used to finance investment.
Q4) Expected profit and the real interest rate affect investment decisions.
A)True
B)False
Q5) How does the real interest affect households' decisions about saving?
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Chapter 8: Money, the Price Level, and Inflation
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Q1) Which of the following is part of M2?
A) checks
B) credit cards
C) currency held inside a bank
D) none of these are part of M1 or M2
Q2) If the price level rises, the quantity of
A) nominal money people demand increases.
B) real money people demand increases.
C) nominal money people demand decreases.
D) real money people demand decreases.
Q3) The Federal Open Market Committee (FOMC)is composed of
A) representatives from the governors of all 50 states.
B) Presidents of 5 Federal Reserve regional banks and the Board of Governors.
C) the 12 Presidents of the Federal Reserve regional banks.
D) the Board of Governors, the Vice-President of the United States, and the Secretary of Treasury for the United States.
Q4) How does a currency drain affect the money multiplier?
Q5) What is barter? What is a double coincidence of wants? How does the existence of money affect barter?
Q6) How do banks create liquidity?
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) According to the law of supply in the foreign exchange market, when the U.S. exchange rate rises, the quantity of U.S. dollars supplied will decrease.
A)True
B)False
Q2) Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can
A) buy dollars.
B) sell dollars.
C) attempt to freeze all sales of dollars.
D) any of the above actions could take place.
Q3) If a country's central bank does not intervene in the foreign exchange market, the country has
A) a crawling peg exchange rate policy.
B) a fixed exchange rate policy.
C) a flexible exchange rate policy.
D) no exchange rate policy.
Q4) In the figure above, illustrate the effect of an increase in the U.S. interest rate. What is the effect on the exchange rate?
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) The aggregate demand curve shows the ________ relationship between the price level and ________.
A) positive; the quantity of real GDP demanded
B) negative; aggregate labor demanded
C) positive; aggregate labor demand
D) negative; the quantity of real GDP demanded
Q2) Which of the following shifts the aggregate demand curve rightward?
A) a decrease in consumption
B) an increase in investment
C) a decrease in net exports
D) a decrease in government expenditure on goods and services
Q3) The economy is in its short run equilibrium at the point where the
A) price level is stable.
B) SAS curve intersects the LAS curve.
C) AD curve intersects the LAS curve.
D) AD curve intersects the SAS curve.
Q4) During an above-full-employment equilibrium, actual GDP is greater than potential GDP.
A)True
B)False
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Chapter 11: Expenditure Multipliers
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Q1) In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. What is the unplanned inventory change when GDP is equal to $400?
A) $26
B) -$26
C) $5
D) -$5
Q2) An economy has no imports and no taxes. The marginal propensity to save is 0.2. The multiplier is ________ so a ________ increase in autonomous expenditure increases equilibrium expenditure by $60 billion.
A) 1.25; $48 billion
B) 5; $12 billion
C) 10; $6 billion
D) None of the above answers are correct.
Q3) The multiplier effect is smallest
A) in the long run.
B) in the short run.
C) when the price level is fixed.
D) when the economy is in a recession.
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Chapter 12: The Business Cycle, Inflation, and Deflation
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Q1) In the Keynesian business cycle theory, business cycles begin with changes in A) inflation expectations.
B) consumer sentiment.
C) business confidence.
D) the public's expectations about Fed policies.
Q2) Which of the following could NOT start a demand-pull inflation?
A) increases in government expenditure
B) increases in net exports
C) increases in oil prices
D) increases in the quantity of money
Q3) In the above figure, suppose that the economy is at point A when foreign countries begin an expansion and buy more U.S.-made goods. In the short run, this change creates a movement to point ________ and an eventual increase in ________.
A) B; money wage rates
B) D; the natural unemployment rate
C) B; the natural unemployment rate
D) D; money wage rates
Q4) What was the U.S. experience with demand pull inflation during the 1960s and early 1970s?
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Chapter 13: Fiscal Policy
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Q1) In 2014, the federal government of Happy Isle had tax revenues of $1 million, and spent $500,000 on transfer payments, $250,000 on goods and services and $300,000 on debt interest. In 2014, the government of Happy Isle had a ________.
A) balanced budget
B) budget deficit of $50,000
C) budget surplus of $50,000
D) budget deficit of $1,050,000
Q2) According to the Laffer Curve, when tax rates are low, there is ________relationship between them and tax revenue.
A) a positive
B) a negative
C) sometimes a positive, sometimes a negative
D) an indeterminate
Q3) An example of automatic fiscal policy is when
A) tax revenues decrease as real GDP decreases.
B) Congress passes a law that raises tax rates.
C) Congress decides to cut government expenditure.
D) the president drafts a bill to reduce defense spending.
Q4) What is fiscal policy and what are its purposes?
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Chapter 14: Monetary Policy
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Q1) To lower the federal funds rate, the Federal Reserve should A) buy government securities.
B) raise the Treasury bill rate.
C) raise the exchange rate.
D) decrease bank reserves.
Q2) Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should A) lower the federal funds rate.
B) raise the federal funds rate.
C) increase the government's budget deficit.
D) decrease the government's budget deficit.
Q3) When the Federal Reserve fights inflation via open market operations, the supply of reserves curve shifts ________ and the supply of money curve shifts ________.
A) leftward; leftward
B) leftward; rightward
C) rightward; leftward
D) rightward; rightward
Q4) Explain the ripple effects of a sale of securities in an open market operation.
Q5) Why does the Fed pursue price stability as its ultimate goal?
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Chapter 15: International Trade Policy
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Q1) In the figure above, with the tariff the United States imports ________ million shirts per year.
A) 24
B) 8
C) 32
D) 16
Q2) Which of the following statements concerning tariffs is NOT true?
A) A tariff results in a loss for domestic consumers of the good.
B) A tariff creates revenue for the government.
C) A tariff decreases international trade.
D) A tariff leaves the price of imports unchanged.
Q3) Most economists agree that valid reasons for protecting trade include which of the following?
I.the economies of scale argument
II.the saving jobs argument
III.the protection of high wages argument
A) I only
B) I and II
C) I and III
D) None of the reasons are valid.
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